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Senegal prepares to repeat licensing success

Hot on the heels of FID for its Sangomar oil project, the West African country is heavily promoting a promising licensing round

The full details have been announced of Senegal’s first licensing round since the introduction of a comprehensive new Petroleum Code in 2019 overhauled hydrocarbon sector governance. The round will run from 31 January to 31 July and cover a wide range of open offshore and onshore blocks. 

The regulatory and fiscal modernisation flowing from the Petroleum Code, replacing the 1998 code, should certainly enhance Senegal’s appeal to international oil companies. But the decisive factor in stirring interest will surely be the impressive exploration results of recent years, including several major finds and development go-ahead for of two big projects—BP’s Grand Tortue Ahmeyim (GTA) gas venture and Sangomar. 

Indeed, the announcement was deftly timed to coincide with the FID signatures of the country’s first major offshore oil development, the Sangomar project led by Australian upstream provider Woodside. On 20 January, Australian independent FAR, one of Woodside’s partners in Sangomar, confirmed $400mn financing arrangements to cover its share of the project development costs. 

Sangomar development 

The Sangomar project is based on discoveries made by Cairn in 2014, during Senegal’s first deepwater drilling exercise. Originally named the SNE field, it was the largest find in the world that year. The field encompasses Rufisque Offshore, Sangomar Offshore and Sangomar Deep Offshore deposits—which provides the acronym RSSD for the joint venture that will be developing the $4.2bn combined oil and gas project. 

Woodside took over as operator in December 2018 and holds a 35pc interest, although Cairn subsidiary Capricorn Senegal retains the largest stake of 40pc in the joint venture. The other partners are FAR (15pc) and national hydrocarbons company Petrosen (10pc). 

The development plan for the project’s first phase—submitted to the government in early December and approved just weeks later—envisages a floating production storage and offloading (FPSO) facility, serving 23 wells that tap into oil reserves estimated at 231mn bl. This phase could be followed by a scheme to bring gas reserves estimated at 160mn bl oe onshore for power generation; this would make a key contribution to Senegal’s drive to bolster generation from gas and renewable resources and reduce its reliance on imports of fuel oil, which is more expensive and has a greater environmental impact. Eventually, there is expected to be a second oil phase, with a further 253mn bl of reserves serviced by an additional 16 production wells and 17 injectors. 

The RSSD joint venture signed the FID statement at a 14 January ceremony with Senegal’s oil and energy minister Mouhamadou Cisse in attendance. But even before this formality, as soon as the government had given the green light to the Sangomar development plan Woodside provided de facto confirmation of the positive FID by executing the purchase contract for the FPSO, which is being supplied by Japan-based Modec. Woodside also issued notice to proceed to the drilling contractor Diamond Offshore and subsea construction and installation contractors Subsea 7 and OneSubsea. The project is expected to pump first oil in 2023 and production capacity is forecast at 100,000 b/d. 

To fund its share of the projected $4.2bn development costs, FAR has arranged a $300mn senior secured reserve-based lending facility with Macquarie Bank, BNP Paribas and Glencore, with each committing $100mn. The facility has a seven-year term with four years’ grace, which provides the necessary time window for development of Sangomar before production begins and revenue begins to flow. 

“Reaching agreement for a $300mn underwritten senior debt facility with three international firms… is further endorsement and support for Sangomar being a tier one oil development asset” Cath Norman, FAR

“Reaching agreement for a $300mn underwritten senior debt facility with three international firms, Macquarie, BNP Paribas and Glencore, is further endorsement and support for Sangomar being a tier one oil development asset,” says FAR managing director Cath Norman. FAR has also been arranging an A$146mn (c.$100mn) equity placement and share purchase plan, to provide additional funding for the capital spending required to bring Sangomar onstream. 

The project’s progress offers an encouraging portent for FAR’s exploration activities just over the maritime border in Gambian waters, where it is in partnership with Malaysia’s Petronas on the adjacent A2 block, and the A5 block south of that. The company says this territory is a continuation of the “shelf edge” geology that characterises Sangomar. 

For Senegal’s national hydrocarbons strategy, the go-ahead for Sangomar is a development of comparable importance to FID for the Grand Tortue Ahmeyim (GTA) gas project just over a year ago. While GTA promises to position Senegal as an internationally significant exporter of LNG, Sangomar should establish it among West Africa’s regular oil producers. This represents a fundamental broadening of the revenue and employment base of the economy, which traditionally relies on peanuts and phosphates as its main export earners. 

Licensing outlook 

President Macky Sall is acutely aware of the potentially transformational impact—not only in domestic economic and social terms, but also in refreshing external perceptions of Senegal and the opportunities it offers. His government and Petrosen are determined to build on the momentum generated by the go ahead for these first two breakthrough projects, to stimulate wider international interest in exploration opportunities. And, they have proved themselves shrewd managers of Senegal’s image as an emerging hydrocarbons producer. 

The details of the new round were published to coincide with the international attention the go-ahead for Sangomar was sure to attract. The range of blocks covered by the licensing round extend from the maritime border with Mauritania southwards to the edge of Gambian waters (see map). Beyond these are a further four blocks, extending along the boundary with the joint offshore zone that Senegal shares with Guinea-Bissau and which is managed by the bi-national Agence pour la gestion et la cooperation (AGC). 

The go-ahead for Sangomar is a development of comparable importance to FID for the Grand Tortue Ahmeyim (GTA) gas project just over a year ago

Moreover, most of Senegal’s onshore territory is also up for grabs, sub-divided into six available blocks. A seventh, stretching inland from the coast north of Dakar, has long been in the hands of Houston-based Fortesa, which already produces gas from the Gadiaga field on a small scale for sale to local industry. 

Three of the offshore blocks—SLOP 2, COP 2 and UDP Nord 1—are adjacent to the permits held by Kosmos Energy and BP, where the major gas finds have been made and these companies are now developing the GTA project, which extends across the marine border into Mauritanian waters. 

Further out into the Atlantic lie seven blocks, the southernmost of which have water depths beyond 4000m. Senegal will be hoping that the successful exploration results of recent years will induce some international investors to take on the challenge of this ultra-deep territory. 

To the east of these, the North UDO and ROP blocks are held by Total under a deal struck in 2017. This was a big strategic play by the French major, whose long involvement in Senegal had hitherto essentially been confined to the domestic downstream fuel sector—despite a strong track record elsewhere in the West African offshore. 

Promotion efforts 

The licensing round—warmed up by roadshows in Cape Town, London, Houston and Dakar—formally opens on 31 January and closes on 31 July. More than 14,000km of 2D data, 10,000km of 3D data and 50,000km² of multibeam data, and associated shallow cores and geochemistry, is being provided by TGS, GeoPartners and PGS. 

50,000km² Multibeam data to support licensing round

A promotion committee, composed of executives from both Petrosen and the ministry of petroleum and energies, is charged with the marketing of the round and liaison with oil companies, recording their expressions of interest and tracking their purchases of data. Bids from oil companies will then be assessed by an evaluation committee, appointed by the ministry. 

This structure reflects the government’s move to develop a clear distinction between the role of government as regulator of the industry and neutral defender of the national interest and the more commercial role now entrusted to Petrosen as a promoter of the industry and as Senegal’s vehicle for holding a national investment stake in this fast-developing economic sector. 

Source: Petroleum Economist | Click to enlarge
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