Following a directive from Ghana’s ministry of energy, ENI and Springfield have been negotiating a unitization agreement to develop the reservoir that straddles both of their adjacent oil and gas fields. The two companies 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 order comes in the midst of a severe oil price crash – brought about by a slow down in global demand due to the coronavirus outbreak as well as an ongoing production dispute between Saudi Arabia and Russia -which is prompting many oil companies to review, delay or cancel a slew of upstream projects.
In a letter addressed to the companies, energy minister, John-Peter Amewu said there was technical evidence that the Afina and Sankofa fields have “identical reservoir and fluid properties”.
Amewu, 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 has given ENI and Springfield 120 days to provide a draft deal starting 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 industry experts believe this would be a last resort, because of the ramifications it might have for exploration in Ghana’s jurisdiction by international oil and gas firms.
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 ascertained.
Indeed Springfield appears to be the happier of the two companies over the directive. Instructively, a company spokesperson expressed enthusiasm over the directive following its issuance whereas ENI declined comment.
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 technical operator and lead financier of a unitized oilfield. However it if feels short-changed by an enforced unitization deal, its unhappiness over the turn of events 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 unassociated gas and 500 million barrels of oil. It contains the Sankofa offshore field, which has been producing since 2017.
Springfield discovered oil at the Afina field in the West Cape Three Points Block 2 late last year, and doubled its in place 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 requisite technical partnership and financing that would enable it prepare a plan of development for approval by government.
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,” according to a note by the consultancy Africa Energy Chamber.
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.