Oil and natural gas exploration in Africa is experiencing a revival after a long period in the wilderness.
It is not quite a return to the boom days of the past but the enthusiasm and drive that was lacking is back. Higher oil prices, better terms for investors, greater efficiency and increased returns for offshore projects are seeing optimism mixed with pragmatism. The change is being reflected in the balance sheets and exploration programs of some of the Africa-focused oil explorers. London-listed Tullow Oil, which endured a tough few years due to its high debts, now has a healthy cash flow enabling it to focus on growth.
“[The balance sheet] is not the first thing I talk about with investors… people still want the update but it is not the first thing people talk about.” CFO Les Woods told S&P Global Platts. “Now we can focus on value addition, getting activity up in the right places; to go and discover new resources. We have really gone through this period of intense focus on holding the balance sheet to now the point where we can go and now actually focus on our investments and assets,” Woods said.
The key thing here is that drilling programs of both oil major and independent oil explorers are picking up and, with more activity planned for next year, the mood is changing. Platts Oilgram News brings fast-breaking global petroleum and natural gas news every day covering supply and demand trends, corporate news, government actions, exploration, technology, and much more. Click on the link below and we will set you up with a free trial.
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The hunger among such companies to bag exploration licenses all over the continent — from offshore Congo to Cote d’Ivoire, Gabon, Gambia, Namibia and Uganda — bodes well. Even little-talked about Sudan finally seems to be putting a litany of issues behind it to mend its fractured oil industry and build ties with neighboring South Sudan.
THIRST FOR LUCRATIVE ACREAGE
The past few years have been one of false promises and false starts. Explorers in sub-Saharan Africa have turned up more giant discoveries than any other region, but turning these finds into returns has been more difficult. “Converting volume into value is undoubtedly sub-Saharan Africa’s Achilles heel,” analysts at consultancy Wood Mackenzie said in a recent research note. But oil majors alone had bagged “over 140,000 square kilometers of offshore acreage” in the past year, Wood Mackenzie said.
“Whatever happens in the next 10 years, sub-Saharan Africa will remain at the center of global exploration,” it said. “Many basins remain under-explored and low entry costs in these frontier areas make sub-Saharan Africa a good place for pure explorers and minnows to create value.”
Tracey Henderson, senior vice president of exploration at Kosmos Energy told Platts that investors’ attention spans were “a bit longer now in conventional exploration” after the allure of shale and the need for instant returns. “There is still enough capital discipline from oil companies right now,” Henderson said.
“There is a belief that we have stabilized. But nobody is completely confident you won’t see oil at $60/b or $55/b again in the next two years so the physical terms become incredibly important,” she said.
NEW PRODUCTION
Besides exploration there is has also been progress in the sanctioning of key oil and gas projects, which will steadily boost African oil and gas production in coming years. BP and Kosmos are on track to take the final investment decision for the West African Tortue LNG project by the end of 2018. The project — based on an estimated 15 Tcf (425 Bcm) of gas in an area straddling the Mauritania/Senegal maritime border — was expected to produce its first gas in 2022. Oil projects in Kenya and Uganda will likely get FID next year, boosting East Africa’s oil prospects. Both countries could produce as much as 250,000 b/d into the next decade.
Africa’s largest oil producer, Nigeria, is also set for a new lease of life with the planned start-up in December of the Egina field set to add 200,000 b/d, taking oil production up to 2.2 million b/d next year. Nigeria has not seen any major new oil projects in the past five years with the Total-operated $16 billion deepwater set to boost its plateauing crude production by over 10%. Egina will follow on from Angola which brought the 230,000 b/d Kaombo field online a few months ago. From the buzz around licensing rounds to Angola and Gabon offering better terms to investors, the continent’s oil sector has got its Afrobeat back.
And investors are listening. Platts.com
