Unlocking Deepwater opportunities in Sub-Sahara Africa

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By Jerome Onoja, / Ike Amos

Deepwater oil and gas exploration and production opportunities are daily rising in sub-Saharan Africa and major hydrocarbon finds have been recorded over the years.
This article highlights the opportunities in sub-Sahara Africa deepwater, ranging from Nigeria, Senegal, Congo and Angola among others and the many projects where investments are needed. Sub-Saharan Africa’s oil and gas industry, in the area of deepwater exploration and production, is looking increasingly promising, especially with the rising price of crude oil in the international market. Crude oil price is currently hovering around an average of $70 per barrel and prospects are rising for the vast deepwater resources in sub-Saharan Africa. PriceWaterHouse Coopers (PWC), in its Africa oil and gas review, titled, ‘Taking on tomorrow,’ disclosed that Africa’s proven reserves, at 126.5 billion barrels, driven by deepwater resources,  is 7.5 per cent of the world’s proven reserves with no changes since prior year. The global auditing firm also stated that Africa’s crude oil production was 8.1 million barrels per day, 8.7 per cent of global production, up 0.3 per cent from prior year. It added that consumption at 4.0 million barrels per day, 4.1 per cent of global consumption, same as prior year. The report also put regional growth at 2.5 per cent and put exports from Africa at 6.8 million barrels per day, 10.1 per cent of global exports. In the area of gas, the report noted that Africa accounts for 7.1 per cent of the world’s proven reserves, with 487.8 trillion cubic feet of proven reserves, while the continent’s production stood at 7.95 TCf, comprising 6.1 per cent of global production, up 0.3 per cent from the previous year. The report added that pipeline exports from Africa stood at 1.6 TCF, declining by 3.3%, and making up 6.1% of global exports, down 0.4% compared to last year. PWC disclosed that the oil price collapse had reshaped the oil and gas industry globally as well as in Africa,

noting that oil companies have adapted their portfolios to lower risk, focusing on high value plays and on reducing operational costs, while eyeing technologies in a quest to further streamline their businesses. The report declared that Africa’s share of global oil production had slightly increased by 0.3% since last year to 8.7% standing at 8.1 million barrels per day, adding that the main contributors continue to be Nigeria, Angola, Algeria and Egypt. Libya, the report explained, doubled production in 2017, promoting it to the fourth-largest oil producer in Africa with an 11% share, moving Egypt into fifth position. Among the top five the PWC report noted that Nigeria and Libya were the only countries to increase production, while the others declined,,

mostly in line with production cuts agreed to by OPEC members. It explained that South Sudan experienced another drop of 7.4% in production in 2017, while recent mediations in peace-deal negotiations led to the resumption of the pumping of crude from suspended fields in September 2018, hopefully pointing towards a turning point for the country. he report declared that two significant gas finds by Kosmos Energy in the Senegal-Mauritania basin in 2017 added an additional 1.5 billion barrels of oil equivalent (BOE) of gas to their portfolio.
“The Yakaar discovery coupled with the Teranga discovery in 2015 creates the foundation for another LNG hub in the basin according to Kosmos and joint venture partner BP. It was another record low year for the discovery of conventional resources globally in 2017, totaling only 7.5 billion BOE according to Rystad.

“The average offshore discovery in 2017 held 100 million BOE compared to 150 million in 2012. One African country, Senegal, made it to the top three,” it added.

