LICENSING/CONCESSION SYSTEM By RICHMOND OSEI-HWERE FACULTY OF LAW, KNUST

2  Licensing or granting Concessions  Production Sharing Agreements or Contracts  States may also use a combination of these alternatives  Licensing or granting Concessions is the model adopted by most of the developed market democracies  Consider differences with PSAs as well as points in common

3  Authorisation to do something that would otherwise be unlawful  Note the classic distinction between the two forms:  administrative exemption model, which depends upon punishment for its efficacy  property law model, which utilises underlying property law remedies  Licence may also be exclusive or non-exclusive

4  Key typical licence provisions  term (duration) of the licence (perhaps including sub-periods)  obligation to relinquish parts of the licence  obligation to measure, monitor, etc  obligation to unitise in the event that the reservoir straddles two (or more) blocks  the need to produce and work in accordance with a development plan  power to compel exploration  to compel (and govern the pace of) development and production activity

 State grants an IOC the right to explore and exploit hydrocarbon resources  IOC normally bears all the financial risk  State benefits through Royalty and Tax

 Other benefits  Cash premium for grant of license  Rental payments in respect of license area  Additional Oil  Production bonuses

 Title to the oil and gas pass to the IOC at the wellhead, which means if royalty and other obligations are to be paid in cash, the IOC can lift all the crude oil produced.  Ownership of equipments used vested in host state.  IOC responsible for decommissioning.

 The upstream petroleum industry in Ghana is currently regulated by the following basic laws:  Petroleum (Exploration and Production) Act, 1984 (PNDC Law 84)  Ghana National Petroleum Corporation Act, 1983 (PNDC Law 64)  Petroleum Income Tax Act, 1987 (PNDC Law 188)  Petroleum Commission Act, 2011 (Act 821)  There is also a Model Petroleum Agreement

 Ghana has adopted the Royalty Tax System to govern the fiscal regime for her petroleum sector.

 Royalty  Carried Interest  Additional Interest  Additional Oil Entitlements  Petroleum Income Tax  Surface Rental

 Negotiable between 5% %  Lower royalty rates levied on more costly, riskier and deep sea operations  Royalty is levied on gross production

 Article 2 Section 2.4 of GNPC Model Petroleum agreement states that:  “GNPC/Government shall have a ten percent (10%) initial interest in all petroleum operation”  Ranges between 7.5% - 15% in most oil producing countries.

 State may pay the proportionate share of only the development and production cost  No exploration and appraisal cost is paid  Exercisable within 60 days after declaration of commercial discovery.

 Supernormal profit tax  Levied in case of a windfall profit i.e. Where actual IRR (Internal Rate of Return) exceeds the projected IRR.

 Charged per square kilometre of contract area.

 Direct Tax  35% for both Kosmos and Tullow at the moment  Can be taken in the form of oil or cash

 Indirect tax obligations:  Local content requirements  Domestic supply obligation  Decommissioning