Oil exploration receives boost as House passes Petroleum Bill

After long and extensive consultations, the Petroleum (Exploration and Production) Bill, 2016, has been passed.

Parliament passed the bill yesterday, eight years after it had been mooted.

The bill seeks to repeal the Petroleum (Exploration and Production) Act, 1984 (PNDCL 84).

It has been passed to cater for petroleum activities offshore following Ghana’s discovery of oil and gas in commercial quantities.

It also seeks to provide for and ensure safe, secure, sustainable and efficient petroleum activities in order to achieve optimal long-term petroleum resource exploitation and utilisation for the benefit and welfare of the people of Ghana.

It has clauses that deal with general principles for the conduct of exploration, development and production of petroleum.

There are also provisions regarding area management, reconnaissance licences and petroleum agreements.

The bill introduces new fiscal elements, in addition to those specified under sections 19 and 20 of PNDCL 84. 

It provides for the new fiscal regime, which includes bonus payments.

It further seeks to increase the minimum carried interest of the state in every petroleum agreement from the current 10 per cent to 15 per cent.

The bill also provides for a competitive public tendering process in the award of petroleum blocks. 

It also allows the Minister of Petroleum to undertake direct negotiations under two circumstances — where an area offered for a public tender does not become subject to a petroleum agreement and where the minister, in consultation with the Petroleum Commission, determines that direct negotiations will ensure the most efficient and optimal exploitation of petroleum in a particular area.

Committee's report

The bill was laid in Parliament on June 3, 2016 and the Speaker subsequently referred it to the Select Committee on Mines and Energy for consideration and report.

In its report to Parliament, the committee indicated that passage of the bill would assist the country to maximise benefits from its petroleum resources.

It stated that the bill had sufficient provisions to safeguard the environment and hold contractors accountable for any environmental damage arising out of petroleum operations.

According to the Minister of Petroleum, Mr Emmanuel Armah-Kofi Buah, the new development is a milestone in the offshore petroleum industry.

“This will go a long way to further strengthen Ghana’s oil and gas industry,” an elated Mr Buah told the Daily Graphic in an interview hours after the passage of the bill.

Background

The petroleum industry in Ghana entered a new phase in its development with the discovery of commercial quantities of oil and gas in deepwater offshore Ghana. 

That phase emerged with challenges as the country moved into the actual development, production and utilisation of its oil and gas resources. 

The challenges included financial, environmental and ensuring local content and participation in the petroleum industry.

According to Mr Buah, although the Petroleum (Exploration and Production) Law, 1986, PNDCL 84, made provision for aspects of offshore exploration, “it does not do so extensively, nor does it provide for the much-needed incentive for investment to achieve sustained interest in the industry by both local and foreign investors”.

He said it had become evident from the challenges that the current legal and regulatory framework governing the industry was not robust enough to counter the challenges. 

“The framework, therefore, has to be tightened up as a matter of urgency to adequately protect the interest of Ghana and ensure that maximum benefits are derived for this finite natural resource while creating certainty and transparency to sustain interest in the country’s basins,” Mr Buah pointed out.

Key highlights in the bill include management and exploitation of petroleum resources, conducive environment for investment, minimum work obligation during the exploration period, petroleum register, employment and training of Ghanaians.

“The overarching principle that the management of petroleum resources should be conducted in accordance with principles of good governance and transparency for the maximum benefit of Ghanaians is a theme that runs through this bill.

“It is expected that a contractor will develop and produce petroleum in accordance with international best practices to avoid waste and ensure the long-term recovery of our petroleum resources,” Mr Buah said.

Conducive environment for investment

He said the new legislation created an attractive environment for potential investors to participate in the sector by providing certainty and transparency in the ground rules for operations.

“Open, transparent and competitive public tender processes have been introduced to precede the entering into of a petroleum agreement. 

“This process, which exists under PNDCL 84, has been further expanded to include the requirement for the minister to publish an invitation to tender or an invitation for direct negotiations in the Gazette and at least two state-owned national newspapers or any other medium of public communication,” Mr Buah explained.

On the issue of minimum work obligation during the exploration period, he said the bill introduced an obligation to commit a contractor who failed to fulfil either in whole or in part the minimum work obligation agreed under a petroleum agreement during the exploration period to pay to the Ghana National Petroleum Corporation (GNPC) the amount required to complete the unfulfilled portion of the work programme for that working period.

Commenting on the concept of a petroleum register, he said the Petroleum Commission would be required under the law to establish and maintain a petroleum register of petroleum agreement, licences, permits and authorisations.

“The register shall be open to the public. This provision further deepens the law approach to transparency,” he said.

Employment and training of Ghanaians

The minister said the law imposed an obligation on persons carrying out petroleum activities to ensure that Ghanaian citizens with the requisite qualifications in categories and functions as prescribed were employed. 

“They are also to prepare and implement training programmes for Ghanaian citizens in all aspects of petroleum activities,” he noted.

Use of Ghanaian goods and services

According to Mr Buah, “persons engaged in petroleum activities shall acquire materials, equipment and consumer goods produced or provided for in the country by an indigenous Ghanaian company of similar quality and cost to foreign materials or goods”. 

“They are also required to contract local service providers to the extent that the services they provide are similar to those available on the international market.

“There is no doubt that this new law will have a positive impact on Ghana’s economy,” he added.

Source of revenue

He said the petroleum industry would be a significant source of revenue for the government in the form of royalties, income and capital gains tax, participating interest and bonuses. 

“The provisions of the law seek to consolidate these sources of revenue into law, rather than leave them to be a subject of negotiation in petroleum agreements.  

“Revenue so derived will support the nation’s industrialisation and growth strategies, while creating jobs for Ghanaians, thereby contributing significantly towards the alleviation of poverty in Ghana,” he explained.

He said the bill, which provided transparency and certainty, would also encourage increased investments by international oil companies, thereby leading to an increment in capital inflows.

“The provisions on local content and participation in petroleum activities, as well as a Local Content Fund, will lead to job creation and the building of indigenous capacity, which will enable the government to achieve its objective of ensuring that the nation’s petroleum resources are harnessed for the benefit of all Ghanaians and thus ultimately improve the standard of living of the ordinary citizen,” Mr Buah added.