70435 Report of the Legislative and Regulatory Advisor Ghana Hydrocarbon Regulatory Advisory Project Review of the Legislative and Regulatory Documents for the Oil and Gas Industry Ministry of Energy, Republic of Ghana 19th October to 17th November 2009 Final Report Page 1 Contents Contents 2 Introduction 3 Background 3 Current Petroleum Regime 4 Reform of the Petroleum Regime 5 Petroleum Policy 7 Views of the Minster for Energy 8 Review of Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) 9 Review of Amended Petroleum (Exploration and Production) Law, 1984 12 (PNDCL 84) Review of Draft Petroleum Upstream (Licensing) Regulation, 2009 14 Review of Draft Petroleum Upstream and Midstream (Exploration, 30 Development and Production Operations) Regulation, 2009 Comparison between Current and Proposed Amendments to the Laws 44 General Comment on Laws and Regulations 45 General Advice 45 Annexes 48 Final Report Page 2 Forward This work was undertaken by the Advisor for the Ministry of Energy of the Republic of Ghana under a contract from the World Bank. The work was undertaken at short notice and was regretfully interrupted in its concluding stages by unforeseen circumstances. The author regrets any delay in delivery of the Final Report, but wishes to emphasise that the bulk of the review was contained within the initial draft furnished to the Ministry of Energy in late November 2009. Michael McWalter Port Moresby 31st January 2010. Final Report Page 3 Report of the Legislative and Regulatory Advisor Ghana Hydrocarbon Regulatory Advisory Project Introduction This report documents the activities and findings the Legislative and Regulatory Advisor during his visits made between 19th October and 17th November 2009 to the Ministry of Energy of the Republic of Ghana. The purpose of the visits was to meet the officials of the Ministry of Energy in Accra and obtain a first-hand brief of the requirements of the Ministry for their review of their draft legislative and regulatory documents for the Ghana oil and gas industry. Background In June 2007, Ghana discovered commercial quantities of light crude oil with significant amount of associated natural gas in its offshore area. The discovered oil and gas lies in the Jubilee Field, which straddles the offshore Deepwater Tano and the Deepwater West Cape Three Points Block, and is located some 50 kilometres from the Ghanaian coast in water depths of between 1020 to 1720 metres. This has been followed by three more discoveries since 2008 at Odum, Mahogany Deep and Tweneboa. Whilst no particular Jubilee field data is known by the advisor, other than public information, it is thought that the field has significant recoverable oil resources. Four wells have penetrated oil-bearing sands with indicted net pay zones of the order of 43 metres. The field is purported to have an areal extent of about 79 square kilometres (19,500 acres). Based on simple analysis of this information and assuming a recovery factor of 200 barrels of oil per acre-foot of net pay rock volume, one can readily estimate that the field may be able to recover at least 500 million barrels of oil, making it clearly a significant find. Some public reports have stated that the field has proven (normally 90% confidence) recoverable reserves of as much as 800 million barrels of oil, and an upside possible (normally, just 10% confidence) recoverable reserves of as much as 3 billion barrels of oil. Using these estimates, one can calculate a Swanson’s Mean recoverable resource (most likely outcome) of 1.904 billion barrel and an estimated proven and probable (sometimes called 2P) recoverable resource (~50% confidence) of 1.549 billion barrels of oil. Development plans involve subsea completions of the wells, flow of the oil and gas through subsea flowlines to seabed manifolds and its conveyance to surface through risers to a moored floating production storage and offloading (FPSO) vessel capable of processing up to 120,000 barrels of oil per day. Offtake is planned to be by shuttle tankers sized at 1 million barrels crude oil capacity. Final Report Page 4 Based on the figure of 800 million barrels of recoverable oil, such a scheme could produce for 18 years at 120,000 barrels per day providing gross oil production valued at about US$ 2.2 billion per annum at a crude oil price of US$ 50 per barrel. This would raise the GDP by about 13% directly, and more with economic multiplier effects. Associated gas is reported to have been tested at a gas-to-oil ratio of 1,058 standard cubic feet per barrel of oil. Oil production of 120,000 barrels per day would therefore provide produced associated gas production of about 127 million standard cubic feet per day. If the gas is not required to be re-injected to provide reservoir pressure maintenance or enhanced oil recovery, the gas remaining after fuel-use may be transported by pipeline to a power plant. Assuming a gas heating value of 1,000 BTU per standard cubic foot, and the use of combined cycle gas turbines at 65% thermal efficiency, such a volume of gas could provide for a base load of 1,000 MW continuous electric power generation. Electricity generation in 2006 amounted to an aggregate total of 8.204 billion KWh, equivalent to a continuous load of 936 MW, much of it fuelled by expensive imported light oil. Natural gas could be readily used in those plants, which are capable of duel fuelling, saving an estimated importation of about 25,000 barrels of oil per day. Clearly, the production of oil and gas will create exciting opportunities for the Government and the people of Ghana. To optimise the benefit of having indigenous supplies of oil and gas, the Government of Ghana now has to effect an administrative and management transition with respect to its petroleum industry. It has to move from simply encouraging investment in exploration to that of managing petroleum production, the enormous values arising from such, and the wise utilisation of the produced oil and gas to drive economic development. The scheduled start-up of oil production from the Jubilee field will bring about many challenges, particularly the supervision and management of oil production, the protection of the environment, the mitigation of social impacts on affected populations, and the need to defend the economy against potential negative impacts arising from revenue volatility and the Dutch disease. The Current Petroleum Regime The existing upstream petroleum regime is defined by the following laws:  Petroleum (Exploration and Production) Law, 1984 (PNDC 1 Law 84)  Petroleum Income Tax Law, 1987, (PNDC Law 188)  Ghana National Petroleum Corporation Law, 1983 (PNDC Law 64) The upstream regime is augmented by the Ghana National Petroleum Corporation Model Petroleum Agreement, which provides the basis for the engagement of 1 PNDC is the Provisional National Defence Council established by Proclamation in 1981 Final Report Page 5 petroleum contractors. It is a tripartite agreement between the Government, the Ghana National Petroleum Company and the petroleum contractor. The downstream provisions are defined by:  National Petroleum Authority Act, 2005 (Act 691)  Public Utilities Regulatory Commission Act, 1998 (Act 538)  Energy Commission Act, 1998 (Act 541) In respect of natural gas, the Energy Commission has made certain Regulations and Rules:  Natural Gas Distribution and Sale (Standards of Performance) Regulations, 2007 (LI 1912)  Natural Gas Transmission Utility (Technical and Operational) Rules, 2007 (LI 1913)  Natural Gas Transmission Utility (Standards of Performance Regulation, 2008 (LI 1936) Reform of the Petroleum Regime The Government has sought to overhaul the petroleum industry regulatory regime in the light of significant sector developments. In 2008, a Bill was prepared and sent to the Parliament to establish an independent body - the Ghana Upstream Petroleum Authority - to regulate upstream and midstream petroleum industry activities. The Ghana Upstream Petroleum Authority Bill (GUPA) was prepared with a view to it superseding the Petroleum (Exploration and Production) Law, 1984 (PNDC Law 84). The Bill sought to embrace features of that Law, proposed draft amendments to it, and certain draft Regulations that had been prepared as were prescribed for by that Law. The GUPA was to have been a parallel combined upstream and midstream organisation to the existing National Petroleum Authority, which was established in 2005 to regulate, oversee and monitor the activities of the downstream petroleum industry. One of the primarily considerations was that the Ghana National Petroleum Company, formerly the Ghana National Petroleum Corporation (GNPC) had been monitoring and regulating petroleum operations for and on behalf of the Ministry of Energy 2 as a capable aide to the Ministry, though the Ministry has always retained full and absolute authority over petroleum operations. This placed the GNPC in a potential conflict of interest situation being both a de facto regulator, albeit on behalf of the Ministry, and a planned participant in the petroleum operations of the development of the Jubilee oil field and impending oil production. The role of GNPC is discussed further in Annex A: Authority of GNPC. 2 Source: Ghana Petroleum Authority Bill, Memorandum page iii Final Report Page 6 Also, the GNPC has been converted from being a statutory corporation to a limited liability company that may issue shares to the Republic or any other subscribing person, so it was perceptibly not quite so closely connected to the Government. With the advent of oil production, the Government has considered that the GNPC would take on a significantly enhanced role in the petroleum sector, which would involve its concentration on petroleum development and production matters, rather than just being an investment catalyst and partner of petroleum contractors in the exploration phase. It had been proposed that the GNPC should no longer provide advice to the Ministry of Energy, and that such a role would be placed in the hands of the new upstream and midstream petroleum authority – GUPA. In the absence of specific Regulations that are prescribed to be made in the Petroleum (Exploration and Production) Act, 1984 (PNDCL 84), the various Petroleum Agreements with petroleum contractors had also become unnecessarily voluminous and burdened with detailed definitions of the various aspects of the Ghana petroleum regime, which ought rightfully to have existed in subordinate legislation to the Act, as prescribed Regulations. The notion of having one comprehensive Bill to establish an upstream and midstream Petroleum Authority, consolidate legislation and embrace much needed Regulations was, however, one appropriate solution. The GUPA Bill significantly expanded upon the Petroleum (Exploration and Production) Act, 1984 (PNDCL 84) and had 192 Sections and just three Parts, though the Parts were nicely sub-divided under 26 thematic headings. The Bill certainly gives one the sense of being comprehensive. However, it perceptibly presents unnecessary sector administrative and regulatory detail to the Parliament permanently fixing in law some matters that may need to have more flexibility, and which might better be legislated for at lower levels of Government to provide for such. The GUPA Bill sought to repeal the Petroleum (Exploration and Production) Act, 1984 (PNDCL 84), but it substantially incorporated the provisions of the draft amendment to that Law which had already been prepared. Apparently, there has been a reconsideration by the Government of this strategy to have a so-called “walkthrough law� that encompasses the entire upstream and midstream petroleum sector, and which would have provided for a separate Government Authority to manage the upstream and midstream aspects of the sector. The initial reconsideration was to create a fully-integrated National Petroleum Authority to manage upstream, midstream and downstream petroleum industry activities. Accordingly, a new draft Bill to replace the Petroleum (Exploration and Production) Act, 1984 (PNDCL 84) was prepared encompassing the downstream aspects, such as crude oil refining, petroleum product transportation, distribution and sale as well as issues relating to pricing. It also covered natural gas processing, natural gas transportation, distribution and sales as well as pricing function of the Public Utilities Regulatory Commission and the Energy Commission as provide for under the Energy Commission Act. The new Bill was to provide for the establishment of the Ghana Gas Company, which was to take up the role of the Natural Gas Final Report Page 7 Transmission Utility envisaged under the Energy Commission Act. The new Bill was labelled the draft Petroleum Act, 2009. Further reconsideration has led to this approach being abandoned in favour of a disintegrated approach. The Ministry now wishes to effect essentially the same changes, but without recourse to delivering an integrated and comprehensive Bill to the Parliament. It is now proposed to appropriately amend the existing laws and make a series of regulations giving effect to the same measures as were proposed in preparing the draft Petroleum Act, 2009 (referenced above). This will enable many provisions to remain as Regulations or Rules, which may be readily modified to meet rapidly changing petroleum sector development circumstances. Accordingly, the component reforms have been unbundled back to their original elements. This now provides a series of documents that define the proposed new petroleum regime as follows:  Draft Amended Petroleum (Exploration and Production) Act, 1984 (PNDCL 84)  Draft Petroleum Upstream (Licensing) Regulations, 2009  Draft Petroleum Upstream and Midstream (Exploration, Development and Production Operations) Regulations, 2009  Draft Regulations to satisfy PNDC Law 84 Section 32 (1) (j) (Fiscal Regime)  Draft Amendments to the National petroleum Authority Act, 2005 (Act 691) Moreover, the reconsideration has given rise to the concept of not creating a new upstream and midstream authority, but rather transforming the current downstream- oriented National Petroleum Authority into a comprehensive authority covering all aspects of the petroleum industry: upstream, midstream and downstream. Petroleum Policy 3 The Government has stated in a draft National Energy Policy that it is committed to the sustained exploitation of the country’s oil and gas endowment and the judicious management of the oil and gas revenues for the overall benefit and welfare of all Ghanaians, present and future. Further, it is committed to increasing local value-added investments in the sector and the indigenisation of knowledge, expertise and technology. The Government intends to manage Ghana’s oil and gas resource endowment to ensure the sustainability in the reserves and of the environment though judicious exploitation and intensive exploration. It seeks to strengthen the regulatory agency for the regulation of all activities related to the upstream, midstream and downstream oil and gas industry in Ghana. 3 National Energy Policy (Final Draft) October 2009 Final Report Page 8 It intends to manage the oil and gas revenues transparently, to ensure equity for the benefit of present and future Ghanaians and to facilitate the use of oil and gas revenues to other sectors of the economy. Investments along the oil and gas value chain would be encouraged and periodic reviews of the terms and conditions of the model petroleum agreement and other regulations would be made to sustain interest in exploration and production. The active involvement of Ghanaians in the oil and gas industry would be pursued by optimising local content and participation as well as developing local capabilities. Natural gas utilisation would be maximised by prohibiting flaring and venting, and gas re-injection would only be allowed if it results in increased benefits to the associated oil production operations. Unwanted associated and non-associated natural gas would be assigned to the GNPC, or another national entity, and in partnership with the private sector funding would be sought to develop gas utilisation infrastructure. The development of viable petrochemical industries would be facilitated. Views of the Minister for Energy The Minister for Energy nicely summarised the Government’s petroleum sector regulatory strategy by saying that the Government wanted to have just one entity, which would be in overall charge of the petroleum industry, rather than having a multitude of different agencies of Government dealing with different, and possibly overlapping aspects. He said that this would be the Government’s starting point, and that if there was subsequently a need to spin-off any particular responsibility from the new integrated National Petroleum Authority, such could be considered based on its merits. The Minster said that the Ministry shall retain policy formulation, direction and supervision, and that the new integrated petroleum authority would manage the industry. The GNPC is to remain as a company which would be responsible for managing sector State participation interests, though its special relationship as an adviser to the Ministry would end. The new integrated National Petroleum Authority would become the principle adviser to the Ministry of Energy. The present advice sought by the Minister in this review was confirmation that these planned arrangements of the Government institutions for the management of the future petroleum industry of Ghana may be effective and wholesome, and that appropriate definition of responsibilities is made in accordance with the National Energy Policy. He asked that possible omissions in the prepared regulatory documentation be identified and that anything which did not seem reasonable, or which was not suitable, also be identified for discussion with the Ministry. The Minister also expressed his concern about the capacity development of the National Petroleum Authority given its much expanded responsibilities encompassing the upstream and midstream petroleum industry management functions. Final Report Page 9 Review of Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) A detailed section by section review of the Petroleum (Exploration and Production) Act, 1984 (PNDCL 84) was made details of which are contained in Annex B: Review of the Petroleum (Exploration and Production) Law, 1984 (PNDCL 84). The observations resulting from this review provided below. Observations S. 6 (1) Land is not defined in the Act and specifically no mention is made of the offshore area either as being land or some other designated sovereign part of the Republic of Ghana. S. 9 (3) Precisely what constitutes commerciality is not established. Commerciality strictly depends on the extent of profit that an enterprise wishes to make and to what degree the investor needs to earn values more than that required to recover his investment? Problems exist for the determination of the commerciality of natural gas, which fundamentally needs a market to obtain any commerciality, and time to develop that market, if no ready market already exists. S. 8 This section does not deal with the sale of the equity of a company; such matters are dealt with in Section 23 (16). S. 9 (5) With regards to the area of relinquishment around a non- commercial discovery, one might question whether should it be the entire geological structure in which the discovery has been made. There could yet be compartmentalisation within the same geological structure, or even deeper untested plays, which may be worthy of further exploration efforts. S. 13. It is not clear what constitutes a significant change of circumstances. It begs the question: change of circumstances of whom or what? Changes could be to one or more of the parties, or completely exogenous changes, such as a radical global change in crude oil pricing. S.19 The provision that a Contractor shall pay income tax in accordance with the law, except as provided in accordance with the terms of a petroleum agreement offers significant possibilities for tax avoidance, but equally offers the Republic the opportunity to incentivise marginal petroleum production operations by providing tax relief. S. 21 This provision avoids the common debate between the host nation and the contractor about ownership of assets used, but may force contractors to rent and hire equipment rather than purchase it. The juxtaposition of the words: purchase, installed and constructed may create some problems. One has to conjecture what may happens if an expensive down hole pressure gauge is rented and installed to Final Report Page 10 measure interference pressures in one well from another; would that then become a GNPC asset? It may not have been purchased, but it may have been installed. S 21 (3) The provision for the transfer of assets to GNPC does not apply to rented or leased items which are imported and re-exported, but oddly may apply to locally leased and or rented items. S. 23 (2) If all data and information is the property of the GNPC, one wonders how does any data and information about petroleum operations ever get to the Ministry? S 23 (3) Contractors and subcontractors are not permitted to retain data and information without the prior approval of the GNPC, but how will they be able to conduct their exploration evaluations, if they do not at least retain the data and information during the exploration period? Moreover, in these days of high speed data transmission, how is GNPC going be able to know what data and information has been transmitted to where and where it is kept? S. 23 (6) While the records and accounts are required to be maintained in Ghana, there is presumably nothing to prevent duplicate sets of records and account being kept outside of Ghana. S. 23 (16) There are two conditions for the prohibition of the transfer of shares in the Ghanaian incorporation, where such might:- a) give control to a third party, i.e. greater than a 50% interest, or b) enable a takeover of a shareholder, who owns 5% or greater interest - These do not seem to be compatible. Suppose there were two shareholders with 5% each and each was taken over by a third party, the third party would only have 10%; this would hardly constitute a controlling interest. It seems that the 5% limit is the key limitation here. I suppose a third party could acquire as many shareholders who each separately held 4% interests, up until the control limit. For instance the acquisition of twelve participants in petroleum agreement each with a 4% interests creating an overall interest for the third party of 48%, would seemingly be possible. If one more 4% interest were to be added there might be a 52% controlling interest. S.23 (18) Whilst the Law states that contractors and subcontractors are responsible for pollution and damage, what are their obligations to mitigate such through good oil field practise and sound environment management plans? Prevent is better than cure. S 24 (2) Whilst a contractor shall be permitted to export petroleum to which he is entitled under the terms of petroleum agreement, is there any domestic supply obligation or requirement? S. 31 (1) (d) The Cedis has been replaced by the Ghana Cedis at a conversion of 1: Ghana Cedis for 10,000 Cedis. The fines therefore represent the equivalent of just Final Report Page 11 Ghana Cedis 100. They will need to be increased to have any affect as a deterrent to breaches of the law. S. 33 Affiliate is defined as any shareholder of a contractor or subcontractor owning five per centum or more of the shares in the business of such contractor or sub-contractor or any entity which controls, is controlled by, or is under common control with, the contactor or subcontractor. This seems to indicate that a 5% ownership of a company by another company creates an affiliate relationship. This is not so. A 5% interest is an obvious minority stake in any enterprise and cannot lead to control, when 95% is held by other parties. S. 33 Crude oil is defined to include condensates and distillates obtained from natural gas, and indeed any hydrocarbon in liquid (and oddly solid) phase at normal atmospheric conditions. This is a clear demarcation of petroleum types based on material phase at ambient conditions. S. 33 Discovery is defined to mean petroleum not previously known to have existed, recovered at the surface in a flow measurable by conventional industry testing methods. This seemingly disallows the in situ testing by downhole wireline tools such a RFTs, SFTs and MDTs, which may be able to test the mobile connected fluid phase in the zone of interest of the well, conduct drawdown tests, establish hydrocarbon mobility and even obtain definitive reservoir fluid samples. The need for flow testing to surface is nowadays not always needed or required. S. 33 Production is not the extraction of petroleum; rather it is the recovery of petroleum. Extraction implies some overall process being applied to the hydrocarbon bearing rock, which is not the case. We might extract minerals from ores by subjecting them to processing in a mill, but we do not bring “petroleum ore� (petroleum reservoirs) to the surface and then extract the petroleum fluids from them by some bulk treatment. The petroleum fluids flow to the surface, where they are recovered. Deficiencies A well-designed petroleum law to govern the development of the upstream petroleum industry should have the following essential ingredients:  State ownership of the petroleum resources  Establishment by law of a single, independent government petroleum agency  The form of petroleum operations and who may undertake them  State participation requirement and provisions  Model contracts between the State and the companies  The ability to make regulations  The qualifications, rights and duties of contractors who conduct petroleum operations  The definition of key fiscal element and their terms, such as the taxation of profits, royalty payment, and production sharing  The treatment of imports, profits, and debts  Rights with regard to the disposal, sale and export of petroleum produced  Fiscal stability terms Final Report Page 12  Best practice environmental protection measures  International arbitration procedures  Local content requirements  Technology transfer requirements  Provisions for the training and employment of Nationals  Domestic supply obligations  Treatment of associated natural gas The following matters do not seem to be adequately dealt with. 1. What are the rules on the delimitation of blocks? 