As expected the Accra Commercial High Court ruling in favor of Springfield Exploration & Production (SEP)’s application concerning the offshore Sankofa field, operated by Eni Exploration and Production Ghana has created worries among the multinational oil and gas exploration and production community, many of whom are interpreting the decision as one designed to favour Ghana and its indigenous operator at the expense of the foreign company, ENI.
The chieftains of some multinationals operating in Ghana, who do not want to be named are questioning why the State, through its law court, is not just following global best practice by insisting that Springfield’s find is not properly appraised and its commerciality consequently ascertained as ENI has been insisting on. They are expressing fears that although Ghana has every right to exercise its sovereignty in deciding how its natural resources are exploited – especially where the decision conforms with Ghanaian law as is the case here – they are in Ghana with the tacit understanding that such decisions will conform with best practice. In this case, that means appraising the Afina discovery and confirming its commerciality before forcing ENI to spend a huge amount of money on unitization that will make its verified and already operating field the minority equity partner in a unitized field where the size of the majority partner’s resources have not been fully confirmed.
They assert that unitization would give Springfield a majority stake in the resultant single field even though its find has not been confirmed, leaving ENI with a minority stake even though its resources have been confirmed through industry best practice.
“So what happens if it eventually turns out that the resources at Afina are much smaller than currently being claimed by Springfield” queries one foreign multinational chieftain under condition of anonymity. “Then Springfield simply gets the majority stake in ENI’s find while ENI itself simply loses most of the oil it discovered.” Like his counterparts, he suggests that an appraisal should be completed if Springfield and government itself have nothing to hide.
“The refusal to do the appraisal suggests that something is wrong somewhere” he asserts darkly. “While Ghana is complaining about the revenue it is losing by the delay in implementing the unitization, the appraisal could have been completed long ago. If it confirms the commerciality, then ENI would not have a leg to stand on either in Ghana or indeed any court anywhere around the world.”
Actually, though, this is not so simple. Appraisal drilling is expensive and Springfield has already spent huge amounts in discovering the Afina field, including the hiring of the world’s biggest drill ship. Instructively Springfield was looking for a partner which would be both operator and financier before the unitization directive was made.
Besides local oil and gas analysts correctly point out that multinationals always tend to side with one of their own in disputes against African host countries, usually as a form of collective coercion to get inordinately favourable terms of operation.
The decision involves freezing 30% of revenues received by Eni and partner Vitol from the sale of crude oil from the field, which is the subject of an ongoing unitization dispute between Eni and Springfield. Its location is 60 km (37 mi) offshore in the Offshore Cape Three Points permit.
The court, presided over by Her Ladyship Justice Mariama Sammo partly agreed with Springfield and ordered that from Friday, June 25, 2021, 30 percent of all revenues accruing to ENI and Vitol from exploration and production from the Sankofa field be preserved in an interest veering account until the substantive case is determined.
In late 2019, Ghanaian E&P Company Springfield discovered a large oilfield in the adjoining offshore West Cape Three Points block 2 which it claims is an extension of Sankofa.
According to the company, the court’s order has taken effect, ruling that Eni and Vitol must pay US$40 million a month.
Springfield CEO Kevin Okyere said his company has been forced to take legal action following Eni’s unwillingness to follow the Minister of Energy’s directive, instructing all parties to reach an amicable resolution.
He added: “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.”
Following the disruption caused to supply chains in the region by COVID-19 and market changes, “Ghana cannot afford to delay development of a flagship project capable of contributing significantly to the state’s coffers and ultimately improve the standard of living of Ghanaians,” he concluded.
However, while Ghana is in a position to enforce its executive decision locally, the situation may turn out to be more complicated. Firstly ENI intends to appeal against the ruling, although judicial commentators do not expect it to be overturned. As one of them points out “No Ghanaian judge is going to present a ruling that stands to cost the state billions in foregone revenues if the unitization ruling is not implemented as quickly as possible.”
But if ENI decided to take its case to international arbitration, as is almost certainly be the situation ultimately, then complexities will increase exponentially. Even local oil and gas experts agree that an international court would be likely to sympathize with ENI and insist that the Afina filed be thoroughly appraised to establish its commerciality before the Italian firm becomes obliged to unitize its Sankofa field with it.
On the other hand, government itself would not be under any obligation to follow such a ruling from an international court with regards to the exploitation of its natural resources; Ghana is a sovereign jurisdiction and the ownership of its natural resources is not in question. That ENI discovered the hydrocarbon resources in question does not confer it with ownership – only the right to exploit them – and this is subject to the express approval of the Ghanaian state.
But while this means government can simply ignore such an international ruling and stick with its insistence on unitization without appraisal of the Afina field, there is the danger it could drive away other multinational oil and gas explorers and producers who would worry that Ghana is willing to discard with accepted industry-wide best practices, say industry analysts.
Indeed, Nana Amoasi VII, Executive Director of Institute for Energy Security, whose report brought the issue to the attention of the general public a couple of months ago, warns that the issue needs to be handled with care to avoid sending the wrong signals to potential investors in Ghana’s upstream petroleum sector.
“If we are not careful and we do not resolve this matter amicably, it will also scare away investors” he warns. “And we should also note that as we speak finding is being directed more at the green projects or renewables. The more we delay the more we lose the opportunity to attract investors. Over the past five years clearly, we have not seen any growth in the upstream industry. It’s the same players that we had, with no new players coming to the fore. And so it’s a matter that should be settled in such a way that it will garner the interest to come and be part of our upstream industry.”