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Senegal moves towards first oil

The Cairn-led SNE venture must now convert some of the world's largest recent discoveries into viable production

After a hectic three years of frequent discoveries and expanding ambitions, resulting in reserve estimates of at least 0.56bn barrels of oil, drilling activity has temporarily paused on the SNE development.

But while Cairn Energy's base in Dakar is quiet, behind the scenes plenty is going on as the project partners seek an agreement with the government over development plans. A final investment decision is due by year-end.

"It's just as busy, it's just not headline drilling activity," Simon Thomson, Cairn's chief executive, told Petroleum Economist. "There is an enormous amount going on in relation to the preparation for the development plan and the related work on placing contracts for all the work streams, in terms of drilling, supplies and equipment, contracting an FPSO and so on."

Cairn estimates the size of the field and the quality of the oil should enable the project to break even at around $35 a barrel and to produce an internal rate of return of over 30% at a Brent price of $60/b.

The aim is to produce first oil in 2021-23 from a development that has an initial target production plateau of 75,000-125,000 barrels a day, which will be processed via a floating production storage and offloading (FPSO) vessel with oil-storage capacity of 1m-2m barrels. Up to 25 wells, including oil producers and water and gas injectors are expected to be drilled in the field, which lies in water depths of 650-1,400 metres.

The field could also hold as much as 1.3 trillion cubic feet of gas, production of which will initially be reinjected into the field.

SNE covers 350 square km of the Rufisque, Sangomar and Sangomar Deep production-sharing contract area and features an Early Albian sandy pro-delta turbidite apron and a delta-fed ramp. It has a 100-metre oil column with 31°API oil. For non-geologists, all this suggests plenty of oil. The nearby Fan area has Late Albian contourites and gravity deposits, while Fan South has an Albian base of slope turbidite fans shed off the shelf.

Operator switch

Evaluation and exploitation plans for the field are now being prepared, with an evaluation plan to be submitted in the first half of 2018 and the full development plan due to be presented to the government around mid-2018. Shortly after that, Cairn is due to relinquish operatorship of the project to its partner, Australia's Woodside Energy, which will handle the production phase. The UK-based firm will then focus more on further exploration in Senegal, potentially drilling on acreage in the nearby shallower water of the Rufisque area in the coming months.

Preparations for front-end engineering and design (Feed) for the SNE development is already under way, as the partners weigh up the design of the FPSO and other infrastructure. Tenders for FEED contracts are expected to be launched later in the year.

Thomson says he believes there is a high chance that the plan will win approval, as the government has been following Cairn's appraisal plans since they were devised and was "fully on board".

0.56bn barrels—Amount of oil found in past three years

A speedy approval should help to keep development costs down, as the project is benefitting from the fall in contractor and rig-hire prices since the oil price drop of late 2014. The partners have spent almost $1bn on the project so far and envisage spending another $2bn or so to get production moving.

"We are hitting this project, in terms of committing to contracts, at a time when pricing is much, much lower than it has been in recent years. So I hope the joint venture will be able to take advantage of this and that there will be potential to improve on those cost estimates," Thomson said.

If it is approved, the development will be the culmination of a story that has its roots in exploration by Australian minnow Far Limited, which in 2006 acquired an interest in the Sangomar Deep acreage, in which the SNE and Fan discoveries are located. Cairn bought in during 2013, assuming operatorship and drilling 11 successful wells between 2014 and 2017, in the process opening up a play that it now estimates to hold some 0.563bn barrels of 2C oil resources.

The field's potential was sufficient to pique the interest of ConocoPhillips, which bought a stake in 2013, and then Woodside, which bought ConocoPhillips's 35% working interest in 2016 for up to $430m. As a result, Cairn now holds 40% of the development, and will continue to be the largest equity holder after the change of operatorship. Woodside has 35%, Far 15% and Petrosen 10%.

Unrest in the ranks

Far is contesting the sale of Woodside's purchase of the ConocoPhillips stake on the grounds that it was not given the opportunity to exercise its pre-emption rights. However, Cairn's Thomson says he does not expect the dispute, which rumbles on, to slow down the development schedule. Far has said it doesn't want to prejudice the pace of development and continues to provide its share of the project spend. Far is seeking arbitration on Woodside's farm-in and still describes it as a "proposed" sale.

Thomson also says he is unperturbed by talk, sparked by a November Reuters story citing banking and oil-ministry sources, that BP may wish to buy a 30% stake in the SNE development, valued at around $0.6bn, from Cairn. Thomson continues to distance the company from the story.

"I can't speak for BP, but what I can say, from Cairn's perspective, is that we are very comfortable with our current equity interest and we are moving forward on that basis," he told Petroleum Economist. BP has not commented on the rumour.

Source: Petroleum Economist

This article is part of a report series on Senegal. Next article is: Senegal's crunch year

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