2. There is no provision for the graticulation of blocks. 3. To what geodetic datum should petroleum operations be mapped and carried out? 4. The law vests considerable responsibilities in the GNPC as the sole vehicle for exploration, development and production. This may have been appropriate at a time when the petroleum operations were confined to just exploration, but circumstances have now changed with discovery and impending oil production. 5. The Law perceptibly needs to be updated for the form of Government now prevailing with more appropriate references. The review of the Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) was followed by a review of the proposed amended Petroleum (Exploration and Production) Law, 1984 (PNDCL 84), which follows. Review of Amended Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) The amended Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) law provides as changes to the original law follows: In the amendment, the Minister now has the capacity to represent the Republic in the negotiations for and entry into petroleum agreements with contractors, but any such agreement is required to be ratified by the Parliament, and on such ratification shall become an exploration licence. Quite why there is the need to take every single petroleum agreement, and concomitantly every single petroleum exploration licence, to the Parliament, seems to indicate a lack of strength in the overall framework of the petroleum laws that define the Ghanaian petroleum regime. If the broad terms of the business are properly established in laws passed by the Parliament, there should not really be any need to bother Parliament on a repeated basis, unless there is too much flexibility within the terms of the petroleum agreement that may seriously affect the economic outcome for the Republic. Licences are to be required in respect of petroleum exploration, development and production operations to be granted by the National Petroleum Authority, notwithstanding the fact that petroleum agreements are still required between the contractor, the Republic and the GNPC. Final Report Page 13 The Secretary for Fuel and Power is re-designated as the Minister throughout the amended Law. The National Energy Board is re-designated as the National Petroleum Authority throughout the amended Law. A new section is added as Section 24, which provides that each contractor, sub- contractor and any person who performs a function, discharges a duty or exercise a power under the law shall take into account and give effect to the environmental principles prescribed by the Environmental Protection Agency Act, 1994 (Act 490), the Environmental Assessment Regulations, 1999 (LI 1652) and any other relevant legislation. This provides a comprehensive environmental compliance requirement on all stakeholders, including the National Petroleum Authority and the Minister. Section 31 of the original Act has been removed in its entirety. It had provided for the definition of offences against the Act. Whilst Section 32 remains and provide that in section 32 (y), the Minister may prescribe regulations for penalties for offence against the Regulations, there are now no provisions for offences against the Act itself. The original Act provides that: Any person who (a) undertakes petroleum operations otherwise than in accordance with the provisions of this Law; (b) unlawfully interferes with or obstructs the Corporation or a contactor or a sub-contactor or their agents or employees in the exercise of any right under this Law; (c) wilfuly obstructs, hinder or assaults any other person in the exercise of any right, power or in performance of any duty under this law; or (d) otherwise contravene any other provision of this law, - - shall be guilty of an offence. With the deletion of this section there seem not to be any offences capable of being made under the Act, though there may be offences under the Regulations, if so prescribed and made. It is recommended that Section 31 be reinserted into the amended law. In section 32, there is a legacy reference to the Secretary arising from the original Law; this should be amended the read: “Minister�. In the amended law, sections 33 to 36 are also deleted. Section 33 of the original Law provided the Interpretation, basically the definition of terms used in the Law. This should be reinserted to maintain clarity of the Law. Also, the transition provisions from the Minerals Act, 1962 to the Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) have been removed. They may Final Report Page 14 not be needed now as the Law has been on the statutes for sometime, but Section 34 (3) importantly provided for the repeal of the former Petroleum (Exploration and Production) Law, 1983 (PNDCL 68). One ponders whether the lack of such subsection now re-institutes that prior law? Review of Draft Petroleum Upstream (Licensing) Regulation, 2009 The original Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) does not use the concept of licensing at all. The main vehicle for making the arrangements for petroleum operations of contractors is the tripartite Petroleum Agreement entered into by the GNPC, the contractor and Republic. However, the amended Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) introduces the concept of licences in amended Section 2 (1). However, it does not elaborate the key features that would normally be expected in a licensing regime:  the types of licences available  how a person may apply for a licence;  the qualifications and eligibility to be an applicant for a licence;  the conditions of grant of a licence;  the rights and obligations of a licensee;  the duration of a licence;  the extension of a licence;  the termination of a licence; and  many other ancillary features. The matter of licences and licensing is not specifically scheduled in Section 32 (2) amongst the matters for which the Minister may prescribe regulations pursuant to the Law. There are general provisions, however, in Section 32 (1) whereby: “the Minister….. may make regulations prescribing any matters….necessary or convenient to be prescribed for carrying out or giving full effect to this Law�. Therefore, though not so specified, the Minister may so make regulations about licences and licensing, though it would be better to specify this most important matter in the list of matters contained in Section 32(2) by insertion of a new paragraph Section 32 (2) (z) to read: (z) the principles and provisions for licences, the types of licences, the qualifications of applicants for licences, the manner of application for licences, the conduct of licensing rounds the conditions of grant of licences, the obligations, duties and practises of licensees, the duration of licences and duration and conditions of renewals, the termination of licences, fees payable by licensees, and any other matter related to licences and licensees pursuant to this Law. I now review the specific provisions of the draft Petroleum Upstream (Licensing) Regulation, 2009 with reference to its Sections. The preamble states that the Regulations are made “in exercise of the power conferred on the Minister/NPA by section … of the PNDC Law 84/NPA Amendment Act….., 2009.� This introduces duplicity of origin, in that the Regulations are being made pursuant to two different laws with two different lines of authority. Moreover, the Final Report Page 15 PNDC Law 84 vests the power of making Regulations with the Secretary (now Minister), whereas the NPA Amendment Act 2009 vests the power of making Regulations with the Authority. Interestingly, the Authority is subject only to the policy direction of the Minister. It is specifically stated in Section 5 of the NPA Amendment Act, that the policy directions of the Minister shall not adversely affect or interfere with the independence of the Authority or the performance of its functions and exercise of it powers. Advice needs to be sought from the Legislative Counsel of the State as to whether the dual source of authority in Law for these Regulations is indeed permissible. Reviewing the draft Petroleum Upstream (Licensing) Regulation, 2009, it is pleasing to see that the Sections have been given titles indicating their content; this is good practice. Section 1: Participation of the Republic in petroleum activities It is stated that the Republic will participate in petroleum activity through the GNPC and that each licence shall specify the GNPC participating interest. This confirms the role of the GNPA as the participant in petroleum operations. Section 2: Interests of the Republic This specifies that there will be a minimum initial interest of 10% in each licence and that the interest will be a carried interest as regards exploration and development, i.e. the licensees will pay the costs of the initial interest for and on behalf of the Republic. As this is a regressive feature from a fiscal perspective, one has to countenance possibly marginally economic petroleum developments that may be made non- commercial as a result of this feature of the regime. Perceptibly, there might be some accommodation through the use of the provisions of Section 6 of the Petroleum Income Tax Law, 1987 which allows a Petroleum Agreement to make alternate arrangements to the chargeable tax of 50% of the chargeable income. In which case, the Republic’s interest may be fixed and terms of the Petroleum Agreement may provide tax adjustments for marginal fields. It is also possible that if such measures are not agreed in original petroleum agreements that there could be renegotiation of the petroleum agreement to make such provisions, but in such circumstances the petroleum agreement would have to be re-ratified by Parliament. Sometimes exploration operations may take place alongside either development and/or production operations to establish and search for new petroleum reservoirs adjacent to or deeper than the ones the subject of the current development and production. The operations of development may also be blended with certain production operations, and there may be difficulty in distinguishing one from the other. For instance, what happens when a planned development well fails to encounter the prognosed reservoir; might such a well be reclassified as a failed exploration well? Extended production tests (EPT), which may produce significant quantities of petroleum, are often conducted prior to formal field development and production. The distinction of a carry in exploration and development versus a paying interest in production operations therefore critically depend on the declaration of a commercial Final Report Page 16 discovery. There may need to be further definition of the terms to bring about more clarity to this. For instance, the Petroleum (Exploration and Production) Law, 1984 defines Production as meaning the extraction and disposal of petroleum, including development operations and all other works and services connected therewith. So, perceptibly in the case of an EPT, one might have Production, but it would be regarded as an exploration and development operation for the purpose of the Republic’s interest. Section 3: Transfer of assets to the Ghana National Petroleum Company This provisions echoes and somewhat duplicates the provisions of Section 21 of the Petroleum (Exploration and Production) Law, 1984 and its draft amendment with the replacement of the words Petroleum Agreement by the word Licence. As the amendment to the Law makes provisions for licences to be granted for petroleum operations, rather than just petroleum agreements, it may seem on first review that it may be possible for a contractor to explore solely on the authority and rights granted by a petroleum exploration licence without a petroleum agreement. However, Section 1 of the Regulation requires that the GNPC shall be a party to each licence and Section 5 (40) of the Law requires that the contractor shall first enter into a petroleum agreement with the Republic and the GNPC to specify the terms and conditions under which such operations shall be carried out. So inevitably, a petroleum agreement is required by law, unless the regulation is changed denying the GNPC of participation, but Section 2 (2) of the Law also refers and reinforces the requirement for a petroleum agreement. So it seems that all licensees would necessarily have to have a petroleum agreement, so this section of the Regulations becomes redundant with regard to the transfer of assets to the GNPC. Section 4 Petroleum exploration licence Petroleum exploration licences are confined to geological, petrophysical, geochemical and geotechnical activities only and provide exclusive rights. This is an acceptable provision. Section 5: Application for petroleum exploration licence Applications are required to be submitted to the Authority “in the manner prescribed by Regulations.� Does that mean this Regulation – the Petroleum Upstream (Licensing) Regulation, or another Regulation or any Regulation made under the Law. As this is a Licensing Regulation, why not prescribe it now in this Regulation, rather having another Regulation. The application fee is to be prescribed by the Authority, but might be better to have the application fees established by the Minister by a Regulation made pursuant to the Law, but the Law does not mention fees. So in the absence of any reference to fees in the Law and the list of matters for which regulations may be made, this Regulation may reasonably establish fees and the manner of their definition. Final Report Page 17 The processes of Section 5 (3) to (5) are good practice whereby the completeness of the application for a licence is checked and a time limit of just sixty days after receipt of the application is established for the processing of the application. The Section lacks any choice of outcome of the application, i.e. grant, refusal, or expiry of the application. It seems that the Authority shall process the application without any definition in this Regulation of the determination of that process. The amendment to the National Petroleum Authority Act, 2005 extends the mandate of the Authority to embrace exploration, development, production and utilisation of oil and gas. In that amendment, Section 20 refer to the timelines for the treatment of application; these are different to those of Section 5 of the Regulation and require the Authority to inform the applicant of the decision of the Board within a maximum of sixteen days after the date of the application. Seeing as Section 7 (1) of the Amendment of the National Petroleum Authority Act only provides that the Board shall meet at least once every three months, there is the possibility of the Authority not being able to comply with sixty days limit of the Regulation Section 5 (5), let alone the very limited timeline of Section 20, of its own Act. Section 20 of the National Petroleum Authority Act, 2005 and Section 5 (5) of the Regulation need to be harmonised with reasonable timeframes specified, and perhaps specific timeframes for different types of licence. Section 6: Activities authorised by petroleum exploration licence This section describes the type of activities that shall be permitted by a petroleum exploration licence, but it fails to say who is authorised. Typically, the authority to conduct activities is vested on the holder of the licence, the licensee, and his lawful agents. This should be specified. The different types of activities include: geophysical, geological, petrophysical, geochemical, geotechnical and shallow drilling activities, but these are not defined in either of the law from which the Regulations gain their authority. It would be useful to define these activities to save doubt. This is particularly so for the latter of these activities, which begs the question: how shallow? Shallow drilling is a relative term, but generally applies to drilling to relatively shallow depths, purely to elucidate the geology of the section penetrated without the objective of testing a petroleum prospect. Section 7: Ownership of data The data and information obtained by a licensee as a result of petroleum activities and various reports, studies interpretations and analysis prepared by or on behalf of a license studies rising from petroleum activities operations becomes the property of the Authority. First of all, although this section is in the part of the Regulation entitled Petroleum Exploration Licence, is it the intention that this section 7 applies to the entire range of petroleum licences, or only to exploration licence? This is not clear because section 7 (1) only states petroleum activities, without specifying which petroleum activities. Final Report Page 18 The types of data and information required are specified as being: geological, geophysical, technical, financial, and economic without any distinction as to their type, value or usefulness. Moreover, the section bundles together different modalities and treatment of information and data: reports, studies, interpretations and analyses. Clearly, geological and geophysical data arising from petroleum operations are fundamental data sets of vital importance to the identification of the location of petroleum resources. The retention of ownership rights as a matter of law by the Authority as an agency of the State enables the control of such data by the State. If properly managed, this may be able to produce useful incomes to the Authority from the subsequent sale and release of data to industry participants. However, if improperly managed, such State control may make it difficult for petroleum sector investors to obtain data and may ultimately thwart exploration investment and endeavours. The efficient conveyance and ready availability of geological and geophysical information to industry participants may improve regional geological understanding and thus optimise the value of exploration expenditures. There should therefore should as few impediments to the sharing of the fundamental geological and geophysical information as possible. Technical information may pertain to the specific petroleum operations, in which case it should be submitted to the Government and become the property of the Authority, but some technical information will be proprietary and may not be able to be provided to the Authority. Financial information, particularly the costs of petroleum operations are an important feature of the work conducted by licenses. The costs may not seem so important to the Government during the exploration phase, especially where no discoveries are made, but the costs accumulate and, if petroleum is eventually found, those exploration costs will become eligible for recovery in one manner or another. The accurate record keeping of allowable and approved costs of petroleum operations is very important for the future determination of fiscal outcome from petroleum development and production. At the very earliest stage, the costs should be monitored and vetted, and above all good records maintained. Another area of finance reporting is the specific arrangements made by the petroleum licensees to fund the costs of development and production operations. The financing plans need to be submitted before such operations are approved, and need to be examined to ensure the financing arrangements are robust, credible and not extorting values from the eventual production operation to the detriment of the fiscal regime. Lastly, it is good practise for licensees to demonstrate particularly on application for petroleum licences, but also throughout the period of the tenure of their licences that they have sufficient, available and unencumbered finances to conduct the agreed work programmes. Economic reports become important when the viability of potential petroleum production schemes has to be assessed. However, it must always be remembered that any scheme for development of a petroleum reservoir, needs not only to be Final Report Page 19 economically viable, but also commercially viable. This commercial viability in turn depends on the commercial requirements of the investor for his forward investment in petroleum development and production operations. Whilst the designation of commerciality of a petroleum field typically often becomes a vexed question, and one of much contention between the Government and the petroleum companies, it has to be realised that the companies only invest in the business of petroleum exploration and production to make a profit. More specification of the information and data submission, and ownership requirements is recommended. Indeed, that is exactly what a Regulation should be specifying rather than restating the Act. Interestingly, Section 23 (2) of both the original Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) and the draft amended Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) states that: All data and information obtained by a contractor or sub- contractor as a result of petroleum operations and all geological, geophysical, technical, financial and economic reports, studies, interpretations and analysis prepared by or on behalf of a contractor or sub-contractor in connection with such petroleum operations shall be the property of the Corporation. However, this Regulation states exactly the same words, save that the referenced ownership is vested in the Authority, rather than the Corporation (the GNPC). Accordingly, it is difficult to understand how such a Regulation, which is subordinate legislation to the Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) (original or amended) can make such a fundamental change. It is a general principle that subordinate legislation, such as Regulations, should respect the Law under, which they are made and not overstep, conflict with, or contradict that Law. Section 7 (3) introduces the provision that the Authority may stipulate conditions for the implementation of activities under a petroleum exploration licence. This emanates from section 22 (1) of the proposed amendment to the National Petroleum Authority Act and essentially duplicates this requirement, but oddly neither that Act, nor the Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) (original or amended) provides explicitly for the making of a regulation which may require licence conditions. Section 8: Annual Fee Section 8 introduces the provision for the payment of fees in respect of the licence area though what licence area is not defined. It is assumed to be a petroleum exploration licence only by virtue of the heading. Both the National Petroleum Authority Act and its amendment refer to fees as being a matter for Regulations. Section 9: Contents of petroleum exploration licence Final Report Page 20 Section 9 provides the matters that shall be specified in the petroleum exploration licence: the date of grant, the block or blocks, and the terms and conditions of grant. A block is defined in the Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) section 