Entry into Ghana's Petroleum Industry

The discovery of petroleum in Ghana in commercial quantities has no doubt engendered great interest from international oil companies and oil service companies both within and outside Ghana, in the exploration, development and production of petroleum as well as providing ancillary services in this regard. Many companies and institutions are springing up with the objective of harnessing and exploiting the opportunities the Ghanaian petroleum sector has to offer. The corporate vehicle required under the existing petroleum legal regime to enter the petroleum industry is ironically the 'Cinderella' of the Ghanaian petroleum sector.

The purpose of this article is to examine and highlight the nature of corporate vehicle required by the Petroleum (Exploration and Production Law) 1984, (PNDCL 84) and The Petroleum Commission Act, 2011 (Act 821) and juxtapose the present regime with that expected under the Petroleum (Exploration and Production) Bill currently before Parliament and expected to be passed into law in the next Parliamentary Session which commences in October 2011.

THE STATUS QUO

Under PNDCL 84, an entity may only engage in the exploration and production of petroleum only if it has entered into a petroleum agreement with the Government of Ghana. Such an entity will fall into the category of a 'contractor' which is defined as any person, firm, body corporate or other entity which has entered into a Petroleum Agreement with the Government for the exploration, development and production of petroleum. International oil companies would ordinarily fall into this category. Entities that provide support and ancillary services to 'contractors' are not required to enter into a Petroleum Agreement with the Government of Ghana but rather are obliged to enter into a 'petroleum sub-contract' with a contractor who is a party to a Petroleum Agreement.

PNDCL 84 stipulates that except for such sub-contractors as may be exempted from the requirements of the relevant provision of that law a contractor or sub-contractor which is not an incorporated company in Ghana under the Companies Act (the Companies Act) shall register an incorporated company in Ghana under the Companies Act. It is instructive to note that no Regulations have been enacted under the Petroleum (Exploration and Production) Law since the law was passed.

The wording of this provision places the choice of corporate vehicle in the hands of the 'contractor' or 'sub-contractor'. Under the Companies Act a 'contractor' or 'sub-contractor' may choose as its corporate vehicle a fully-fledged incorporated limited liability company in Ghana or register as an 'external company'. An 'external company' is a company incorporated outside of Ghana which has a place of business in Ghana a registered under the Companies Act as such.

Limited liability companies have more stringent statutory compliance requirements than 'external companies' do under the Companies Act. These include the requirement for external auditors (a chartered accountant or a firm of chartered accountants), directors (including the residency requirement of at least one director at all times), a company secretary and the holding of general meetings of members among other requirements.

After the incorporation or due registration of a company in Ghana, the contractor or sub – contractor must maintain an office established in Ghana to exclusively carry out petroleum operations. It must keep in charge of such office or establishment, a representative with full authority to act and to enter into binding commitments on behalf of the contractor or sub-contractor as the case may be. It is instructive to note a non-Ghanaian incorporated company can only be a signatory to any petroleum agreement if it has been registered in Ghana or incorporated in Ghana. In the absence of this condition precedent, any petroleum agreement entered into by the non-Ghanaian company is void.

REGULATORY FRAMEWORK

Both 'contractors' and 'sub-contractors' were pursuant to PNDCL 84 regulated by the Ghana National Petroleum Corporation (GNPC). With the enactment of the Petroleum Commission Act 2011 (Act 821) in July 2011, the regulatory and monitoring functions of GNPC are now performed by the Petroleum Commission.

The Petroleum Commission Act, was passed to enhance the regulation and management of petroleum resources and related matters in Ghana and to separate regulatory functions from commercial activity. One of the functions of the Petroleum Commission is to "receive applications and issue permits for specific 'petroleum activities' as is required under the petroleum laws and regulations". 'Petroleum activities' refer to activities engaged in within and outside Ghana related to the exploration for, development and production of petroleum, the acquisition of data and drilling of wells and the treatment, storage, pipeline transportation, decommissioning and planning, design, construction, installation, operation and use of any facility for the purpose of the activities.

All contractors and sub-contractors engaged in petroleum activities as referenced above are required to procure a permit from the Petroleum Commission. However if the activity engaged in although related to the petroleum sector does not constitute 'petroleum activity' then no permit would be required from the Petroleum Commission. The entity in question would have to register with the Ghana Investment Promotion Centre (GIPC) which coordinates the activities of all foreign investments in Ghana apart from that of the petroleum and mining sectors.

EXPECTED CHANGES

The nature of corporate establishment is about to change. The new Petroleum (Exploration and Production) Bill which is currently before Parliament, shall, when passed into law require all entities except sub – contractors exempted by the Regulations which would follow the Act,) engaged in petroleum activities to incorporate a fully-fledged limited liability company in Ghana under the provisions of the Companies Act.

This means that unlike the existing PNDCL 84, all foreign companies intending to participate in petroleum activities in Ghana would have to incorporate in Ghana, fully fledged limited liability companies for the sole purpose of carrying out petroleum activities. The registration of 'external companies' as corporate vehicles for the carrying out petroleum activities would, with the passage of the Petroleum (Exploration and Production) Bill into law, be a thing of the past.

With the exception of this restriction, it is expected that all the other conditions will remain the same: the newly incorporated company must maintain an office or establishment in Ghana to carry out solely petroleum business and keep in charge of same, a local manager or representative with full authority to act and enter into binding commitments on behalf of the contractor or sub – contractor. It must also open and maintain an account with a bank in Ghana.

CONCLUSION

The legal regime on corporate establishment in the petroleum industry in Ghana at the moment is not stringent or a labyrinth. The reason for this framework is not far-fetched: the laws were passed at a time when Ghana had not discovered oil on a commercial scale. Ghana then needed huge investments in the virgin sector. Now the situation is different; oil has now been discovered in commercial volumes, and according to some civil rights activists and experts there is the need to exercise some caution with the encouragement of investment into the sector.

For further information on setting up and structuring businesses in the UAE further details can be obtained from:-

Hugh Fraser – Group Managing Partner – hugh.fraser@hfi-international.com