M&A Considerations in Ghana’s Upstream Oil and Gas Industry

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M&A Considerations in Ghana’s Upstream Oil and Gas Industry

Regulatory background
Ghana does not have a general competition or antitrust legislation. As a result, there is no general competition regulator that oversees merger and acquisition (M&A) transactions. M&A transactions are, therefore, subject to industry-specific regulation.
In the upstream oil and gas industry, M&A transactions are governed by the Petroleum (Exploration and Production) Act, 2016 (Act 919) (the Petroleum E&P Act). The Petroleum E&P Act requires the approval of the Minister of Energy (the Minister) for the transfer of shares in a contractor,1 whether to affiliates or third parties, where the transaction involves an acquisition of 5% or more shares in the contractor or leads to a change of control in the contractor. In the case of share transfers involving subcontractors, the approval of the Petroleum Commission is required. The Petroleum E&P Act does not define “control”. However, the lack of a definition is irrelevant since the threshold for approval is 5% or more of the shares of the contractor or subcontractor.


Contractors are prohibited from “directly or indirectly” assigning their interests in a petroleum agreement to third parties or affiliates whether in “whole or in part” without the written approval of the Minister.This requirement also applies to licensees.5 Though the statutory requirement refers to an “assignment” of interest in a petroleum agreement, the government interprets this requirement to cover all transactions involving direct and indirect share or asset acquisitions. This requirement for ministerial approval will apply to any M&A transaction involving a contractor, whether a share or asset deal, irrespective of the quantum of shareholding or assets involved in the transaction.

With respect to M&A transactions involving indirect share acquisitions, the government has shown an intention to require approval of the Minister even if a transaction occurs in an entity above the contractor. The Petroleum E&P Act requires approval for share transfers where the shares subject

to the transfer are held in the company incorporated in Ghana.6 However, the government has often treated indirect share transfers, whether occurring in the immediate holding company of the company incorporated in Ghana or at higher levels, as requiring approval of the Minister. The government construes such indirect share transfers as amounting to indirect assignments of the underlying interest in the petroleum agreement and, thus, subject to the approval of the Minister pursuant to section 8 of the Petroleum E&P Act.

For most of Ghana’s blocks that are in development or production, the relevant petroleum agreements were granted under the Petroleum (Exploration and Production) Act, 1984 (PNDCL 84) (the Repealed Act) before its repeal by the Petroleum E&P Act. These petroleum agreements contain stabilisation provisions that preserve the continued application of the Repealed Act. Accordingly, the Repealed Act is still relevant and continues to apply to M&A transactions that are carried out in relation to these petroleum agreements.

The Repealed Act contains similar requirements for approval for M&A transactions in respect of contractors. Contractors are required to obtain the Minister’s approval to assign in whole or in part, directly or indirectly, an interest in a petroleum agreement. The transfer of shares in a contractor’s locally incorporated company which has the effect of transferring control of the company or 5% or more shares in the company is also subject to the approval of the Minister.

Additional requirements will apply under the Companies Act, 2019 (Act 992) in the case of mergers involving companies incorporated in Ghana. In relation to public companies, further requirements are applicable under the Securities and Exchanges Commission’s Code on Takeovers and Mergers. 

Competition legislation

Currently, a draft legislation on competition is being considered in Ghana. This draft legislation provides for the establishment of a general competition regulator to, among other things, oversee M&A transactions. Upon its passage into law, proposed M&A transactions shall be subject to the consideration and approval of the competition regulator.

We understand that the competition bill is in a drafting stage. The drafting of the bill has been delayed pending the approval of a national policy on competition by Cabinet. A draft national policy is currently being discussed between the Ministry of Trade and Industry and the Office of the Attorney-General. It is expected that the drafting of the competition bill will be completed and presented to Parliament once the ongoing discussions on the national policy are concluded, and the policy is approved by Cabinet.

