Exploration Period and Performance Bonds. The exploration period is a very important phase of oil operations and the Government must be able to protect Ghana’s interest by ensuring that exploration companies have the necessary finances to fulfil their obligations. This is why in most countries, exploration companies are expected to demonstrate their ability through performance bonds. In the Ghana-AGM Agreement, except for the first exploration period, the Contractor is not required to post a performance bond. The only performance bond required is US$100 million for the initial period of 3 years, less than half the minimum expenditure requirement of US$259 million for the period. The GNPC recognizes that this is potentially problematic by providing for an additional performance bond when it realizes that the contractor is not fulfilling its obligations as expected. This makes the exploration obligations highly volatile especially since the financial backbone of the Contractor Group, Minexco, expects to rely heavily on debt financing. Off course, there are relinquishment provisions that could be triggered when the Contractor fails to fulfil its obligations but the country could have avoided the associated postponement of oil discovery in the area if proper due diligence was done and a more financially stronger company was awarded the block. In the case of the Ghana-COLA/MEDEA Agreement, the minimum expenditure requirement during the exploration period is not very significant for the three phases, about US$65 million. This is largely due to the fact that the area is in shallow waters with water depths from 30 m to 200m. In spite of this low financial requirement, the conditions for meeting work obligations are more stringent. The Contractor is expected to establish a funded Escrow Account with funds equivalent to minimum expenditure obligations of US$25 million for the initial exploration period. It will further post a performance bond of US$20 million for succeeding periods of explorations. The implication of these provisions is that the Ghana-AGM Agreement faces greater risks of non-fulfilment of the work program during the exploration phase; hence the performance bond in respect of the contract should be tightened up further.
Exploration Period and Performance Bonds. The exploration period is a very important phase of oil operations and the Government must be able to protect Ghana’s interest by ensuring that exploration companies have the necessary finances to fulfil their obligations. This is why in most countries, exploration companies are expected to demonstrate their ability through performance bonds. In the Agreement, except for the first exploration period, the Contractor is not required to post a performance bond. The only performance bond required is US$100 million for the initial period of 3 years, less than half the minimum expenditure requirement of US$259 million for the period. The GNPC recognizes that this is potentially problematic by providing for an additional performance bond when it realizes that the contractor is not fulfilling its obligations as expected.