4 (1) as follows: “The Secretary (Minister) shall prepare a reference map showing areas of potential petroleum fields within the jurisdiction of Ghana, divided into numbered areas and each of which shall be described as a ‘block’�. Section 10: Conditions of a petroleum exploration licence The mandate to establish the terms, conditions and limitations of a petroleum exploration licence is vested in the Authority, which is required to set out such in the petroleum exploration licence. This seems to indicate that such terms conditions and limitation may only be made by the Authority, and that they must placed in the licence itself to have validity. Moreover, a petroleum exploration licence is subject to the vendor development programme of the Authority. This term is not defined, nor is it clear as to whether it would become a condition of the licence and be expressed as such in the licence. Section 11: Duration of a petroleum exploration licence The period of a petroleum exploration licence is for a maximum initial period of two years, plus a renewal period of not more than two years. This may provide a total period of exclusivity for petroleum exploration work of four years. However, there are no procedures outlined in the Regulation for the manner by which a petroleum exploration licensee may obtain an extension for a further two-year period. Moreover, section 11 says that: A petroleum exploration licence shall remain in force a) for the period specified in it, but not more than two years, or b) for a renewal period of not more than two years. The use of the word “or� confuses the matter. Does the regulation seeks to limit the entire period to a maximum of two years - being either the maximum period specified in it or a renewal period of not more than two years? The better conjunction would have been the use of the word “and� which would clearly convey the notion of a first period of up to two years and then a renewal of two years, making a total maximum period of four years. Section 12: Power of the Authority to amend a petroleum exploration licence This section permits the Authority to vary the duration of a licence and modify the terms conditions, or limitations of a licence at any time. It does not establish criteria for such, nor any rationale that might require such. It therefore translates into absolute and unnecessary risk of tenure for the petroleum exploration licensee who may otherwise be performing well. It does provide for the Authority to inform the licensee, Final Report Page 21 and for the licensee to be heard and make representations presumably to the authority, though such is not specified. Section 13: Announcement of licensing rounds This section provides the Authority with the mandate to announce the petroleum blocks available for application for petroleum exploration and production licences. It oddly uses the word “shall� as though the authority were commanded to carry out such without any given time frame, rather than the word “may�, which would be more suitable. The announcements are required to stipulate the time for the filing of applications and to be published not only in the Gazette, but also newspapers of national circulation and industry magazines. Section 13 (2) (b) oddly says that the announcement shall “contain other information that the Authority may consider necessary�. The announcement can hardly contain that information, but it may specify what is required to be submitted. Accordingly, section 13 (2) (b) would better be redrafted to include the following words: “contain the list of other information that is required to be submitted in support of an application that the Authority may consider necessary�. The grant of a petroleum exploration and production licence is required to be done on the basis of factual and objective criteria and the requirements and conditions stated in the announcement. This should establish fair bidding process, but it does not specify the range of those criteria, nor the most important and fundamental criteria. These are specified in Section 17. This section seems to indicate that the grant of licences shall only be made on the basis of announcements rather than ad hoc licensing by an application separate from any response to an announcement. For clarity, it might be better to include the words “solely in response to� before the words “the requirements and condition of the announcement� of section 13 (3). Section 14: Application for petroleum exploration and production licence This section simply says that a person wishing to carry out petroleum exploration and production has to apply in writing to the Authority. It provides no more details or elaboration, but it could useful include the core matters mentioned above, relating to the proposed work programme, technical qualifications and the financial capacity of the applicant. Section 15: Grant of petroleum exploration and production licence This section provide for the Authority to establish terms and conditions of the grant of a licence and provide exclusive rights to the licensee. However, section 13(3) provides that the Authority may make a condition that the licensee shall enter into an Final Report Page 22 agreement with another licensee on terms specified by the Authority. This could not affect the exclusive rights of the licensee, but it could provide for:  unitised operations between adjacent licensees where a petroleum pool straddles a block boundary and may better be developed as a single production unit;  coordinated operations where the interests the Republic of Ghana might best be furthered through two or more licensees developing a co-ordinated petroleum development with each other; and/or  the coordination of the use of petroleum pipelines and facilities may optimise capacity use and provide for efficient petroleum operations. The maximum period of a petroleum exploration and production licence is determined to be thirty years, subject to licence conditions providing for a lesser period, and the general provision that if no commercial discovery is made within period of seven years or less, as specified in the licence condition, the licence ends. Essentially, the licensees have just seven years in which to find a commercial discovery before the exclusive licence over the block terminates. The difficult matter of what exactly constitutes a commercial discovery has not been addressed, but it has to be recognised that an investor will wish to achieve an acceptable profit on his invested capital after his recover of that initial investment. Normally, the petroleum industry seeks a minimum 15% threshold rate of return on field developments so as to equilibrate the costs of their frequent lack of success in finding petroleum resources which are capable of being viably and commercially produced with their rare to occasional success in doing so. Section 16: Joint Licensing This section provides that a licence may be granted to two or more persons, but that where two or more persons are involved in a licence, they shall enter into a co- operation agreement. This is a normal feature of the industry and such agreements are typically referred to as Joint Operating Agreement (JOAs). The Association of International Petroleum Negotiators (AIPN) and the UK Offshore Operators Association (UKOOA) both have standard forms of such agreements. Section 17: Criteria for the grant of petroleum exploration and production licence Section 17 (1) correctly specifies the core criteria for the grant of a petroleum exploration and production licences as being the technical competence, experience and financial capacity of the applicant and the applicants work programme proposed for the area. Moreover, where an applicant is, or has been a petroleum exploration licensee, the Authority may take into account their inadequate efficiency or inadequate responsibility, but notably not their efficiency or good responsibility. The section states that the criteria shall be applied in a non-discriminatory manner, which is excellent, and that where two applicants are seemingly of equal standing, Final Report Page 23 other relevant objective and non-discriminatory criteria shall be used as the basis for granting a licence. These are very sound and fundamental provisions, which if properly applied will mitigate much difficulty in management of the Ghanaian petroleum sector. Section 18: Conditions and requirements for a petroleum exploration and production licence A fundamental principle is stated in section 18 that the conditions and requirements for grant of a licence and the conduct of operations shall be based on the need to ensure that activities are carried out in a proper manner. Other considerations are cited for the conditions for the conduct of operations, including:  national security,  economic and efficient operations,  public order,  public health,  transport,  safety,  environment protection,  safety of employees and facilities,  protection of biological resources  protection of national treasure of artistic, historic or archaeological value; and  systematic resource management. These are most useful broad and guiding provisions. There may be some deficiency in these broad conditions in respect of:  the optimisation of the use of pipelines and facilities;  provision for the welfare of the people of the area;  compensation for damage done to land;  the transparency of contracts, licences, and report and account of operations;  the promotion of viable domestic utilisation of petroleum and petroleum products Particular attention has been paid to local content with the provision that the licences will be subject to the vendor development programme of the Authority. Section 19: Surface area rental fee Annual fees are to be paid per square kilometre of a petroleum exploration and production licence. This is a common practice, but the amount of the fees is not stated, but rather left to another Regulation, perhaps a Petroleum Upstream (Licensing Fees) Regulation to be made at some later time. It should be made now, even if it is to be a separate Regulation. It is not readily understood why there would need to be a method Final Report Page 24 of calculation so specified as required by section 19 (3) (b), if the fees are to be area based, unless some complex formula is to be used. Typically, surface rental fees are set per unit area and then the amount due is simply the product of the area times the fee per unit area. The fees should represent amounts that accord with the management and administration costs of the block by the Authority and the degree to which the Government wishes to encourage exploration. As the petroleum potential of Ghana has recently been made manifest, fees might be set at reasonably high levels to dissuade companies from holding on to acreage. The fees should also rise with time as the licensees hold onto the block. Below are sample fee structures of two different nations. Annual US$ Fee per Square Year Kilometre Papua New Cambodia Guinea Exploration 1 10.00 2.50 2 10.00 2.50 3 10.00 2.50 4 20.00 2.50 5 20.00 2.50 6 40.00 2.50 7 40.00 5.00 8 7.50 9 10.00 10 15.00 11 25.00 Production 500.00 500.00 There is a reference made in section 19 (3) (c) to the making of Regulations “on information which the licensee shall provide about production�. This provision has nothing to do with fees and sits uncomfortably in this section. In section 19 (4), there it is stated that “claims for fees with accrued interest and charges are ground for enforcement of distraint�, but no specific provisions for the assessment of interest and charges is specified. In general, it is good practice in Regulations to specify that late payment attracts a specified penalty interest rate and charge for the inconvenience caused. Section 19 (6) states that the block shall return to the Republic after the expiry of the licence. Again, this sits uncomfortably with the adjacent provisions for fees. It might be better included as a new subsection (6) of Section 15 to which it relates. Section 20: Specification of petroleum exploration and production licence Final Report Page 25 Section 20 states that “the Authority shall grant a petroleum exploration and production licence on conditions that give effect to application and requirement of this Act�, but to which Act is the Regulation making reference - the National Petroleum Authority Act, as amended or the Petroleum (Exploration and Production) Law, 1984 (PNDCL 84), as amended? This brings home the duplicity of the authority of this Regulation. The correct reference in section 20 (1) might be to “this Regulation�. Section 20(2) provides a general mandate for the Authority to impose conditions on the grant of a petroleum exploration production licence as it determines, which is normally the case with the granting body of a Government. Section 21: Protection of national interest This section provides a requirement for the licensee to maintain a company, which is capable of independently managing the petroleum activities from within Ghana. This is separate from the provisions of the Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) section 23 (15), which requires: “a contractor or sub-contractor which is not an incorporated company in Ghana to register an incorporated company in Ghana to be authorised to carry out solely petroleum operations…..to maintain an office or establishment in Ghana to carry out petroleum operations and shall have in charge of such office or estb1ishment a representative with full authority to act and to enter into binding commitments on behalf of the contractor or sub- contractor…� There is just a subtle distinction between the reference to the contractor or sub- contractor of the Act, versus the licensee of the Regulation, otherwise there is seeming duplication. In any event, it is good practice to encourage the operating petroleum companies to be resident as far as possible. It provides for better mutual understanding, more immediacy of contact and communication, respect for the host nation and enhanced opportunities for Ghanaian participation. The provision that the Authority may stipulate the specific requirements, including the capital in respect of the company, gives the Authority a direct means of making sure that the Ghanaian company of the licensee is not just a shelf-company for cosmetic purposes only, though most licensees will not like this provision and will see it as an intrusion into their business. The permitting of organised labour activities in section 21 (3) amongst the employees and personnel of contactors and subcontractor may well accord with good practice in the enforcement of human rights, but there will be times when petroleum operations may not be compromised in any manner and when safety and good conduct of the operations will be paramount, or even of vital national interest. Final Report Page 26 The stipulation in section 21 (4) of the use of a base for petroleum activities in Ghana is also a reasonable sovereign measure that will ensure no external or undue influence over operations and support for local content. Section 22: Operator It is normal that where there is more than one licensee in a block, they agree a Joint Operating Agreement (as referenced above in Section 16: Joint Licensing) and that JOA provide for the nomination of Operator by the licensees. It is not normal for Government petroleum entity in this case an Authority, to appoint an operator, though it may have preferences from amongst the co-licensees as to which amongst them would prefer to operate. Normally, operatorship is awarded by vote amongst the licensees, to the licensee who is most experienced and who has a more substantial involvement in the licence. Changes of operatorship should be subject to review and approval by the Authority and the nominated operator should indeed be one of the licensees. Section 23: Rights conferred by petroleum exploration and production licence The rights conferred by a petroleum exploration and production licence on a licensee are exclusive in respect of the block. They provide quite typical rights of a jurisdiction that has its antecedent in the petroleum legislation of the United Kingdom: (a) to carry out exploration, development and production operations in the block; (b) to sell or otherwise dispose of the licensee’s share of petroleum recovered; and (c) to carry on operations and execute such works in the block that are necessary for and in connection with any matter referred to in paragraphs (a) and (b). Again, there is some degree of imprecision in Section 23 (2) as to the meaning of “this Act�, and again one has to ask to which Act, this section is referring? Section 24 Duties of petroleum exploration and production licensee This section provides measures for the conduct of operations. It emphasises the authority of the licence, this Act (once again, one has to ask which one?) and Regulations made under this Act. Section 24 (2) requires that a licensee meets the requirements for work and expenditure a set out in a licence or a petroleum agreement; this is a normal provision of any petroleum law. Section 24 (3) and (4) provides for annual submission of the forward work programme prior to the licence anniversary for the following year to the Authority for its approval. The work programme may be amended by notice to the Authority, but should not diminish the original programme. The work programme shall be deemed pursuant to Final Report Page 27 Section 24 (6) to be complete where it is consistent with that of the petroleum agreement. It is interesting to note that specific reference is given to the petroleum agreement, though equally the licence would specify the work programme. Records are to be kept and reports made to the Authority as required with specific mention in section 24 (9) of technical, hydrological, geological, environmental issues and any other relevant information relevant to the petroleum exploration that the Authority requires. Oddly, this doe not include specifically development and production information, which it should. Information is required to be provided at the cost of the licensee, which is normal, but in these days of modern information technology that cost might need to include the provision of licensed software applications to enable the information to be vetted, used and interpreted independently by the Authority. In Section 24(12), another reference is made to the vendor development programme of the Authority, and again it is stated that the licensee shall comply with its requirements. These persistent references to the vendor development programme of the Authority might useful warrant another and separate section to the Regulation rather than being littered around the Regulation in various subsections. Section 25: Renewal of petroleum exploration and production licence Given that section 15 (5) provides that a petroleum exploration and production licence has a thirty-year period, it is not likely that many licences will be the subject of renewals. However, section 25 provides for such. This provision is therefore most prospective and enables the renewal of a petroleum exploration and production licence in due course on conditions and subject to the licensee not being in default. Section 26: Transfer of petroleum exploration and production licence Section 26 provides for comprehensive requirements about transfers of licences, which are complete in themselves. However, there are often joint and several interests in petroleum exploration and production licences by several licensees. The section does not relate how a transfer of a partial licence interest of one of several licensees of a particular licence might be handled; presumably it would be treated like that of the complete licence, but it would be worth clarifying that this section applies to joint and several interests. The provisions of Section 26 cover:  applications for transfer  legal, technical and financial competency of the transferee  definition of a transfers  definition of control  direct and indirect transfers, including mortgages However, this section conspicuously fails to consider dealings as distinct from transfers in licence interests. Dealings may create, assign, affect or deal with, directly Final Report Page 28 or indirectly, legal or equitable interest in, or affecting, an existing or future licence. The dealings in licence should also be the subject of application for approval. Section 26 (5) rightfully states that the Authority should not unreasonable withhold consent to a transfer, unless it has reason that the public interest or safety is prejudiced. Another deficiency in Section 26 is that a Register ought to be maintained of all licence interests, transfers and dealings, which should be available for the public record and be open to inspection by the public. This will enable better dissemination of the knowledge of which company has which licence and which block and will greatly aid transparency in this business. Section 27: Relinquishment of areas This section requires licensee to relinquish portions of their area governed by a petroleum agreement (and presumably a petroleum exploration and production licence) after an initial exploration of a petroleum agreement, or after an extension period, presumably in respect of a petroleum exploration licence). This is a normal provision of the petroleum business. As far as is possible, the relinquished area is to be contiguous and compact permitting the ready conduct of further exploration operations in the relinquished area. Checker- boarding is thus to be minimised. Retain areas over discoveries shall be of shape and size as approved by the Authority. To enable relinquishment, the work programme is required to be up to date, prior to any approval of the relinquishment. Section 27 Work practice of licensees Section 28 provides for exploration and development operations to be carried out in a proper and safe manner and in accordance with good oil field practice. This is the classic wording of the UK-sourced petroleum legislation. However, it should also include operations for the recovery of petroleum, i.e. production operations. Further, section 27 provides that licensees shall take all reasonable steps to secure the health, safety, environment and welfare of persons engaged in those operations. Again, this is classic wording. Specific requirements are to: (a) control the flow and prevent the waste or escape into the exploration or development area of petroleum, gas or water (b) prevent the escape into the exploration or development area of any mixture of water or drilling fluid and petroleum or any other matter; and (c) prevent damage to petroleum-bearing strata in an area not covered by the licence; and (d) keep separate, in the manner that the Authority may by notice in writing served on the licensee direct; Final Report Page 29 i. each petroleum reservoir discovered in the exploration or development area; and ii. any sources of water discovered in the exploration or development area; (e) prevent water or any other matter entering any petroleum reservoir through the wells in the exploration or development area except when required by, and in accordance with, good oilfield practice; and (f) prevent the pollution of any water-well, spring, stream, river, lake, reservoir, estuary, harbour by the escape of petroleum, salt water, drilling fluid, chemical additive or any other waste product or effluent Interestingly, the word “sea� is omitted from original source legislation in Section 28 (10 (f). Otherwise these are very standard and fundamental principle for work in the petroleum sector. Particular reference is made to the Environment Protection Agency Act, 1994 (Act 490). The drilling of wells requires the submission of detailed plans at least forty-five days prior to drilling of a well. This may not be adequate, and likely the well will be planned much further in advance and plans may be able to be submitted much earlier. Section 29: Licensees and flaring of natural gas The section alludes to some other section that seemingly prohibits the flaring or natural gas. However, the only prohibition of flaring seems to stem from the petroleum policy documents. This section 29 rightfully recognises that there may be operational requirements to flare or vent natural gas, and accordingly puts in place a process for such to be permitted by the Authority. It also recognised that in emergency situations flaring and venting may be necessary. Section 30: Abandonment This section pertains to the abandonment of wells and the need to notify the authority of the intention to abandon a well and the stipulation that the well may only be closed and plugged of in a manner approved by the Authority. Section 