Sub-regional competition considerations

Since 2019, the Economic Community of West African States (ECOWAS) has taken steps to implement the provisions of the ECOWAS Supplementary Acts on competition.9 The Supplementary Acts, among other things, establish a competition authority and provide a regime for M&A control in the ECOWAS sub-region. The competition authority was formally launched in May 2019 and is expected to implement the competition rules as envisaged in the Supplementary Acts. In Ghana, however, the Supplementary Acts are of no effect as they have not been ratified by Parliament in accordance with the Constitution of Ghana. Upon ratification, the Supplementary Acts will introduce an additional layer of regulation for M&A transactions that affect trade and investment flows within the ECOWAS common market. An M&A transaction may affect regional trade and investment if a party to the transaction operates in at least two of the ECOWAS member states.

2. Recent activity

Notable M&A transactions in recent times have included Aker Energy’s acquisition of Hess Petroleum’s 50% interest in the Deepwater Tano Cape Three Points (DWTCTP) block. This transaction was by way of a share transfer and closed in 2018 upon obtaining the requisite approvals under the Repealed Act and the DWTCTP petroleum agreement.

Recently, following the acquisition of Anadarko Petroleum Corporation (Anadarko) by Occidental Petroleum Corporation (Oxy), Oxy proposed the sale of Anadarko’s holdings in Africa which included interests in Ghana, Mozambique, Algeria, and South Africa to Total. Anadarko holds interests in both the West Cape Three Points (WCTP) and Deepwater Tano (DWT) petroleum blocks in Ghana. These blocks house the Jubilee and TEN producing fields. Like the Aker Energy-Hess transaction, this deal took the form of a share transfer. Total did not proceed with the Ghana transaction as it was conditional upon the closing of the Algeria transaction which had been blocked by Algerian authorities.

Oxy has since concluded a deal with Kosmos Energy on the sale of Anadarko’s Ghana interests. By this transaction, Kosmos has acquired an additional 18% interest in the Jubilee field and an additional 11% in the TEN fields. The transaction has an effective date of 1 April 2021. To facilitate the Minister and GNPC’s grant of consent to the transaction, Oxy disposed of a 7% commercial interest in both the Jubilee and TEN fields to the GNPC also with an effective date of 1 April 2021.The GNPC’s newly acquired commercial interests are expected to be offloaded to its subsidiary, the GNPC Exploration and Production Company Limited (GNPC Explorco).

3. Key issues

Issues that arise during M&A transactions in the industry mostly relate to obtaining the consents and approvals of government. As discussed in the regulatory background, M&A transactions require the approval of the Minister. In addition, most of the petroleum agreements particularly, the ones subject to the Repealed Act, also require the consent of the Ghana National Petroleum Corporation (GNPC), the national oil company. Typically, the GNPC will only grant its consent if the Minister grants consent. These consents are only granted upon the contractor showing that it has satisfied certain conditions imposed by the Minister. The main issues that arise in connection with the satisfaction of these conditions relate to the stabilisation rights of the contractors. These issues are briefly discussed below.

Transaction taxes

A contractor involved in an M&A transaction must present a tax clearance certificate (TCC) issued by the Ghana Revenue Authority (GRA) to the Minister as part of the conditions for the grant of the Minister’s consent or approval. The GRA has in several cases assessed a contractor to transaction taxes in respect of an M&A transaction contrary to the applicable legal framework under the relevant petroleum agreements. The GRA will only issue a TCC to the contractor after the contractor has paid the assessed transaction tax.

Whereas transactions taxes apply to an M&A transaction under the present Income Tax Act, 2015 (Act 896) (the ITA), no transaction taxes apply under the repealed Petroleum Income Tax Act, 1987

(PNDCL 188) (PITL). The PITL continues to apply to petroleum agreements with stabilised provisions such as the petroleum agreements in respect of the WCTP, DWT and DWTCTP blocks.

