New bidding system to improve regulation of Ghana's energy sector

For many years, commercial agreements made between Ghana and oil companies were reached through direct negotiations. This open-door policy was useful in the early stages of the development of upstream oil and gas industry; it allowed the government to rapidly build momentum in the sector. However, as policymakers began to look to the long-term development of its resources, they came to the conclusion that a more transparent and better regulated process was needed. The new competitive bidding regime is therefore an important development for Ghana’s increasingly dynamic energy sector. Designed to be compliant with the Petroleum Exploration and Production Act of 2016, as well as the industry’s local content regulations, the bidding process is supervised and managed by the Ministry of Energy (MoE) through its dedicated Licensing Bid Rounds and Negotiations Committee, comprised of 23 members drawn from key stakeholders such as the Ghana Revenue Authority, the Ministry of Finance and the Petroleum Commission. It is expected to form the basis of oil and gas contract awards for years to come.

Mixed Results

Given the significance of the new bidding process, its first usage was a matter of considerable industry interest. In early 2019 the MoE identified six blocks for exploration, three of which were to be allocated according to the competitive bidding process, with two set aside for direct negotiations. A total of 60 applications were submitted by 16 companies for the right to explore in Ghanaian territory. The interest of a number of large international players was widely viewed as a vote of confidence in the new system. However, when the deadline for bid submissions ended in May 2019, it was revealed that ExxonMobil and BP had withdrawn from the round. Moreover, while Block 3 received three bids and Block 2 received one, there were no bids for Block 4. Instead, the ministry received 16 applications for direct negotiations for exploration rights. In July 2019 the MoE announced that Nigerian oil and gas company First E&P, in partnership with Elandel Energy Ghana, had been awarded exploration rights for Block 3, while Italy’s Eni, in partnership with Vitol Upstream Ghana, was granted permission to explore Block 2. After submitting an application before the May deadline, regional giant Tullow did not proceed to the next stage of the licensing round; however, it has since indicated its intention to explore new developments within its current production area.

Fine Tuning 

The bid withdrawals and the apparent preference of international oil companies (IOCs) for direct negotiations have raised questions regarding the efficacy of the bidding framework. According to some industry participants, although the consultation process with the industry during the framework’s formulation was thorough, for some parties the fiscal terms of the exploration agreements were not competitive when contrasted with the opportunities available in comparative markets. For others, the data available for the blocks was insufficient for them to make an application. This was a particular concern for companies new to the Ghanaian market, while for IOCs such as Eni – which has been present in Ghana since 2009 – the information challenge was less acute. Making participation in the upstream oil and gas sector more commercially attractive is the obvious route to attracting more players to future bidding rounds. The government also has the option of removing the possibility for direct negotiation.

Despite challenges, the new competitive bidding round is a useful advance in transparency, which is likely to be a key theme in the government’s future strategy for the upstream segment. In mid-2019 John Peter Amewu, minister of energy, announced that the government and key stakeholders had begun the process of revising the National Energy Policy. The new plan will take into account the technologies capable of more efficiently exploiting Ghana’s sizeable energy resources, as well as promoting fairness, transparency and predictability in the nation’s upstream petroleum space.