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West Africa revival

More oil output can be expected from West Africa in 2017, even if the recovery in upstream activity will be modest

A mild recovery in West African oil will take place in 2017, offering a contrast to the region's experience in 2016. Production will rise and some firms will chase new targets in the upstream. The coming year should see a gradual revival in exploration activity offshore some of West Africa's less-explored countries.

ExxonMobil plans to spud a well in Liberia before the end of 2016 or in early 2017. Offshore Côte d'Ivoire, American independent Anadarko is conducting exploration and appraisal of its Paon discovery from 2012. After a successful appraisal on Block CI-103, two more wells are to be drilled on CI-527 and 528 before the end of 2016 or in early 2017 to assess similar-aged sands. Efforts to gather more data ahead of onshore exploration in Ghana and Angola will also pique interest in 2017.

Still, the weaker oil price means overall exploration appetite will remain subdued. Some of the more established targets, like Cameroon's Douala Basin, Angola and Congo's pre-salt layer, probably won't see any major exploration activity without an oil-price rise. In Nigeria, exploration activity is already low and not much is planned for 2017, especially if the much-debated Petroleum Industry Bill (PIB) remains in limbo.

Production prospects in the region are brighter, partly because much output will be recovered but also because new projects will yield more liquid. Indeed, West Africa should be a big contributor to global oil-supply growth in 2017, adding more than 0.5m barrels a day to the world's total. Although Nigeria is not likely to add any major new production, several fields that during 2016 were affected by force majeure at major terminals following damage by militants in the Delta should re-open in the first quarter of 2017. All being well, Nigeria's oil output could recover from around 1.8m b/d in November to 2.2m b/d, including field condensate and natural gas liquids.

Ghana's oil production will receive a major boost on three fronts.

First, output from the Jubilee field will recover to more than 100,000 b/d. Jubilee's output was constrained to about 90,000 b/d for most of 2016 following damage to the Kwame Nkrumah, the field's floating, production and storage and offloading vessel. Second, the Tweneboa, Enyenra and Ntomme (Ten) fields, a newish project, should more than double output in 2017, from 20,000 b/d to 50,000 b/d, before reaching peak output of 80,000 b/d in 2018. Finally, another new field, Sankofa, should start producing in August 2017 at an initial rate of 10,000 b/d.

Even more oil will come from Angola, where production should rise by nearly 150,000 b/d before the end of 2017. Eni's East Hub project, Chevron's Mafumeira Sul and Total's Kaombo development will be behind this rise, and all are on schedule. In the Republic of Congo, meanwhile, Total is also on track to bring its giant offshore field, the Moho Nord project, on stream by Q4 2017. The project, which has attracted investment from Qatar's national oil company, is expected to produce 100,000 b/d, adding to the 40,000 b/d brought on stream in 2015. Cameroon and Côte d'Ivoire are also likely to record moderate output increases while output declines continue in the remaining countries, albeit at different levels.

Production prospects in the region are bright, partly because much output will be recovered but also because new projects will yield more liquid

Put together, all this new supply would be enough to disrupt Opec's putative plan to cut supply to support global oil prices. Indeed, the group will find it very difficult to coax any of the region's non-Opec members to join in with any supply-side restraint. Nigeria and Angola, both members, could actually have their output levels capped at 2.2m b/d and 2m b/d, respectively. This will amount to significant supply growth - and the new barrels could create a major problem for the market.

In my opinion, this is an interesting twist to the Opec decision that could significantly influence which members of the group end up making the cuts.

West Africa's immense potential has been largely constrained by its lack of enabling legislation. Thus, as more discoveries are made, and governments also look to monetise more of their oil and gas reserves, one should expect major changes to the regulatory framework across the region. Although Nigeria will dominate headlines in 2017 with regards to petroleum-sector regulations, the real changes are likely in other countries such as Ghana and Senegal.

Discussions on Nigeria's draft Petroleum Industry Governance Bill (PIGB), are likely to resume in 2017, especially after the launch of The Roadmap for the Petroleum Sector by the Nigerian National Petroleum Corporation in October 2016. The document is expected to show seven key areas where the petroleum ministry intends to focus as it looks to restructure Nigeria's oil and gas industry. But enactment of the PIGB and other parts of the PIB is a key element of this roadmap. So there will be more pressure on the Senate to revisit the bill for passage.

Following the passage of the new petroleum law in Ghana, the petroleum ministry has already sent another three regulations to parliament for consideration and enactment to support the Petroleum Exploration and Production Law 2016. These new regulations cover petroleum measurement, environment, health and safety, as well as data management. Expect these new rules to be passed before the end of Q1 2017. They should raise the standard of operations in the Ghanaian upstream.

Senegal has seen plenty of upstream success recently - but interest in its offshore has remained relatively subdued because of some lingering legislative and political uncertainty. The national oil company, PetroSen, is working on a new oil code, which is being developed to replace the existing petroleum law enacted in 1998. With no major history of oil production or dealings with oil companies for investors to rely on, Senegal's new oil law is expected to provide investors with the clearest signal of how it intends to welcome investors into the country.

Considering the potential size of its offshore oil bounty, and the presence of Chevron and ExxonMobil in nearby Liberia, an attractive set of laws could easily entice a major oil company to invest in exploration offshore. Still, this won't be easy, especially if Senegal puts an emphasis on local content - often a bugbear for international oil companies - and skills transfer in the new oil code.

Balancing these two objectives always tends to give African governments a tough time when setting up policies for the oil sector.

This article is part of Outlook 2017, our annual book looking at energy market trends for the year ahead. To purchase a copy, click here

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