31: Offences by licensees This section state that a licensee who contravenes, fails or neglects to comply with a requirement of sections 51 or 53 commits an offence, but there are no sections 51 and 53. These must be legacy references to the source of this provision. Final Report Page 30 Review of Draft Petroleum Upstream and Midstream (Exploration, Development and Production Operations) Regulation, 2009 This draft Regulation pertains to exploration, development and production operations, testing of petroleum, national requirements and local pricing, transportation and storage of petroleum, decommissioning and safety. Its primary authority originates in the Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) Section 32 (2) provisions for the making of Regulations. Section 1: Exploration and drilling operations This section requires the holder of a petroleum exploration and development licence to explore the relevant area and to begin exploration operations within sixty days after the grant of the licence. Whilst this sounds rather simplistic, its aims must be to prevent acreage sitting where the holder of the licence may for one reason or another simply hold the licence for a given area, but actual do no work. The exactitude of defining just sixty-days seems overly prescriptive and demanding, as circumstances beyond the control of the licensee might dictate a later commencement of operations. Section 2: Permit for acquisition of data Whilst section 1 requires the licensee to get on with the conduct of exploration operations, this provision now seeks to impose a further administrative requirement that the licensee shall not carry out a seismic survey unless the licensee has been issued with a permit for data survey. So, eventually, before a licensee may conduct a seismic survey:  a petroleum exploration and production licence, pursuant to the Draft Petroleum Upstream (Licensing) Regulation, 2009 section 15;  A petroleum agreement, pursuant to the Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) as amended Section 2 (2); and  a permit for acquisition of data, pursuant to this Draft Petroleum Upstream and Midstream (Exploration, Development and Production Operations) Regulation, 2009 It is not understood quite why there is the need for another permit to acquire data when such data acquisition that is fundamental to the business of exploration is not understood. It seems that Section 2 may provide some additional control on seismic surveying as a component of exploration operations, which could quite readily be achieved through a process of notification only to the Authority. The section also does not say what information is required to substantiate the issue of a permit nor the manner of seeking such a permit. Being so ill-defined, much is left open for interpretation to a form and manner that are not specified. As this is the essence of making Regulations, if this provision is to be retained, it might be better to specify what information is indeed required. Such might usefully include: (a) licence area; (b) name of the Licensee; (c) name of survey; Final Report Page 31 (d) objective of survey; (e) prime survey method and techniques; (f) any secondary survey method; (g) name and address of contractor; (h) details of equipment to be used; (i) estimated commencement date; (j) estimated duration; (k) line kilometres; (l) estimated cost; (m) line plans in duplicate, one at 1:250,000, one on A4 size paper; (n) requirements to enter onto land (if any); (o) name and address of person-in-charge; (p) copy of current seismic vessel classification; (q) seismic vessel specifications; (r) evidence that the vessel and crew comply with the Ghanaian maritime requirements Section 3: Appraisal programme and commerciality This section sets down rigid terms for the work obligations, notification of discovery, appraisal requirements, commerciality and associated relinquishment provisions. Whilst these steps are carefully defined, they may be considered burdensome, and perhaps unrealistic in their timeframes. The steps are mapped as set out below. Stage of Activity Timeframe Minimum drilling and work obligation Licence period Discovery of petroleum 30 days Notification of discovery of petroleum 70 days Election for appraisal or relinquishment Relinquishment in 7 days Submission and approval of appraisal programme 100 days Conclusion appraisal programme 60 days Election of commerciality or relinquishment The intent is obvious: to maintain pressure on the licensees to appraise discoveries and declare commerciality leading to development. There are however, some, uncertainties. The definition of what constitutes a discovery relies on the definition within the Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) as amended section 33 which states that: “discovery� means petroleum not previously known to have existed, recovered at the surface in a flow measurable by conventional industry testing methods. This seems to requires physical flow testing, which nowadays is not always conducted as down-hole reservoir measurements can Final Report Page 32 adequately confirm or deny the ability of the continuous reservoir fluid phase to flow into the borehole or not. As discovery triggers as sequence of events that may force a licensee into an appraisal programme, and even lead to a mandatory relinquishment, if the volume of discovered petroleum is not commercially viable, the licensee may be reluctant to conduct flow test, especially if the find is that of natural gas which may not have a ready market. The election as to whether a discovery merits appraisal, or not, forces the licensee to either commit to an appraisal programme, or otherwise relinquish the discovery area, but what constitutes a discovery area is not defined in the Law, nor any of the draft Regulations. The submission of the appraisal programme is tied to the notification to the Authority that the discovery merits appraisal, and the licensee shall submit an appraisal programme, but the manner and timing of submission is not specified; it is only stated to be: “Where in the opinion of the licensee the discovery merits appraisal……� That could be read as being just a circumstance only, rather than a fixed timeframe. Moreover, whilst there is the requirement to submit an appraisal programme to the Authority for approval, there is no definition of the processes or timeframe for approval. Therefore, it is recommended that Section 3 (5) be re-drafted to read as follows: (5) Where in the opinion of the licensee, the discovery merits appraisal, and at such time as the licensee indicates such to the Authority, the licensee shall submit an appraisal programme to the Authority for approval and shall proceed to implement the approved appraisal programme within one hundred days of the approval of the programme by the Authority. A further problem exists in the definition of what constitutes a commercial discovery –perennial problem of the industry. The timeframes stipulated may not necessarily match the availability of drilling equipment for appraisal wells or the availability of seismic vessel for further seismic acquisition and being so rigid may lead to enforced relinquishments or circumvention of the intent of this particular. Small volume petroleum accumulations and marginally economic fields may lead to substantial difficulties in administration of this regulation. Further discussion of these most important and fundamental matters is provided in Annex C: Discovery and Commerciality Section 3: Approval for the identification of well Quite extraordinary effort is made to define regulations for the identification of a well in this section, with the use of field names, (notwithstanding that the drilling of a given prospect may not yet have identified the presence or absence of a field) and the use of chronological serial numbers for the block. Names are required to reflect historical events geographical and topographical features or may be chosen from the Final Report Page 33 names of fauna and flora. Fields are not to be named after persons without special permission and shall not be named after a living person who is not a citizen of Ghana. After such perfidious detail, the regulation, deals with the sidetracked wells requiring them to be a given unique number where they are more than 100 metres from the original bottom hole well location. More important for a well than any naming convention is that the well is properly and accurately surveyed as to its position in accordance with the approved geodetic datum. Section 4: Permit to operate a drilling rig This section requires that a person shall not operate a drilling rig of other drilling equipment without a valid licence granted by the Authority with the prior approval of the National Security Council. There is valid reason for the Authority to approve the use of a drilling rig and such a provision is normal in most jurisdictions. Moreover, there is normally the requirement to have each individual well specifically approved by the petroleum regulator. However, I am not quite sure why there has to be a prior approval of the National Security Council for a civilian operation, such as the operation of a drilling rig drilling within the territory and offshore area of the Republic of Ghana. Notification may be useful in respect of offshore activities, because they are remote from public view and may need to be secured or protected by disciplined forces, but as to onshore operations, this provision tends to suggest that there are matters of national security curiously involved in drilling on the lands within the Republic of Ghana. Section 5: Development A licensee who intends to develop a field is required to submit a plan for field development and operation to the Authority ion a designated format. Such a plan is required to contain information pertaining to:  field economics;  field resources;  technical matters;  safety of development and operations;  commercial matters;  environmental matters;  decommissioning;  transportation facilities;  utilisation facilities;  compliance with other laws; and  an environmental impact assessment. Considering the development plan is a key and vital document, there ought to be more definition of its content and provision for the Authority to require additional specific information that it sees fit and necessary for its consideration of the development plan. See Annex D: Requirements for the Submission of a Field Development Plan. Final Report Page 34 In Section 5 (7) reference is made that the “licensee shall commence drilling programme after it has received the approval of the Authority�. Presumably, this refers to the development drilling programme and not the drilling of wells pursuant to the exploration work programme. Section 6: Approval of field development plan The licensee is not allowed to commence substantial contractor obligations and construction work until the development plan and operation has been approved. Correctly, it is recognised that there may be circumstances which requires the early commencement of development activities, and the consent of the Authority may be provided for such. Often there are items of plant and facilities that have long lead times for ordering, such as line pipe, gas compressors and certain facility pressure vessels. There are provisions for deviations and alteration of the plan. Section 7 Unit development This section provides fairly typical requirements for unit operations where a reservoir straddle two or more blocks for the direction of the licensees to enter into a unit agreement to develop and produce the reservoir as one unit. It fails to mention the appointment of operator of the unit from amongst the parties to each adjacent licence. There is also no reference to coordinated operations, where more than one reservoir in separate, and not necessarily adjacent blocks, may usefully be developed as a single commercial development. It would be sound practice to include similar provisions for such coordinated development. Suitable wording might be as follows. Where the Authority considers that, in order to prevent waste, avoid unnecessary competitive drilling, protect the correlative rights of licensees of adjacent tenements, secure the maximum ultimate recovery of petroleum or achieve the optimum economic development of petroleum resources, the interests of the Republic might best be furthered through two or more licensees developing a co-ordinated petroleum development with each other, the Authority may direct a licensee to conduct such studies and investigations into the possibilities and merits of a co-ordinated petroleum development as are specified in the direction. Section 8: Directions as to recovery of petroleum The ability to give the licensee directions as to the recover of petroleum is a fairly standard feature of UK-sourced petroleum legislation. The notion is that the Authority may require the make the licensee to take steps to recover petroleum, which for one reason or another he is not doing. Noticeably, only one side of the original provisions has been adopted: the requirement to increase the rate of petroleum production. There may be circumstances where the authority may validly require the licences to decrease the rate of production; this should be included in Section 8 (4). Section 9: Production of petroleum Final Report Page 35 This section requires the licensees to produce petroleum in such manner that as much as possible of the petroleum in each accumulation will be produced. This in itself is not adequate, as the criteria for that maximisation is not elucidated. A better expression would be that the licensee shall achieve maximum efficient petroleum recovery with the prevention of resource waste. Licensees will always act, so as to achieve a commercially optimal outcome, and it will always be difficult to encourage them to spend more money to gain only marginal and sometime unprofitable incremental petroleum recovery. Section 10: Restrictions on flaring and venting This section augments Section 29: Licensees and flaring of natural gas of the Draft Petroleum Upstream (Licensing) Regulation, 2009. Excess flaring and venting of natural gas above the limits established as being reasonable for safety is not allowed. Circumstances in which the Authority may consent to the flaring or venting of natural gas are listed, including tail gas in a refinery, plant start-up and shut down, for safety, or legal requirement. Emergency flaring and venting is permitted subject to notification to the Authority. Penalties may be imposed for breach of these provisions. However, to maximise the mitigation of flaring and venting it is recommended that a charge be levied on all gas flaring and venting; this would then make it very much in the financial interests of the licences to reduce such behaviour. Section 11: Production permit A licensee is required to commence production after the Authority has approved the production schedule and issued a production permit. Further, the licensee has to apply to the Authority for production levels for fixed periods of time. There are also some provisions for the reduction by the Authority of production levels and the apportionment of reductions across various petroleum deposits. Quite why this is included, unless the Republic of Ghana wishes to subjugate itself to quotas in a cartel like OPEC is not known. In subsection (7), approval is required for test production duration, quantity and conditions, but oddly this subsection include reference to the requirement for “special consideration to be given to long-term agreement for the supply of gas�. This does not fit comfortably with the approval of test production, but the clause would fit well with the end of subsection (8) to which it might properly belong. That sub-clause (8) states that where the “authority may require a licensee to produce a reports on field related matters including alternative schemes for production, and if applicable, the injection and total recovery for various production schedules�; it could most sensibly and usefully incorporate and be augmented with those words used in subsection (7): “with special considerations to be given to long-term agreement for the supply of gas�. Section 12: Restriction on grant of production permit Section 12 establishes requirements for production permits. Final Report Page 36 The development plan must ensure the most efficient, beneficial and timely use of the petroleum resources. But the word “use� seems rather odd, as production does not necessarily concern the use of petroleum, other than for fuel in operations, and various recovery methods such as gas recycling and gas-lift. Oil and gas are produced by producers and used respectively by refiners and gas-customers. Perhaps, the words “sale or disposal� might be more appropriate. The development plan must take proper account of good petroleum industry practice and safety factors, a normal provision of good petroleum laws. The applicant for a production permit must have adequate financial and technical resources as well as industrial competence and experience to carry out effective petroleum operations. Again, these are normal provisions, however, there might need to be a distinction made as to whether the applicant possesses these attributes itself, or otherwise has them available at its disposal through other arrangements. For instance, some petroleum companies may outsource significant skill sets. It goes without saying that the conditions need to be reasonable and acceptable and should be of such extent and content that the applicant may reasonably be able to state that he is able and willing to comply with them. A host Government may seek to apply all manner of conditions, so it would be better in this instance of Section 12 ((1) (d) to insert a reasonableness to the compliance with conditions. The applicant’s proposals need to be in accordance with the vendor development programme. This has been referenced in other daft Regulations as being the “vendor development programme� established by the Authority. In the absence of such reference to the Authority, it is recommended either that such should be included in the requirements of section 12 ((1) (l), or otherwise that the terms vendor development programme be made a defined terms of the Regulations. This provision strengthens local content. The matter of insurance cover mentioned in Section 12 (1) (g) will depend on the financial capacity of the applicant; some very large integrated petroleum companies will self-insure and will need to deliver guarantees to that effect, whilst smaller entities will necessarily need to procure appropriate and adequate insurance. It may not always be necessary to specifically require the purchase of insurance from a third party to hedge against the risk of contingent losses. There may be other means of risk management available. The top petroleum companies go to great lengths to plan their petroleum developments and may be reluctant to committing to the purchase of insurance from third parties except for the gravest or risk over which they have no control. Subsection 12 (1) (h) refers to “any relevant option�. Presumably, this is in respect of the option of the Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) as amended section 17: 17. A petroleum agreement shall provide that the Corporation shall, within a specified period of time from the date a discovery is declared to be commercial, have the option to acquire up to such percentage of the interest in the rights and obligations of such Final Report Page 37 petroleum operations on such terms as may be agreed between the Corporation and the contractor in such petroleum agreement. However, such looseness of reference is not good practice. It would be better to specify in this the Regulation as being the option contained in Section 17 of the Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) as amended. Lastly, an applicant for a production permit requires an environmental permit from the Environmental Protection Agency, which is good practice and typical in most jurisdictions. In section 12(1) (2), it is stated that a production permit shall not be granted to: “an applicant who is in default…� The applicant referred to here is presumably a licensee, so it would be better to say a “licensee� rather than just “applicant�, as Section 11 provides that a production permit is required by a licensee. Unless of course the intention is that there might be parties other than licensees who might seek a production permit? However, Section 14 of the draft Petroleum Upstream (Licensing) Regulation, 2009 emphatically requires a licence. Section 12 (3) provides more detailed processes with regard to applications for production permits, particularly that the application shall not be refused without: due process, including statement of the grounds for any refusal, allowing time for remedy and amendment of development plans, the making of representations, and in circumstances where the grounds for refusal have been dealt with satisfactorily. This is a fair and balanced provision. Additionally, this section provides that if a block already has a production permit, a production permit cannot be granted over the same block if that block was already granted at the time of application. Section 13: Co-ordination of activities across licence boundaries Section 13 (1) requires an agreement where a petroleum deposit extends over more than one licence area with different licensees, but it does not specifically say who will be the parties to an agreement, though obviously they will be the licensees. Interestingly, section 13(2) extends this provision to the case of several petroleum accumulations where they would be more efficiently carried out under joint operations. Section 13 (3) extend joint agreements to exploration drilling, and section 13(4) seems to extend this to not only production, but also transportation, utilisation, and cessation of petroleum activities. All such agreements are required to be submitted to the Authority, and in cases where there is no agreement reached the Authority may determine how joint petroleum activities should be conducted and the apportionment of the deposit, presumably, a petroleum one, though not specified in section 13(5). Section 14: Postponement of development or production Final Report Page 38 This Section 14 (1) provides for the authority to postpone a petroleum development. Section 14 (2) allows the provisions for licence extension to apply, but there is no defined link to section 14(1); it is only assumed by the proximity of the subsections of Section 14 to apply to the circumstances of postponement. Section 15: Natural resources other than petroleum resources This section provides for treatment of rights to undertake exploration for and production of other natural resources, but it fails to define those natural resources or the scope of the definition of other natural resources. The principle invoked is one of unreasonable inconvenience to petroleum activities. The other activities are limited by such principle and may in certain circumstances be postponed by the Authority in consultation with the other relevant authorities after taking into account: the nature of the discovery made; investment made; the stage, duration and extent of activities; and the economic and social impact of the petroleum exploration and production activities. Postponement makes the licensee eligible for application for an extension corresponding to the postponement, but Section 15 does not specify the manner of the extension approval nor guarantee it. Moreover, in the circumstances of a postponement of a particularly long duration, the licence may be revoked; this is not reasonable under any circumstances. The language of section 15 (10) does not make proper sense; it seems lacking in some wording. This section tends to indicate that the surviving licensee shall refund the costs incurred to the party that has had to postpone or curtail his activities. Section 16: Inspection and sampling of petroleum This section permits the Authority to authorise an officer (presumably of the Authority, but not defined) by notice in the Gazette to enter any place where petroleum is being produced, stored, transported, refined, or blended to inspect or take samples for testing of any petroleum found in that place. Oddly, if the petroleum is not found, because it is hidden, it may not be so inspected or sampled. The present tense is used: “petroleum is being produced …..etc.