Maritime disputes threaten African oil exploration

04 Mar 2015

Maritime disputes threaten African oil exploration

Reports on 2 March that a maritime boundary dispute between Ghana and Ivory Coast could force the suspension of Tullow Oil’s TEN project, exemplify one of a growing number of such cases that could slow future African oil exploration and production. Uncertainty around the demarcation of maritime boundaries has persisted in many areas since the colonial period, but has come to the fore in recent years amid increasing activity in Africa’s offshore oil sector. The disagreements threaten to incur delays, legal cases and economic cost on operators already granted licenses in contested areas and could weaken investor confidence in potentially disputed blocks.

The boundary dispute between Ivory Coast and Ghana has had serious implications for Tullow, after the Ivorian government filed a request with the International Tribunal of the Law of the Sea (ITLOS) requesting that work in the contested area be suspended while the case is ongoing. It has cast doubt among investors over Tullow’s flagship Tweneboa-Enyenra-Ntomme (TEN) project off Ghana and was attributed with a fall of USD 308 mn from the company’s market value on 2 March. The fall in the company’s value is now expected to see Tullow relegated from the FTSE 100 during the index’s quarterly review on 4 March. Tullow has said that the ITLOS would make a decision on the Ivorian request to suspend operations by April, though uncertainty around the TEN project will last several years. The court is not expected to rule on the boundary dispute until late 2017, more than a year after the first oil is scheduled to begin production at TEN.

The Ghana-Ivory Coast case is the latest in a series of maritime boundary disputes that have emerged across Africa over the past year. In August, Somalia bought a case against Kenya to the UN’s International Court of Justice (ICJ) over a contested area of 100,000 sq km of sea that is potentially rich in oil and gas deposits. Kenya has already awarded exploration contracts to Total and Eni in the disputed area, which Somalia claims contravenes international law. The ongoing political instability in Somalia, which can delay decision-making on high-level international disputes, means the case could continue for years, delaying exploration activities in the contested region. Previous such ICJ cases have taken many years to resolve, such as that between Nigeria and Cameroon over the Bakassi Peninsula, where significant hydrocarbon deposits are long-thought to have existed but exploration has been delayed by the maritime boundary dispute. The Bakassi case was first taken to the ICJ in 1994, but not ruled upon until 2002 and it was only in 2008 that Nigeria accepted the court’s ruling and ceded the territory to Cameroon.

A long-standing dispute also exists between the Democratic Republic of Congo (DRC) and Angola over their oil-rich maritime boundary. This re-intensified in May after the Congolese government rejected maps submitted by Luanda to the United Nations Commission on the Limits of the Continental Shelf, which gave the DRC jurisdiction over a triangle of sea measuring just 19 km along its longest edge, considerably less than Kinshasa had previously laid claim to. The DRC’s rejection of Angola’s map effectively blocks Luanda’s plan to extend its exploration rights in its 370-km Exclusive Economic Zone (EEZ) to 560 km, as the UN does not consider such requests while disputes over boundaries are pending.

The experience of Kosmos in the disputed Western Sahara region demonstrates how legal and political disputes over governance of offshore waters can also affect operations. A ruling by the UN in 2002 said companies were permitted to drill in the area, despite local and international opposition to Moroccan rule of the territory, as long as local communities were consulted on exploration activities. However, the ruling did not make clear how the consultation process was to be conducted and several opposition groups have rejected Kosmos’s presence, highlighting the vulnerability of operations in the region to future legal action.

Lake and river boundaries are also being challenged as African nations seek to assert their sovereignty over poorly demarcated hydrocarbon deposits. In July 2013, Tanzanian President Jakaya Kikwete warned his country’s armed forces were prepared to take action to defend its territorial integrity, after Malawi began issuing exploration licenses in 2011 for the contested Lake Malawi (known as Lake Nyasa in Tanzania). Although the dispute is unlikely to escalate into violence, without an agreement, it is uncertain whether activities in the region will develop beyond the current exploration phase. The oil-rich Lake Albert region separating the DRC and Uganda is also subject to disputes, and this has undermined efforts to cooperate on the development of an export pipeline.

Connecting each of these disputes is a lack of clarity over colonial-era borders that has fuelled tensions as countries seek to assert their sovereignty over oil reserves. A study released in November by Robert van de Poll, an expert on the UN Convention on the Law of the Sea (UNCLOS), found that there were 32 maritime boundaries in Africa governed under the UNCLOS, but 68 still had to be agreed. This lack of clarity has increasingly fuelled disputes across the region over the past decade, as international oil companies have shown greater interest in developing blocks off the coast of Africa. This is expected to increase in the coming years as more countries apply to the UN to extend their access to the continental shelf beyond the 270-km EEZ. De Poll estimates this could create access to 70-80 bn barrels of oil, beyond the 95 bn barrels that have already been discovered. The need to extend access to the continental shelf was a significant factor in the Ghana-Ivory Coast dispute, where both countries are keen to explore their deep water sectors, and similar pressures in the future could reinvigorate a largely dormant dispute between Cameroon and Equatorial Guinea over an island at the mouth of the Ntem River.

In some areas, governments have agreed to joint exploration in the contested areas while international arbitration is pending, as has been the case between Gabon and Equatorial Guinea. However, in this case it is unclear what happens to those exploration licenses when a ruling is made. Another proposed solution is through the creation of joint development zones, as has been the case between Nigeria and Sao Tome and Principe, and Guinea-Bissau and Senegal. Under this system, the two countries are bound by international treaty to share resources in the contested area. However, as yet this model is still new in Africa and has only been applied in a few cases and the overwhelming trend remains in favour of international legal action. This will ensure further delays and disputes in the coming years, jeopardising exploration activities across the region.

This potential for boundary disputes presents a significant consideration for companies considering investment in Africa’s offshore oil and gas sector in the coming years. The prospect of future arbitration and delays to exploration activities will deter investment in blocks with disputed or potential future disputed status. In locations where licenses have already been issued, notably in the Somalia-Kenya and Ghana-Ivory Coast disagreements, affected companies will also be vulnerable to delays, changing contract terms and economic loss.

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