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Opinions of Tuesday, 27 June 2017

Columnist: Dr. Daniel Gyebi

Ten years after commercial discovery of oil in Ghana `

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Ten years ago this month when the announcement of commercial discovery of crude oil in Ghana was made, the price of a barrel of crude oil was about $68 and on steady increase.

The price increase continued until it hit a record high of about $147 in July 2008. That was a period of excitement for oil-producing countries and a nightmare for non-producing countries. Today, the price of West Texas Intermediate crude oil is slightly over $43.

Understandably, whenever many people think about oil, the first thing that comes to their minds is money; that is, the revenue derived from oil. They are usually not interested in the huge amount of money and other resources that are used, or the risks taken, to produce crude oil from thousands of feet beneath the sea floor, but all of us should because not many entities can handle it well.

Oil is, indeed, money, but there are a whole lot of processes that take place and issues that need to be addressed before the money or revenue is generated.

The government and people of Ghana have been fortunate enough to receive solicited and unsolicited pieces of advice, opinions, and suggestions on what to do with the oil revenue. Therefore, this article does not dwell on the more exciting revenue issues, but focuses on some of the foundational legal issues governing the upstream petroleum industry.

Crude oil must be explored, discovered, developed, and produced before it is marketed to generate revenue. Each stage of the process from exploration to marketing of the crude oil presents complexities of personnel, relationships, and resources that require careful coordination and management to make the whole system work efficiently. One way to tie all the processes together for efficient operation and outcome is a clear and transparent legal regime that governs the oil industry in Ghana.

This is particularly important because, like in many other countries, domestic and international companies which exist and operate under different legal regimes participate in Ghana’s oil industry. These key players from diverse backgrounds should know the ground rules of the game clearly and what is expected of them in Ghana.

This means harmonizing existing Ghanaian laws and regulations and enacting new ones consistent with international standards and best practices to respond to identified gaps.

Post-commercial oil discovery, the government did what many Ghanaians expected it to do – it addressed the issue of oil revenue. And so one of the first major oil industry laws enacted by the government was the Petroleum Revenue Management Act, 2011 (Act 815). This law deals with the collection, allocation, and management of petroleum revenue for the benefit of Ghanaians.

This was followed by the Petroleum Commission Act, 2011 (Act 821), which established the Petroleum Commission to, among other things, regulate and manage the utilization of petroleum resources; and promote local content and local participation in petroleum activities.

By virtue of Act 821, the Minister of Energy established the Petroleum (Local Content and Local Participation) Regulations, 2013 (L.I. 2204) which, among other things, promote Ghanaian participation and give preference to Ghanaians in many petroleum activities; give Ghanaian indigenous companies the first preference in the award of petroleum licenses or petroleum agreements; require at least five percent equity participation of a Ghanaian indigenous company other than GNPC to be qualified for award of a petroleum license or petroleum agreement; and require a non-indigenous Ghanaian company which intends to provide goods and services to incorporate a joint venture company with an indigenous Ghanaian company and give it at least ten percent equity participation.

In addition, the Petroleum Commission has issued the “Guidelines for the Formation of Joint Venture Companies in the Upstream Petroleum Industry of Ghana,” and “Guidelines on Company Registration and Participation in Tender Processes.” These guidelines, issued pursuant to L.I. 2204 and dated March 2016, aim at promoting local content and local participation, and making it easier for indigenous Ghanaian companies to comply with the Petroleum Commission’s requirements for participation in the upstream petroleum industry.

Then, there is the much awaited Petroleum (Exploration and Production) Act, 2016 (Act 919). Act 919 repealed The Petroleum (Exploration and Production) Act, 1984 (PNDCL 84), and is now the comprehensive, umbrella law that governs petroleum activities in Ghana. Under Act 919, petroleum in its natural state anywhere in Ghana is the property of the Republic of Ghana and vested in the President on behalf of and in trust for the people of Ghana.

The law addresses several areas of petroleum activities including management of petroleum resources, conduct of petroleum activities, and grant of petroleum licenses and agreements. With this and other laws, the legal framework for the oil industry in Ghana is taking shape and favorable to Ghanaians.

However, amidst all the excitements and concerns which greeted the news about oil discovery was an unanticipated threat from Ivory Coast regarding its claim of ownership of the area where the oil was discovered. As mentioned earlier, oil is money, and money can create problems even among family members and good friends. That is why long-settled border arrangement between Ghana and Ivory Coast is being disputed following the discovery of oil.

Before then, there was no strong incentive for the two friendly neighbors to dispute over territorial jurisdiction of tilapia and tuna fish! The dispute has become a cloud over the oil industry and made new drilling in the disputed areas temporarily unlawful. Hopefully, the legal cloud will dissipate when the International Tribunal of the Law of the Sea delivers its judgement in late September 2017.

Most Ghanaians would like to follow the oil money, and rightly so. However, the oil industry in Ghana would be successful if we get the fundamentals right, from the beginning. That could mean that all Ghanaians should have a “stake” in the oil industry.

As stakeholders, we should show the same interest in the other processes as we do with the oil revenue. For example, we should show as much concern if fellow Ghanaians and others are forced to work under unsafe or unsatisfactory conditions, or if oil operations unreasonably pollute the environment, as we do if there is misappropriation or lack of accountability of oil revenue.

We should take advantage of the local content provisions and seek oil industry employment and business opportunities. These are ways to become “citizens, not spectators.” An alert and enlightened citizenry ready and willing to work hard and make constructive contributions would help Ghana’s oil industry.

The fundamentals of the oil industry in Ghana appear strong at this time partly because the legal regime is reasonably clear, well-defined, transparent, and generally favorable to Ghanaians. Let’s all do what we can to support and participate in the industry in order to achieve the blessings of oil without blemish.

I am as optimistic about Ghana’s oil industry as I was ten years ago, and am encouraged by the implementation of some of the suggestions in the article I published on Ghanaweb on 18 November 2007 entitled, “As Ghana becomes an Oil Economy.”

Dr. Daniel Gyebi, Attorney at Law, Texas, USA. Author holds a Juris Doctor and a Doctorate of Business Administration degrees. He worked 30 years for Chevron, one of the world’s leading energy companies, as business planning analyst, contracts advisor, and attorney in Texas, California, Nigeria, and Angola; and retired as senior counsel. He worked on the West African Pipeline Project, Agbami Deepwater Project in Nigeria, Angola LNG Project, Chad-Cameroon Pipeline; and projects in Liberia, the Republic of Congo, and the Democratic Republic of Congo.