Withdraw unlawful Afina-Sankofa unitisation directive – Eni & TUC demand from Minister

Hundreds of workers of Eni Ghana Exploration and Production Ltd have expressed disquiet over the seeming foul play in the unitisation of the Afina discovery in West Cape Three Points Block 2 Area (WCTP2) and the Sankofa field in Offshore West Cape Three Points Block Area (OCTP), which has been in contestation since 2020.

 To this end, the General Transport, Petroleum and Chemical Workers Union in a petition to the Minister of Energy said that; “we have observed with grave concern that the State’s failure to resolve this issue and bring a decisive conclusion to the matter has significantly impacted the investment climate of the OCTP Project including the general upstream business environment, resulting in potential job losses for our members”. 

The Union which has been actively monitoring the unitisation directives and the subsequent legal action commenced by Springfield Exploration & Production Ltd against Eni Ghana and its partner, Vitol Upstream Ghana Limited, following the Ministry of Energy (government) Unitization directives issued on 9th April 14th October and 6th November 2020, is not enthused with the ugly development in the oil sector.

 While the Union supports the purpose of unitisation for the optimum recovery of petroleum resources and/or to enhance the efficient exploitation of petroleum resources, it suspected foul play on the part of the government resulting in its disinterest in the execution of the Final Arbitration Award made by the International Arbitral Tribunal under the auspices of the Arbitration Institute of the Stockholm Chamber of Commerce, Stockholm, Sweden on July 8, 2024.

 The Union which is the parent union of the local union of Eni Ghana explained: “This Award determined that Ghana breached its laws and the OCTP Petroleum Agreement by issuing the directive for the unitisation of the Afina discovery and Sankofa field”.

 “Accordingly, we believe that as the Republic of Ghana was duly represented at the hearing of the Arbitration, the State would quickly do the needful and see to the implementation of the Award which is final and binding on the Parties and withdraw the flawed Unitisation Directive.

 We therefore respectfully request that your good self; as a matter of urgency, intervene in this matter by retracting the directives regarding the Unitization Directives until all the parameters for unitization are fulfilled”, the petition dated 8th August 2024 stated.

 The General Secretary of the General Transport, Petroleum and Chemical Workers Union. Fuseini Iddrisu who signed the petition said they are confident that withdrawing these directives including the imposition of terms and conditions for the project will help restore the OCTP Partners’ confidence, encouraging them to maintain their investments in OCTP and the CTP Block 4.

This action according to the petition would further help prevent decisions that could lead to job losses and negatively affect the State and the livelihoods of numerous families.

 It would further also boost investor confidence in the country’s upstream sector considering that most upstream investors are interested in how this matter is being handled to its conclusion.

This letter serves as a formal request for a meeting on August 26, 2024, between you and the Union leadership to further discuss our petition regarding the withdrawal of the directives, the petition said.

International Arbitration

 In 2021, Ghana’s Attorney General and Minister of Justice received formal notification regarding the initiation of arbitration proceedings under the United Nations Commission on International Trade Law (UNCITRAL).

 This action was taken by Eni/Vitol against the Republic of Ghana and the Ghana National Petroleum Corporation (GNPC) for alleged violations of the OCTP Petroleum Agreement.

The arbitration hearing took place in August 2023, and on July 8, 2024, Eni Ghana/Vitol obtained a favourable ruling from the Arbitral Tribunal concerning the unitization dispute with the Republic of Ghana. The Tribunal’s decision supported Eni and Vitol’s longstanding opposition to the Unitization Directives.

The Arbitral Tribunal upheld the position of Eni Ghana/Vitol, determining that the Unitization Directives issued by the Minister of Energy regarding the Sankofa Field, and the Afina Discovery were wrong and unlawful. Furthermore, it found that the actions of the Republic of Ghana violated both Ghanaian law and the provisions of the OCTP Petroleum Agreement.

The Arbitral Tribunal also found that:

 

• the illegal unitisation was not implemented in a manner that is consistent with the applicable legal framework in several respects, including the key unitisation provisions of the Petroleum Act and its regulations.

 

• the existence of dynamic communication and a straddling accumulation are essential elements of the test for unitisation under Ghanaian Law and neither had been established in the current case.

 

• Appraisal was a necessary step required under the Petroleum Act and regulations. Therefore, the imposition of terms and conditions for the said unitization was done in violation of the procedural and substantive rules applicable under the Petroleum Act and regulations.