� In circumstances, where the authorised officer is not so sure of the facts, may he still be able to enter? To give clarity to this provision, it would be useful to expand the authorisation to include the following words: “to enter any area, structure, vehicle, vessel, aircraft or building that, in his opinion, has been, is being or is to be, used in connection with…..� Further, what is the reasonable limit on the taking of samples? An overzealous authorised officer might like to take an entire tanker load of crude oil, but obviously that would be unrealistic and unnecessary. The quantities taken for testing should be Final Report Page 39 such quantities as will enable the chemical and physical properties of the petroleum produced to be ascertained to acceptable international standards, and no more. Section 17: Purpose of testing and restrictions The licensees are required to submit petroleum exploration, development and production information on the volume and composition of petroleum produced, including test production; petroleum produced in formation testing; and petroleum use injected, vented, and burned, metered where possible. No mention is made of meter verification, nor approval for the use of meters. It would be useful to include in these Regulations provision for such, in the manner as follows: “Except as prescribed by regulation, a person shall not install in any petroleum facility or use any measuring device to measure the volume of petroleum produced by a licensee unless such measuring device is approved by the Authority.� Section 18: Testing officer The Authority may authorise an officer to test a petroleum sample, either taken pursuant to Section 17 or otherwise submitted to be tested and the authority shall certify the result of the test. Section 19: Manner of testing Test of petroleum shall be made with validly certified test apparatus and carried out in accordance with guidelines issued by the Authority. Section 20: Certificate of testing The testing officer is required to issue a certificate and shall with the approval of the authority give the licensee a certified copy of the certificate. Whilst the above provisions (Section 16 et seq.) are entirely valid in themselves, one has to wonder why the Authority needs to be involved in testing petroleum samples. It is a regulator not a provider of services, which may readily be outsourced to competent and certified firms and their duly authorised persons. Section 21: Supplies to cover national requirements This section provides for domestic supply of petroleum to cover national requirements. The Authority may direct a licensee to make deliveries to a nominated person and the price paid shall be determined in accordance with a regulation. Exactly what may constitute National requirements is not clear. It begs the question: requirements for what purpose? To supply to domestic refineries; to supply to a National exporter for export, as barter trade to providers of petroleum products to Ghana? It would be wise to spell out the nature of these so-called National requirements. Final Report Page 40 Section 22: Supplies in the event of war, or threat of war The Authority may direct that a licensee shall place petroleum at the disposal of the country in the event of either war, threat of war, or other extraordinary crisis, and in such circumstances determine the price of such petroleum. The section does not state categorically whether this is produced petroleum of the licensee, or not though the Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) as amended does define “petroleum� as meaning: crude oil or natural gas or a combination of both. Section 23: Pricing of petroleum Section 23 (1) states that the market price for petroleum produced in accordance with the Regulation shall be determined at the end of the month in a currency determined by the Authority. This is an oxymoron; the market price is the price at which the petroleum is actually sold by a seller to a buyer in an open-market arms’ length transaction. Moreover, the price of petroleum, particularly crude oil, may vary radically within a given month. In recent times, the volatility of the crude oil prices has risen to be as much as US$ 27 per barrel per month with a moving average price change per month of about US$ 10 per barrel. See Annex E: Monthly Change in Crude Oil Prices with One-Year Moving Average. The volatility of the price of crude oil requires much more detailed market research and analysis than hitherto, and it is considered doubtful whether monthly price-setting systems can reliably track realised market prices. Moreover, it is not understood why the Authority needs to be establishing prices of crude anyway, when its energies may better be devoted to ensuring that the best possible prices have actual been achieved by the producing licensees. The practice of setting the price of produced crude oil is archaic and intrinsically distrustful of the petroleum licensees. A better method is to use statutorily declared realised prices for each and every crude oil lifting, which should then be audited most carefully on penalty of miss-declaration. The penalty for an incorrectly declared declaration may result in a hefty fine and/or imprisonment. This threat plus the use of actual realised prices provide a more realistic mapping of crude oil prices obtained for produced crude oil. Sections 23 (2) and (3) provide for appropriate checks and balances for the Authority determined prices by reference to a Joint Authority-Licensee pricing committee, and failing their unanimous decision, the matter may be subjected to an arbitrator or expert. Section 24: Licence to install and operate facilities for transportation and storage of petroleum This section permits the Authority to grant a licence to install and operate facilities for transportation and storage of petroleum in circumstances where the right to do so does not follow on from an approved plan for development pursuant to Section 6 (not referenced in draft). This case may occur where non-licensees of a Petroleum Exploration and Production Licence wish to undertake such activities, for example, perhaps for facilities for the off-take, conditioning and transportation of associated natural gas as is envisaged in the Jubilee field development. Final Report Page 41 This section does not define the type of person, and the required qualifications, expertise or financial capacity of the applicant for such a licence. Also, it does not provide for the processes for the administration of such applications by way of fees, application requirements, conditions, tenure, rights and obligations in relation to such. Section 25: Landing of petroleum This section specified that the Authority may determine the manner by which and the place at which petroleum shall be delivered by a licensee, but it fails to mention to whom it shall be delivered. One can only presume that it is to the Authority. Section 26: Licence for transport of petroleum by pipeline A licence issued by the Authority or relevant agency (who else could there be, other than the Authority?) is required to transport petroleum by pipeline. That is fine, but how does one apply for such a pipeline licence, or pipeline use licence? Moreover, is this only a licence to transport, i.e. to dispatch or send petroleum by pipeline, or is it a licence to construct, commission and operate a pipeline? It is not clear from the draft Regulation what is intended. Who may apply and what are the criteria for issuance of a licence? Must a pipeline licensee install, commission and operate a pipeline, or otherwise own a pipeline, or simply be using a pipeline belonging to someone else? This section needs considerable more development. It fails to define the type of person, and the required qualifications, expertise or the financial capacity of the applicant for such a licence. Also it does not provide for the processes for the administration of such applications by way of fees, application requirements, conditions, tenure, rights and obligations in relation to such. Moreover, it does not accurately specify the purpose of a pipeline licence as to whether it is for pipeline use, ownership, installation, construction and/or operation. Specific reference is made to cross-border pipelines and that the licensing of such will be handle in accordance with an unspecified section. A pipeline that is situated within the jurisdiction of Ghana is a pipeline within Ghana and subject to the laws and regulations of Ghana. A pipeline that is situated outside of the jurisdiction of Ghana will necessarily be subject to the foreign jurisdiction. International agreements and treaties will be required to coordinate such cross border infrastructure. Section 27: Survey of pipeline routes In section 27, being a licensee (of a pipeline line) the licensee is required to submit certain “information in the survey of pipeline routes to the Authority and relevant agency�. That information is: the purpose of the survey; the time duration and place of the survey; the survey methods; and the depth to which drilling will be carried out. This has to be done five weeks before the commencement of surveys of pipeline routes and other soil surveys. Final Report Page 42 This is overly prescriptive and it would suffice to require that pipeline route surveys be completed and submitted to the Authority. Section 28: Right to construct, operate and maintain pipeline Section 28 commences with the use of the word “licence�, but does not expressly state what class of licensee, and whether the reference is to a petroleum exploration and production licensee, a licensee for installation and operation of facilities for transportation and storage of petroleum [s. 24(1)], or a licensee for the transportation of petroleum [s 26 (1)] . Presumably in this instance, it refers to the broad generic licensee being the holder of a petroleum exploration production licence. However, this point to the lack of clarity of nomenclature of licences in sections 24 and 26 where the licence titles might be useful included respectively as follows: Transportation and Storage Licence and Pipeline Licence. Then terms “pipeline�, “transportation� and “storage� need definition by inclusion in the interpretation of the Act, or by the same within the Regulation. Section 28(1) provides that the licensee may take and transport petroleum to an ocean port or other point of loading for export, but only in respect of petroleum to which the licensee is entitled. This seems to prevent the transportation of third party petroleum and hence the optimisation of use of transportation facilities. This is therefore not wise. It seems that the licensee (whatever species of licensee, it may be) may construct, operate and maintain pipelines, pumping stations, storage and related seaboard terminals or other facilities for the transportation of petroleum from production facilities to processing or storage terminals, but only his petroleum entitlement. In respect of an export pipeline and pumping station, the construction, financing, operation and maintenance of such facilities is required to be carried out by the Company. One presumes that the Company, so referred to, might be the Ghana National Petroleum Company, formerly, the Ghana National Petroleum Corporation, but that is only a presumption. It perceptibly could be a utility company, but in the absence of any definition of the Company in this section one is left guessing. Section 28(3) excludes such operations by a licensee from constituting petroleum operations. Quite why this should be so is not clear. The consequences are that the operations of such facilities in accordance with section 28 might be excluded from these very regulations themselves, because this Regulation is a Draft Petroleum Upstream and Midstream (Exploration, Development and Production Operations) Regulation, 2009. That being so such operations might be left unregulated. The Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) as amended defines “petroleum operations" as being “the exploration, development or production of petroleum�. It is silent on where the activity of petroleum production ends. Section 28(4) requires the licensee to include arrangements for each of the parties’ production entitlements to the terminal within a field development plan. Also, and incidentally, the word “terminal� is not defined. Does it mean a storage terminal as referenced in section 28(1)? Does it include the transportation of petroleum to a Final Report Page 43 facility to process the petroleum? Does it include the offloading from a marine terminal? One has to conjecture what might happen in the case of a concrete gravity- based structure (CGBS) platform used to develop an offshore field, where the structure provides for offshore processing of petroleum within its topside arrangements and also for petroleum storage. Clearly, the use of the production facilities on the CGBS would constitute petroleum operations, but the storage of petroleum might not! Section 29: Pipeline tariffs Where the licensee needs to use separate transportation arrangements, the licensee shall pay proportionate tariffs charged by the company, save that the State companies shall be able to discharge their tariff obligation by foregoing a portion of their petroleum to the pipeline company. Interestingly, in section 29 (1) (a) reference is made to nominee(s) (presumably of the Government) who might hold some interest in the pipeline, though how such comes about is not specified. The tariffs charged shall be set at levels that reflect the cost of constructing, financing, and operating and maintaining the pipeline. Here the pipeline is suddenly referenced as being an export pipeline, but it is not known whether this specifically refers only to a pipeline that exports petroleum across a national boundary, or one that dispatches petroleum (in oil-field English exports) petroleum from a field. The tariff may include a reasonable rate of return on the investments made taking into account the risk assumed and the costs of funds borrowed. Where a pipeline is to be built by the licensee, the proposals shall ensure that there is sufficient design capacity to handle and transport the estimated petroleum production from the licence area, and where there is insufficient capacity available capacity shall be used pro rata by the licensee parties. Section 29 (2) requires that the Government or its nominee (?) shall be fully involved in the determination of tariff charges of a pipeline and that such tariff charge shall be allowable contract expenses. The degree to which the Government involves itself in the commercial setting of pipeline tariffs will depend upon the position and relationship of the pipeline company and the petroleum exploration and production licensee. If the owners of the pipeline company are one and the same, and in the same proportions as the petroleum exploration and production licence, the tariff charged will be income to the same parties, and the only concerned will be one of the applicability of fiscal arrangements and the prevention of transfer pricing where the fiscal terms are different for the upstream petroleum operations versus the pipeline operations. In all other circumstances, the commercial position, and hence desire for either a high or a low pipeline tariff will be distorted by the extent of ownership by the parties in either and/ or both the pipeline and the upstream licence. More elaborate regulations may need to be developed in due course to ensure optimal pipeline utilisation, fair commercial access to pipelines, and the avoidance of monopoly development. Final Report Page 44 Section 30: Licence to transport petroleum other than by pipeline Other forms of petroleum transportation, other than by a pipeline shall be licensed by the Authority, such as trucks, ships, boats, and railcars. Section 31: Licence to store petroleum A licence to store petroleum shall be issued by the Authority. Storage may take many forms and dimensions and vary considerably in scope from tank farm of crude oil and offshore FPSO storage to the store of Liquefied Natural Gas. Petroleum as defined in the Act only includes crude oil and natural gas; it does not include petroleum products, such as gasoline, diesel, fuel oils, LPG. Section 32: Requirement to use approved methods and practices for confining petroleum obtained Whilst this section provides sensible advice that petroleum shall be properly contained (and we must remember that we are dealing with petroleum as defined in the Act, including just crude oil and natural gas) the reference to the placing and keeping of petroleum in an earthen reservoir seems bizarre, unless of course this applies to subterranean strategic type reservoir storage. Of course, it is good oilfield practice to keep and maintain petroleum behind steel at all times. Section 33: Decommissioning plan When the use of facilities used in petroleum activities comes to an end, the facilities shall be decommissioned. That is fairly standard for any jurisdiction, but the terms need require better definition. What exactly is meant by petroleum activities (an undefined term) as compared to petroleum operations (a defined term)? And, what indeed constitutes facilities? These terms ought to be included in the interpretation of the Act and/or the Regulations. Decommissioning plans are required to be submitted before a development plan is approved and specific licences are approved for the installation and operation of facilities. Decommissioning is permitted to include the continued or further use of the facilities, their complete or partial removal or abandonment. Comparison between current and proposed amendments to the Laws The two principle petroleum related laws that are being proposed for amendment are: • Petroleum (Exploration and Production) Law, 1984 (PNDC 84); and • National Petroleum Authority Act A comparison of the sections of each Act before and after potential amendment are contained in respective annexes - Annex F: Comparison of Matters for which Final Report Page 45 Regulations May Be Made: Petroleum (Exploration and Production) Law, 1984 (PNDC 84) and the Proposed Amended Petroleum (Exploration and Production) Law, 1984 (PNDC 84) and Annex G: Comparison of Matters for which Regulations May Be Made National Petroleum Authority Act and the Proposed Amended National Petroleum Authority Act General Comment on Laws and Regulations The revised and amended key laws and the draft regulations are quite capable of providing a useful petroleum sector framework. However, there need to be careful consideration to the comments stated above to make the provision work appropriately and void certain deficiencies. Both the laws in their original form and their amendments and the draft Regulations need better and more elaborate definitions of commonly used terms. There is a distinct lack of cross-referencing within both the amended laws and the draft Regulations to particular sections of either. There is also a lack of appropriate reference within the various sections of the amended laws and the draft Regulations. The source of the legislation should also be included in the amended laws. There is also little, if any, reference to the upholding of any standards in respect of petroleum operations, be they upstream, midstream, or downstream. General Advice It is advised that all the laws, draft laws, amendments to laws, regulations and draft regulations should all be placed into the same format in MS Word 2003, so that they can be nimbly used. This will ease the look up of words and phrases and enable ready comparisons of documents. Latest versions of MS Word should not be used there is no forward compatibility in software, but there is backward compatibility. The legislative style should be similar throughout using the formal headings of Parts, Divisions, and hierarchical Sections, Sub-Sections, Paragraphs and Sub-Paragraphs. All the existing law and regulations and all new drafts should be available in frozen electronic versions such as Adobe Acrobat file for public dissemination. Presentation A MS PowerPoint presentation was prepared on Legal Frameworks for Petroleum Development. This discussed the role and essential element of the good petroleum law for the Republic of Ghana. A synopsis of the presentation is contained as Annex H: Synopsis of Presentation on Legal Frameworks for Petroleum Development. Final Report Page 46 Auxiliary Work As a piece of subsidiary work, a possible structure for the Ghana gas industry based on gas off-take from the Jubilee field development was examined. This envisages Offtake of gas at the wellhead by the Ghana National Petroleum Company and its sale through a JV company established through a public private partnership. A schematic of this is shown in Annex I: Ghana Gas. The purpose is to illustrate how a gas industry might work; it is not definitive nor a representation of costs or financial structures of such. . Final Report Page 47 Annexes Annex A: Authority of GNPC Annex B: Review of the Petroleum (Exploration and Production) Law, 1984 - PNDCL 84 Annex C: Discovery and Commerciality Annex D: Requirements for the Submission of a Field Development Work Program Annex E: Monthly Change in Crude Oil Prices with One-Year Moving Average Annex F: Comparison of Matters for which Regulations May Be Made Petroleum (Exploration and Production) Law, 1984 (PNDC 84) and the Proposed Amended Petroleum (Exploration and Production) Law, 1984 (PNDC 84) Annex G: Comparison of Matters for which Regulations May Be Made National Petroleum Authority Act and the Proposed Amended National Petroleum Authority Act Annex H: Synopsis of Presentation on Legal Frameworks for Petroleum Development Annex I: Ghana Gas Industry Possible Structure Final Report Page 48 ANNEX A The Authority of GNPC The Ghana National Petroleum Corporation Law, 1983 (PNDCL 64) (the GNPC Law) established the Ghana National Petroleum Corporation, which became the current Ghana National Petroleum Company. The manner of the transition is not known, particularly as to whether the former Corporation was simply renamed or whether the assets of the former corporation were transferred from the old Corporation to the new Company. The manner of the transition might perceptibly affect the legal authority of the current Company, if it is not one and the same entity as the prior Corporation on account of the fact that the GNPC Law defines the objectives and functions 1 and powers 2 of the Corporation, as opposed to the Company. The GNPC, as established by law as a Corporation, was permitted 3 to be an adviser to the Secretary (now Minister) and the National Energy Board. It was also permitted to engage in petroleum operations; enter into petroleum agreements; deal in petroleum; engage in research and development, and any other activity necessary or desirable to carry out petroleum operations. There is careful distinction in the GNPC Law between GNPC’s obligatory statutory objects, functions and powers, and its permissive statutory capacities. It seems that the GNPC has acted as a de facto regulator alongside being an Adviser to the Government through the Minister. However, its role as an Adviser to the Secretary (now Minister) and the National Energy Board is entirely permissive. The words of the Law state that “the Corporation may….advise the Secretary�; such words are entirely permissive and GNPC does not have to advise the Minister, it may only. It is not properly understood how GNPC has exercised any regulatory capacity. The explanatory memorandum to the draft Ghana Petroleum Regulatory Authority Bill (which was abandoned) stated that: One of the roles of the Ghana National Petroleum Company has been the monitoring and regulation of petroleum activities on behalf of the Ministry of Energy. Moreover, it emphasised and restated in that draft Bill that pursuant to the Petroleum (Exploration and Production) Law, 1984, PNDCL 84: the regulation of the upstream and midstream sector resides with the Minister for Energy though the work is carried out by the Ghana National Petroleum Company. The sector Minster has the right to 1 Ghana National Petroleum Corporation Law, 1983, PNDCL 64, Section 2 (1) and (2) 2 Ghana National Petroleum Corporation Law, 1983, PNDCL 64, Section 3 3 Ghana National Petroleum Corporation Law, 1983, PNDCL 64, Section 2 (3) prescribe and enforce Regulations that relate to exploration and production of petroleum. The same document oddly points out an absence of Regulations for the upstream and midstream sector, which has led to the incorporation of various Regulations into the he petroleum agreement. The Petroleum (Exploration and Production) Law, 1984, PNDCL 84, Section 2(1) provides that: No person other than the Ghana National Petroleum Corporation established. under the Ghana National Petroleum Corporation Law, 1983 (P.N.D.C.L. 64) in this Law referred to as “the Corporation�, shall engage in the exploration, development or production of petroleum except in accordance with the terms of a petroleum agreement entered into between that person, the Republic and the Corporation pursuant to subsection (4) of section 5 of this Law or any other authority granted or recognized under this Law. The above Section gives the GNPC the exclusive mandate to explore for, develop and produce petroleum save that it may make agreements with other parties in collaboration with the Republic. Most importantly, the primary petroleum law of the Republic of Ghana: Petroleum (Exploration and Production) Law, 1984, PNDCL 84 does not provide any further reference to the Ghana National Petroleum Corporation, and hence there are no further authorities established for the Ghana National Petroleum Authority. It thus seems that the GNPC assertions as to its mandate to be the Government regulator are a little uncertain. The Government may listen to GNPC as an adviser, and the Petroleum Agreement may contain certain covenants, but it reality there seems to be no formal mandate of the GNPC to act as the Government’s regulator of the petroleum sector. However, as the petroleum contractors are contractors of the Ghana national Petroleum Company, they are bound to perform in accordance with the petroleum agreements that provide for such. Therefore, the GNPC may exercise commercial authority over the petroleum contractor and thus regulation of a commercial kind, as opposed to statutory regulation. ANNEX B Review of the Petroleum (Exploration and Production) Law, 1984 - PNDCL 84 The Petroleum (Exploration and Production) Law, 1984 -PNDCL 84 consists of thirty-six sections arranged in four parts. It has obvious origins in British law and many phrases are recognisable as being common to the body of petroleum laws that have emanated in UK Commonwealth nations as a result of adoption of, or reference to British petroleum laws. Summary of the Act The following is a précis of the Act made during review. Part I: Petroleum Rights 1. All petroleum is the property of the Republic  Secretary for Fuel and Power represents the State for Petroleum Agreements.  