West Africa—ready to blossom
The region looks forward to a year of intensified oil and natural gas activity
With Brent crude oil prices set to end 2017 averaging around $54 a barrel, exploration activity in West Africa will resume once again. For a region that has witnessed significant problems over the past few years, which have constrained, discouraged or prevented exploration activities—ranging from the Ebola outbreak, changes of government in Gambia, heightened militant attacks in Nigeria and court cases between Côte d'Ivoire and Ghana—it's certainly a positive development that explorers are gradually starting to ramp up activities.
In reality, things have already started to get moving. It began in late 2016, when ExxonMobil drilled its first well in Liberia (although it turned out to be a dry hole). In December 2016, BP and Kosmos Energy signed a deal worth over $1bn to develop the Greater Tortue Area off the coasts of Senegal and Mauritania. During 2017, the partners made a major gas discovery in the Yakaar-1 well, with an estimated 15 trillion cubic feet of reserves. A similar discovery at the Teranga-1 well confirmed the high prospects for the Greater Tortue Complex. The partners intend to monetise these gas discoveries through the Tortue liquefied natural gas project, which is expected to achieve a final investment decision (FID) by 2018, with first gas by 2021.
Kosmos acquired three new blocks from the Equatorial Guinea government in 2017. Canada's Oryx Petroleum spent most of 2017 acquiring and interpreting 3-D seismic data covering a portion of its AGC Central Licence Area offshore Guinea-Bissau and Senegal, ahead of a likely drilling campaign in 2018. At least one commitment well will be drilled before March 2018.
Following a request for an extension of the exploration period on its licenses offshore Congo, Oryx could also be drilling a well on each of the Haute Mer A and B blocks in 2018. The wells should provide additional data in the wake of the Elephant Discovery in 2013 and confirm the commerciality of the blocks' reserves.
After the resolution of the maritime border dispute between Côte d'Ivoire and Ghana, the UK's Tullow Oil acquired four onshore oil blocks in Côte d'Ivoire. They cover an area including the formerly producing Eboinda Oil Sands. Total also signed a technical-evaluation agreement with the government of Guinea to evaluate over one year a large area in the country's offshore, after which it will select three blocks to start an exploration programme.
The trend in most of West Africa is increasingly towards investments in natural gas and gas projects
All these developments point to the start of a major exploration drive in West Africa, targeting lesser-explored countries—even though much of the exploration capital for the region is likely still to head to the well-explored regions of Nigeria, Ghana, Angola and Côte d'Ivoire. Aside from a significant ramp-up in drilling activities in West Africa in 2018, Gambia and Sierra Leone are set to open new bidding rounds for oil blocks.
The July 2017 return of the Forcados pipeline in Nigeria, shut down by Niger Delta militants in early 2016, was also greeted with cautious optimism. Nigerian output has since increased, with a Q4 average in 2017 of 2m barrels a day. By mid-Q1 2018, output should have stabilised at 2.2m b/d based on existing production. Total is set to boost Nigeria's production by 200,000 b/d via its deep-water Egina oilfield, which is on track for first oil by end-June 2018. Other fields expected to commence production include Eland Oil's Gbetiokun, Shell's Southern Swamp, with increased output from Sonam and Gbaran Ubie Phase 2, which began production in 2017.
The base case for Ghana's oil output in 2018 is for production to gradually rise to 240,000 b/d by mid-2018, following completion of repairs at the Jubilee field, along with a ramp-up in the Ten project and Sankofa field. With the maritime border dispute over, the Ten project now resolved and the field declared to be in Ghanaian waters, operator Tullow will be able to raise output to the expected peak of 80,000 b/d from the current 50,000 b/d. Ghana's next major project, Mahogany Teak and Akasa, is part of the Greater Jubilee Field development, which was awaiting approval in late 2017. The hope is for start-up by end-2019.
