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Petroleum E&P Law Key Highlights

January 31, 2017

 

 

After much anticipation and more than 6 years of deliberations and iterations, the Petroleum (Exploration and Production) Bill was finally passed by Parliament and became law (Act 919) on August 4, 2016. It replaces the Petroleum (Exploration and Production) Law of 1982 (Act 84), and is on the quest to enshrine basic rules of transparency, which not only ensures prudent management of the sector, but also encourages investment by the creation of certainty in the acquisition of petroleum rights.

 

Accountability & Promoting Investment in the Sector

 

One of the many anticipated provisions of the then Bill was its quest to establish an open and transparent bidding process for the allocation of petroleum licenses/rights. Although Act 84 included options for competitive bidding, it left ample discretion for the Minister to determine its use, the new law seeks to make a competitive bidding process a necessary feature in the license acquisition process. 

 

The new law mandates the creation of an open competitive bidding process for the allocation of petroleum rights. In particular, section 10(3) of the 2016 Petroleum Exploration and Production Act states that “A petroleum agreement shall only be entered into after an open, transparent and competitive public tender process.” Section 10(4) of the same however, does leave provision for the Minister of Energy to forego this provision under certain "stated" circumstances, although these circumstances have yet to be defined.

 

Nevertheless, it is clear, and based on recent communications from the Ministry and other State agencies (i.e., the Petroleum Commission), that there is real political will to bring this provision to fruition. In various communications with the public, the Government has reiterated its plans on the creation of a detailed licensing process. In a recent press statement, the Vice President detailed plans to establish a technical committee to advice the Petroleum Commission on the licensing process and the establishment of a proposed competitive bidding system.

 

Historically, petroleum rights/licenses have been awarded at the discretion of the Minister, although Parliament is still ultimately charged with ratifying any such contractual arrangements. The current, less competitive bidding environment has been faulted for its lack of transparency during the award process. This lack of transparency has led the inability of the State to effectively determine the technical and financial capabilities of the awardees. Such an environment has attracted many smaller, independent entities that often have little technical capacity or financial backing to sustain long drawn-out exploration work programs, whereas technically competent players with more resources can sustain multiple drilling programs, thus, increasing the chances of additional petroleum find. Moreover, the certainty built around a process which is less discretionary but administrative in nature, has the tendency to encourage more investment, because measures like these decrease the political/financial risks associated with the bidding process.

 

Minimum Periods and Work Obligation Implications

 

The Act (919) builds on the 'minimum work obligations' introduced in Act 84, and commits all license holders to stricter work obligations and clear timelines.

 

The total exploration phase shall not be longer than seven years as stipulated, within each seven year frame are 'work periods' - work periods cannot be extended more than three times within the initial seven year exploration phase. Each work phase must be approved by the Petroleum Commission (PC) upon adequate satisfaction of the work program agreed upon for that phase. 

 

Only the Minister is permitted to give approval for the extension of the 'Exploration Phase' beyond the initial seven years. And the Minister is only permitted to make such an extension when a discovery has been made, or any exceptional circumstances which may have rendered time-limits impossible. It is believed that such exceptional circumstances could be situations of 'force majeure,' albeit not clearly defined. However, extended exploration licenses may not include the entire initial acreage, and may be reduced to reflect only areas where discoveries were made, and the extended time would also be limited to "the time period necessary for the determination of whether the discovery [made was] a commercial discovery." 

 

Moreover, a contractor who fails to fulfill each minimum work obligations in whole or in part, during the exploration phase (a maximum of seven years) without an extension approval is required to pay the Ghana National Petroleum Corporation (GNPC) the amount required to complete the unfulfilled obligation.  

 

 

 

 

 

 

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