Agreement of Secretary deemed approved unless Council disallows within one month.  Petroleum Agreement is sufficient authority 2. The GNPC has the sole exploration, development and production mandate except in accordance with the Petroleum Agreement between a person, Republic and Contractor.  A Person interested to negotiate a Petroleum Agreement has to submit an application to the Secretary copied to National Energy Board, Lands Commission, Forestry Commission (if appropriate), Public Agreements Board, and the Mineral Commission. 3. Petroleum operations in accordance with Regulations and best international practice, including:-  Secondary recovery  Prevention and waste of petroleum  Maximisation of ultimate recovery  Secure safety health and welfare of persons engaged  In accordance with Directions given, restrictions imposed, or requirements made by the Secretary to ensure compliance with Regulations 4. .Secretary to prepare reference map of numbered blocks of potential fields.  Number of blocks subject of Petroleum Agreement or Authority  Closure of block from time to time unless already let  Redefinition permitted by notice in the Gazette  Change of blocks effective 90 days after Gazettal  In the 90-day period parties with interests may make representations  No closure or redefinition, if subject of a petroleum agreement  Where field extend beyond block boundary, unit development may be required and direction to GNPC or contractor given 5. GNPC has rights over all open blocks where there is no petroleum agreement.  does not affect prior Minerals Act, 1962 rights.  without Petroleum Agreement GNPC operations per Regulations and block programme approved by the Secretary  if GNPC has a contractor, first need Petroleum Agreement. 6. GNPC and contractors have right to enter upon land, subject to Regulation and Law.  Land title and interest holders shall permit operations after consultation,  Land title and interest holders shall be notified of proposed operations,  Land title and interest holders shall be entitled to compensation for loss and damage. 7. Land compensation shall be applied for to the GNPC and/or contractor for:  disturbance of surface rights and damage to surface, buildings, works improvements, livestock crops and trees.  Claims copied to Secretary and Land Valuation Board  Compensation payable shall be determined by agreement, or in absence of such by determination of the Secretary in consultation with the Land Board. 8. Petroleum Agreements shall not be assigned directly or indirectly without Secretary’s consent in writing. 9. GNPC and contractor to furnish information and periodic reports.  Discovery to be notified within 30 days to Secretary and National Energy Board indicating merit of appraisal  For discovery meriting appraisal, GNPC and/or contractor shall prepare programme for appraisal to enable determination of whether it is a commercial field.  Where commercial field, GNPC and/or contractor shall develop.  Where non-commercial, area of structure shall be relinquished. 10. GNPC and/or contractor shall submit to Secretary and NEB a development plan.  No operation until approved  Long term production plans to be submitted  Secretary may direct rate increase or decrease `to enhance ultimate recovery, but not greater than capacity of production facilities. Part II: Petroleum Agreements 11. Defined as agreements between Republic, GNPC, and contractor. 12. Petroleum Agreements limited to maximum 30 years or earlier as agreed, and if no commercial discovery only 7 years or earlier as agreed.  Period up to termination is called the exploration period divided into an initial period and one or more extensions.  If a discovery is made in the last year prior to termination, the secretary may grant an extension comprising just the geological structure of the discovery to enable the determination of whether the discovery is commercial field. 13. Petroleum Agreements are required to contain review provisions in the event of significant changes in circumstances. 14. Petroleum Agreements are required to provide fro phased relinquishments of areas.  Relinquished area are top be contiguous and compact and of such size and shape as to afford effective petroleum exploration operations.  Retained areas are to contain all discovered petroleum reservoirs and such size and shape as approved. 15. Petroleum Agreements shall provide for minimum work and expenditure requirements for each period. 16. Associated natural gas may be used in petroleum operations in accordance with Regulations, good petroleum industry practice and approved production plans.  Natural gas not used in petroleum operations becomes the property of the GNPC except as otherwise agreed. 17. Petroleum Agreement shall provide GNPC with an option to acquire an interest within a certain period after declaration of commerciality on agreed terms. 18. Rents are payable to the Republic during the exploration period. 19. Contractor shall pay income tax in accordance with the law, except as provided in accordance with the terms of a petroleum agreement. 20. Royalty is payable on petroleum produced except as provided for in a petroleum agreement.  The GNPC shall pay royalty as prescribed  Petroleum produced pursuant to a petroleum agreement is liable for royalty payment and liability falls upon the GNPC. 21. Petroleum agreement shall provide that all physical assets purchased, installed, constructed by the contractor, the cost of which is included in exploration expenditure shall be transferred to the GNPC, by the contractor shall have use of them for operations and shall be liable for maintenance, insurance and other costs associated with their use.  GNPC has an option to acquired movable and immovable assets used for petroleum operations at termination.  Transfer of assets to GNPC does not apply to rented or leased items which are imported and re-exported. Part III: Right and Obligations of Contractor and Sub Contractors 22. Contractors and subcontractors shall not assign, directly of indirectly rights and obligations under a sub-contract to a third party. 23. Contractor and sub-contractors shall conduct petroleum operations with due diligence and efficiency and in accordance with Regulations and:  with best international techniques and practices of the petroleum industry  in a workman-like manner  observing sound engineering and technical practices  using appropriate advanced technology  using effective equipment, machinery, methods and materials All data and information obtained by the contractor and subcontractor including: geological, geophysical, technical, financial and economic report, studies interpretations and analyses shall be the property of the GNPC. Contractors and subcontractors shall not retain or export data and information without the prior approval of the GNPC, and if exported the data shall be re- imported to Ghana. Where interpretations and analysis are done outside of Ghana, reports on such must be sent to GNPC. Contractor and sub-contactors shall keep all data confidential, and not disclose to a third party without the Secretary’s approval or as provide for in a petroleum agreement. Contractor and subcontractors shall maintain in Ghana complete and accurate records of all operations, and complete and accurate books of accounts, record and registers. Contractors and sub-contractors shall furnish to GNPC reports on petroleum operations at regular intervals and such data, information and report as GNPC may request. Contractors and sub-contactors shall furnish performance bonds and guarantees as may be required in accordance with Regulations and Petroleum Agreements to ensure fulfilment of obligations, discharge of liabilities, and compliance with this law and the Regulations. Contractors and sub-contractors shall indemnify the GNPC against all claims arising from operations brought by third parties. In accordance with Regulations and Petroleum Agreements, opportunities shall be given as far as possible for the employment of Ghanaians having required expertise and qualifications at various levels. Contractors and sub-contractors shall not discriminate on the basis of race, nationality or sex in the terms of conditions of personnel for services. Contractors and subcontractors shall as far as practicable use goods and services produced and provided in Ghana in preference to foreign goods and services. Contractors and subcontractors shall, in accordance with Regulations and Petroleum Agreement, prepare and implement plans and programmes for training Ghanaians in all job classifications in all aspects of petroleum operations Contractors and subcontractors shall prepare and implement plans for the transfer of advanced technological know-how and skills relating to petroleum operations, except to the extent that such would disable them from protecting their competitive position in the petroleum industry. Contractors and subcontractors, which are not incorporated in Ghana shall:  register an incorporated company in Ghana and such company shall be the signatory of any petroleum agreement  maintain an office in Ghana with a representative with full authority to make binding commitments  open and maintain an account with a bank in Ghana. Contractors and subcontractors shall not transfer any shares in its Ghanaian company to a third party with out the written approval of the Secretary, if such would:  give the third party control of the company, or  enable the third party to takeover the interests of a shareholder who owns more than 5% of the shares in the company. Contractors and subcontractors shall maintain at the work site an establishment capable of dealing with fire, oil spills, blow-outs, accident and emergencies to prevent such and to control situations and minimise losses and damage arising from such. Contractors and subcontractors shall be responsible for any pollution and damage caused by operations, and shall take all measure necessary to remedy such. If the contractors or subcontractors fail to carry out operations in a safe manner in accordance with the Regulations and best international techniques and practices, GNPC may after giving notice, take all measures necessary to ensure safety and recover the costs of such from the contractors and subcontractors. 24. A contractor has the right to carry out petroleum operations in the area in association with the GNPC subject to this Law, the Regulations and the petroleum agreement. A contractor shall be permitted to export petroleum, to which he is entitled under the terms of petroleum agreement. In circumstances of war or emergency affecting energy supplies, the Secretary may requires all or part of the petroleum produced to the Republic or its agent. Part IV: Miscellaneous 25. Transaction between contractors or subcontractors and their affiliates shall be on the basis of prevailing competitive prices, terms and conditions as if the transaction had taken place with a non-affiliate. 26. Auditors appointed by the GNPC shall have the right to inspect test and audit the work, equipment, operations and financial books of accounts, records and registers relating to petroleum operations. 27. The Secretary may authorise any person to inspect any petroleum operations to ensure they are being carried in accordance with: this Law, the Regulations and the petroleum agreement. Person authorised have right to:  Enter to all places used by the GNPC, contractor and subcontractor for petroleum operations.  Inspect, test and audit the works equipment, operations, and financial books of account, records and registers relating to operations.  Take and remove samples of petroleum water or other substances from a well  Inspect, take extracts from and make copies of any document relating to operations  Make such examinations and inquiries as are necessary to ensure that provisions of this Law and the Regulations are being complied with. The GNPC, contractors or subcontractor shall provide all reasonable facilities and assistance to enable the effective and timely performance of the inspection functions. 28. After all the termination of all petroleum operations the GNPC or the petroleum contactor as applicable shall restore the affected areas and remove all causes of damage or danger to the environment in accordance with the Regulations. Restoration includes:  Removal of all property brought into the area, no longer required for petroleum operations  The plugging and closing of all abandoned wells  The conservation and protection of the natural resources of the area 29. The Secretary may request any person to furnish to him information and documents, and a person so requested shall comply within the period specified. 30. The Investment Code 1981, (Act 437) does not apply. 31. Persons who-  Undertake petroleum operations outside of this law,  Unlawfully interfere with or obstruct the GNPC, a contractor or subcontractor or their agents or employees,  Wilfully obstructs, hinders or assaults any person in the exercise of power, right or performance under this law,  Contravenes any provision of this law – – shall be guilt of an offence and liable to a fine of Cedis 1,000,000 on conviction, and a fine of Cedis 1,000,000 for each day of the continuance of the offence or to imprisonment not exceeding six months or both. Where an offence is committed by a body of persons, be it respectively a corporate body or a partnership, every director or partner, and officer shall also be deemed to be guilty, unless a person may prove that the offence was conducted without his knowledge. 32. The Secretary may make Regulations prescribing all matters that by this Law are required or permitted to be prescribed or are necessary or convenient to be prescribed for carrying out or giving effect to this Law, but without prejudicing such generality, the Secretary may prescribe regulations for-  Safe construction, maintenance and operation of facilities  Health safety and welfare of persons employed  Prevention of pollution and remedial actions  Inspection of areas of operations and equipment  Reporting of and inquiries into accidents  Keeping and inspection of records, accounts, statistics and plans  Relinquishment of area subject of petroleum agreements  Protection of fishing, navigation and other activities  Making and submission of reports, returns and programmes  Standard for petroleum and petroleum products and their transportation  Rates, method of calculation, manner, and time of payment of royalty  Reference maps of blocks with guidelines on maximum block holdings  Competitive bidding procedures for petroleum agreements.  Determination of value of crude oil and natural gas  Investment programmes submission to the Secretary and Energy Board  Conservation of natural resources and waste avoidance  Accounting and reporting procedures  Minimum condition of service of workers in petroleum operations  Terms and conditions of petroleum agreements  Rates and method of setting rates of petroleum and water production  Methods of measurement of petroleum water and other substances  Reservoir pressure maintenance/re-pressuring, and petroleum recycling  Terms and condition of GNPC sole petroleum operations  Restrictions on rights of a contractor  Penalties for offences against the Regulations 33. This section provide interpretation of key terms used in the Law including: Affiliate, contractor, crude oil, development, discovery, exploration, natural gas, petroleum, petroleum agreement, petroleum sub-contract, petroleum operations, petroleum product, production, Regulations, Republic, State, and sub-contractor. 34. The Minerals Act, 1962 (Act 126) is repealed and any Regulations made under that Act remain in force so long as they are consistent with this Law until amended or revoked. The Petroleum (Exploration and Production) Law, 1983 (PNDCL 68 is hereby repealed. 35. Oil prospecting licences or oil-mining licences granted pursuant to the Minerals Act, 1962 (Act 126) were grandfathered for a period of six months or more to enable the licensees to negotiate petroleum agreements under this law. 36. The Law was deemed to come into effect on 1st October 1983. ANNEX C Discovery and Commerciality How to define a discovery In the oil business, we often hear reports that some company, or the other, has discovered oil or gas, but just what does that mean? The Oxford English Dictionary defines to discover as being: • to find or learn about a place, object, or thing for the first time; • to learn or find out a piece of information; • to be the first person to realize something; or • to find something unexpectedly. In the context of our the petroleum business, to discover oil or gas might therefore correspond to the first finding of oil or gas in a place, and the first knowledge of the presence of oil or gas at that particular place, often as not at a certain depth in an oil and gas exploration well. Importantly, there is no sense of quantity or amount involved in the word discovery. Even the smallest amount of a substance discovered constitutes a discovery of that substance. However, a small amount of oil or gas, unlike gold, is not so valuable, so some measure or element of the quantity of the discovery has to be added to the definition to make it useful. A barrel 1 of oil at today’s prices might sell for around US$ 75 after being won from the ground, separated from associated water and gaseous and other impurities, and delivered to a sales point. Similarly, five thousand standard cubic feet (MSCF) (or 141.6 standard cubic metres of natural gas, in metric units), the volume of natural gas that has approximately the same energy equivalence as a barrel of light crude oil, might sell for just US$ 5 per MSCF. By sharp contrast, a barrel of gold at US$ 1,000 per ounce would be worth a staggering US$ 108 million. To have the same value, one would need to discover as much as 1.44 million barrels of oil. Given that even the best oil reservoirs tend to only yield 50% or so recovery of the original oil in place (OOIP) and that the oil is generally held in the limited pore spaces of the reservoir rock, even if the rock pores are devoid of water, one would need to identify a reservoir with an average 10% porosity, thickness of 10 metres, and lateral extent of over 4.55 square kilometres to yield an equivalent value to our barrel of gold! A similar argument may be made in respect of natural gas. Hence, the discovery of oil in itself is useless or valueless without there being a significant volume of oil that may be recoverable. In many circumstances, oil is 1 One US barrel is equivalent to 0.158988 cubic metres, or 5.6146 cubic feet discovered, but is unable to flow to the surface on account of the reservoir pressure being inadequate to push the oil up the well to the surface. On other occasions, the flow of oil out of the pore space is prevented by much more mobile and less viscous water, within the pores spaces, getting in the way of the flow of the oil, or simply the oil cannot flow because the pore spaces are too small or they are not well-linked to permit flow; we say the reservoir rock has low permeability. Many definitions of an oil or gas discovery therefore qualify the presence of an accumulation of oil and/or gas as truly constituting a discovery, with the criterion that the identified oil and/or gas must be able to flow and be measurable at the surface in order to constitute a real discovery. The Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) as amended section 33 states that: “Discovery� means petroleum not previously known to have existed, recovered at the surface in a flow measurable by conventional industry testing methods. It is importantly noted that the capacity of the petroleum to flow to the surface is the criterion, not whether is has actually been flowed to the surface in a well test. Modern borehole pressure testing equipment tools (such as the Repeat Formation Tester [RFT] or Multiple Formation Tester [MFT], SFT, MDT, etc) permit the explorer to conduct mini-well tests in situ in the borehole adjacent to the reservoir horizon obtaining vital information about reservoir pressure, permeability, and pressure drawdown; fluid type, density, and flow; and even sample of the reservoir fluid at ambient conditions. From these measurements, reservoir and production engineers can deduce whether the identified petroleum would indeed flow to the surface were it to be subjected to a much more expensive and time consuming well test. Naturally, there is no better proof of discovery than the free flow of petroleum to the surface in a properly conducted well test. The Petroleum (Exploration and Production) Law, 1984 (PNDCL 84) definition of discovery is quite acceptable, but as to how one would cope with a discovery pursuant to that definition which, when subjected to a full well test, produced just limited amounts of petroleum before either ceasing to flow any fluid at all, or turning to water might be a problem. Small isolated accumulations of oil and/or gas could conceivably flow for just a few days only to be depleted of their reservoir pressure and thus not have adequate reservoir energy to push the petroleum fluids up the well bore. In some circumstances, particularly that of fractured reservoirs, the flow of oil and/or gas may ensue rapidly at first, through the fracture system within the reservoir rocks, only to subside when the small volume of the fracture system has been exhausted. At such time, if there is no significant porosity in the matrix of the rock, all fluid flow may cease. Does such a discovery which ceases to be able to flow to the surface, also cease to be a discovery? Of course, what all oilmen, and their host Governments alike, dream of is the large sustainable flow of oil and/or gas from substantial petroleum bearing reservoirs. To discover oil and/or gas is but part of the game, for both parties; the real aim is to make money, and quite essentially, significant volumes of recoverable oil and gas are required to reward the stakeholders for their considerable exploration, development and production efforts and expenses. The Ministry of Energy is advised to be cautious in it use of the term discovery within Government. Discovery should not be translated into undue expectation of oil and gas field development and petroleum incomes. Development of any oil and/or gas accumulation (what we term a pool) only comes as and when there are proven to be adequate recoverable oil and/or gas reserves to warrant the expense and effort of development and production operations. Discovery