Strong regulatory supervision could have prevented unitization dispute – Jantuah

Energy expert and lawyer, Kwame Jantuah, has expressed his belief that strong regulatory supervision could have resolved the recent unitization dispute in the energy sector and avoided the need for international arbitration.

He emphasized the importance of proactive engagement by industry regulators, specifically the Petroleum Commission and the Ministry of Energy, to address and manage such issues internally.

Jantuah’s comments come in the wake of a unitization dispute between Eni, Vitol, and Springfield, in which international arbitration ruled that Ghana breached its own laws in the manner it imposed the unitization.

He argued that the regulators should have actively engaged the parties involved in the dispute to discuss and implement the necessary steps, including a unitization clause, which he considers vital.

He believes that if these measures had been in place, any arising disputes could have been resolved without escalating to the international arbitration level.

He highlighted several critical takeaways to prevent similar occurrences in the future.

A careful reading of the arbitral judgement in respect of Ghana-Eni arbitration shows clearly that Ghana lost the substantive issue of the forced unitisation because of the failure to conduct appraisal drilling.

Per the Petroleum Agreement, when Springfield announced the discovery, ordinarily they had to drill an appraisal well.

An appraisal well is either a vertical or deviated well that is drilled so as to understand the potential of a hydrocarbon reservoir before commercial production of oil from a well can commence to then indicate the extend.

It fundamentally comes down to whether there was dynamic communication between Springfield’s West Cape Three Points field and Eni’s Offshore Cape Three Points field.

However, it is impossible to answer this without further appraisal drilling which Springfield itself alludes to in the documentation accompanying the case.

The tribunal notes in paragraphs 420 and 421 that “…the completion of an appraisal was necessary prior to imposing unitisation and determining tract participations.

Overall, the Tribunal concludes that the unitisation measures adopted by Ghana suffered from multiple substantive and procedural flaws.

In reaching this conclusion, the Tribunal said it did not analyse all of the Claimants’ allegations and evidence, although it did consider them, given that the aspects reviewed proved sufficient to conclude that the unitisation was contrary to the applicable regulations and thereby breached Article 26(2) of the Petroleum Agreement.

The tribunal declared that Ghana breached the Petroleum Agreement by issuing the unitization directive in the circumstances in which they were issued.

It also declared that each party shall bear its own costs but ordered Ghana to pay 189,900 Euros to Eni and Vitol.

The Tribunal then dismissed all other reliefs