Other investment opportunities in sub-Sahara Africa include Total’s Zinia-2 project in Angola. The Zinia-2 project holds 80 million barrels of oil, tied-back to an existing Floating Production, Storage and Offloading (FPSO), extending the life of the infrastructure, and production will start inside two years. Global energy data research and consultancy firm, Wood Mackenzie disclosed that the economics of the Total’s Zinia-2 project in Angola are attractive, adding that its model indicates a 25% post-tax Internal Rate of Return (IRR) at Brent $65 per barrel. According to Wood Mackenzie, a critical factor behind the Zinia-2 FID, which was reached May 25, 2018, had been fiscal flexibility.
It said, “Projects with low IRRs can qualify for marginal field terms. Angola’s new government, elected last year, raised the threshold from below 10% to below 15% on May 18, 2018, for fields of up to 300 million barrels. “We think there are at least a dozen Zinia 2-like potential incremental developments holding a combined 1.4 billion that may meet this definition.” The research and consultancy firm added that there is a lot at stake, noting that sub-Saharan Africa has at least 23 billion barrels of oil and 54 TCF of gas yet-to- find (YTF), representing some 15% of the world’s YTF outside the US Lower 48.
According to Wood Mackenzie, around half of these future reserves are in Angola and Nigeria, adding that sub-Saharan Africa region should be a magnet for IOCs and internationalising NOCs alike.Majority of the opportunities in sub-Saharan Africa lie within the West African sub-region deepwater oil and gas landscape. Specifically, in Senegal, a major deepwater field is the SNE. The SNE is a deep-water oil field discovery located offshore in the Sangomar Deep Block, 100 kilometers south of Dakar. It was discovered by the Cairn Energy led joint venture as the world’s largest oil discovery in 2014. In December 2018, Woodside was appointed operator of the development and commenced front-end engineering and design activities. The Phase 1 development concept for the SNE field is a stand-alone FPSO facility with subsea infrastructure. It will be designed to allow subsequent SNE development phases, including options for potential gas export to shore and for future subsea tiebacks from other reservoirs and fields.
The development of the three-phase SNE field had been projected to generate approximately $16 billion in undiscounted fiscal take for the government. Furthermore, the recent addition of SNE’s natural gas reserves to the development plan, along with the announced Tortue gas project, are forecast to supply nearly 500 million cubic feet to the domestic gas market by 2030. The joint venture submitted the development and exploitation plan in October 2018, including a stand-alone floating production storage and offloading vessel and subsea infrastructure designed to allow future tiebacks. Woodside has recently taken over as development lead and it is expected to reach the final investment decision in H2 2019.

The field development of SNE requires a total investment of $5.83bn for three phases. The three phases of SNE field have established the potential to recover approximately 460 million barrels of crude oil reserves and 1 billion cubic feet of natural gas reserves. Unlocking SNE’s reserves will not only provide the first crude oil production for Senegal but also form a base for developing other discoveries, FAN, FAN South and SNE North, in the Sangomar Deep Block, promoting Senegal to West Africa’s new oil economy. The government of Ghana is reported to share its experience in the effective management of hydrocarbon resources, which has been gained since the discovery of the Jubilee field in 2007. Another deepwater asset is the Tortue oilfield, a giant deepwater gas field straddling the border of Senegal and Mauritania. The field will be commercialised in phases.
Subsea wells would be connected to an FPSO moored in shallow water 80 kilometres away. In this project, condensate would be stripped and sold for export. Lean gas from the FPSO would be sent to a hub/breakwater structure, another 30 kilometres away. The hub is located 10 kilometres from shore and will provide mooring for a floating LNG (FLNG) vessel and LNG tankers. It is estimated that the offshore fields could hold as much as 50 trillion cubic feet (TCF) of gas, plus up to one billion barrels of oil in deepwater reserves. This is spread over an area of 33,000 square kilometres (12,750 square miles). In terms of gas, this matches the entire amount currently produced by all of Africa in seven years. The total amount would be enough fuel to power the UK for two decades. BP and Kosmos are planning a 30-50 year development in the field. The gas fields were initially discovered after three exploration wells were drilled by Kosmos Energy. Research and past exploration of the area has suggested the presence of hydrocarbon materials along the continental margin of West Africa due to the unique tectonic landscape created by a continental rift in the late Cretaceous era around 66 million years ago. In 2015, Kosmos Energy’s first exploration well – Tortue-1 – made the initial discovery that opened up the potential of the Greater Tortue Gas fields, with a find of 117 metres of net hydrocarbon pay.

Two more exploration wells confirmed a wider productive field area and demonstrated that Tortue West held a large, simple gas field.  Going  upward, 18 major oil finds had been made in Angola. One discovery that went wrong was Shell’s Bengo Field in Block 16. Bengo-1 tested 1,780 barrels per day in one reservoir, the first discovery in deepwater Angola.
Shell’s initial enthusiasm about the structure was restrained by the well’s high gas cap and pancake thin reservoirs, but the company was willing to risk an early production. The enthusiasm died when Bengo-2 turned out to miss even the thin bed that was of such keen interest in Bengo-1. Incidentally, the Bengo story had defined Shell’s involvement in deepwater Angola. Whereas other companies: Elf, Chevron, Exxon, even BP Amoco, went on to make discovery after giant discovery, Shell got trapped in a run of ill luck, having drilled nine wells in Block 16, most with marginal results. In Congo (Brazzaville), sub Saharan Africa’s third largest oil producer, the country has intensified its campaign to promote its offshore drilling and exploration investment opportunities. The Ministry of Hydrocarbons of the country hopes to ride on the new hydrocarbons regulations that were approved by Parliament in 2016 to attract interest from more new international oil companies and entice expansion of drilling, exploration and production by those already operating in the country that produces 350,000 barrels per day (bpd) and has previously attracted international explorers such as Total S.A., Eni, Perenco, Kosmos and SOCO. The country recently unveiled the second licensing round for 10 offshore blocks in the Coastal Basin’s offshore shallow water, deep and ultra deep water with interested oil companies having up to June 2019 to submit their bids ahead of the September 2019 evaluation and announcement of the preferred bidders.

