Ghana’s new oilfield development faces stagnation
A new study conducted by the Institute for Energy Security (IES) has cast further illumination on the implications of the ongoing stagnation in new oil and gas field development that Ghana is currently suffering from. The study, released last week warns that the refusal of Eni Ghana Exploration and Production Limited (ENI) to accede to a directive by Ghana’s Ministry of Petroleum Resources to collaborate with Springfield E&P (Springfield) to unitise the Sankofa and Afina oil and gas fields which they respectively own could cost Ghana as much as US$6 billion in revenues accruing to the state.
This is just one of the two bottlenecks Ghana’s upstream oil and gas industry is faced with in regard to new field development. The other is the decision by Aker Energy to seek a new equity investor in its efforts to develop its planned Pecan oilfield, which will further delay commencement of production from what is billed to ultimately be the country’s biggest oilfield so far. Under the original schedule the field would have started producing by the end of 2020 or by the first half of this year at the latest. However, field development has not even started as at yet and with Aker’s latest decision, emanating from financing challenges, construction of the requisite infrastructure may not even start before the end of the year.
Therefore, the commencement of production from a unitized Sankofa/Afina field presents Ghana’s best hope of having a fourth oilfield up and running before a string of annual Eurobond issuances start falling due for amortization in late 2023. But the IES study reveals that while the State stands to derive upwards of US$8.4 billion from the unitization of the Sankofa and Afina fields, as opposed to US$2.065 billion that it would derive from the production from the Sankofa field alone, assuming no incidence of unitization. Yet there is still no certainty that the preferable first scenario will play out. Government has accommodated Eni’s resistance so far, setting new deadlines for unitization when an old one expires without action being taken. The latest deadline from government is May 2022, but no progress has yet been made towards meeting it.
Eni is disputing the premise for government’s directive that the two companies unitize their respective fields, which is that they are technically interconnected, a situation established by drilling conducted by Springfield and confirmed independently by analysis of the resultant data by the Ghana National Petroleum Corporation.
The Institute’s analysis asserts that unitization would 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 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 asserts the IES report.
It says “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.”