is the first elemental step towards development, but it is only the initial identification of the accumulation of petroleum, the scope and dimensions of which have to be subsequently ascertained. The evaluation of the results of an exploration well needs to be done most carefully. Full attention to the monitoring of the petroleum operations is essential to preserve the interests of the Nation, not that the petroleum companies might mislead the Government, but errors of interpretation and judgement do occur. In one famous case in Papua New Guinea, the operating petroleum company thought that it had made an oil and gas discovery, and in an effort to keep up with its fiduciary duties to its shareholders and its Australian Stock Exchange listing requirements, it issued a press release announcing that it had made a significant oil and gas discovery of considerable thickness with well logs showing a gas cap overlying a respectable oil column. The company’s development geologist courteously delivered a copy of the press release to the author at the Government’s Petroleum Division at the Department of Petroleum and Energy together with a set of the well logs (which necessarily excited the author). After ten minutes of cursory review of the logs, the author announced to the development geologist that the company had not discovered any oil or gas, but that the well had rather encountered reservoirs full of water. The press release was suitably endorsed and sent back to the company’s managing director, who was stunned in disbelief. The company proceeded to evaluate the well with a full well test of the various supposed hydrocarbon bearing reservoirs, but the well tests flowed only water. Such was not only a grave disappointment to the company, but also to the Government who naturally would have preferred a discovery. Consider the circumstances, were they to have been the other way around: with the company declaring a dry hole, whilst the Government thought that there were technical signs of oil and/or gas being present in the reservoirs. It would then behove the Government to have to tell the petroleum company to conduct well tests in circumstances where the company may think that there is no reason to do so. Just as a mis-declared discovery was revealed, perhaps in some circumstances a mis-declared dry hole might turn out to be an oil or gas discovery well after all. This is the value of operational monitoring by the host Government to make sure that the evaluation of the results of exploration well is carried out most proficiently. Commercial Discovery As discussed above, discovery in itself whilst raising the morale of the assembled and participating stakeholders, does not afford any return for their efforts. It is only the successful delineation of the discovery pool by the drilling of appraisal wells and additional geological and geophysical work that determines the full extent of the discovery and whether there is a volume of petroleum present that may in due course warrant a commercial investment for its recovery. It is normal for a Government to require a petroleum licensee to report any discovery as soon as possible, and thence to go about operations to ascertain vital information about the discovery including, but not limited to the chemical composition and physical properties of the petroleum, and the nature of the subsurface geology in which the petroleum has been discovered. This is a most important time for the Government with respect to its responsibilities to monitor petroleum operations for and on behalf of the people of the nation and it should persist through the appraisal phase. Having established that there is indeed a petroleum accumulation, the next thing that everyone wishes and needs to know is the extent of the accumulation. Again, it is normal for a Government to require the petroleum licensee or contractor to do what is necessary to determine the quantity of petroleum in, and the extent of, the petroleum pool, including the conduct of drill-stem well tests or extended production tests for the appraisal of the petroleum pool to which the discovery relates. The purpose of the appraisal is to determine whether there is a volume of petroleum that might be recoverable in sufficient quantity to make a commercially viable development of the petroleum pool feasible. In this instance, commercially viable means that a proposed development might make or be intended to make a profit. The word commercial in this context has nothing to with the act of just selling a volume of petroleum that is able to be marketed; it has everything to do with profit. It is similarly in the interests of both the host Government and the companies that a profit be made, especially where the fiscal system is dominated by the payment of income taxes as the main revenue generating mechanism from the enterprise. In the business of oil and gas exploration, development, and production, the winning of the petroleum from the ground and its sale or other disposal has first of all to earn more money than the costs of:  the underlying exploration that gave rise to the petroleum discovery;  the delineation and appraisal of the discovered petroleum pool;  the subsequent development of the petroleum pool or pools as a petroleum field by  the drilling and completion of production well; and  the construction of associated production and pipeline infrastructure;  the ongoing production operations; and finally  the abandonment of all the wells, facilities and pipelines. The production and sale of the produced oil and gas has to cover all these costs and yet still afford:  the payment of royalty to the host Government;  the payment of taxes, other duties, and levies charged by the host Government; and  make a profit for the shareholders of the companies holding the concession at acceptable industry levels. One often misunderstood fact is the equilibration of the significant exploration and appraisal risks assumed by petroleum companies, who may be successful in discovering petroleum in one country, but may have dismal failure in another. Consequently, the threshold profitability on the development of a given petroleum discovery tends to be somewhat higher than normal commercial and industrial profit requirements. Typically, the petroleum industry therefore seeks a minimum of 15% rate of return on its successful investments in oil and gas field developments. The applicable fiscal terms for petroleum developments in a particular nation are generally established by laws and regulations, and sometimes by agreement. Once so established, they are not normally the subject of change. The predominant variables that exist are:  the volume and timing of the production of oil and gas;  the capital and operational costs of exploration, development operations; and  the pricing of the resultant oil and gas production. Whilst natural gas prices may most often be established in contracts for the long term delivery of agreed annual and daily contracted quantities, the price of crude oil sales and associated natural gas liquids is determined by global crude oil pricing. Crude oil prices have demonstrated considerable volatility and an extraordinary rise since the end of 2003. The two-year moving average price of West Texas crude (a global benchmark for light sweet crude oil) varied only between US$ 15.40 to 27.70 per barrel in the ten-year period up to the end of 2003, but then rose to the dizzy value of nearly US$ 150 per barrel only to fall precipitously back to US$35 per barrel and recover steadily to present levels of around US$ 75 per barrel. As to whether, global crude oil prices will remain so elevated is not known, and will surely only be determined by global oil supply and demand, and the waxing and waning fears and apprehensions of the disturbance of such due to political events. The consequent uncertainty for host Governments and exploring petroleum companies alike is whether new oil and gas field developments may be able to be undertaken or not, and on what crude oil price should one conduct the economic analysis of a given oil and/or gas field development. Allied to the rise in crude oil prices, there has been a surge in exploration and development endeavours by the petroleum industry world wide. This has caused a heightened demand for the supply of goods and services to the petroleum industry, which has translated into a considerable rise in the cost of for such, and hence a consequent escalation in the overall costs of oil and gas field development. There has been a notable dependency of oil field development costs on the prevailing crude oil price in recent years. Since 2002, petroleum industry costs have risen dramatically: semi-submersible rigs costs have risen by as much as 180%; oil field pipe has risen by between 40 to 50%; the price of steel has risen by 80%; and project management costs are up by 80%. If we take for example a certain oil field development of 165.85 million barrels at a development cost of around US$ 1,049 million with an oil price of US$ 45 per barrel, it might just achieve a threshold rate of return of 15% for the contractor company. At a higher oil price of US$ 60 per barrel, the development cost may be estimated to escalate to around US$ 1,438 million. Were the underlying development costs not to have escalated, the rise in oil price would either have increased the rate of return to 18.6%, or enabled a development to take place still achieving a 15% rate of return based on a lower volume of recoverable reserves of just 146 million barrels. However, the increased development costs will erode the windfall of the higher oil price, and necessitate a larger developable reserve of 161 million barrels. Thus, much of the extra value arising from the currently elevated oil price is absorbed in increased development costs. Assumptions about exploration, appraisal, development and production costs can determine whether a field is developable or not, just as much as the prevailing price of crude oil. After initial discovery, much discussion will ensue between the host Government and the petroleum companies who have made the discovery as to whether there will indeed be a developable field. This may induce speculation on the part of either party which should not be allowed to get in the way of sound and qualified professional estimates of reserves, costs, and likely fiscal and profit outcomes. The draft Petroleum Upstream and Midstream (Exploration, Development and Production Operations) Regulation, 2009 requires the licensee to notify the Authority of a discovery of petroleum. A single well, whilst identifying moveable hydrocarbons, might not constitute a discovery in itself of commercial quantities; most often the initial results of drilling need subsequent confirmation by the drilling of appraisal wells to delineate the accumulation. Even those appraisal efforts may not yet identify commercial quantities of petroleum, so notwithstanding the identification of petroleum by the wells, no commercial quantities of petroleum might be found. However, if aggregated the separately discovered petroleum volume may be commercially viable for development. This could be understood as meaning an aggregate of quantities of petroleum identified by different wells, perhaps in different pools and/or fields, which together might make a commercial quantity, but separately not be so. In the case of the discovery of a number of small discrete accumulations each of less than commercial quantities, it might be recommended that the Authority accepts an appraisal work programme on the basis that the accumulations might be possibly commercial when produced together. It is obviously in the interests of the Ministry of Energy to encourage coordinated development of multiple smaller fields, which may when combined in a single development may constitute a commercial viable development project. Such would in fact constitute an effective marginal field policy. ANNEX D Requirements for the Submission of a Field Development Work Program Introduction A field development plan is submitted by a licensee who intends to develop a field in respect of a discovered accumulation of petroleum which the licensee believes is worthy of investment for commercial development. That investment will provide for the construction, establishment and operation of facilities and services for and incidental to the recovery, processing, storage and transportation of petroleum from the contract area. Criteria for Approval A field development work program should provide significant details of the proposed development, but should essentially satisfy the Authority that the proposals for development: a) will achieve maximum efficient recovery and prevention of resource waste by applying good oilfield practice; and b) do not interfere with the rights of licensees of adjacent licences covering common petroleum pools; and c) provide adequately for the protection of the environment and the welfare of the people of the area (if any); and d) have duly considered coordinated development of any adjacent petroleum discoveries; and e) promote viable domestic utilization of petroleum and petroleum products to the extent reasonably possible; and f) promote local content in the provision of goods and services to the development and subsequent field operations; and g) will otherwise be in the best interests of the Republic of Ghana. Important Particulars The degree to which details of the proposed development are submitted will depend on the specific requirements of the Authority. Some matters to be submitted are essential information for the Government to know about the development, whilst other matters are highly technical information or specific and thematic related information, which will help the Authority to understand the overall development and help it provide its approval. Important particulars of a field development work program are: A. the chemical composition, physical properties and quality of petroleum discovered; B. the thickness and extent of the production strata; C. the petrophysical properties of the discovery, including permeability and porosity of the petroleum reservoir; D. the petroleum reservoir’s productivity indices for wells tested at various rates of flow; and E. the estimated production capacity of the petroleum pool. General Content The field development work program should contain: 1) proposals for the disposition of natural gas found in association with crude oil in a petroleum pool; 2) proposals relating to the spacing, drilling and completion of wells, the production and storage installations and transport and delivery facilities required for the production of petroleum, including: a) the estimated number, size and production capacity of production platforms; b) estimated number of production wells; c) particulars of production equipment and storage facilities; d) particulars of feasible alternatives for the transportation of petroleum including pipelines; and e) particulars of technical equipment required for the Operations or Joint Operations; 3) economic feasibility studies carried out by or for the licensee in respect of the discovery, including an analysis of prospective cash flows from the operations which the licensee proposes to undertake; 4) the estimated production profiles for crude oil and natural gas from the petroleum pool; 5) cost estimates of capital and recurrent or non-capital expenditure; 6) proposals for financing the development which will cover, in relation to each petroleum contractor: a) its choice of corporate vehicle for the development; b) the type or types of financing it will employ (debt, equity, internally- generated funds) and the amount of each it will raise; c) markets in which third party debt (if any) will be raised either by the petroleum contractor itself or (in the case of debt raised exclusively to finance operations or joint operations) any affiliated corporation and the timing of approaches to such markets; and d) the security package to be offered to any third party lenders; 7) proposals (if any) relating to the establishment of processing facilities and processing of petroleum in the Republic of Ghana; 8) safety measures to be adopted in the course of development and production, including measures to deal with emergencies; 9) an estimate of the time required to complete each phase of the proposed development; and 10) an environment and social impact assessment, and plans of the mitigation of such impacts. Typical Field Development Work Program The contents of a typical field development program are as follows: 1) OVERVIEW AND SUMMARY a) Executive Summary b) Exploration, Appraisal and Intended Development Overview c) Previous Development and Production Experience d) Program Execution e) Concession & Equity Interests of Participants f) Field Background 2) TECHNICAL REVIEW a) Field Wells and Sidetracks b) Field Well Summary c) Field Well Objectives d) Field Well Histories e) Stratigraphy f) Formation Evaluation g) Core Analysis i) Routine Core Analysis ii) Special Core Analysis h) Petrophysical Analysis i) Hole Conditions & Log Quality ii) Matrix and Fluid Densities iii) Tortuosity, Cementation & Saturation Factors (A, M & N) iv) Water Resistivity (Rw) v) Vclay Determination vi) Porosity Determination vii) Reservoir Parameter Cut-Offs viii) Water Saturation ix) SFT/RFT Pressure Test Data i) Dipmeter Analysis j) Preliminary Interpretation i) Reservoir Properties ii) SFT/RFT Pressure Data iii) Well Flowing/Build-up Test iv) Formation Pressure and Temperature v) Fluid Properties vi) Current Mapping vii) Preliminary Original Oil-In-Place Volumes viii) Formation Volume Factor ix) Reservoir Simulation Models x) Estimated Recoverable Reserves of Oil, Natural Gas & Natural Gas Liquids k) Summary of Information Gained from Wells 3) OUTLINE OF DEVELOPMENT PROGRAM a) Summary Technical Description of the Development Program 4) SAFETY AND ENVIRONMENTAL PLAN a) Safety Plan i) Overview ii) Company Policy and Responsibilities iii) Safety in Design iv) Safety in Construction v) Safety in Operations vi) Medical Support to Operations and Emergencies b) Environmental Study i) Natural Environmental Impacts c) Socio-Economic Impacts, i) Initiatives ii) Environmental Monitoring iii) Conclusion d) Security Plan 5) PROJECT ACCESS AND LOGISTICS a) Overview of Project Access and Logistics Plan i) Freight Tonnage Forecast ii) Ocean Freight iii) Air Freight iv) Road Freight v) Helicopter Support vi) Freight Support Services vii) Support Facilities viii) Construction Camp(s) ix) Demobilization of Temporary Facilities x) Access to Locations, Sites, Flowline & Pipeline Routings xi) Personnel Transport to Fabrication Areas xii) Personnel Transport to Field, Flowline & Pipeline Route 6) DRILLING, WORKOVER & COMPLETIONS a) Drilling i) Well Planning ii) Well Design b) Completion Design i) Completion Design Criteria ii) Subsea Equipment Configuration iii) Surface Equipment Configuration c) Workover and Wireline Operations i) Well Intervention ii) Workover Rig and Wireline Unit Specifications d) Safety in Operations i) Safety Programmed ii) Hazard Elimination and HAZOP Studies iii) Pressure Control - Rig and Wireline Operations iv) Personnel Safety Equipment 7) PROJECT DESIGN & CONSTRUCTION a) Scope b) Standards and Specifications c) Design Basis i) Reservoir Characteristics ii) Facilities Required d) Description of Proposed Facilities i) Wells ii) Gathering System iii) Subsea Systems iv) Platforms v) Processing Facilities vi) Gas Use and Disposal vii) Gas Flaring Requirements and Limitations viii) Produced Water Disposal ix) Crude Storage (FSO, FPSO, CGS) x) Crude Transport xi) Natural Gas Liquids Transportation xii) Natural Gas Offtake xiii) Crude Terminal Identification xiv) Communications and Controls 8) FIELD FACILITIES a) Overview b) Physical Conditions i) Location ii) Bathymetry iii) Sea Conditions iv) Currents c) Wellsite Facilities i) Wellhead Valving and Piping ii) Subsea Completion Configurations iii) Safety Devices iv) Other Wellsite Facilities v) Flowline Description vi) Chemical Injection vii) Intermediate Shutdown Valves viii) Scraper Pig Launching and Receiving Facilities ix) Corrosion and Erosion Monitoring x) Inspection d) Production Facilities i) Separation Facilities ii) Gas Handling Facilities iii) Produced Water Handling iv) Crude Oil Treating v) Gas Conditioning vi) Monitoring and Control Systems vii) Utilities e) Field Facilities Construction i) Access ii) Seabed Surveys iii) Mechanical Installation iv) Flowline Route Survey v) Flowline Installation vi) Gas Lift Line vii) Platform Installation viii) Topside Installation f) Commissioning i) Schedule of Commissioning ii) Mechanical Completion iii) Acceptance of Crude iv) Acceptance of Natural Gas and Natural Gas Liquids 9) PRODUCED OIL, NATURAL GAS AND NATURAL GAS LIQUIDS TRANSPORT a) Facilities for Offloading b) Export Pipelines c) Domestic Pipelines 10) METERING AND ALLOCATION a) Overview b) Process Measurements i) Production Measurements ii) Oil Measurements and Export Oil Determination iii) Gas Measurement and Total Production Determination iv) Plant Gas Measurements v) Produced Water Volume Determination 11) FIELD OPERATIONS AND MAINTENANCE a) Overview b) Regulatory Requirements and Reporting Procedures i) Rules and Regulations ii) Reporting Procedures c) Operating and Equipment Manuals i) Operations Manuals ii) Equipment Manuals d) Contingency Plans e) Monitoring and Maintenance i) Monitoring and Inspection Programmed ii) Preventative Maintenance Programmed f) Logistics i) Personnel Movement ii) Service and Supply iii) Communications 12) FUTURE UTILISATION AND/OR ABANDONMENT a) Overview b) Future Utilization and Abandonment i) Wells ii) Platform iii) Flowlines iv) Offloading Facilities v) Pipelines 13) SCHEDULE AND COST ESTIMATE a) Overview b) Project Development Schedule c) Costs i) Introduction ii) Scope iii) Estimate Assumptions iv) Cost classification and quality 14) ECONOMIC DISCUSSION & ASSUMPTIONS a) Overview b) Capital & Operating Costs c) Production Forecasts d) Production Balancing e) Royalty Assumptions f) Tariffs g) Oil, Natural Gas and Natural Gas Liquids Forecasts h) Net Cashflow Estimates 15) FINANCING PROPOSALS & ARRANGEMENTS a) Corporate vehicle b) Financing type i) Debt ii) Equity iii) Internally generated funds c) Timing and amounts of financing d) Markets for third party debt e) Financing from affiliates f) Security to third party lenders 16) LEGAL & COMMERCIAL a) Background and Concession Interests b) Relevant Contracts c) Pre-Development Agreement i) Pre-Unit Accession Agreements ii) Surface Access & Facility Use Agreements 17) OTHER MATTERS a) Socio-Economic Impacts b) Any Land Needs of The Project i) Land Ownership, Access and Acquisition c) Training and Localization i) Introduction ii) Background iii) Training and Localization Approach iv) Mandatory Training Programmed v) Recruitment of Labor vi) Estimate of Workforce d) Local Business Development i) Overview ii) Policies for Business Development iii) Project Support for Business Development e) Local Content Studies and Plans i) Local Goods ii) Local Services 18) SUMMARY AND CONCLUSIONS Treatment and Review Each of the above items should be systematically reviewed and cleared by the Authority to the extent that they are relevant to the development that is proposed. The Authority should not try to second-guess the licensee, but rather quality control the work of the licensee and ensure that it is fit for purpose. Undue debate should not be entered into; after all, the licensee has been selected on account of his capabilities in the first place, and should know what he is doing. Recommendation Whilst the task of reviewing a Field Development Plan may appear to be a daunting one, and Authority staff may feel overwhelmed or lacking specific expertise, they should realise that the petroleum contractor will have made his best efforts to devise and design a suitable development. The review process of the Authority is therefore not a technical audit, but simply that: one of review, so that the Authority understands the rationale for the development, the nature of the development, and the logic in the choice of development style. Above all, the Field Development Plan must be read carefully and intelligently. Even if the reviewers are not the very best petroleum geologists, geophysicists, or engineers, with their basic knowledge, they should be able to comprehend the Field Development Work Program, and be able to discern any major problems. The essential ingredient to review is reading, and the formulation of written questions to the licensee, the responses to which will: (a) assist the reviewers understand aspects of the document; (b) elucidate parts that are not comprehendible, and (c) provide discussion on development design, selection, and implementation. There is always a tremendous amount to be learned in this process for the willing professional petroleum administrator who is prepared to sit down and carefully read through a Field Development Plan. Indeed, one might suggest that the extent to which reviewers relish such a seemingly burdensome reading exercise is a true indicator of their professional capacity. There is absolutely no substitute for such careful reading though of the document. 