24 May Ghana to lose $8.4bn revenue if ENI, Springfield fail to unitize fields – Study
24 May 2021
A study conducted by the Institute for Energy Security (IES) has revealed that the country is likely to miss a huge opportunity to rake in billions of dollars from the upstream petroleum sector.
This according the study was due to the delay on the part of Eni Ghana Exploration and Production Limited (ENI) and Springfield E&P (Springfield) to cooperate, to unitise the Afina and Sankofa fields.
Throwing more light on the study during a presentation on Wednesday, Nana Amoasi VII, Executive Director, IES, said the study revealed that the State stands to derive an upwards of US$8.4 billion from the unitisation of the Sankofa and Afina fields, as opposed to US$2.065 billion that it would derive from the production from the Sankofa fields, assuming no incidence of unitisation.
The Institute’s analysis he said, established that unitisation would lead to maximum economic benefits for the State, and for 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 improve economic returns. The benefits to the State are in the form of significant reduction in operational and capital costs of the unitised fields, as well as increases in royalties, taxes, Additional Oil Entitlement (AOE), fees and levies,” it said.
It said “With the unitisation concept, the unitised area, usually a reservoir is treated as a single unit for development purposes. It is as if the separate leases and licenses are merged into one single lease or license, with a single Unit Operator appointed to manage the development of the field.”
In April 2020, the Energy Ministry in a letter signed by the then Minister, John Peter Amewu, directed the two companies to unitise their fields. The decision resulted from series of engagements and analysis of post-drill data, which showed that the Afina discovery in the WCTP-2 belonging to the two companies field in the OCTP contract areas were one and the same. A year after the directive, the two companies have not complied.
The study stated that, Ghana’s laws made provision for the unitisation because it prevents physical waste, prevents economic waste, and protects correlative rights of the parties to the contract areas.
Both physical and economic waste it said, 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 study said.
Following from this, IES counts the delay in signing the unitisation and Unit Operating Agreement (UUOA) to complete the unitisation of the Afina and Sankofa fields as a loss of opportunity for the country.
Purpose of executing UUOA
The purpose of executing the UUOA is to give full effect to the government’s directive to unitise, and the subsequent imposition of terms and conditions for the unitisation 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 study said per IES’ investigation, the reason for the inability of the two companies to comply with the government’s directive is primarily due to Eni’s rejection of government’s position on the matter, by claiming that in their opinion there is 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.
Source: Ghanaian times