 

• the October 6, 2020, GNPC Independent Technical Evaluation of the Cenomanian Channel and Hydrocarbon Accumulation across the WCTP Block 2 and OCTP Block Report was flawed and did not form a substantive basis to impose unitisation; and

 

• the Minister of Energy’s calculation of tract participation that Hydrocarbon Originally in Place (STOOIP) of WCTP block 2 operated by Springfield is 642MMbbls and was to be given a 54.545% and that of OCTP operated by Eni Ghana and Partners (i.e., Vitol and GNPC) of 535MMbbls and was to be given 45.455% suffered from multiple flaws.

Additionally, Eni/Vitol’s right to claim damages if the unitisation directives are enforced was expressly preserved by the Arbitral Tribunal.  If Ghana attempts to enforce or acquiesces to the enforcement of the directives, then Ghana will be liable to Eni Ghana/Vitol for their full damages. 

The Republic of Ghana’s counterclaim for violations of the Petroleum Agreement resulting from Eni Ghana/Vitol’s alleged defiance of the unitisation measures was completely dismissed.

Effects of continuous stay of imposition of the unitisation directive on Eni Ghana and Partners (Vitol and GNPC)

 Investment climate/Ghana’s international reputation

No additional oil and gas field has been developed since 2017 after the Sankofa field commenced commercial production.

The competitive bidding of the government in 2019 of which Eni Ghana was awarded Bock 3 stalled and could not yield the signing of the petroleum agreement partly due to an unattractive and hostile investment climate in the oil and gas sector.

The country’s reputation as a favourable investment destination in West Africa is speedily eroding, especially the government’s reluctance to comply with the verdict of the international arbitral tribunal to withdraw the unlawful unitisation directives.

According to Public Interest and Accountability Committee (PIAC) reports, the production volumes of the existing producing fields; Jubilee, Weneboa-enjera-domme (TEN) and Sankofa, are declining at an alarming rate due to a lack of additional investments to add new producing fields and wells.

Oil & Gas Production and Tax Revenue

 The OCTP project initially projected a daily output of 40,000 barrels; however, due to insufficient investment, current production has dwindled to approximately 23,000 barrels per day. This reduction in output is also impacting the volume of oil that the State, through GNPC, is entitled to receive for the Carried and Additional Participating Interest (CAPI).

For instance, in 2023, the project managed to lift and sell three cargoes on behalf of the State/GNPC, each consisting of around 900,000 barrels of Oil. However, due to the lack of further investment stemming from the imposition of unitization, the State/GNPC is expected to lift only two cargoes in 2024.

Eni Ghana and its partners are responsible for paying a withholding tax of approximately GHS 15 million each month to the Ghana Revenue Authority, along with an average of GHS 2 million in PAYE on employee salaries.

Labour

The challenging investment environment has led to significant stagnation for companies involved in the OCTP project, hindering their ability to hire new employees. There is a looming risk of layoffs for some current staff, as the number of workers is gradually exceeding the project requirement and increasingly outpacing investment levels.

At present, the OCTP project supports more than 2,000 direct and indirect jobs, with many workers facing the threat of unemployment. This situation could have dire consequences for families’ livelihoods and contribute to the rising unemployment rate in the country.

Local content

Eni Ghana, along with its partners, has enhanced the capabilities of numerous local companies in the oil and gas sector through the OCTP project by awarding contracts for various services, including construction, transportation, catering, hospitality, health, drilling, fabrication, and logistics.

However, the ongoing challenges related to unitisation and legal disputes are hindering Eni Ghana and its partners (Vitol and GNPC), leading to a decrease in investments. This situation is stifling growth and threatening the viability of local businesses due to the absence of new contracts.

Brief on Eni Ghana and OCTP Project

Eni has been the operator of the OCTP (also known as Sankofa and Gye-Nyame) fields since 2009 with participating interests of Eni Ghana – 44.44%, Vitol – 35.66% and GNPC – 20%. The OCTP project is the single largest foreign investment, USD7 billion, in Ghana with plans for further investment.     

This investment has several benefits for the country in sectors of power generation, job creation, social, corporate and community investment.

More than 580 service companies in Ghana, including Baj Freight, Mac Logistics, McDan Logistics, Bremenenergie, Macwest, Ringworld, Goil, Gaso Oil, Oakplam, NewCo Catering Services, Xtraile Catering Services, Schlumberger, Halliburton, Baker Hughes, Yinson, GRO, Belmet 7, Dos Santos Ltd., Fourche Maline, Obeng Construction Ltd, Subsea 7, Harlequin International, Spie Oil & Gas, etc. rely on contracts associated with the OCTP project.

