Eni is preparing to contest a 25 June ruling by the Commercial High Court in Ghana in favor of local independent Springfield Exploration & Production over revenues from the Sankofa field operated by the Italian oil major. The Accra court backed Springfield’s application covering 30% of the revenues received by Eni and Vitol from the sale of crude oil from Sankofa.

Those revenues were ordered to go into an escrow account pending the conclusion of a government-mandated deal to combine Sankofa with Springfield’s adjacent Afina field. The payment amounts to around $40m a month. The court order took effect from the day of the ruling, but Eni is expected to appeal.

In a statement issued to African Energy, the Rome-based major said: “We take note of the ruling of the High Court. We are waiting to receive the full detailed ruling of the court and review same in order to establish the impact it could have on our current operations. We fully expect to take the appropriate steps necessary in order to protect our operations in the country, including appealing against this ruling.”

 The dispute could escalate further if Eni chooses to take the issue to international arbitration – a move which would also have a negative impact on Ghana’s reputation as a beacon of upstream oil and gas investment at a time when other majors have been pulling out of the country.

The government had directed the two oil firms to negotiate a ‘unitization’ deal for their Afina and Sankofa fields in April 2020, citing technical evidence that the Cenomanian-era reservoir straddled both blocks. It gave them 120 days to reach a draft agreement but, with no deal forthcoming, in November the government said it would impose a deal and stipulate terms and conditions (AE 428/12). The two oilfields are the subject of Springfields’s West Cape Three Points (WCTP) Block 2 licence and Eni’s Offshore Cape Three Points licence. WCTP Block 2 has an estimated 1.5bn barrels of in-place resources. Springfield described the decision as a “momentous” win, moving it closer to developing a major deep-water oil discovery.

Commenting on the court ruling, chief executive Kevin Okyere said it vindicated Springfield’s position on the issue of unitization; he said the company had been forced to take the legal route following Eni’s reluctance to follow energy minister John Peter Amewu’s directive for all parties to reach an amicable resolution to this “unfortunate impasse”.

Okyere said “Springfield is not interested in stalling ongoing crude oil production on the Sankofa field and believe in fairness and justice for all, irrespective of their size and position. The consequences of this case for the Ghanaian oil industry will be systemic and immediate.”

The Afina field was drilled in October/November 2019 when Springfield made two discoveries that included gas, critical and light oil at a depth of 1,030 metres. The discovery doubled the existing proven oil reserves of the block to 1.5bn bbls and added 700bcf of gas. Springfield holds 84% of the WCTP Block 2, with the state Ghana National Petroleum Corporation (GNPC) and its exploration arm the remaining stake.

Eni’s block is estimated to hold reserves of about 500m bbls of oil and 40 bcm of non-associated gas; it contains the Sankofa offshore field that has been producing since 2017.

Eni’s view is that the court ruling failed to account for the true picture of what is produced in each field, and questions whether they can easily be considered as a single entity.

There are question marks about the 30% figure determined by the court, which some industry critics have called arbitrary. International oil companies (IOCs) will also be concerned that the court appears not to have taken into account the amount that has already been invested by Eni in the field, running into the billions of dollars.

Heading for the exits

This taps into wider concerns about latent resource nationalism from host governments in parts of Africa which may further erode the commercial basis for future investment at a time when global conditions are already challenging, and many majors are looking to divest oil and gas assets. In recent weeks, there has been a number of withdrawals by majors from African markets, as they reposition to cope with ‘energy transition’ issues.

In late May, US major ExxonMobil Corporation was reported to be departing Ghana (AE 440/20). Exxon is understood to be relinquishing its entire 80% stake in the Deepwater Cape Three Points (DWCTP) block – which, until recently, had been seen as highly promising offshore acreage – and resigning as its operator.

Further afield, Exxon has entered talks to sell its upstream and midstream assets in Chad and Cameroon (AE 440/5), while and BP has been scaling back its operations in Angola and Algeria (see Upstream).

 Also still in question is Occidental Petroleum Corporation (Oxy)’s efforts to sell its assets in Ghana – comprising 24.077% of the Jubilee field and 17% of the Tweneboa-Enyenra-Ntomme integrated oil and gas project – which it inherited in the takeover of Anadarko Petroleum Corporation after Total pulled out of a wider sale (AE 421/14, 416/15). Oxy chief executive Vicki Hollub has been seeking to sell the assets as an element of the US major’s divestment plan.

Among those said to be interested have been Indonesia’s Pertamina. Industry sources said Boru Energy – the vehicle created by Tullow Oil veterans Aidan Heavey and Tom Hickey, backed by The Carlyle Group – was among those persuing the deal. Boru declined to comment. Sources suggested that Heavy was using his political nous to win support in Accra, possibly by offering GNPC a larger than usual role.

Whoever takes over the Oxy blocks will have to cope with a longstanding problem of taxation, inherited from Anadarko and which remains an issue, sources told African Energy.

