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Konfidants Team, a Swiss-Ghanaian transactional advisory firm based in Accra and Lugano, estimates that the ruling by the International Tribunal on the Law of the Seas (ITLOS) will cost partners developing the Tweneboa-Enyerra-Ntomme (TEN) at least over $1 billion.

This is because only 10 out of the 33 wells needed at the TEN fields have been drilled before the court ruled that Ghana shall take all necessary steps to ensure that no new drilling, either by Ghana or under its control, takes place in the disputed area.

In a paper titled ‘Cost of ITLOS Decision to TEN Partners is at least $1 billion’, Konfidants noted that the critical thing to do is to look at the drilling programme of the TEN field as outlined in various project development, scoping, and assessment reports prepared by or on behalf of Tullow by its assigns.

It said these documents indicate that the realistic production cycle of the TEN field requires 15 oil production wells, 15 water injection wells, one gas production well and two gas injection wells. 

However, the wells that have already been drilled for the mid-2016 first oil timeline are three oil production wells, four water injection wells, one gas production well and two gas injection wells. 

This development threatens Ghana’s medium-term energy security goal because gas from TEN is expected to power thermal plants to generate electricity.

Managing Partner of Konfidants Team, Mr Michael Kottoh told The Finder that the 10 wells drilled so far can produce a little over 20,000 barrels of crude per day as against the 80,000 barrels per day that would have been produced if all the 33 wells had been drilled.

He noted that the Plan of Development (the engineering and project blueprint based on which all activities are proceeding) called for an immediate commencement of drilling activities from mid-2016 through 2018 (in fact drilling rigs have already been contracted) in order to assure the base case scenario.

He stated that Tullow, Kosmos, GNPC, Anadarko and PetroSA, and Ghana (as a recipient of future taxes and royalties) will all be negatively affected by the ruling.

Mr Kottoh explained that the analysis is to rally Ghanaians behind Tullow and partners as well as the government to fight the case as Konfidants Team have confidence in Ghana’s legal team.

Konfidants Team also expressed worry about some of the directives of the court which were not clear, especially on not using information to the disadvantage of Ivory Coast.

The main projects in the disputed area impacted by the decision are Tweneboa-Enyerra-Ntomme (TEN) discoveries, WAWA and the Hess exploration, where further exploratory drilling is required in both the WAWA and Hess holdings in order to fully determine the extent of reserves. 

The Konfidants Team release stated that the almost three-year delay, and potential restrictions on data gathering or analysis, has adverse effects on the investment planning for the full appraisal of these fields. 

It said the ban on new drilling activities constitute, however, the bulk of the impact of the decision on Ghana, the bloc license holders and, particularly, Tullow.

According to Konfidants Team, attempts to sell some of the nearly 50% of shares Tullow holds in TEN and challenges facing the company, as well as the planned production cycle in the TEN field are all public knowledge.

“The most critical piece of data is the ‘base load case’ for TEN. This is the most realistic set of projections of how much exploitation activity will yield the most realistic path to plateau production in 2017 for Tullow. In brief, the ‘base case’ is the medium production profile.” 

That is simply to say: the ‘realistic’, as distinguished from the pessimistic or ‘optimistic’ scenario. It is fair to say that the realistic production cycle of the TEN field requires 15 oil production, 15 water injection, one gas production and two gas injection wells. 

This is projection in Tullow’s own documents. The wells that have already been drilled for the mid-2016 first oil timeline are three oil production, four water injection, one gas production, and two gas injection wells. 

The Plan of Development (the engineering and project blueprint based on which all activities are proceeding) called for an immediate commencement of drilling activities from mid-2016 through 2018 (in fact drilling rigs have already been contracted) in order to assure the base case scenario. 

Though most commentators have pointed to late 2017 as the likely end point for proceedings in the maritime dispute arbitration, anyone who has looked at the case file that has built up to date, and considering that the Tribunal is in unchartered waters (several aspects of proceedings are novel to the Tribunal), ought to be more cautious and project a mid-2018 completion point for the case.  

Considering the above, should first oil really start to flow in mid-2016 (which is already 1.5 years later than planned, and may well be missed), but regardless when it does, the TEN partners are bound to lose two years of project time, placing huge stress on Tullow’s farm-down, and the partners’ independent fund-raising efforts to develop a field that is costing nearly 20% more to develop than the ‘world-class’ Jubilee field, but is projected to produce less than 70% of Jubilee’s performance. 

Most analysts projected a loss of $1.5 billion had the TEN partners been ordered to completely halt development on the field for the duration of the proceedings. 

Tullow itself gave a broad range of between $1 billion and $2 billion. The Tribunal did not do stop TEN from going ahead. 

It merely precluded the base case scenario for TEN. 

The consequence is that the first oil production levels shall be maintained during the life of the proceedings. 

First oil production levels, judging by the well productivity issues in nearby Jubilee, but even discounting the remediation and acidification exercises that took place there, regardless of how aggressive ramp-up occurs, cannot justify the full investment profile of the project. 

The analysis of test flow data show that the three production wells may peak at 20,000 barrels per day (a super-optimistic scenario would be 60,000 barrels, but this would be a reckless estimate, judging by what we are obtaining from the 12 producers in the more productive Jubilee). 

If break-even cost per barrel is $50 (could be more, judging by the lower-cost Jubilee’s $45), then at a realistic medium-term price of crude of $75, we are talking of annual gross revenues of $182.5 million until the case is decided. Peanuts for a $5 billion. 

To put it in perspective: at that rate of income generation, it would take the TEN partners almost five years to pay for just the wells.  

The analysis further shows that by restricting the base case scenario, the ITLOS judges have, thus, cost the TEN partners at least $1 billion in losses, of which Tullow, as the lead operator, would be saddled with at least $500 million. 

As shown above, this is not computed solely from the estimated average recoverable barrels of 10 million barrels per year (production output follows a bell-curve, by the way), but also from contract restructuring, and capital and debt servicing costs.

The halt to all extended reach drilling and interference in the timeline of the Wawa field appraisal and development (including potential integration into TEN) were largely discounted.