Where did it all go right for Senegal?
Major oil and gas discoveries make the country set to move from speculative play to producer
Just over three years ago, Senegal was in a pack of wannabe African oil states, albeit one with some decent frontier prospects. Now it can boast two separate major hydrocarbons developments, in the SNE and Greater Tortue projects, both seemingly on track towards start up in the early 2020s and supported by an influx of major industry players.
This outcome reflects the alignment of several major factors needed to make successful frontier exploration stack up. As a politically stable country with one of the region's better performing economies, a solid legal framework and a stable currency in the CFA franc, Senegal gives oil investors confidence.
Better still, the democratically elected president, Macky Sall, who has been in power since 2012, is a former head of the state oil company and a petroleum geologist. So the oil companies were dealing with someone who could talk their language and was also under no illusions that a promising seismic survey did not signify the influx of oil riches within months. That understanding helped to produce fiscal terms that didn't scare away the investors from what was, at the time, high-risk exploration.
The zone in the Rufisque-Sangomar-Sangomar Deep offshore exploration area that yielded the country's first major oil discoveries in 2014 was also located just 100km or so to the southwest of Dakar, which provided the oil companies with a convenient, well-established deep-water port and access to all the capital's other infrastructure.
Some less tangible factors also played a role: good judgement on the prospectivity of the acreage, persistence and luck.
Australian minnow Far took a 30% stake in a production-sharing contract operated by Hunt Oil in mid-2006, covering around 1,000 sq km, and set about acquiring 3-D seismic on what it considered to be a promising edge-of-shelf play.
In 2009, Hunt exited and Shell said it wouldn't be taking up an option to farm into the acreage—something it might be regretting. But Far stuck with it, raising more capital and taking on the liabilities that came with a 90% stake, buoyed by a good relationship with the Senegalese government.
0.563bn barrels - Cairn estimates of SNE's reserves
It continued to invest in data acquisition until UK-based independent Cairn Energy farmed in with a 65% stake in 2013, becoming operator and bringing its drilling capabilities with it. ConocoPhillips took a 35% stake later that year, before agreeing to sell its stake to Australia's Woodside Energy in 2016, as the US company scaled back its spending.
The net result of that tortuous tale is that Senegal is now host to a meaty development, with heavy hitter Woodside primed to take over as operator in the near future.
Following the drilling of 11 exploration and appraisal wells on SNE and the adjacent Fan prospect in 2014-17, Cairn estimates SNE holds 2C resources of around 0.563bn barrels of oil, with additional recoverable gas resources of more than 1 trillion cubic feet.
Cairn's exploration director Eric Hathon told an African energy conference in Cape Town recently that he expected the company to submit plans to the government, move through front-end engineering and design and take a final investment decision (FID) on the project before the end of 2018. First oil is targeted by 2023, with an initial output plateau of 75,000-125,000 barrels a day via a floating production, storage and offloading vessel.
He said Senegal met all the criteria Cairn was looking for to move it from a frontier basin to an emerging oil producer, praising its "excellent commercial sub-surface and above-ground framework and the chance to minimise cycle time to first production".
Where does the luck come in? Well not so much in drilling in the right place to find oil—Cairn and Far would say that was down to good judgement. The timing of the initial drilling campaign was providential, though, arranged just before the oil-price crash of 2014. If it had been planned a year or two later, it's easy to see how it could have gone the way of much exploratory drilling in frontier areas over the last three years—onto the backburner.
As it turned out, one successful development was followed by another, when Kosmos Energy made two gas discoveries in 2015 just over Senegal's northern maritime border in Mauritania. That was followed by discoveries on the Senegalese side that confirmed there was a large gasfield—the Greater Tortue complex-straddling the border. BP has farmed in to the project, for which the mean gross resource estimate is currently over 25 trillion cf of gas. It could hold more than double that, according to BP. FID may be taken in 2018 with first gas from a floating liquefied natural gas facility possible by 2021.
Good relations with your neighbours are another useful attribute for African countries touting frontier acreage, as oil reserves are no respecters of borders. So far, Senegal, Mauritania and Kosmos have managed to agree on a coordinated development, probably helped by the choice of FLNG for exports, which removed the need to make a politically sensitive decision on which side of the border to locate any onshore LNG plant.
Given FID has yet to be taken on either SNE or Greater Tortue, it would be premature to describe the country as a full-blown frontier success story just yet. And all has not been plain sailing either. Far has claimed it has pre-emption rights over ConocoPhillips's sale of its stake in the SNE acreage to Woodside and is contesting the transaction. In May 2017, Senegal's energy minister, Thierno Alassane Sall, resigned on the same day it was announced that Total signed a production-sharing contract for the Rufisque Offshore Profond block. Rumours of disagreements within the government over the decision were rife.
Source: Petroleum Economist
This article is part of an in-depth series on Africa's upstream. Next article is: African competition hots up