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Mixed reactions greet court order for ENI to pay 30% revenue into escrow account

The stalemate between ENI Ghana and Springfield Ghana over the directive by then Energy Minister John Peter Amewu to execute a Unitization and Unit Operating Agreement (UUOA), which some stakeholders say is denying the country of much-needed revenue, saw Springfield dragging ENI to court.

Springfield prayed the court for a number of reliefs including an order directing ENI and Vitol to cooperate with Springfield to produce and develop the accumulation of petroleum in the Sankofa and Afina fields as one unit as well as an order for the immediate preservation of revenues earned from the exploration and production of petroleum by the Defendants from the Sankofa field.

ENI however maintained that further appraisal of Springfield’s Afina field needed to be done to determine its economic viability before a unitization program is embarked upon.

But according to Springfield, ENI has not only refused to comply with the unitization order by the then Minister, but has gone on to produce petroleum from the straddling contract areas which include their Afina field, thereby denying Springfield of enjoying the revenue that will accrue from the production activity, hence their lawsuit.

The court presided over by Her Ladyship Justice Mariama Sammo partly agreed with Springfield and ordered that from Friday, June 25, 2021, 30% of all revenues accruing to ENI and Vitol from exploration and production activities from the Sankofa field be preserved in an interest-bearing account until the substantive case is determined.

In a response to a request for comments by Citi Business News, ENI Ghana stated that it has taken note of the ruling of the High Court and is waiting to receive the full detailed ruling of the court and review same in order to establish the impact it could have on their current operations.

They also added that they fully expect to take the appropriate steps necessary in order to protect their operations in the country, including appealing against this ruling.

Commenting on the ruling, Kevin Okyere, CEO and founder of Springfield, described the ruling as a “welcome vindication of Springfield’s position on the issue of unitization and a positive result”.

Mr. Okyere added that Springfield looks forward to working with Eni as the operator of the unitized field in maximizing the production and the economic benefits for all stakeholders, including the Government and citizens of Ghana.

ENI and Springfield look to Gov’t for next line of action on unitization of fields

The two key actors in the ongoing ENI-Springfield unitization saga have laid responsibility for the next line of action in resolving the impasse, at the doorstep of government.

Despite agreeing to the need for an early mutually beneficial solution to be arrived at, the two companies still disagree on whether or not there should be further appraisals of Springfield’s Afina Oil field.

For over a year now the ENI Ghana and Springfield Ghana have failed to comply with a directive by then Energy Minister John Peter Amewu to execute a Unitization and Unit Operating Agreement (UUOA) after an independent study by the Ghana National Petroleum Corporation. (GNPC) showed that the two oil blocks were connected,

Sankofa is part of ENI’s Offshore Cape Three Points project off Ghana’s Atlantic Coast, which it says has reserves of about 40 billion cubic meters of gas and 500 million barrels of oil.

The Afina oil field which was discovered by Springfield in 2019, meanwhile is said to contain 1.5 billion barrels of oil and 0.7 trillion cubic feet of gas.

The delay in the unitization of the 2 fields which stakeholders such as the Africa Center for Energy Policy (ACEP) and the Institute for Energy Security (IES) have expressed concern over, is expected to among other things deny government of much-needed billions of dollars to prosecute its development agenda.

While stakeholders have called for the introduction of an independent third party to do further assessment of aspects of the deal, others are calling on government to apply section 35 of the Petroleum (Exploration and Production) Act, 2016 Act 919.

So what do the two companies believe is the stumbling block and what is the way forward for them?

Kennedy Noonoo is the Corporate Affairs Manager of Springfield Ghana and he believes ENI is the only party holding the unitization back and expects government to apply the law.

“From day one we have been ready to actualize the directive by the Minister. We made a presentation with data to the Ministry when we first realized the two fields straddle, upon which we were tasked to go and confirm what we were saying. We mobilized resources and drilled and the results backed our claims. Our data has been looked into by the GNPC, Petroleum Commission and other international agencies. The challenge has always been with ENI not seeing the need for us to sit down together and discuss. So now we think government now has to come out and give a directive on what the way forward is.”

On his part, the Managing Director of Eni Ghana Giuseppe Valenti expressed willingness to back the call for unitization but believes further appraisal of Springfield’s Afina field needs to be done to determine its economic viability.

“We are clearly not against unitization. The data unfortunately is not enough to show that unitization can proceed without any further appraisal or testing. In our opinion the unitization project needs to be assessed by a third party, to see the economic viability of the field. The question for the well which has not been tested is if the well capable of producing commercial quantities of oil. The GNPC report can’t be considered as an independent expert review. We now have to wait on what the government is going to propose, and based on that we will take our next steps.”

IES calls for new evaluator to look into the ENI / Springfield impasse

Government is been urged to without delay, introduce a new evaluator to look into the ongoing impasse between ENI Ghana Exploration and Production Limited, and Springfield Exploration and Production Limited, which has led to a delay in the unitization of their Afina and Sankofa oil fields.

The directive to unify the two oilfields was given by then Energy Minister John Peter Amewu in April 2020, after an independent study by the Ghana National Petroleum Corporation (GNPC) showed that the two oil blocks were connected, hence the need for them to be unitized.

According to the Institute for Energy Security (IES), a year after the issuance of the first unitization directive, Eni and Springfield are yet to sign the agreement needed to give full effect to the Government’s directive.

Sankofa is part of Eni’s Offshore Cape Three Points project off Ghana’s Atlantic Coast, which it says has reserves of about 40 billion cubic meters of gas and 500 million barrels of oil.

The Afina oil field which was discovered by Springfield, a wholly-owned Ghanaian company, is said to contain 1.5 billion barrels of oil and 0.7 trillion cubic feet of gas.

Speaking to Citi Business News on the situation, the Executive Director of the Institute for Energy Security (IES), Nana Amoasi VII, said Ghana will continue to miss out on an opportunity to rake in much-needed revenue running into billions of Cedis, as long as the two companies fail to unitize their oil fields. He, therefore, called for clarity from government on the situation.

“So we’re calling on the Minister or the government to bring clarity on this matter. If there are difficulties they should let us understand. Because what we came to identify or note is that while the Minister’s directive is based on the fact that the two fields have a common reservoir, so they should come and operate as one, with ENI being called upon to be the operator, ENI is also saying that they don’t find any hydrocarbons or dynamic communication between the two fields. And if the Minister will proceed further to introduce a new independent evaluator to look at the case it will be good for the country, because the more we delay the more we lose an opportunity.”

Nana Amoasi VII further added that the issue needs to be handled with care to avoid sending the wrong signal to potential investors in Ghana’s upstream petroleum sector.

“If we are not careful and we don’t resolve this matter amicably it will also scare away investors. And we should also note that as we speak funding is being directed more at the green projects or renewables. The more we delay the more we lose the opportunity in attracting investors. Over the past five years clearly, we’ve not seen any growth in the upstream industry. It’s the same players that we had, with no new players coming to the fore. And so it’s a matter that should be settled in such a way that it will garner the interest of investors to come and be part of our upstream industry.”

IES MarketScan: A YEAR ON, WHY HAS’NT 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 Minister 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 to 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 the unitization of oil and gas fields. The institute, therefore, called 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.

 


Source: Ghana Business

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