Angola could also boost production volumes significantly in 2018. The 230,000-b/d Kaombo field is finally set to come on line in March 2018, after a year of delays. Total was expected take an FID on the Zinia Phase 2 project before the end of 2017, but the original target of first oil in 2018 is unlikely to be met.
The trend in most of West Africa—from Angola to Cameroon to Senegal—is also increasingly towards investments in natural gas and gas projects. Significant gas production is expected to start in 2019-20. Senegal's rich gas discoveries look destined for a liquefied natural gas plant, with BP providing marketing expertise. Despite Cameroon's national oil company SNH pulling out of the proposed Golar floating LNG project, export plans may still be on track for 2018, as the venture had reached an advanced stage. Project developer Golar LNG expected the FLNG vessel, Hilli Epseyo, to sail for Cameroon before the end of November 2017. This should enable the start of gas production from the stranded Kribi field offshore Cameroon by Q3 2018.
The UK's Ophir Energy has awarded the construction contract for the Fortuna FLNG project offshore Equatorial Guinea to Schlumberger. The latter joined the project as a partner and, in conjunction with Golar LNG and Ophir, aimed to achieve FID on the project before the end of 2017 to enable production from 2020. Golar will be converting a former LNG carrier, the Gandria, at the Keppel Shipyard in Singapore to create the FLNG facility.
Golar is also involved with Ghana's plans to deploy a floating storage and regasification unit (FSRU) offshore Tema to boost domestic gas supply. Ghana has signed LNG-import deals with Equatorial Guinea's Soyo LNG plant and Russia's Gazprom, initially planned to start in 2017, but now more likely from 2018 and 2019 respectively.
Schlumberger is to support the development of gasfields in Nigeria to the tune of about $0.7bn. Drilling is expected to begin in 2018, with production scheduled by 2019. The Dangote Group is also exploring gas options, partnering with private-equity firm Blackstone Group to initiate a $3bn offshore gas-pipeline project to connect fields in the Niger Delta to Dangote's refinery in Lagos. Construction is expected to start in 2018, with the pipeline likely to supply the gas-fired power plants in the southwest of the country, which are most affected by downtime on gas pipelines due to militant attacks. The new pipeline could also link up with the West African Gas pipeline, boosting Côte d'Ivoire's plans to source gas from Nigeria to power its Côte d'Ivoire-Liberia-Sierra-Guinea electricity interconnection and transfer project.
Bearing in mind the long-term outlook for oil, the shift towards gas is a positive move for West Africa. More important, considering the lack of adequate power supply in the region, higher gas production will boost output from gas-fired power plants. But electricity tariffs will need to be adjusted upward to accommodate the return on investments required to justify the expenditure to provide adequate gas-pipeline infrastructure for the power sector.
The key regulatory development in the region in 2018 is likely to be in Nigeria, where the first section of the former Petroleum Industry Bill, which is now broken into four separate policy documents, could pass into law. The first section, the Petroleum Industry Governance Bill, deals with the governance framework for the oil and gas industry. It unbundles the state-owned Nigerian National Petroleum Corporation (NNPC) into a commercial operator and a separate industry regulator. The bill also caps the powers of the President and minister of petroleum, and involves the National Assembly in the awarding of blocks.
But the bill is still stuck in the lower house of the federal legislature, the Federal House of Representatives (FHR), where it awaits a third reading. Following this, it will be passed by the FHR and by a joint session of the Senate (upper house) and the House of Representatives (lower house), before being approved by the President and becoming law. The chances of the House of Representatives passing the bill back for a joint session of the two houses are high. Issues around transparency in NNPC, which have recently emerged following allegations by the petroleum minister that the corporation wasn't being run appropriately by the current management, could see members of the legislative body take their time to ensure the bill is drafted in such a way as to eliminate transparency concerns.
Dolapo Oni is Head of Energy Research at Ecobank Group
This article is part of Outlook 2018, our annual book looking at energy market trends for the year ahead. To purchase a copy, click here