- 10 Marks
Question
Explain the following concepts in relation to the taxation of petroleum operations:
i) Surface Rentals
ii) Stability Agreements
iii) Carried Interest
iv) Additional Carried Interest
(10 marks)
Answer
i) Surface Rentals
In petroleum operations, surface rentals are annual payments made by oil companies for the use of land or offshore blocks allocated for exploration or production. The rates charged depend on the phase of operations, and the rental amounts increase as operations move from exploration to production. These fees are payable per square kilometer and serve as compensation to the government for land use.
Phase of Operation | Surface Rental Per Year |
---|---|
Initial exploration period | GH¢30 per square km |
1st Extension period | GH¢50 per square km |
2nd Extension period | GH¢75 per square km |
Development and production area | GH¢100 per square km |
ii) Stability Agreements
A stability agreement protects a petroleum company from adverse changes in tax laws or other fiscal obligations for a specified period (not exceeding 15 years) after the agreement is signed. This ensures that the company is not subject to changes in customs duties, royalties, and exchange control laws, which could negatively affect its operations.
iii) Carried Interest
Carried interest refers to the government’s entitlement to a share of the petroleum produced without having to contribute to exploration and development costs. In Ghana, the government, through the Ghana National Petroleum Corporation (GNPC), holds an initial carried interest of at least 15% in petroleum operations. The state only contributes towards production costs.
iv) Additional Carried Interest
In addition to the initial carried interest, the government has the option to acquire up to 5% additional participating interest in petroleum operations. The state must pay its proportionate share of development and production costs but not exploration and appraisal costs. This option is exercisable within a specified period after a commercial discovery is made.
- Tags: Carried Interest, Petroleum taxation, Stability agreements, Surface rentals
- Level: Level 3
- Topic: Petroleum operations
- Series: NOV 2021
- Uploader: Joseph