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Business News of Saturday, 22 May 2021


IES refutes Eni's position on government unitisation directive

File photo of an oil rig File photo of an oil rig

The Institute for Energy Security (IES), a think tank, says oil major Eni’s reason for not complying with government’s directive on unitisation of the Sankofa and Afina fields, a year since the directive was given, is not based on the petroleum laws of the country.

Government in 2020 directed Eni and Springfield to unitise their two fields—Sankofa and Afina—as one field for production.

According to the IES, Eni claimed that there was no dynamic or hydrocarbon communication between the Afina discovery and the Sankofa field.

“However, the institute’s review of the Petroleum (Exploration and Production) Act, 2016 (Act 919) and the Petroleum (Exploration and Production) (General) Regulations, 2018 (L.I 2359), the laws that regulate unitisation in Ghana, show that dynamic or hydrocarbon communication is not a requirement for unitisation,” said Nana Amoasi, the Executive Director of IES.

Buttressing the institute’s position with the law, he said Section 34 (1) of Act 919 specifically provides that “where an accumulation of petroleum extends beyond the boundaries of (straddles) one contract area into one or more contract areas, the Minister in consultation with the Commission may, for the purpose of ensuring optimum recovery of petroleum from the accumulation of petroleum, direct the relevant contractors to enter into an agreement to develop and produce the accumulation of petroleum as a single unit.”

From this provision, Nana Amoasi, added, the only requirement for unitisation in Ghana is for an accumulation to extend from one contract area into another.

The IES said the Jubilee Field when discovered in June 2007 was found to be straddling two contract areas—Deepwater Tano (DWT) and West Cape Three Points (WCTP), operated by Tullow Ghana and Kosmos Ghana respectively—and was thus unitised and approved for development in 2009.

It warned that Ghana will lose about US$6bn in extra oil revenue annually if Eni and Springfield fail to comply with the unitisation directive from the Energy Ministry.

Currently, the production of oil from the Sankofa fields, a block operated by Eni, rakes in revenue of US$2.1bn. However, according to the energy think tank, if the two oil producers unitise the Sankofa and Afina fields, they could generate up to US$8.4bn in revenue, an increase of over US$6bn.

“The state stands to derive upwards of US$8.4bn from the unitisation of the Sankofa and Afina fields, as opposed to US$2.065bn that it will derive from the production from the Sankofa fields, assuming no incidence of unitisation,” the IES said.

The institute said its analysis established the fact that unitisation will lead to maximum economic benefits for the state and all the parties involved in the production of the unitised accumulation.

These benefits would be derived from, amongst others, sharing of development facilities, which naturally drives down costs and ultimately improves economic returns, it added.

“Ghana’s laws make provision for the concept because it prevents physical waste, prevents economic waste, and protects correlative rights (fair shares) of the parties to the contract areas. Both physical and economic waste would have direct economic impacts on the country, through lower revenues from reduced ultimate recoveries and higher tax deductions or higher cost recovery by the licensee, thus reducing the country’s share.

Also, if the contractual benefits, like production shares, taxes and royalties to be paid to the country by the different licensees are not uniform, the country may well have a direct financial interest in stopping waste from, say, a higher-royalty region to a lower-royalty region,” the institute said.