IES’ says Ghana would derive more than US$8.4 billion from the unitization
Ghana is likely to lose billions of dollars, following delays of Eni Ghana Exploration and Production Limited (ENI) and Springfield E&P (Springfield) to unitize the Afina and Sankofa fields, a study conducted by the Institute for Energy Security (IES) has shown.
The IES’ study finds that the State would derive more than US$8.4 billion from the unitization of the Sankofa and Afina fields as opposed to US$2.065 billion it would derive from the Sankofa fields in the absence of unitization.
The Institute’s analysis establishes the fact that unitization will lead to maximum economic benefits for the State, and for all the parties involved in the production of the unitized 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 a significant reduction in operational and capital costs of the unitized fields, as well as increases in royalties, taxes, Additional Oil Entitlement (AOE), fees and levies.
With the Unitization concept, the unitized 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.
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.
Following this, IES counts the delay in signing the Unitization and Unit Operating Agreement (UUOA) to complete the unitization of the Afina and Sankofa fields as a loss of opportunity for the country to reap maximum benefits from its petroleum resources.
The purpose of executing the UUOA is to give full effect to Government’s directive to unitize, and the subsequent imposition of 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.
Per IES’ investigation, the reason for the inability of Springfield and Eni to comply with the Government’s directive is primarily due to Eni’s rejection of the 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 unitization in Ghana, show that dynamic or hydrocarbon communication is not a requirement for unitization.
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, it is obvious that the only requirement for unitization in Ghana is for an accumulation to extend from one contract area into another.
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) Contract Areas operated by Tullow Ghana and Kosmos Ghana respectively and was thus unitized and approved for development in 2009.
Following that, first oil was achieved in December 2010 and has since produced oil over 311 million barrels, raking in over US$5 billion for the country, through Carried and Participating Interest (CAPI), Royalties, Corporate Income Taxes (CIT), and Surface Rentals.