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Business News of Monday, 31 May 2021

Source: IES

Government must act on its unitization directive to protect its interests – IES

Dr Matthew Opoku Prempeh, Energy Minister Dr Matthew Opoku Prempeh, Energy Minister

It is certain that Eni Ghana Exploration and Production Limited (ENI), and Springfield Exploration and Production Limited (Springfield) have disregarded the Energy Minister’s directive to unitize the Afina discovery and the Sankofa field.

In April 2020, former Energy Minister John Peter Amewu wrote to ENI and Springfield, directing them to execute a Unitization and Unit Operating Agreement (UUOA), with respect to the Afina discovery in the West Cape Three Points (WCTP2) and the Sankofa field in the offshore Cape Three Points (OCTP) contract areas. The purpose of executing the UUOA is to give full effect to 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 and the Sankofa field.

The directive follows previous engagements and analysis of the post-drill data by the Petroleum Commission (PC) and the Ghana National Petroleum Corporation (GNPC), which confirmed that the Afina discovery in the WCTP-2 and the Sankofa field in the OCTP contract areas were one and the same. That is to say the Sankofa Cenomanian Reservoir extended into the WCTP-2 contract area.

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 UUOA within 120 days of his letter.

Even though the Minister’s directive was founded on Ghana’s laws and international best practices, one year on, the two oil companies are yet to abide by the directive by signing the UUOA to give full effect to the directive― a manifestation of clear disrespect and disregard for Ghana’s laws. These laws makes provision for the unitization concept because it prevents physical waste, prevents economic waste, and protects correlative rights (fair shares) of the parties to the contract areas.

The Government of Ghana and the Parliamentary Select Committee on Mines and Energy must therefore act to protect the interest of the State. Until government prevails on ENI and Springfield to obey the laws of the country, they shall continue to act in violation of the country’s laws and petroleum regulations.

While the country sits unconcerned and watches the two oil companies delay in effecting the country’s own directive, the State stands to lose heavily in the form of significant drop in operational and capital costs of the unitized fields, as well as increases in royalties, taxes, Additional Oil Entitlement (AOE), fees and levies.

It is an established fact that unitization will leads to maximum economic benefits for the State, and to the parties involved in the production of the unitized accumulation. These benefits would be derived from, amongst others, the sharing of development infrastructure, thus lowering the costs of production through economies of scale and operating efficiencies, and ultimately improving economic returns. Additionally, unitization is intended to maximize the ultimate recovery of the petroleum from the fields according to the best technical or engineering information.

Urgent action is required from government given that time is of essence in maximizing the exploitation of the country’s hydrocarbon resources for the benefits of the citizenry. It must act quickly to efficiently exploit it fossil fuel resources as expeditiously as possible before the “Green” revolution, which is directing more focus into the renewable energy space.

The Institute for Energy Security (IES) finds that the positions presently held by ENI and Springfield on Government’s directive to the two to unitize their respective oil fields has created an impasse. The Institute finds that while Springfield’s position aligns with Government’s claim of evidence of common reservoir, the ENI holds the view that there is no existence of hydrocarbon communication between the two contract areas based on data available to them.

The IES is of firm belief that a workable agreement is still possible. On that score, Government and the Parliamentary Select Committee on Mines and Energy must intervene and help the parties to engage, analyze their respective data, and to engage in a possible constructive negotiation.

Being a partner to both the OCTP and WCTP-2, the Government of Ghana is well placed to be the catalyst to a fair resolution of the impasse between Springfield and ENI. As an interested party to the two fields and a custodian of the country’s mineral resources, government can still play the role of a mediator to help the two companies overcome the resistance to a workable solution.

As an interested party to the two fields, and as custodian of the country’s mineral resources with a lot to lose, it is imperative that government immediately finds a solution to this impasse. Undoubtedly, the longer this unitization delays, the more revenue the country loses.

Consequently, the IES wish to respectfully ask the government to inform the nation how it intends to immediately resolve this issue, given the Institutes interest in the efficient exploitation of the country’s petroleum resources.