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SAHARA TAKES A PIECE OF GHANA’S BLACK GOLD BLOCKS

Ghana’s Legislature has ratified the Petroleum agreement among the Government of Ghana, the Ghana National Petroleum Corporation GNPC and the Sahara Energy Fields Ghana Limited for the exploration, development and production of hydrocarbons in the Shallow Water Cape Three Points Block offshore.

Presenting the report of the Mines and Energy Committee on the Floor of the House for ratification, the Chairman of the Committee Dr. Kwabena Donkor told the representatives of the people that “the agreement provides improved benefits to the State compared to earlier Petroleum Agreements. For instance, whilst the COLA Block which is in the same basin and has similar features provided for royalty oil of 10%, that of Sahara offers 12.5% of royalty oil.”

Radio Ghana’s Parliamentary Correspondent Dominic Hlordzi reports that the agreement was laid before the House on the 17th of July 2014 on the eve of going on recces by the Minister of Energy and Petroleum Mr. Emmanuel Amarh- Kofi-Buah in accordance with Article 268 of the 1992 Constitution. It was referred to the Committee on Mines and Energy for consideration. The House with “a speed of light” went through all the processes and gave the Block to Sahara Energy Fields. Debate on the agreement which was “blessed under sole sourcing” was devoid of the acrimonious exchanges that characterize the approval of some contracts that come before the House.

Background to the Contract

Sahara Energy Fields signed a Seismic agreement with the Ghana National Petroleum Corporation on the 3rd of December 2008 to acquire and interpret 1,000 square km of 3D Seismic over a portion of the open Shallow Water Cape Three Points Block. The area covers 1,500sq km. The 3D data was acquired by Geco Emerald of Western Geco between 17th March and May 2009. Under the terms of the Seismic Agreement Sahara is entitled to a first right of the refusal for the award of exploration rights over the Block. Having satisfied the obligations of the agreement Sahara exercises its option of right by applying for exploration and production rights over the Block in 2010.  After the approval of the application by the Minister of Energy and Petroleum in July 2012, the Government negotiation team thereafter commenced talks in September 2012 and concluded in July 2014.

Which Company is Sahara Energy Fields Ghana?

Sahara Ghana is owned by the Sahara Group of Nigeria. The group was incorporated in 2003 in the British Virgin Islands and has portfolio of assets in the volatile Niger Delta. It holds considerable equity in the Group’s Nigerian exploration licenses ranging from 24% in OPL 286 to 100% in OPL 274 and 228. Sahara Ghana is an upstream exploration and production arm of the Group and is a partner in four non-operated offshore blocks and also an operator of two onshore blocks in Nigeria.  Its core business is to explore and develop oil and gas assets in established and emerging frontiers.

The Agreement Terms

The shareholding structure of the parties in the agreement percentage wise is: Sahara -85%, Sapholda -5% and GNPC-10%.

The contract will be effective for twenty five years if commercial discovery is made. It has an exploration period of seven years. During the initial period of one year nine months the contractor will conduct geological and geophysical studies on 1,000sq km of 3D Seismic data and drill one exploration well. This period will cost thirty-two million Us Dollars,(US$32,000,000).

During the first extension period which will last one and half year the contractor will also undertake another geological and geophysical studies and drill one exploration well and projected to expend twenty-five million Dollars,(US$25,000,000).

The second extension duration of another one and half year will also cost the Sahara and the partners twenty-five million Dollars,(US$25,000,000). Per the agreement the Minister of Energy and Petroleum who has been given “enormous power” under the current petroleum regime may grant the remaining exploration period to the Company.

In his presentation the Chairman of the Mines and Energy Committee told the House that in the event of commercial discovery of oil great fiscal benefits will accrue to the State. He explained that as part of the fiscal terms, Ghanaians stand to benefit from royalties in the form of oil and gas if commercial reservoirs are discovered. Details of the royalties are captured in this table.

Royalties under the Agreement

Entitlement

Percentages

Royalty- oil (Shallow Water)

12.5%

Royalty-Oil (Domestic Gas)

5%

Royalties-Export Gas

7.5%

The State will also receive additional oil entitlement when oil is discovered in profitable quantities. The Chairman of the Committee, Dr. Donkor said the Country will also earn surface rentals per annum ranging from US$50 per Square km to US$200 per square km depending on each period under the agreement.

The country will also collect 35% income tax while holding an additional interest of 15%.

Comparison of the economic terms between the COLA and Sahara deal

Entitlement

COLA

SAHARA

Royalty

10%

12.5%

Royalty (Export Gas)

-

7.5%

Royalty(Domestic Gas )

-

5%

Initial GNPC Participation

10%

10%

Additional Participation

17.5%

15%

Income Tax

35%

35%

 

Ring fencing of petroleum costs

The Mines and Energy Committee in positing for the approval of the agreement explained that unlike other agreements this deal has a ring fencing of costs. This means that the agreement prohibits the Contractor, thus Sahara and partners from assigning petroleum costs incurred in one contract area to another. It prevents the Company from allocating costs from unsuccessful blocks to successful ones thereby reducing the Nation’s earnings in successful areas. This arrangement according to the Chairman of the Committee, Dr. Donkor ensures that the risk of further exploration is borne by the contractor and not the State.

Dr. Donkor in urging his colleague MPs to endorse the agreement said the Committee was satisfied having diligently scrutinized the terms and provisions and also noted that the contract is in conformity of the laws governing the Petroleum sector.

The ruling Majority members of the House who debated the approval of the agreement were of the view that Sahara and its partners have what it takes to undertake the exploration and the agreement will inure to the benefit of the State.

The Minority Members also advanced arguments for the approval. The ranking Member on the Mines and Energy Committee K.T Hammond said the assertion that Petroleum agreements that are brought before the House are not carefully thought through is untrue as great efforts go in the consideration of the agreements. He wondered whether the GNPC a partner in the agreement is judiciously utilizing the resources of the Nation, taking into account its current charity activities not only with the Black Stars of Ghana but the endorsement of some organizations.

The MP for Sekondi Papa Owusu-Ankomah whose region the oil Blocks are located, called for a paradigm shift in the sole sourcing system of offering oil blocks and the methods that are followed. “As a matter of policy the House should be telling the Government that the time has come for a bidding process, open bids for the granting of exploration rights in the country. Gone were the days when people have to be persuaded to come and explore. Now there is ample evidence that we have the oil. Let people bid and I think government has delayed so much in reviewing this process. We can’t continue like this”. He observed that the present structure itself does not enable the nation to get value for money. “While I have nothing against the Sahara agreement the House should agree not to approve any further agreement until this system is reviewed.” He proposed that Government takes a second look at the system of offering hydrocarbon blocks and make the system more transparent.

Upon the Statement of the MP for Sekondi, the Minister of Energy and Petroleum Emmanuel Armah Kofi-Buah was on his feet to raise a point of order and was spotted by the Speaker, Edward Doe Adjaho.  Making his point the Minister said all the laws of the country have been observed in offering the block to Sahara and that the processes that the agreement has gone through indicate that the nation undertook due diligent in awarding the contract.

In recapping what the MP for Sekondi said the Speaker explained that the MP is alluding to the point that “we are in a post discovery regime and so some of the laws should be reexamined and we cannot use pre-discovery regime to deal with post discovery regime.”

After the statements, the Speaker put the approval question and the House ratified the agreement among the Government of Ghana, the Ghana National Petroleum Corporation and the Sahara Energy Fields Ghana Limited for the exploration, development and production of hydrocarbons in the Shallow Water Cape Three Points Block offshore.

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