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Kwabena Donkor defends latest oil deals …says E&P law not prerequisite for agreement

Kwabena DonkorNew petroleum agreements do not have to wait for the enactment of the Petroleum Exploration and Production law as there is a need to continue exploratory activities, Dr. Kwabena Donkor, Chairman of the Mines and Energy Committee of Parliament, has said.

Government is also well advised to sign new agreements because the petroleum bill that is currently under consideration will not necessarily guarantee the country better terms as is being speculated, he added.
“It is beautiful if we have a new law that will fine-tune the nuts and bolts, but the critical issue is the terms.

Are the terms favourable? How do they compare to other countries and entities at the same stage of development? And there has been a massive improvement in the new agreements,” the MP told the B&FT in response to calls for government to hold back signing new petroleum agreements until the new law is passed.

“Theoretically, others will say ‘let’s wait’. But in the real world there is need to have a continuum so that exploratory activities do not come to a halt… Currently, if you talk to the Ghana Oil Services Providers Association, they will say activities have gone down in Takoradi just because for too long we were not doing any exploratory activities. We had not signed any exploratory contracts.”

Parliament, particularly the Mines and Energy Committee, has been accused of rushing through petroleum contracts even as the Exploration & Production (E&P) bill, which seeks to strengthen the regulatory environment, is being delayed for reasons not so clear to the public.

The MP however denied the claims, saying the agreements could not be deemed to have been signed under a certificate of urgency when they stayed in the house for a month.

On March 21, Parliament approved two new petroleum agreements, the first of which was over the Expanded Shallow Water Tano block between the Government of Ghana, GNPC, CAMAC Energy Ghana Limited and Base Energy Ghana Limited.

The second contract over the Central Tano block offshore was between the Government of Ghana, GNPC and AMNI International Petroleum Development Company (Ghana) Limited.

The approval of the contracts rekindled public outcry, especially coming after two earlier contentious agreements — with the Africa Centre for Energy Policy (ACEP) arguing that government is doling out promising oil blocks to relatively inexperienced companies whose beneficial owners are not known.

Dr. Donkor contends, however, that Parliament did due diligence on the contracts by establishing the beneficial ownership of the companies involved, including the Ghanaian partners, as required by law.

“For example, we wanted to know the Ghanaians who had equity partnership in the new agreements. So we asked the Minister and the GNPC to furnish us with the details, and they did. Then we went to the Registrar-General to see if what they brought corresponded with the information they supplied, and we were satisfied. The Ghanaian companies involved included a company that has been in petroleum for over 15 years: Chase Petroleum, a distributor in the downstream sector. They set up a subsidiary called Base Petroleum and they have about 13.5 percent in the block. The local content requirement is a minimum of 5 percent other than GNPC.

“The second company, WCW, also had a list of directors to ensure they were Ghanaian. The leading shareholder is Chris Wilmot, a Ghanaian businessman in oil and gas based in Houston, Texas, and Accra. Everybody knows him in the industry. WCW has 30 percent equity in AMNI International Ghana Limited.”

AMNI International, he explained, has 70 percent interest in the block; so with their 30% interest in AMNI, the Ghanaian partners have 27 percent interest in the block.

The Ghana National Petroleum Corporation also has its traditional 10 percent participation interest in the two licences, including an option to buy another 10 percent if a discovery is made in both cases.

“Right now they are going to sink about US$300million into it. GNPC is not paying anything for its 10 percent. However, if there is a discovery, GNPC can then buy into it, and it is the easiest way to raise money when there is a discovery. When there is a commercial discovery and you want money, the banks will be chasing you,” Dr. Donkor said of the AMNI licence.

Other benefits that are higher in the new agreements, he said, are a royalty rate of 12.5 percent from 10 percent previously; an increase in the annual surface rental from US$25 to US$50 per square kilometre per month, which will increase to US$200 if there is a discovery; and a clause that says new laws will apply to the contracts.

“In previous agreements, if there is a new law, it would not be applicable to the contract because of stabilisation clauses. In these two agreements, all new laws, present and in the future, are applicable. The exemption is that when there is a major change in the economic terms, they would have to come to government to prove that the law has caused major changes in the agreement and therefore we should renegotiate. In previous agreements that option was not even there. So in terms of regulatory work, this is an improvement,” Dr. Donkor said.

For the first time, also, he added, “we have put in a clause that should there be arbitration, the contractors cannot attach either the GNPC or Government of Ghana assets anywhere until a final determination is made.

In previous agreements we did not have this and therefore even in the course of arbitration — and arbitration can take between three to five years — they could attach assets of either GNPC or the Government of Ghana, so that should there be an award against Ghana those assets would be used to offset it.”

Still better, he said, is a requirement for a performance bond of US$150million from the licencee to cover the minimum financial obligation for the initial exploration period.

“Why we ask for this bond is that should they be unable to perform, GNPC will use that money to carry out the work. So it is a qualitative improvement on previous agreements in all aspects.

“Mind you, presently, one of the major challenges we are having with the power situation is fuel. The earlier we get exploration work going on, especially for gas, the better. If we sit on our assets we will never know if we have gas or we do not have. And these terms are comparable to the best elsewhere,” he said.

Source: B & FT Online

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Reporting Oil and Gas project was launched on 4th June 2009atTakoradi, Western Region, Ghana by Penplusbytes (PPB – www.penplusbytes.org) with the vision of providing a one stop online information and knowledge about Ghana’s oil and gas sector
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