Boundary disputes – What kind of drilling is new drilling?

Posted in Blog post Western Africa Oil and gas

The recent delimitation of the maritime boundary between Ghana and Côte d’Ivoire is important for those considering investing in resources in disputed regions. Although the judgment on the merits is instructive, equally important for investors is the treatment of alleged breaches of interim measures which prevented development of the affected oil fields. In particular, the decision considered what exactly constituted “new drilling” in the disputed area.

A Special Chamber of the International Tribunal for the Law of the Sea (ITLOS) had been constituted following a request by Ghana dated 21 November 2014. However, the broader backdrop of the dispute concerns the discovery of the Tweneboa, Enyentra and Ntomme (TEN) oil fields, part of which fell within the disputed area.

The Chamber handed down its final judgment on 23 September 2017, and found in favour of Ghana, meaning the TEN fields remained within Ghana’s international waters and development of those fields could recommence. However, equally significant to the overall finding is the Chamber’s treatment of alleged breaches of the provisional measures it had previously ordered.

On 25 April 2015 the Chamber had ordered, among other things, that no “new drilling” take place in the disputed area pending resolution of the maritime boundary dispute. This significantly limited the output of the TEN fields.

Côte d’Ivoire later alleged that Ghana had permitted new drilling in breach of the measures, especially by permitting the drilling of a particular well, Nt07. Côte d’Ivoire argued that “new drilling” meant “any action consisting of crushing the rock, which was not ongoing as at 25 April 2015”. Ghana, on the other hand, submitted that Nt07 was not “new drilling”, and that any drilling work which had been done after 25 April 2015 was simply completing an existing well. In effect, the Chamber was asked to decide whether “new drilling” meant drilling only new wells or any new drilling work whatsoever.

Nt07 was a water injector necessary for maintaining pressure in the reservoir and the rate of production in the existing wells in the TEN fields. Clearly, a strict interpretation of “new drilling” would have increased the impact of the provisional measures on the development of the fields. Not only would concessionaries have been prohibited from drilling new wells, but they would not have been able to carry out any “crushing the rock” at all, including drilling works required to maintain existing wells or rates of production.

Ultimately, the Chamber rejected the allegations against Ghana. It concluded that the only activities undertaken by Ghana were those in respect of which drilling had already taken place, with the purpose of ensuring the proper production and maintenance of the oil deposits. This conclusion reflects the Chamber’s reasoning at the time the provision relief was granted that the provisional measure should be limited to prohibiting “new drilling” (and not all activities in the disputed area, as had been requested by Côte d’Ivoire) on the basis that the development that had already taken place at the TEN fields, meant a blanket ban could cause considerable financial loss to Ghana and its concessionaires and pose an environmental risk to the environment from deterioration of equipment.

The Chamber’s approach suggests that developing energy resources in a disputed area might become a race – the more established the drilling, the less likely an interim blanket ban will be imposed, and moreover works that complete or support existing drilling should not fall foul of provisional measures seeking to maintain the status quo. This should provide some comfort to the industry that some scope exists to maintain existing resources in disputed areas while any boundary dispute is resolved, even if further development activities are impossible.

 

 

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