…and a slow pace of development

Exploration in other areas of Ghana has slowed. No new block has been assigned in the last three years, while the only discoveries made have been Springfield’s Afina and Eni’s Akoma. Eni – which was also awarded rights to Block WB03 in the Tano Basin’s deep waters in July 2019, as part of the first competitive licensing round – maintains it is the only company actively undertaking exploration drilling.

Norway’s Aker Energy has yet to take a final investment decision on developing the Pecan development project in the deep-water offshore Tan Basin, where it had proposed a purpose-built floating production, storage and offloading (FPSO) vessel to connect a subsea production system at 2,400 meters below sea level (AE 417/19).

Ghana has built its exploration and production sector on the back of UK independent Tullow Oil’s Jubilee field, which has been producing since December 2010. The success of the Jubilee field’s unitization, bringing together blocks held by Tullow and Kosmos Energy, is cited in Accra as a strong motivation for the Afina and Sankofa joint project. The authorities view unitization as the best solution for optimal recovery in the two fields.

IOCs are not, in principle, opposed to such deals, in which a petroleum reservoir straddling different permits comes under a single licence. However, Eni takes a different view to the New Patriotic Party (NPP) government in this instance, despite Accra claiming there is technical evidence suggesting the Afina and Sankofa fields have identical reservoir and fluid characterizes.

The view from Eni is that it is better to first get certainty over what the wells have discovered in terms of extension and product ability, before proceeding with unitization. On that basis, more preparation and research would be needed, as well as efforts to ensure that those who have taken the risk of investing money in the project don’t lose value.

“When you have, as some analysts say is the case here, 100m bbls in place in deep water, the first question you ask is: is putting the well into production reasonable to do? This is pure business, upstream logic. Can I do it or not? Is it worth doing or not? Is the volume found recoverable at a level that can be produced economically?” Eni Ghana managing director Giuseppe Valenti told African Energy.

This raises the question of whether the well can produce at a sufficient rate and with enough pressure. “At the Sankofa field, for example, we have wells that are not in production because the pressures and production rates are insufficient to justify economic production. Is there sufficient data to make these decisions based on one exploration well without any production test? Investing in wells that ultimately turn out to be uneconomic because of these factors is not in the interest of the government nor of any partner that would contribute to this development,” said Valenti.

A faltering industry

Critics argue that the strongly nationalist approach of President Nana Akufo-Addo’s NPP government is holding back investment in sectors including upstream development. While the government approach to unitization reflects its impatience at perceived delays, the view from foreign oil companies is that in practice its maximum pressure policy will subdue upstream activity.

The wider backdrop is one of difficulties for Ghana’s upstream sector. Accra has set out ambitious plans to expand production from the current average of 180,000-200,000 b/d up to 500,000 b/d within six years, and to as much as 1m b/d later on. That target – along with the trend for IOCs to retreat – helps to explain the government’s interest in pushing ahead with the Eni and Springfield fields, which are viewed as central to meeting long-term production targets.

Amid the gloom, there has been some more positive news to report, as contracting group TechnipFMC was awarded a “significant” contract for the Tullow Oil Jubilee South East development offshore Ghana in early July.

Technip announced on 6 July that it been awarded an integrated engineering, procurement, construction and installation contract for the Jubilee South East development. It will be the company’s first such contract with Tullow Ghana, covering supply and offshore installation of all major subsea equipment, including manifolds and associated controls, flexible risers and flowlines, umbilicals and subsea structures.

Tullow is committed to further investment in Jubilee where net production was 29,500 b/d in 2020 and is expected to average around 24,300 b/d in 2021.

Despite its willingness to take the case to arbitration, Eni remains open to a solution to the Ghana situation. Although there is evident unhappiness at Springfield’s decision to take the matter to court – undermining company-to-company cooperation – it still sees a way forward in Ghana, albeit one that requires additional work and investment. The impression is the authorities are not taking into consideration Eni’s technical knowledge of the project before taking any wider decisions over commercial terms.

And while Ghana implemented a successful unitization agreement in the Jubilee field, IOCs may not see this as establishing a viable precedent for other fields. In Jubilee’s case two wells were drilled at more or less the same time, meaning Tullow and Kosmos had the same level of uncertainty across both parts of the concession. Both companies also took on the same level of risk and made similar sized investments. Eni’s argument is that this is manifestly not the case in the Afina discovery and Sankofa field. It may soon be up to the courts to determine how the next phase of the story will play out.

Meanwhile more investments are needed if gas-to-power, gas-based industrialization and other solutions favored by the NPP are to drive ahead as Ghana prepares to receive its first liquefied natural gas, as Tema LNG Terminal Company’s first cargo gets ever nearer (AE 441/30).

source: https://www.africa-energy.com/article/eni-prepared-fight-back-court-battle-highlights-local-difficulties-ghana