The OCTP Project generates millions of dollars in tax revenue for the country each month.

Through its Eni Ghana operations, it has achieved a lot including a) The FPSO John Agyekum Kuffour and the Onshore Gas Receiving facility (Gas Plant) in Sanzule – Nzema collectively provide approximately 245 million standard cubic feet of gas per day, fulfilling around 60% of Ghana’s electricity generation gas requirements.

1. b) The Company has built and upgraded numerous schools within its operational areas, including Eikwe, Bakanta, Sanzule, Old Batanka, Atuabo, Ngalekyi, Ngalekpole, Baku, Anokyi, and Asemda along with additional facilities such as four (4) Standard football pitch size Astro – Turf and Solar panels to power all the schools to enhance teaching, learning and sports experiences.

Chronology of the events

On 9 April 2020, the Minister of Energy (MoE) issued a directive that Eni and Vitol agree with Springfield within 120 days on the terms of a Unitization and Unit Operating Agreement (“UUOA”) to produce and develop the Afina discovery (WCTP 2 Block) and the Sankofa Cenomanian field (OCTP Block) as a single unit.

According to the MoE, the directive to unitise both fields was to ensure optimum exploitation and recovery of the hydrocarbon resources of the fields, consistent with section 34 of the Petroleum (Exploration and Production) Act, 2016 (Act 919).

Following the directive, Eni sought relevant data regarding the Afina Discovery; however, the MoE refused the request to supply this data. Efforts to engage in consultations and discussions aimed at reaching a consensus on the matter were unsuccessful, as Springfield appeared to lack the readily accessible data necessary for unitization.

On 10 July 2020, as further described below, Springfield commenced legal action against Eni and Vitol before the Commercial Court in Ghana seeking an order of the court to compel Eni and Vitol to comply with the Minister’s 9th April 2020 Directive and for the court to order Eni and Vitol to render accounts to Springfield in respect of cost and proceeds received from Sankofa field from year 2009 till date, amongst other reliefs.

On 14 October 2020, the MoE sent a letter to Eni and Springfield imposing terms for unitizing the Afina discovery and Sankofa field. The key point was that WCTP2 and OCTP will have initial tract participations of 54.545% and 45.455% respectively, with Eni as the operator of the Unit Area. The MoE made its directive based on three sources: post-drill data in Springfield’s Afina Discovery, the opinion and report from the GNPC, and the recommendation from the Petroleum Commission.

On 28 October 2020, Eni and Vitol sent a letter to the MoE outlining their concerns about the October Directive and adding that the proper procedure for establishing the unitization regime had not been adhered to. Eni and Vitol specifically highlighted that the appraisal of the Afina Discovery was still outstanding and noted that they had not been provided with any data indicating that the two relevant areas were in dynamic communication for unitization.

On 6 November 2020, the MoE in response, asserted that compliance with the directives outlined in the October Directive is mandatory. Subsequently, the MoE provided Eni and Springfield with a Draft UUOA, referred to as the “November Directive,” which, along with the April Directive and the October Directive, constitutes the “Unitization Directives.”

Eni and Vitol have vigorously contested the case commenced by Springfield and the Unitization Directives in the courts of Ghana. They argued that the directives issued on April 9, 2020, October 14, 2020, and 6 November 2020 did not comply with Ghanaian law, international best practices, or the applicable contractual agreements.

The initial legal proceedings aimed at disputing the validity of these directives began in the Ghanaian judiciary; however, Eni and Vitol were unsuccessful in their applications and appeals. Consequently, the matter was escalated to the Arbitration Institute of the Stockholm Chamber of Commerce in Sweden, by the OCTP Petroleum Agreement.

In June 2022, the High Court (Commercial Division) issued an order following an application for the preservation of funds submitted by Springfield. The court ordered that Eni and Vitol deposit 30 per cent of the revenue generated from crude oil sales into an escrow account. This ruling was subsequently modified to require the funds to be paid to the Court Registrar while awaiting the resolution of the substantive case concerning the unitization order. Eni/Vitol’s appeal against this ruling was unsuccessful in the Court of Appeal.

On October 11, 2022, Springfield filed a motion for contempt, aiming to imprison several representatives of Eni Ghana/Vitol. They later withdrew this contempt after a year and then on July 2, 2024, they filed another contempt application which they subsequently withdrew on 19th July with a condition that they have the liberty to re-apply for Contempt again at any time.

African Eye Report