30 US$ per barrel Annex E: Monthly Change in Crude Oil Prices with One-Year Moving Average 25 20 15 10 5 Month 0 Feb-82 Nov-84 Aug-87 May-90 Jan-93 Oct-95 Jul-98 Apr-01 Jan-04 Oct-06 Jul-09 ANNEX F Comparison of Matters for which Regulations May Be Made Petroleum (Exploration and Production) Law, 1984 (PNDC 84) and the Proposed Amended Petroleum (Exploration and Production) Law, 1984 (PNDC 84) There are no changes to the matters for which Regulations may be made in respect of the proposed Amended Petroleum (Exploration and Production) Law, 1984 (PNDC 84). S. 32 (2) S. 32 (2) Regulatory Matter Regulations Proposed Petroleum Amended (Exploration Regulations and Petroleum Production) (Exploration Law, 1984 and (PNDC 84) Production) Law, 1984 (PNDC 84) (a) (a) ensuring the safe construction, maintenance and operation of installations and facilities used in connection with petroleum operations; (b) (b) the safety, health and welfare of persons employed in petroleum operations and generally for all necessary safety measures; (c) (c) the prevention of pollution and the taking of remedial action in respect of any pollution which may occur in connection with petroleum operations; (d) (d) the inspection of areas in which petroleum operations are being carried out and of any plant, machinery and equipment within those areas; (e) (e) the reporting of and inquiries into accidents arising out of petroleum operations; (f) (f) the keeping and inspection of records, accounts, statistics and plans with respect to petroleum operations; (g) (g) the relinquishment of portions of areas subject to petroleum agreement; (h) (h) the protection of fishing, navigation, and other activities carried out within or in the vicinity of any areas in which petroleum operations are being carried out; (i) (i) the making and submission of reports, returns and programmes; (j) (j) the standards for petroleum and petroleum products and transportation thereof; S. 32 (2) S. 32 (2) Regulatory Matter Regulations Proposed Petroleum Amended (Exploration Regulations and Petroleum Production) (Exploration Law, 1984 & (PNDC 84) Production) Law, 1984 (PNDC 84) (k) (k) the rates of royalty payable in respect of petroleum production, the methods of calculation of the amount of royalty and the manner and times of payment thereof; (l) (l) the reference map of numbered areas, each of which shall be described as a “block�, and guidelines on the maximum number of blocks that may be held under a petroleum agreement by an applicant; (m) (m) competitive bidding procedures for petroleum agreements; (n) (n) determining the value of crude oil and natural gas; (o) (o) requiring the Corporation and any contractor to submit to the National Energy Board and the Secretary their investment programme; (p) (p) the conservation of natural resources and the avoidance of waste, whether petroleum or otherwise, of the land to which this Law applies; (q) (q) the accounting procedures to be followed and reporting on all petroleum operations; (r) (r) the minimum conditions of service for workers engaged in petroleum operations; (s) (s) the terms and conditions of petroleum agreements pursuant to subsection (2) of section 2 of this Law; (t) (t) the rates or methods of setting the rates at which petroleum and water may be recovered from any well or petroleum reservoir; (u) (u) the methods to be used for the measurement of petroleum, water and other substances from a well; (v) (v) the pressure maintenance in, or repressuring of, a petroleum reservoir and the recycling of petroleum; (w) (w) the terms and conditions under which the Corporation shall undertake the exploration, development and production of petroleum not in association with a contractor pursuant to subsection (3) of section 5 of this Law; (x) (x) the specified areas in which the exercise of rights of a contractor under subsection (1) of section 22 of this Law to carry out petroleum operations shall be restricted; and (y) (y) the penalties for offences against the Regulations. ANNEX G Comparison of Matters for which Regulations May Be Made National Petroleum Authority Act and the Proposed Amended National Petroleum Authority Act S. 80 (1) S. 106 (1) Regulatory Matter Regulations Regulations National Amended Petroleum National Authority Petroleum Act Authority Act Not included (a) Work conditions Not included (b) Confidentiality Not included (c) Public disclosure by licensees Not included (d) Exploration for petroleum and operations and works for such Not included (e) Production of petroleum and operations and works for such Not included (f) Conservation and prevention of waste of natural resources and the carrying out of environmental impact studies Not included (g) Form, content and conditions for application for grant or renewal of licences Not included (h) Construction, erection. Maintenance operation and use of installations or equipment Not included (i) Prevention of escape of water or drilling fluid or mixture of both or any other substance Not included (j) Prevention of control of and liability for petroleum pollution Not included (k) Removal of structures, equipment, and property brought intot Ghana for exploration, production and conveyance of petroleum not use or not intended to be used for such Not included (l) Pressure maintenance in an the re-pressurisation of a petroleum reservoir and recycling of petroleum Not included (m) Secondary and tertiary recovery of petroleum from a petroleum reservoir and methods for used for such recovery Not included (n) Use of wells and subsurface disposal of petroleum water and other substances produced in exploration and petroleum recovery Not included (o) Rate and methods of setting rates at which petroleum and water may be recovered from any well or petroleum reservoir S. 80 (1) S. 106 (1) Regulatory Matter Regulations Regulations National Amended Petroleum National Authority Petroleum Act Authority Act Not included (p) Methods to be used for the measurement of petroleum water and other substances (produced) from a well Not included (q) Safety and welfare standards and the health and safety of persons employed in or in connection with the exploration for or the production and conveyance of petroleum Not included (r) Making, preserving and furnishing to the Authority or Minister of cores, cuttings and sample of petroleum and water Not included (s) Production of reports, returns and other information Not included (t) Registration of instruments, effect of registration of or failure to register instruments Not included (u) Decommissioning Not included (v) Transfer of licences and interests in licences Not included (w) Making logs or directional surveys or making other downhole investigations (l) (x) Annual charges payable (l) (y) Fees or amounts to be paid (z) (a) (aa) Criteria and determinants for formulation by Board of petroleum pricing formula (b) (ab) Quality of services provided for petroleum products (c) Not Procedure for complaints and investigations and included complaint determination (d) Not Prescription, modification and review of petroleum included pricing formula (e) (ac) Competitive bidding procedure for the procurement of petroleum products and crude oil (f) Not Discipline of licensees included (g) (ad) Not just Guidelines for marketing operations and fair downstream competition in the petroleum (downstream) industry None (ae) New Protection of gas installations (af) New Protection of life and property and general safety of public in respect of natural gas services (ag) New Minimum standards and procedures for construction operation and maintenance of facilities and installations for natural gas transmission (ah) New Operation of the natural gas utility (h) Not Standards of performance for the provision of included petroleum services S. 80 (1) S. 106 (1) Regulatory Matter Regulations Regulations National Amended Petroleum National Authority Petroleum Act Authority Act (i) Not Protection of consumers included (j) Not Testing facilities for quality control of crude oil and included petroleum products in the petroleum downstream industry (k) Not Regulation of licensing included (l) (x) Not fees Fees and charges (m) Not Inspection of petroleum service providers’ premises included (n) Not Control of importation, exportation, landing, loading, included unloading and transportation of petroleum products (o) Not Storage handling and sale of petroleum products and included licensing of storage places (p) Not Handling of petroleum products in the fuelling of included aircraft (q) Not Preservation of the quality and purity of petroleum included products and crude oil (r) Not Effective operations of strategic storage depot included (s) (ai) Implementation of the Act ANNEX G Synopsis of Presentation on Legal Frameworks for Petroleum Development A MS PowerPoint presentation was prepared in support of the review of the legislative and regulatory documents for the oil and gas industry of the Republic of Ghana. He following is a synopsis of that presentation. The Role of Petroleum Law • a Petroleum Law is the legislative expression of the petroleum policy articulated by a State • it contains the legislature's directions to the Government • prerequisite for a good Petroleum Law: a petroleum policy designed to suit the needs of the State • such policy should be developed through broad consultation with legislators, leaders of civil society and international experts • No Petroleum Law is perfect; some good examples are: o Georgia, Kazakhstan, Indonesia, Vietnam and Somalia o Russia, China and Azerbaijan, however, have no Petroleum Law, and use only contractual/regulatory regimes Petroleum Policy and Ghana's Situation • Ensure that petroleum wealth promotes sustainable growth and alleviates poverty: a “resource blessing� • Possible creation of Stabilisation or Future Generations Fund - e.g. Norway, Azerbaijan, Chad and East Timor • Ghana's own unique circumstances define some apparent key policy principles o Ghana needs energy, and imports petroleum to meet needs o Ghana has little domestic oil & no gas production as yet o Ghana is not a wealthy State (like Saudi Arabia) that can afford to conduct its own exploration effort o Ghana’s recent oil discoveries are significant finds o Ghana crude exports will exceed domestic supply requirements Two Logical Policy Principles • Ghana's situation would define the following as two logical principles of Ghanaian petroleum policy: o Ghana has already taken the initiative to explore for oil, so Ghanaians can benefit from it, if it is produced o the Government of Ghana should not bear the risk and high expenses of this exploration initiative but leave it to investors • Ghana competes for petroleum investment not just with its regional African neighbours, but with all of the world’s prospective petroleum provinces • Petroleum prospective geology is first consideration, followed by existence of an investor-friendly, fair and stable legal, contractual and fiscal framework Host State Concerns in Petroleum Development Following are the key issues that a host State desires to see addressed in its Petroleum Law: o full and prompt exploration of petroleum prospective areas o fair sharing of the fiscal "pie� between State and Contractor o appropriate protection of the environment o proper treatment of residents and communities affected by petroleum development operations o training and education of citizens - institution strengthening o purchase of local goods & services - technology transfer o reasonable controls over development activity Investor Concerns in Petroleum Development • To avoid the risk and expense of exploration efforts, Ghana needs to permit qualified foreign direct investors, such as International Oil Companies (IOCs) to partake in operations • IOCs have the following three key concerns that need to be addressed by the Petroleum Law: o right to "monetise" a discovery o stability of the petroleum regime o enforceable international arbitration procedures Role of the Petroleum Law • Core rationale is for the Petroleum Law to cover all essential concepts without undue detail • Do not “set in concrete�, laws are difficult to change • Keep detail for subsidiary instruments, such as Regulations and Model Agreement, which are both flexible and negotiable • Taking into account the concerns of the State and investors, then we must understand the role that the Petroleum Law plays in addressing them The following slides describe this, and how the Petroleum Law can be designed to foster petroleum development: Petroleum Regime Framework: Essential Elements of a Petroleum Law • Cornerstone of effective petroleum legislative frameworks • Ideally short, but thorough, broad, generic and enabling • Sector-specific, but must mesh with other more general laws, which may impact petroleum sector – e.g. Foreign Investment, Taxation, Environment, Labour, Immigration, Customs Specific Provisions of a Petroleum Law • State property in petroleum; majority world practice • Few exceptions, notably Federal USA and Canada; however, US and Canadian Federal Governments are largest landowners/lessors • Means through which State asserts and confirms ownership of all petroleum within its jurisdiction – onshore, offshore and in Exclusive Economic Zone • Any provisions to the contrary in other laws are null and void • On production, title to recovered oil, or part of it, may be given to company Competent Authority • A single government agency vested with exclusive mandate to implement petroleum sector policy; a single window contact point: “one-stop shop� • Represents State in negotiations, contracting, regulation and administration of sector • Well-staffed and strong in sector expertise and experience; institutional strengthening builds capabilities; need to be well-rewarded • Separate State’s patrimony and licensing of its petroleum resources from sector administration • Government/Ministry sets broad sector policy; the competent authority administers it • Competent Authority - 2 • National Oil Company (NOC) may already be de facto Competent Authority, but this is not recommended • NOC allocating acreage, while competing for same is a strong disincentive to foreign direct investment • Where host-country is new to petroleum sector, best to create a fresh Competent Authority with adequate expertise, authority and resources • An interim solution may be inter-ministerial council or consultative group to avoid internal competition • Good Competent Authority examples include: Indonesia’s MIGAS, Brazil’s ANP; • Ghana’s plan for an integrated Petroleum Authority is a positive step in this direction Petroleum Operations • Ensures petroleum operations are conducted only under a duly issued license from Competent Authority • Licence must conform to terms prescribed in Petroleum, Regulations and Petroleum Agreement ( • Allows State maximum flexibility in conducting petroleum operations – e.g. through a State entity, a private entity, or an incorporated or un-incorporated joint venture • China, Kazakhstan, Nigeria, Malaysia, Azerbaijan and Vietnam act through NOCs with varying success • Kuwait, Mexico and Iran have constitutional restrictions; limited to use of Service Contracts Petroleum Agreements • Authorizes Competent Authority to prepare and make available a Model Agreements to potential investors; negotiate from State’s starting point • Model Agreement may be enacted as exhibits to the Petroleum Law, but this is not recommended • “Best practice� is to identify essential, minimum Model Agreement provisions in the Petroleum Law to establish their legal basis; leave full details for negotiation; maintain maximum flexibility • Other standard provisions – e.g. Competent Authority’s role in negotiations, supervision, administration, relinquishments, suspension and revocation for cause Petroleum Regulations • Subsidiary to Petroleum Law; not enacted, but promulgated from time-to- time under Petroleum Law by the Competent Authority • Maintain maximum flexibility and speed of action responsive to changing circumstances • Details of licensing, work programs, conduct of day-to-day operations, etc. - all in Regulations • Petroleum Law summarizes areas in which Competent Authority may/must make Regulations • Petroleum Law also provides broad authority to Competent Authority to make all necessary/needed • Regulations consistent with Petroleum Law Qualifications, Duties and Rights • Applicants must have financial resources, technical competence & professional skills to conduct operations • Competent Authority review/due diligence is required • Set out principal duties of licensee – e.g. reporting discoveries, planning developments, using best international petroleum industry practices, etc. • Enumerate licensee’s guaranteed rights – e.g. • security of tenure; • exclusivity in license area; • right to proceed from exploration and discovery to development and production, and monetise profits • Legal nature of licence: essentially a contract • State alteration only with adequate & just compensation Taxation of Profits • Taxation regime in Petroleum Law, or in separate Tax Law; enumerates applicable taxes and excludes others • Broad Objectives: • reduce uncertainty; present clear picture of applicable tax regime; limit negotiations on tax issues; provide fair and equitable tax treatment for all investors; avoid double taxation and assure IOCs home country foreign tax credits • Carried State participation: best at 5% to 20%; not 50%! • Attractive tax regimes are: Spain, Argentina, Philippines, UK, Australia and Peru • Unattractive tax regimes are; Egypt, Malaysia, Yemen, Nigeria, Colombia, Venezuela, Kazakhstan & Azerbaijan • Generally, the more attractive the resource base, the tougher the fiscal terms tend to be: tough Russians! Other Taxes, Duties, Exchange Controls • Freedom to import and re-export supplies and equipment for petroleum operations duty free; • Ease of obtaining import and export licenses, if required • State to guarantee convertibility and overseas remittance of funds for IOCs • Non-discriminatory foreign exchange rates • Inward remittance of foreign currency for petroleum operations • Ability to obtain, borrow and use local currency • Ability to open interest-bearing accounts for foreign and local currencies • Ability to pay foreign contractors, sub-contractors and expatriate employees a portion of fees outside host country, subject to their host country tax obligations • Retain profits abroad from foreign sales of oil • Export of profits outside of host country for dividends and debt service Fiscal Stability • Needed to mitigate the effects of new laws, which might increase the economic burden on licensees or reduce their original rights and benefits • However, may not infringe on right of State to enact new laws imposing safety, conservation or environmental standards to protect the public interest • State obliged to negotiate in good faith to amend Petroleum Agreement to compensate licensee for any increased economic burden(s) • Stabilisation may not be necessary where host country has long history of contract stability and track record of fair and equitable compensation Environmental Protection and Safety • More than merely: “conduct all petroleum operations in a diligent, conscientious and workmanlike manner� • Modern Petroleum Laws include comprehensive obligations on safety, with greater detail in Regulations and Petroleum Agreements • Take all necessary measures to ensure conservation, safety of life and property, crops, fisheries, navigation, the environment, and the health and safety of the public • Avoid resource waste, pollution and spoilage • Provide for a thorough Environmental Impact Assessment and Monitoring Plan prior to licensing operations; consider Baseline Studies Natural Gas Development • Special incentives may be required to develop natural gas markets and infrastructure • Longer retention and development periods are required for natural gas • Fiscal treatment of natural gas liquids needs to be well-defined • Gas discoveries need proper appraisal for the State prior to relinquishment of contract areas • Possible JVs and Public Private Partnerships may help stimulate domestic gas utilisation Unitisation • Protects State’s paramount economic interest and provides for efficient and orderly resource development • May be voluntary or mandatory, but are necessary • Single operator for entire field, regardless of boundaries • Mandatory periodic re-determinations required • May require transnational arrangements and agreements Access to Land for Petroleum Operations • Harmonise with broader-based Land Laws • Guarantee land access and maritime access necessary to carry out the State’s petroleum operations • Fee-based, as possible fund to compensate landowners • “Eminent Domain� or Compulsory Taking International Arbitration • An absolute must in Petroleum Agreements with IOCs; absence can be a deal-breaker • Controversies involving interpretation, validity, execution or termination of PAs • Many recognised international arbitration forums and rules from which to choose - e.g. ICC, ICSID, UNCITRAL Rules; • Choice of neutral and convenient venue is best • Consider Expert Determination procedures for strictly technical issues Priority of Petroleum Law • Constitutional validity of Petroleum Law is essential • Defined relationship to Other Laws • Petroleum Law should be a “carve out� regime • Precedence over conflicting laws on sector matters • Any conflicting provisions in other laws are null and void as they might apply to the petroleum sector Conclusion • Ghana has relative unique set of circumstances that help to define what it requires in its petroleum policy • To succeed in attaining the State's petroleum goals, a good Petroleum Law is necessary • Ghana already has a good Petroleum Legal framework • Minor modifications for advancing circumstances only • Flexibility as the industry develops is recommended • International experience demonstrates provisions of a Petroleum Law that foster petroleum development • Consensus amongst the host country’s various stakeholders help to make a Petroleum Law work 1 Unused natural gas is property of GNPC - PNDCL84 s. 16 (2) 2 GNPC sells gas either to GasCo or to Power Generator Public Private GHANA GAS 3 GasCo is JV between PPP Company and GNPC Partnership 11 The PPP Company brings cash & tech to GasCo 4 GasCo may buy gas and transmit, or just transmit gas for GNPC Company Cash 12 GNPC brings gas &/or transmission to GasCo 5 Gas sales from GNPC could be straight to the Power Generator 13 Restricting GasCo to utility function controls price 6 GasCo could just be a utility transporter Gas sold to GasCo at price 13 As GNPC owns gas it can do what 7 IBRD lends to GOG allowing GNPC to pay share Gas supplied to power generator at it likes with it of capex & opex, yet leave transportation costs plus 14 Gas sale to Power Generator 8 GOG lends to GNPC to fund share in GasCo Owner value for new projects commercial premium could be as Government requires 9 GNPC agrees its business with PPP Company 10 GNPC pledges portion of gas revenues for loan Free unused Gas sales & GasCo - gas Gas sales & associated gas GNPC - State delivery supplier (?) and delivery Power Jubilee Field appointed Owner pipeline Generator participant Gas Payment for gas transporter & Payment for gas purchases and owner purchases and GNPC borrows from GNPC pledges GoG to fund capital Loan portion of gas sales Let's say: requirements of share proceeds to GoG as Pipeline length 100 kms x 16" 1500 psig MOP of GasCo security for and Repayments Pipeline costs 0.75 US$ million per km repayment of GoG Pipeline cost 75 US$ million loan Gas Co JV % 50% GNPC GNPC needs 37.5 US$ million Government of Ghana For investment by Gas Co Investment 75 US$ million GoG borrows from Amortisation period 5 years return on capital IBRD specifically to Loan Amortisation rate 15% threshold rate required onlend to GNPC Capex per month 1.7842 US$ million Repayments Daily capex charge 0.0595 US$ million Opex % of Capex 70% Daily Opex Estimate 0.0416 US$ million Daily charge 0.1011 US$ million ANNEX I IBRD Gas volume 100 MMSCFD Tariff required 1.0111 US$/MSCF