Equatorial Guinea rebuilding bridges
Relations between Malabo and international oil companies seem to be warming up again
Boosting its plan to revive flagging oil output, Equatorial Guinea has announced a new production-sharing contract (PSC) with ExxonMobil and awarded several blocks to others. It might end a period of tension with international oil companies (IOCs).
The West African country has struggled amid falling oil prices, which have stunted investment interest, as well as a decline in production. Even before prices slumped, in 2014, output had declined to 281,000 barrels a day. It bumped up to 289,000 b/d the following year but that was still well beneath the 358,000 b/d output reached in 2005.
Gabriel Obiang Lima, Equatorial Guinea's energy minister, told the Africa Oil and Power conference in Cape Town in June that he hoped more exploration and drilling would lift production to 0.5m barrels of oil equivalent a day within five years.
The PSC signed with Exxon for offshore block EG-11 should help. The permit is located near the 1.1bn-barrel Zafiro field, which the US supermajor has managed since it first started producing in 1995. State-owned GePetrol will carry a 20% stake.
The EG-11 PSC was signed after direct negotiation—not part of the continuing "EG Ronda 2016" call for tenders. The award of seven offshore blocks under that round was also announced in Cape Town.
Of the 23 companies that expressed interest in the licensing round since the auction opened in June 2016, 12 submitted bids. The round included 17 onshore and offshore blocks, including in unexplored areas.
Ophir Energy picked up block EG-24; Offshore Equatorial Guinea Plc won block EG-23; Ireland's Clontarf Energy took block EG-18; Israel's Elenilto got block EG-09, Nigerian trading oil company Taleveras, won block EG-07; and a consortium of Nigeria's Atlas Petroleum and South Africa's state-owned Strategic Fuel Fund (SFF) was awarded block EG-10.
"Some of the companies are majors, some are minors, but the important thing is that they are companies dedicated and willing to do exploration and that is the thing that needs to be done," Obiang Lima said.
The minister said the PSCs should be signed and ratified before the end of the year. Total and Lukoil would be allowed extensions until the end of June to complete discussions on potential licence awards.
Aislinn Clarke, a sub-Saharan upstream analyst at consultancy Wood Mackenzie, says the results of the bid round had been eagerly awaited, because Equatorial Guinea holds some of the most exciting basins in Africa, including in the prolific Niger Delta basin.
"What is interesting—and supports our view on the level of interest in the acreage—is ExxonMobil being awarded a new production sharing contract for block EG-11, close to the company's Zafiro field," she says. Wood Mackenzie estimates yet-to-find potential of 1.9bn boe across the acreage on offer in the country's four basins.
Obiang Lima thinks it will offer his country a platform and add weight to African voices in Opec
Clarke also expects many companies will seek to increase their exploration positions to take advantage of lower drilling costs. Bids are likely to focus on the shelf-plays where potential projects can be developed quickly and more cheaply.
The agreement with Exxon signals a softening of the government's hardline approach to dealing with some US oil firms. Obiang Lima is the son of Teodoro Obiang, the authoritarian who has ruled the country for almost 40 years, turning it into a wealthy oil producer, though many citizens remain poor.
New developments on the Zafiro field were complicated by the minister's decision in 2015 not to renew Exxon's operating licence beyond its renewal date in 2023, while the government also declined to approve two field developments by Noble Energy and the sale of assets to foreign bidders by Hess.
"We are now discussing the extension of the Zafiro field which will be very important to increase the production," Obiang Lima said.
The minister also said he was working with Hess and Noble over approval for further drilling. Hess operates the Ceiba and the adjacent Okume fields, but has halted exploration work. Noble operates blocks O and I where gas produced from the Carla and Diega developments could go to a petrochemicals complex that the government wants to develop. Noble has also been considering drilling a well near the maritime boundary with Cameroon.
With 36.8bn cubic metres of proven gas reserves, the country is also keen to beef up its liquefied natural gas business. It has now short-listed oil traders Vitol, Gunvor and Royal Dutch Shell for an offtake agreement for its Fortuna floating LNG-export project.
Obiang Lima expects to take a final decision in the next few months with first gas expected in mid-2020. The Fortuna project will be Africa's first deep-water floating LNG plant, with production capacity of 2.2m t/y. The UK's Ophir is developing the offshore Fortuna gasfield in block R, while OneLNG, a joint venture between Schlumberger and Golar LNG is building the FLNG facility.
At least one more FLNG project could be on the way. OneLNG also signed an MoU with the energy ministry in June to look into commercialising natural gas in blocks O and I in offshore Malabo, with a decision due in 2018. Equatorial Guinea already produces 3.7m tonnes a year from its plant in Punta Europa.
Meanwhile, Equatorial Guinea's entry to Opec in May—and agreement to cut around 5% or 12,000 b/d or supply—is unlikely to give the country extra international clout, although Obiang Lima disagrees. He thinks it will offer his country a platform and add weight to African voices in Opec.