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ENI explains oilfield unitization stance

Oil And Gas 11w File photo

Wed, 9 Jun 2021 Source: goldstreetbusiness.com

Following the fierce controversy that has erupted in recent days over the purported unitization of the Sankofa oilfield with the recent Afina discovery, made in November 2019 by indigenous explorer, Springfield, after a directive from the Government of Ghana the Italian multinational has explained its stance on the issue – and it is not quite what Ghanaians have been led to believe.

The imbroglio, which has been ongoing since April 2020, when the then Minister for Petroleum Peter Amewu, gave both companies 120 days to come up with a joint plan to unitize their respective reservoirs on the basis that they are technically interconnected, became a major national issue a fortnight ago when the Institute for Energy Studies (IES), an independent oil and gas industry think tank released a report warning that Ghana stands to lose billions of dollars in revenues from the companies’ non compliance with the directive.

ENI believes that, according to the available data, the two fields are not in actual fact technically interconnected as asserted by the Ghana National Petroleum Corporation’s interpretation of the same data provided it by Springfield. But the IES study points out that under Ghana’s current petroleum laws, the Minister can insist on unitization even if the fields are not interconnected as long as this benefits the State and is not detrimental to the respective field owners

But in an exclusive interview with Goldstreet Business, the MD of ENI Ghana, Mr. Giuseppe Valenti, has explained that the company cannot demonstrate that the fields are interconnected since sufficient technical data to determine whether the fields are indeed interconnected or not has not been acquired by Springfield.

Indeed it is the lack of sufficient technical data which is preventing the parties from pursuing a proper process for unitization and this goes beyond the issue of interconnectivity to the core issues of the size and nature of Springfield’s Afina discovery and the technicalities of how best to exploit whatever hydrocarbon resources it may contain. In short ENI holds the position that there is not nearly enough data for it – or any other stakeholder including Springfield and the Government of Ghana themselves – to prudently make the multi-billion dollar investments required for the unitization of the two reservoirs.

This is because the Springfield discovery has not yet been appraised, a process requiring further drilling beyond the one well drilled so far. Indeed, even production testing has not been done so far. By this, ENI means sufficient data is not yet available to determine what the Afina discovery actually contains and the nature of the reservoir, which would determine the technical methodologies for developing it as well as the economics of its development and production.

Rather the only data available as at yet is derived from GNPC’s assessment of the sole drilling done by Springfield prior to its 2019 official announcement of its discovery; this insists ENI is grossly insufficient. Even that limited data was only forwarded to ENI in March this year, nearly one year after it was directed to unitize its Sankofa field with Afina.

The data was belatedly given to ENI for its use over just a one month period, after which it was required to return the data to the Petroleum Commission which furnished it in the first place. ENI avers that Springfield itself had not provided it with any data at all, expecting it to go ahead with the unitization based simply on the limited information contained in Springfield’s official announcement of its find back in late 2019. ENI further points out that while Ghana’s laws allow for an insistence on unitization of fields even where they are not technically interconnected[CAM2] as long as it would optimize overall production the State believes it would benefit from such – and Giuseppe admits he is not contesting that the Minister believes he is acting in the State’s best economic interests – the law also stipulates that such a decision should only be made where it does not impact adversely on any of the field owners;, ENI frets that it may be pushed into a huge un-economic investment decision by its compliance without sufficient data.

Instructively Springfield has indeed been unable to formally declare the commerciality of the Afina discovery because of this lack of technical data.

“Without the proper appraisal upon which the commerciality of the Afina discovery can be determined there is a wide range of possible outcomes each with its widely varying implications with regards to investment required and the returns on investment that would be made” asserts Giuseppe Valenti.

Indeed while comprehensive data from multiple wells confirm that the Sankofa field contains reserves for 500 million barrels of oil, Springfield’s own declaration – which has not been confirmed by a proper appraisal drilling programme – puts Afina’s resources as oil-in-place volumes at around 1.5 billion barrels, with a further 3 billion barrels of undiscovered potential, making it a superb start to the company’s drilling history (provided the discovery is commercial though). In contrast to Afina, the 0.5 billion barrels Sankofa oil field has already been producing since 2017, five years after its initial discovery by Eni’s Ghanaian upstream branch.

Government’s assertive view of how it would prefer its offshore crude production to develop has also generated another controversy. Although the Energy Ministry wants ENI to operate the prospective Sankofa-Afina field, however, it would be Springfield that gets the largest stake as Afina’s nominal reserves are higher, despite its commercial size and viability remaining unconfirmed. Mirroring a 54.5-45.5 percent split between Afina and Sankofa, ENI would receive only 20.2 percent of the future joint project, Vitol would be left with 16.2 percent whilst Springfield would get 44.7 percent.

