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Ghana fines oil companies for failing to honour work obligations
– While Guyana embraces non-compliance
Kaieteur News – The Republic of Ghana fines oil companies that fail to deliver on the work obligations committed to in their contracts, in order to deter inactivity on the oil block. Guyana does not. Instead, Guyana has embraced non-compliance with work obligations by granting extensions.
In petroleum agreements, the work programme is a feature. It holds the contracted company to a minimum work obligation to complete tasks by a certain period. The contractor would have to complete a seismic study or drill a well within a specified period. In addition, the company would be required to commit a budget to each task.
The African Centre for Energy Policy (ACEP) is a think-tank that conducts high quality research, analysis and advocacy in the energy and extractives sectors in Africa. In a report titled ‘PETROLEUM CONTRACTS MONITOR, 2019; A PUBLIC INTEREST REPORT’, the firm said that Ghana’s petroleum agreements have an exploration period between six and seven years. The periods are subdivided into three phases with specific milestones and expenditure requirements: the initial phase, the first extension period phase and the second extension phase. A company can move on from initial phase to the first extension period if it has satisfied the minimum requirements under the initial phase. The rule also applies for the transition to the second extension.
“If a contractor does not deliver the terms speci¬fied, there are sanctions to be applied,” ACEP said. “Similarly, if the contractor delivers more than was expected for a period, the company is credited with the extra delivery in the extended period.”
This is an excerpt from a petroleum agreement with Swiss African Oil Company Limited: “Work accomplished in any period in excess of the above obligations may be applied as credit in satisfaction of obligations called for in any other Period. Without prejudice to Article 23.3(e), should Contractor fail to perform its Minimum Work Obligations under Article 4.3(a), (b) or (c) as applicable, Contractor shall pay to GNPC, an amount equal to the unspent amount of the Minimum Expenditure Obligation for the relevant Exploration Phase.”
GNPC is Ghana National Petroleum Corporation, the state agency charged with exploration, licensing, and distribution of petroleum-related activities.
When it comes to Guyana, there is no such provision to hold oil companies accountable for the failure to honour their work obligations. In fact, one company – CGX Resources Inc. – held on to the Demerara Block for eight years without drilling a single well, despite being required to drill at least one well within the first four years of having the licence. At the end of the four-year period, CGX was required to give up 15 percent of the contract area or the entire block and renew the licence for another three years. In 2017, it exercised the option to relinquish 15 percent of the block and renewed its licence for three years. The David Granger administration approved the renewal even though CGX did not honour its work obligations completely.
Further to this, the petroleum agreement notes that if it acquires the renewal, CGX should drill two wells. Instead of honouring this, it approached the coalition regime in 2017 to approve a work programme with fewer obligations.
The Addendum states that between 2017 and 2020, CGX could simply conduct additional data processing and planning for an exploration well, after which it can elect either to relinquish the entire contract area except for any discovery area or commit to doing any additional processing and planning, while securing all regulatory approvals for the drilling of the first exploration well.
The Addendum also states that at the end of the first renewal period of three years, the company shall elect either to relinquish the entire contract area except or 25 percent of the block and renew for a second period of three years.
The Granger administration approved this work programme in December 2017 in spite of the fact that the company breached its commitments during the first four years of having the licence. It also gave CGX the option of not drilling a well until 2021.
This is just one example of the Guyana government allowing the company to get away with not honouring its commitments.
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