In Nigeria, French oil company, Total was earlier in the year, awarded an exclusive right by Nigeria and São Tomé and Principe to begin exploration for oil in three blocks – 7, 8 and 11, located within the hydrocarbon-rich Joint Development Zone (JDZ) owned by both countries in the Gulf of Guinea. The right to explore for oil in the JDZ blocks was formally granted to Total after negotiations were concluded and a Production Sharing Contract (PSC) signed by parties involved at a ceremony in Abuja. The JDZ is an area in the region of the Nigeria – São Tomé and Príncipe boundary region speculated to be rich in oil and gas reserves. And, considering that neither country could have explored the resources in the zone without interfering with their maritime rights, they agreed in a treaty to create a Joint Development Authority (JDA) to develop the field and mutually benefit from its resources. The JDZ with regards to this was signed in Abuja on February 21, 2001. Furthermore, highlighting the opportunities in Nigeria and the sub-Saharan Africa deepwater sector, Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), disclosed that there are over $48 billion investment opportunities available in the upcoming capital projects within Nigeria’s Oil and Gas Industry. Reeling out the numerous potentials of Africa’s oil and gas industry, Baru said the continent’s energy outlook was looking positive amid difficult operating and economic headwinds.

He explained that over 41 billion barrels of oil and 319 trillion cubic feet of gas were yet to be discovered in sub-Saharan Africa alone, while between 2008 and 2017, exploratory success in the sub-region was at least 45%. According to him, there has been a surge in the capital expenditure (CAPEX) across Africa’s oil and gas sector, with close to $194 billion earmarked to be spent between 2018 and 2025 on 93 upcoming oil and gas fields in Africa.
“Out of this $194 billion, Nigeria accounts for $48.04 billion (over 24.8%) of the total CAPEX coming into upcoming projects in Africa over 2018 to 2025, with over 20 planned projects,” Baru stated.
He observed that 23.8% of the CAPEX in Africa would be spent in Mozambique, 11.3% in Angola while about 29.2% would be spent in Tanzania, Senegal, Mauritania, Uganda, Egypt, Algeria and Kenya combined. Baru informed that with over 14 oil producing countries, Africa currently accounts for 7.5% (126.5 billion barrels of crude oil) and 7.1% (488 TCF of gas) of global proven oil and gas reserves respectively. He maintained that in terms of production, the continent accounted for 8.7% (8.1 million barrels per day) of global oil production and 6.1% (21.8bscfd) of global gas production, even as it consumed 4.0 million barrels of oil per day and 13.7 billion SCF per day of gas (equivalent to 4.1% and 3.9% of global oil and consumption respectively).
He stressed that several new frontiers for exploration opportunities abound in Nigeria, even as offshore discoveries in the country have mostly been limited to between 1,000 to 1,500 metres of water depth. “Beyond these water depths, the new frontiers of ultra-deep waters need to be tested. And that is where we need the investors,” Baru said.
In addition, major deepwater opportunities in Nigeria, after the Egina project are Shell’s $10 billion expansion of its Bonga field and Eni’s Zabazaba-Etan project. Though both fields are still years away from production, and FIDs are yet to be reached on the projects.

Over the past 15 years, since around the time that Egina was discovered, a raft of other fields has been added to Nigeria’s potential project lineup. They include the Bosi field, as well as the massive billion-barrel Owowo field, both discovered by Exxon, but still awaiting development. Chevron is working on Nsiko, part of a block that’s over 2,400 meters deep, much deeper than Bonga. In August 2014, through a subsea tie-back to the FPSO, the nearby Bonga North West field, which is capable of producing approximately 75,000 barrels of oil equivalent a day, was unlocked. The Bonga North West field development was named Engineering Project of the Year 2015 at the prestigious Platts Global Energy Awards in New York and represented an important achievement for Nigeria’s deep-water industry.

Shell Nigeria is also a co-venture partner in the Erha field, which is operated by the ExxonMobil subsidiary Esso Exploration and Production Nigeria (Deepwater) Limited. Located 140 km offshore in the Gulf of Guinea at water depths of between 1,200 and 1,800 metres, production commenced in 2006. The Erha FPSO has a production capacity of 210,000 barrels of oil per day. In recent years, the field has expanded production with both the North Phase 2 and 3 projects coming on stream ahead of schedule in 2015 and 2017 respectively. For the Bonga South West Aparo project, after receiving bids in 2015, the project scope was reviewed to significantly reduce cost. In early 2019, following the conclusion of OML 118 negotiations between SNEPCo and the NNPC, a clear commercial framework is in place, supported by the government and project investors, toward a potential Bonga South West Aparo Final Investment Decision. In early 2019, SNEPCo also announced the release of Invitation To Tender (ITT) for engineering, procurement and construction contracts for the 150,000 barrels per day development of the Bonga South West Aparo (BSWA) oil field.

