ENI and Springfield following a directive from the Ministry of Energy have been negotiating a unitization agreement to develop the reservoir that straddles both of their adjacent oil and gas fields.
A unitization is the pooling of assets by several parties in an oil and gas producing area to form a single operating unit, in exchange for receiving an interest in that unit.
The two energy firms have been given up to July to come up with a draft agreement. If negotiations are successful it could kick-start efforts to develop the biggest oilfield in West Africa.
This directive comes amid a severe oil price crash which was brought about by a reduction in global demand due to the coronavirus outbreak as well as an ongoing production dispute between Saudi Arabia and Russia, which is compelling many oil companies to review, delay or cancel some planned upstream projects.
The Energy Minister’s remarks
In a letter addressed to the two energy firms, the Energy Minister, Peter Amewu said there was technical evidence that the Afina and Sankofa fields have “identical reservoir and fluid properties”.
The Energy Minister also explained that this agreement would “ensure efficient production of the reservoir; maximise economic recovery of petroleum from the two contract areas; avoid unnecessary competitive drilling which might destroy the reservoir, and therefore is in the national interest.”
The government gave ENI and Springfield 120 days to provide a draft deal which started from early April when the directive was issued. If the two parties fail to comply with this order, the Minister can enforce the agreement as per Regulation 50(6) of L.I. 2359, the letter said.
However, some industry experts believe this would be a last resort, because of the consequences it might have for exploration in Ghana’s jurisdiction by international oil and gas firms.
ENI’s concerns about the agreement
ENI had previously argued against this policy as Springfield’s Afina field was yet to be appraised and tested. It had argued that this means negotiating with a potential partner whose value has not yet been fully established.
Certainly, Springfield appears to be the happier of the two firms over the directive as a company spokesperson expressed enthusiasm following its issuance whereas ENI declined to comment.
Springfield to benefit more from the unitization deal
A unitization deal would effectively resolve the challenges Springfield is currently facing with regards to securing finance and technical capacity to develop its new find.
ENI is a well-endowed global upstream operator which already has successfully developed an oilfield offshore of Ghana, therefore, it would become a technical operator and lead financier of a unitized oilfield. However, the company’s unhappiness with the directive could affect the enthusiasm of other international oil majors towards Ghana.
ENI operates the offshore Cape Three Points block, which is estimated to have reserves of about 40 Bcm of non-associated gas and 500 million barrels of oil. It contains the Sankofa offshore field, which has been producing oil and gas since 2017.
Springfield discovered oil at the Afina field in the West Cape Three Points Block 2 late last year, and doubled its resources to around 1.5 billion barrels of oil and added 0.7 Tcf of gas. This was the first find by an indigenous player in the country.
Since then it has been seeking to secure the necessary technical partnership and financing that would enable it to prepare a plan of development for approval by government.
The benefits of the agreement for both firms
Despite ENI’s reservations, however, analysts say such an agreement could make a unitized development more cost-competitive especially at a time of low oil prices, as most oil companies start to drastically cut their capital expenditure for such projects.
Such a deal would ensure “efficient reservoir exploitation, avoid unnecessary competitive drilling and maximize economic recovery,” a note by the African Energy Chamber said.
A similar unitization agreement was agreed between Tullow Oil and Kosmos Energy in 2010 that led to the development of Ghana’s first oil field Jubilee, which has proved to be very beneficial for both partners.