ENI insists that it is not opposed to the concept of unitization itself, having been involved in about 130 such unitizations worldwide in its corporate history including more than 15 in nearby Nigeria or the one in Mozambique over the giant Mamba Field.

But in all those cases it was able to make enlightened, optimal investment decisions as to how to execute the unitizations because it had all the data it needed.

The company points to the fact that Ghana’s first oilfield, Jubilee, is itself the result of the unitization of two fields discovered around the same time by Tullow and Kosmos respectively. But it argues that in that instance it involved the unitization of two greenfield or discoveries, each with full data available so both sides knew exactly what they were getting into and what would consequently be required of them with regards to technical and financial inputs, as well as what they could expect to get out of their respective investments.

In the case of the unitization now being demanded of the Sankofa field and the Afina discovery, it requires the combining of a proven, brownfield like Sankofa -for which a development plan has been approved by the Ghanaian government in 2016 and fully executed – and an uncertain, greenfield like Afinadiscovery .

Indeed Sankofa has been producing since 2017, and so far it has produced about 50 million barrels over the past four years, evenly in line with the projections derived from its appraisal drilling and production test that had led to a declaration of commerciality in 2013 and the consequent decision to invest in developing the field.

Even then ENI notes that the field’s success has been achieved through lots of flexibility as unexpected challenges had to be met. “For instance, we had to change our approach and instead of mainly going vertical drilling we have had to go to horizontal wells” explains Giuseppe to assure production performance.

Another worry that ENI has without adequate data to guide it is that Afina is much deeper than Sankofa and so the quality of the reservoir would be more prone to deterioration.

Nevertheless, ENI says it is assessing the little data it has, as a preliminary move towards resolving the ongoing situation. But this does not necessarily mean it has agreed to unitise without the data it needs.

“The data would show us the best way forward” insists Giuseppe “and that might not necessarily be unitization. Maybe a joint development with both companies owning their respective reservoirs but working in concert to develop both of them might be a more economically rewarding strategy for all stakeholders.”

Again it is only a full data set, derived from a proper appraisal drilling and production test, that would satisfy the parties prior to making a multi-billion dollar investment decision.

Until that happens the government’s directive would seem not appropriate.

While government holds the upper hand being the regulator and ultimately the owner of Ghana’s natural resources which ENI is developing it needs to be circumspect especially considering the latest developments.

ExxonMobil the world’s largest oil and gas explorer and producer only last week announced its unceremonious exit from Ghana, abandoning its promising exploration block held in partnership with GNPC and local downstream industry leader, GOIL. While theories as to the reason for its exit – it did not give a definite reason itself – range from a reassessment of its investment portfolio away from hydrocarbons in the light of the global transition towards renewable energy; to its anger over government’s refusal to refund some US$4 million in VAT payments, conspiracy theorists are unsurprisingly contributing to the discussion too. Their stance on the situation is that the unitization dispute has contributed to ExxonMobil’s decision in that the company is afraid that government is using its regulatory authority to deliberately favour a local company over a multinational as part of its wider local participation ambitions and sooner or later Exxon might fall victim itself.

While this is sheer speculation the fact is that just as government itself trumpeted Exxon’s arrival in Ghana as evidence of its attractiveness, its exit will be conversely construed as indicative that it is not.

The conspiracy theory plays on suspicions among the international oil and gas community that government is deliberately seeking to hand part of the economic value held by ENI through its Sankofa field over to the indigenously owned Springfield by unitizing it with the latter’s unproven Afina discovery and giving Springfield a bigger share based simply on its own unconfirmed claims of value. This would also solve Springfield’s problems of raising the requisite finance to appraise and develop the Afina discovery and secure the needed technical expertise to develop a field whose potential remains unconfirmed.

Indeed, these conspiracy theorists question why a proper appraisal that would confirm the commerciality of the Afina discovery has not been done almost two years after the find was announced.

Unsurprisingly ENI has refused to be drawn into such speculation, which is circumstantial at best, sticking with its scientific stance that more data is required to make an enlightened investment decision.

But with ENI publicly declaring its position that it requires the appraisal data, which to be fair, is in line with global best practice, pressure will now increase on both government and Springfield to provide that data. If not, while government may win the populist debate at home in Ghana on the grounds that ENI would cost the state direly needed revenue, the international oil industry would side with the Italian multinational, damaging Ghana’s reputation as a destination for industry investment at a time that uncomfortable questions are already being asked.

Source: goldstreetbusiness.com