Changes to Ghana’s oil and gas royalty and licensing scheme are expected to be implemented this year to rejuvenate international investment into Ghana’s energy sector, UK-based Fitch Solutions has disclosed.

The government's primary objective is to stimulate further investment, particularly in the upstream exploration and production sectors, as a response to the country's recent economic instability and heavy dependency on one major upcoming field, Pecan, while production from other fields like Sankofa, Jubilee, and TEN is expected to decline in the medium to long term.

“Given this context, we expect that licensing reform will proceed. Although the Energy Minister has agreed to a new royalty scheme crafted by civil servants, the proposal has not yet been submitted to the cabinet or brought to a vote, with the last update received in November 2023”, it said.

Media reports suggested that the Energy Ministry is targeting 2024 for the adoption of the new licensing scheme.

“2024 is an election year in Ghana, and the incumbent administration is likely keen to demonstrate their competency in attracting investment. There has been no public release of the draft bill, but some key features have been shared by the Chief Executive Officer of the Petroleum Commission with journalists. The proposed system for calculating state take, which includes royalties and taxes, is expected to be more progressive, taking into account risk factors such as water depth, overall production, and oil prices—aligning with what is typically seen in the industry internationally”, it pointed out.

The current royalty rates in Ghana range from 4-12.5% for oil production and 3-10% for gas exports.

While specific details on how the royalty system will be adjusted have not been disclosed, Fitch Solutions said it is believed that reforms will lean towards a progressive model to draw investment, addressing both the immediate need for economic growth and the longer-term objective of reversing declines in hydrocarbon production.

Thi, it said, would not only enhance energy security but also ensure a consistent supply for the Tema refinery.

Licensing reform unlikely to result in greater government stake in existing oil and gas developments

The UK-based firm also said the licensing reform is unlikely to result in greater government stake in existing oil and gas developments, as the incumbent government will seek to avoid jeopardizing progress on the key Pecan oil field development moving towards a Final Investment Decision (FID) in 2024. 

The existing fields operate under production sharing agreements with fixed state take provisions, and the Ghana government's priority is to ensure that Pecan's development is not hindered, particularly after it has already experienced delays due to factors such as the COVID-19 pandemic and an impasse created from disagreements over the involvement of the Russian-based Lukoil.

“Our view is that even if the royalty reforms are passed and implemented, they are unlikely to be retroactive and therefore not expected to affect current fields like Jubilee or TEN. Instead, the reforms will likely apply to new fields and exploration commitments, alongside an anticipated future auction round for another 6 exploration blocks (though no timeline has been outlined for such a round)”, it added.