The Institute of Energy Security (IES) has projected that the government risks losing US$8.4 billion in revenue, in case the proposed unitization of the Afina and Sankofa fields does not happen.
This follows a prolonged delay for a proposed arrangement between Eni Ghana Exploration and Production Limited and Springfield Exploration and Production Limited, as sanctioned by the government.
This notwithstanding, considering two probable scenarios- a ‘no-unitization’ and ‘unitization’, the Energy Think-Tank has concluded that it is in the best interest of the country not to allow the opportunity for unitization to fizzle out.
“IES’ study finds that the State stands to derive an amount of US$8.4 billion from the unitization of the Sankofa and Afina fields, as opposed to US$2.065 billion that it will derive from the production from the Sankofa fields, assuming no incidence of unitization,” the report notes.
Unitization is not a new phenomenon in the oil and gas industry. It is mostly employed when a hydrocarbon or oil and gas reservoir straddles two or more license or contract areas. Essentially, a combination of oil fields which turn out to be part of the same geological structure or from a “common” hydrocarbon reservoir maximizes the economic benefits from the joint development of the fields.
Within such an agreement, each license holder agrees that the contract areas are aggregated as a unit, with each license holder receiving a percentage interest in the unit, which is mostly proportional to the shares in its own field before the merge.
Delay in agreement between Eni and Springfield
However, Eni had earlier opposed the unitization of Sankofa, which it operates in a venture with Vitol Holding BV. As of last year, the Italian Oil major held the view that Springfield hadn’t sufficiently tested its discovery to show that it shares a reservoir with it.
Eni’s Sankofa reserves hold about 40 billion cubic meters of natural gas and 500 million barrels of oil. Springfield, as at December, said it has oil reserves of 1.5 billion barrels.
IES’ study indicates that the State can accumulate economic benefits in the form of increases in royalties, taxes, Additional Oil Entitlement (AOE), fees and levies. To Eni and Springfield, the unitization will help reduce operational and capital costs of the unitized areas, among others.
But, IES explained that the delay in sealing the agreement- the Unitization and Unit Operating Agreement (UUOA), the government’s imposed terms and conditions for the unitization portends a huge loss of opportunity for the country to gain maximum economic benefits from its oil resources.
“The execution of the UUOA provides 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 report reveals.
According to IES, the reason for the inability of Springfield and Eni to adhere to 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,” the report notes.
Reason for Unitization
Meanwhile, the IES’ review of the Petroleum (Exploration and Production) Act, 2016 (Act 919) and the Petroleum (Exploration and Production) (General) Regulations, 2018 (L.I 2359), show that dynamic or hydrocarbon communication is not a requirement for unitization.
Section 34 (1) of Act 919 specifies 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, it is obvious that the only requirement for unitization in Ghana is for an accumulation to extend from one contract area into another,” IES noted.
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