ENI challenges government's oilfield unitization order in London court

Italian oil and gas firm, Eni, has filed a suit at the International Tribunal in London, United Kingdom, to challenge a directive by the Ministry of Energy, asking the oil firm to unitize its Sankofa offshore oil field and Afina oil block operated by Springfield E&P, a wholly Ghanaian upstream player.

ENI has resisted a directive ordering unitization of the two fields since 2019.

Recently, an Accra Hugh Court endorsed the Ministry’s directive in a landmark judgment based on Ghana’s petroleum industry regulatory regime.

The dispute by ENI however is based on Ghana’s laws not entirely following international upstream oil industry best practices.

It now remains to be seen whether the International Tribunal in London will put Ghana’s own laws above international tenets which are contained in the petroleum agreements it signs with IOCs.

In a statement filed by three renowned lawyers namely Craig Tevendale, Andrew Cannon and Charlie Morgan from Herbert Smith Freehills LLP, Eni is seeking five reliefs from the Tribunal.

The claimant wants the Tribunal to declare that the purported 9th April directive, 14th October directive, 6th November directive and any other steps taken to implement those directives represent a breach of contract under the Petroleum Agreement.

The directives insist that ENI unitizes its Sankofa Gyaname field with the Pecan field whose discovery was announced by Springfield in 2019.

They further insist than 30 percent of the ENI’s revenues from oil and gas sales from its Sankofa oilfield be put in an escrow account pending the resolution of the dispute.

The idea here is that if ultimately ENI is found to have to unitize the two fields, then part of the revenues it is currently earning from the Sankofa field will not actually belong to it.

Since Springfield’s Afina field is not even in development, not to talk about actually producing anything yet, the indigenous company has no revenues on which ENI could make a similar claim.

Ultimately this creates a situation whereby Springfield has a claim on a part of ENI’s revenues while Springfield is not generating any revenues on which ENI can make a claim and ENI’s case presented in London is therefore challenging this situation as well

Springfield, supported by data from GNPC claims it is one of the biggest discoveries in Africa but ENI insists that the data has not been conclusive, the drilling programme falling short of the extent accepted by the industry globally for ascertaining just how much oil and gas the discovery contains and subsequently declaring the “commerciality” of the find.

Importantly, unitization would make Springfield the biggest shareholder of the unitized field although ENI would be the technical operator. ENI does not accept this pending the completion of an appraisal –requiring further drilling – that would ascertain how much recoverable oil Springfield’s discovery actually contains.

These technical arguments underline a bigger issue in that the case will greatly influence how the global oil industry views Ghana as in international oil industry investment destination.

Petroleum Expert, Dr. Yusif Sulemana has described the suit filed by Italian oil and gas firm, Eni against the Government of Ghana at the international tribunal in London as a bad precedent to the viability of Ghana’s upstream sector.

“Unitisation can be compelled to happen in international jurisdiction. However it’s always better and more reasonable that unitization is done voluntarily, especially by the agreed parties because what normally happens is that we need to share data and once you are not unitizing and it is not in this type that means that data sharing is going to be difficult.”

“So, I see two impacts; whenever somebody or an industry player has court issues pending, it is always a diversionary activity that can impact you”, he added.

This he said is not entirely good for the upstream oil and gas sector because “we are in an era where we have to encourage system players to stay in the industry, so this case going to the tribunal is not a positive development. “

Dr. Sulemana stressed that some firms will not be able to optimise oil extraction independently unless they unitize, noting, that it would have been excellent if the case is solved locally.

Ultimately, the ongoing case will certainly set some legal precedents; but even more importantly it will force Ghana to work towards bringing its own petroleum laws more in sync with international laws and best practices. Ghana’s legal team correctly point out that everything the Ministry of Energy has done so far is in line with Ghanaian petroleum laws, and indeed this has been affirmed by the judgment of an Accra High Court. The problem is that those laws are not consistent with international best practice and the international petroleum agreements that underpin them.

Ghana’s legal team point out that all IOCs operating in Ghana, ENI inclusive, were aware of all aspects of this legal regime before setting up shop in the country. Their foreign legal contemporaries however contend that they never expected Ghana’s government to actually apply those aspects of the country’s laws that effectively give government such wide reaching discretionary powers whereby it can insist on unitizing fields of which one is still technically unproven.

Indeed, several local oil industry experts are now suggesting that in order not to damage Ghana’s credentials as a good jurisdiction for upstream oil and gas investment, government should simply insist that the remaining requirements to achieve full appraisal of the Afina field be executed and if they confirm GNPC’s data, commerciality can be declared. They assert that if this is done, ENI would not have a leg to stand on anymore.

However statements from Springfield insist that this is not necessary because the data gathered so far is enough to be considered conclusive – a position both GNPC itself and some local experts agree with. Besides, it has been pointed out, a full appraisal as requested by ENI would be prohibitively expensive for Springfield to do, having already hired the world’s biggest drill ship for an extended period of time in order to make the discovery on which its resource claims are being made in the first place.

Conversely though, the international oil experts who are unsurprisingly siding with ENI – who they see as one of their own – privately assert that Springfield and government are reluctant to complete the appraisal because they fret that the results, with regards to the true resources in the Afina field would fall far short of what is required to swing the equity holdings of a unified field in favour of the indigenous firm.

This suggests that no matter the outcome of the case now with the international tribunal, the international oil industry will find any ruling in favour of Springfield uncomfortable – at least until actual production proves that the indigenous company, GNPC and the Ministry of Energy were right all along.

On the other hand if the eventual outcome confirms ENIs worst fears that the Afina field has been grossly exaggerated, after the claims have been used to give Springfield a majority stake in the unitized field, then Ghana’s reputation as a fair and just jurisdiction for international oil investment would have been greatly damaged, possibly irreparably.

Therefore even as all stakeholders look towards the London tribunal’s ruling – which Ghana has the right to reject if it does not like it, being that the oil in both the Afina and Sankofa fields remain the country’s bonafide property – it is the eventual amount of oil actually contained in the Afina field that will determine whether it is ENI or Ghana that is really the villain in this controversy.