Ghana to review oilfield unitization ruling – Herbert Krapa …avoids $7 billion claim liability

The Minister of State-designate for the Ministry of Energy, Herbert Krapa, has disclosed that the Ministry, in collaboration with the Attorney General, will review the recent oilfield unitization case and decide on the next steps accordingly.

Krapa emphasized that the ruling affirms Ghana’s right to unitize oil blocks that straddle and do not need to be developed independently. “The Ministry will do a review together with the Attorney General and will be advised accordingly on what the next step should be,” he stated during his vetting by the Appointments Committee.

He noted the positive outcome that the government and the Ghana National Petroleum Corporation (GNPC) are not liable to pay the $7 billion claim. The ruling clarified that while unitization is allowed under Ghanaian law, the procedure previously invoked was flawed. “The government policy that when two wells straddle/block straddle, they can be unitized to save infrastructure costs. This means we can save the cost that goes into developing them separately,” Krapa explained.

Ghana suffered a setback in an international arbitration case concerning its attempts to unitise offshore oil fields but avoided potentially significant financial damages, reports suggest that after reading the ruling, In the matter of an arbitration under the 1976 Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL) (SCC Arbitration U2021/114).

An arbitral tribunal seated in Stockholm has ruled that Ghana breached its Petroleum Agreement with Eni Ghana Exploration and Production Limited and Vitol Upstream Ghana Limited when it issued directives to unitise the Sankofa oil field with the adjacent Afina discovery.

The dispute arose after Ghana’s Ministry of Energy ordered the unitisation of the Sankofa field, operated by Eni and Vitol, with the Afina discovery operated by local company Springfield Exploration & Production Limited. The claimants argued that the unitisation directives were issued prematurely and without proper technical justification.

In its ruling, the tribunal found that Ghana had failed to establish the existence of a straddling accumulation, which is a prerequisite for unitisation under Ghanaian law. It also criticised the arbitrary determination of tract participation and procedural irregularities in the unitisation process.

However, in a significant relief for Ghana, the tribunal dismissed the claimants’ substantial damages claim, which industry sources suggest could have run into hundreds of millions of dollars. The arbitrators deemed the claim premature, as the unitisation directives have not yet been enforced.

“This ruling underscores the importance of following proper procedures in resource management, but also highlights the challenges in quantifying damages in such complex scenarios,” said an oil and gas consultant.

“You cannot shortchange that. Ghana lost on the substantive issue. Every country [it is common knowledge] has the right to ask parties to unitise oil fields to exploit their petroleum resources efficiently. However, the process of doing this matters. The Arbitral Tribunal found that “in the circumstances in which they were issued,” the Unitisation Directives breached the Petroleum Agreement. That is, the unitisation was contrary to the applicable regulations and thereby breached Article 26(2) of the Petroleum Agreement,” economist and political risk analyst Dr. Theo Acheampong also tweeted.

The decision could have far-reaching implications for Ghana’s oil industry and its approach to unitisation. It may also influence how other African countries manage similar situations in their offshore oil sectors.

Despite avoiding a potentially large payout, Ghana has been ordered to bear its own legal costs and pay half of the claimants’ arbitration costs, amounting to €189,900.

The ruling comes at a sensitive time for Ghana, which is currently implementing an IMF-backed economic recovery programme. The country has been seeking to maximise returns from its oil and gas resources to bolster its economy.

Neither the Ghanaian government nor the claimants responded to requests for comment before publication. The award is subject to challenge under Swedish law within two months of receipt.

This case highlights the delicate balance between state regulation and investor protection in Africa’s growing oil and gas sector, and may set a precedent for future disputes in the region.

By Eugene Davis