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The government is being asked to immediately, acquaint another evaluator with investigating the continuous stalemate between ENI Ghana Exploration and Production Limited, and Springfield Exploration and Production Limited, which has prompted a deferral in the unitization of their Afina and Sankofa oil fields.
The order to bring together the two oilfields was given by then Energy Minister, John Peter Amewu in April 2020, after a free investigation by the Ghana National Petroleum Corporation (GNPC) showed that the two oil blocks were associated, subsequently the requirement for them to be unitized.
As per the Institute for Energy Security (IES), a year after the issuance of the principal unitization order, Eni and Springfield are yet to consent to the arrangement expected to give full impact to the public authority’s mandate.
Sankofa is important for Eni’s Offshore Cape Three Points project off Ghana’s Atlantic Coast, which it says has stores of around 40 billion cubic meters of gas and 500 million barrels of oil.
The Afina oil field which was found by Springfield, a completely possessed Ghanaian organization, is said to contain 1.5 billion barrels of oil and 0.7 trillion cubic feet of gas.
Addressing Citi Business News on the circumstance, the Executive Director of the Institute for Energy Security (IES), Nana Amoasi VII, said Ghana will keep on passing up a chance to round up genuinely necessary income running into billions of Cedis, as long as the two organizations neglect to unitize their oil fields.
He in this way called for clearness from government on the circumstance.
“We’re approaching the Minister or the public authority to welcome lucidity on this matter. On the off chance that there are troubles, they should allow us to comprehend. Since what we came to distinguish or note is that while the Minister’s mandate depends on the way that the two fields have a typical supply, so they should come and work as one, with ENI being called upon to be the administrator, ENI is additionally saying that they don’t discover any hydrocarbons or dynamic correspondence between the two fields. Furthermore, if the Minister will continue further to acquaint another free evaluator with taking a gander at the case, it will be useful for the country, on the grounds that the more we delay, the more we lose a chance.”
Nana Amoasi VII further added that the issue should be maneuvered carefully to try not to convey some unacceptable message to expected financial backers in Ghana’s upstream oil area
“In the event that we are not cautious, and we don’t resolve this matter genially, it will likewise drive off financial backers. What’s more, we ought to likewise take note that present financing is being coordinated more at the green tasks or renewables. The more we delay, the more we lose the chance of pulling in financial backers. In the course of recent years unmistakably, we’ve not seen any development in the upstream business. It’s the very players that we had, with no new players going to the front. As it’s a matter that ought to be gotten comfortable such a way that it will collect the premium of financial backers to come and be essential for our upstream industry.”
IES MarketScan: A YEAR ON, WHY HASN’T ENI AND SPRINGFIELD UNITIZED AS DIRECTED
In April 2020, the then Energy Minister John Peter Amewu wrote to the subsidiary of the Italian oil major Eni Ghana Exploration and Production Limited (ENI), and Springfield Exploration and Production Limited (Springfield) a subsidiary of Springfield Group, directing them to execute a Unitization and Unit Operating Agreement (UUOA).
The purpose of executing the UUOA is to give full effect to the Government’s directive to unitize the Afina and Sankofa fields, and the subsequent imposition of terms and conditions for the unitization of the Afina discovery in the West Cape Three Points (WCTP2) and the Sankofa field in the offshore Cape Three Points (OCTP) contract areas.
The Institute for Energy Security (IES) MarketScan finds that the journey to the imposition of the terms and conditions for the unitization of the Afina and Sankofa fields begun in 2018 when Springfield wrote to the Minster for Energy indicating that, per their analysis of the data available to them, the Sankofa Cenomanian Reservoir extended into the WCTP2 contract area. Consequently, they requested the Minister to, in accordance with the law, direct the WCTP-2 contractor parties and OCTP contractor parties to commence unitization discussions.
After a series of engagements, Springfield was advised by the Hon. Minister to drill their prospect to further prove their claim, even though the seismic data showed that the Sankofa Cenomanian Reservoir extended into the WCTP2 contract area. Springfield based on the Minister’s advice, proceeded to drill the Afina-1x well which encountered hydrocarbons and thus corroborating their claim that the Sankofa Cenomanian extended into their contract area.
It was on the back of these engagements and analysis of the post-drill data by the Petroleum Commission (PC) and the Ghana National Petroleum Corporation (GNPC), that the Minister wrote to Eni and Springfield, stating that the Afina discovery in the WCTP-2 and the Sankofa field in the OCTP contract areas were one and the same. Consequently, and in accordance with the law, the Hon. Minister directed Springfield and Eni to begin the process leading to unitization and to furnish him with a draft Unitization and Unit Operating Agreement (UUOA) within 120 days of his letter.
A year after the issuance of the first unitization directive, information available to the Institute indicates that Eni and Springfield are yet to sign the UUOA to give full effect to the Government’s directive. This, the Institute finds this as shocking and disappointing, given that the directive was issued in accordance with law and in the best interest of all the parties, including the State.
Section 34 (1) of the Petroleum (Exploration and Production) Act, 2016 (Act 919) specifically provides that “where an accumulation of petroleum extends beyond the boundaries of one contract area into one or more contract areas, the Minister in consultation with the Commission may, for the purpose of ensuring optimum recovery from the accumulation, direct the relevant contractors to enter into an agreement to develop and produce the accumulation of petroleum as a single unit”.
Similar principles apply in international practice. The Institute’s review of unitization laws in other countries show that majority of countries including Azerbaijan, United Kingdom, Egypt, Brazil, Nigeria, and Ecuador have enacted laws and regulations governing unitization processes which are very similar to the law in Ghana. The practice is usually for voluntary unitization, with the government having the power to enforce processes for unitization if voluntary unitization fails.
In international practice, the universal trigger for requiring unitization is geological, where a petroleum reservoir is found to extend underneath contiguous contract areas, given the different parties rights over the common reservoir.
Ghana’s laws makes provision for unitization because it prevents physical waste, prevents economic waste, and protects correlative rights (fair shares) of the parties to the contract areas. Unquestionably, unitization is a proper and generally accepted measure in the oil and gas industry to prevent waste. It is acknowledged as the best method of producing oil and gas efficiently and fairly.
It is an established fact that unitization leads to maximum economic benefits for all the parties involved including the State. These benefits are derived from, amongst others, sharing of development facilities, which naturally drives down costs and ultimately improve economic returns. The benefits to the State are in the form of significant reduction in operational and capital costs as well increases in royalties, taxes, Additional Oil Entitlement (AOE), fees and levies.
Having established that the Minister’s directive was in accordance with the laws of Ghana and international best practices, it is puzzling why the Eni and Springfield are yet to sign the UUOA to fully complete the unitization of the fields so as enable the State derive the much needed revenues for the benefit of the entire citizenry.
The IES counts the delay in unitizing the OCTP and WCTP-2 as loss of opportunity for the country to reap maximum benefits from its petroleum resources due to the economic incentives associated with unitization of oil and gas fields. The institute therefore calls on government to update the country on the progress so far made on its unitization directive to Springfield and Eni, as part of its accountability on the country’s petroleum resource management to the citizens of the country.