The GRA’s refusal to issue the requisite TCCs to contractors involved in M&A transactions often results in disputes between the contractor and the government/GRA. These disputes must be resolved by the payment of any existing tax indebtedness and the claimed transaction taxes before the GRA will issue a TCC, unless a settlement is reached between the contractor and the GRA.

In addition to the transaction taxes, most contractors with stabilisation rights under their petroleum agreements are confronted with claims of other taxes by the GRA. While the contractors dispute that the claimed taxes apply, these disputes contribute to the delays in executing M&A transactions.

GNPC pre-emption

The GNPC has a right of pre-emption in M&A transactions under the Petroleum E&P Act. There is no corresponding right under the Repealed Act. The GNPC has, however, sought to assert a right of pre-emption even in M&A transactions where the current Petroleum E&P Act does not apply in breach of the stabilisation rights of contractors under a petroleum agreement.

The GNPC’s claim of a right to pre-emption has often threatened to jeopardise the completion of M&A transactions as the Minister has refused to grant consent until the GNPC’s claimed right of pre-emption is satisfied. The failed Kosmos Energy – ExxonMobil transaction of 2009 readily comes to mind.

Local/indigenous participation

As part of the Ghana government’s agenda to enhance local content and local participation in the petroleum industry, the Petroleum (Local Content & Local Participation) Regulations, 2013 (LI 2204) (the Local Content Regulations) was passed. The Local Content Regulations require that, in addition to the guaranteed interest of GNPC, an indigenous Ghanaian company should hold at least 5% interest in a petroleum agreement.

Given that the Local Content Regulations came into force in 2013, at a time when all the current producing blocks had already been granted, no indigenous interests were held in these blocks other than the State’s interest held through the GNPC. The existing contractors could not be compelled to offload a 5% interest in the blocks to indigenous Ghanaian companies due to the stabilisation rights enjoyed under their petroleum agreements.

In 2018 the Petroleum (Exploration and Production) (General) Regulations, 2018 (LI 2359) (the General Regulations) was passed to, among others, specifically address the issue of lack of indigenous participation in the earlier petroleum agreements. The General Regulations provides that any assignment under a petroleum agreement which has no indigenous participation as required by the Local Content Regulations must include an assignment of at least 5% of the interest to an indigenous Ghanaian company, where the total interest being assigned equals 5% or more.15 Though the General Regulations should not be applicable to the petroleum agreements with stabilisation provisions, it is clear that the requirement is intended to be applied to these petroleum agreements.

Accordingly, in M&A transactions relating to a petroleum agreement with a stabilisation provision, the relevant contractors must be prepared to offload a share of the participating interest in the block to an indigenous Ghanaian company or risk not receiving approval of the Minister for the transaction. Due to the competing claims of sovereignty and stabilisation, government and contractors often reach a compromise, and an M&A transaction may close with a transfer of an interest to an indigenous company which may be less than the 5% requirement. An example is the Hess-Lukoil transaction of 2014 where the government reached a negotiated position with Hess, allowing Hess to offload a 2% interest in the DWTCTP block to Fueltrade, an indigenous company, when Hess had sought to assign a 40% interest in the block to Lukoil. In the end, Lukoil received a 38% interest in the block.

Though the requirement to offload at least 5% to an indigenous company appears to apply to asset deals, government has evinced an intention to also apply the requirement to share transfers.

4. Conclusions

Ghana’s upstream industry has seen a fair number of M&A activities since its inception. While the early transactions often closed without much hassle, recent transactions have been fraught with stern conditions for approval from government. It has become increasingly clear that the government of Ghana intends to extract considerable value from its petroleum resources and what better time to do so than when it is required to give consent to an M&A transaction as a condition to the closing of the transaction.

Accordingly, contractors and international oil companies desirous of exiting/farming out certain interests or entering the industry, as the case may be, must develop strategic and attractive initiatives to incentivise government into the swift grant of consent necessary to close M&A transactions relating to assets in Ghana.

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