The project’s initial phase includes a new FPSO vessel, more than 20 deep-water wells and related subsea infrastructure. The field lies across Oil Mining Leases 118, 132 and 140, about 15km southwest of the existing Bonga Main FPSO. Seeing the opportunities in the near future, the need to partake in the benefits and retain value within the countries where these fields exist has become more evident. The Nigerian Content Development and Monitoring Board recently organized a workshop, Nigerian Oil and Gas Opportunity Fair, NOGOF where IOCs and independents had to showcase the opportunities in their existing and coming projects in order to accommodate the service sector.Speaking at NOGOF concerning capacities of indigenous service companies to play major roles in the deep offshore space, the Chairman of Petroleum Technology Association (PETAN) Bank-Anthony Okoroafor believes Nigerians will change the narrative and make huge impressions by the level of its participation.

“Once you have ample time and enough information on what projects are on the horizon, capacities that aren’t in-country will be built. The key is involving all stakeholders at the initial stage, which is what we have seen today. “Look at vessels, heavy-duty lay barges, 2000M metric ton cranes: if people are not involved in the early stages with all the components broken down in pieces, how will they participate? You won’t make huge investments without knowing where you are going with it.

Those are the key things. And this outing will take local content to the next level on deep water.” In the same vein, Patricia Simon-Hart, the Secretary of PETAN posits that deep offshore projects and operations are not strange to indigenous companies because some have made their marks there already. “Indeed indigenous companies have proven their ability to deliver where they have been given the opportunity in some areas of deep offshore projects. PETAN companies are currently providing services in this area.

She added, “It almost sounds like a question that was asked 25 years ago regarding local companies handling what is now routine for land, swamp and offshore operations. Eventually the opportunities were opened up and indigenous companies proved that they have the capacity to perform and excel. We build capacities. We only need to know the opportunities exist. Advocating for a larger number to be involved she said, “Going forward with these new opportunities, we expect that a higher proportion of projects and services will be awarded to indigenous companies as we continue to expand and invest in capacity building.”

From the Far East, China has already started making significant inroads into the sub-Saharan African oil and gas industry, especially in the deepwater segment of the industry. In the space of just a few short years, China has quickly entrenched itself as one of the most active foreign energy players on the African continent. This has to do with the search for more secure oil supplies in the face of static if not declining domestic oil production. While Chinese companies lack technical capacity to tackle ultra-deep oil exploration projects, strategic alliances with companies such as Chevron-Texaco, Petrobras and Total SA in places like West Africa, will assist in accessing new drilling techniques. Until 2000, China’s presence in Africa’s oil industry was confined to just Sudan where the state owned China National Petroleum Corporation (CNPC) had been a major stakeholder in the Greater Nile Oil Project Company (GNOPC) alongside Sudan’s Sudapet, Malaysia’s Petronas and the Indian Oil and Natural Gas Corporation (ONGC) Videsh since 1997.
“Going forward with these new opportunities, we expect that a higher proportion of projects and services will be awarded to indigenous companies as we continue to expand and invest in capacity building.”

Today, Chinese oil companies are operating in nearly 20 African countries in both the upstream and downstream sectors, and pose a significant strategic and economic challenge to both established majors and smaller independents, which for many years enjoyed unparalleled ascendancy in the continent’s energy sector. In addition, report pointed out that a reprioritization of its energy supply sources, has seen China aggressively enter the offshore oil industry in heavyweight oil producing African countries such as Angola and Nigeria, venturing into high risk areas such as Chad, Sudan, Mauritania, Niger and Equatorial Guinea, and looking for new exploration opportunities in Ethiopia, Kenya, Madagascar and Uganda. Establishing joint ventures with local state owned oil companies is another facet of Chinese engagement to remain strategically close to political decision makers in the energy arena. This has been evident with joint ventures established with Sudapet (Sudan), Sonatrach (Algeria), Sonangol (Angola) and the Nigerian National Petroleum Corporation (Nigeria). Leading the charge into Africa has been the China National Petroleum Corporation (CNPC), China National Offshore Oil Corporation (CNOOC) and Sinopec, backed by an array of affiliated groupings including China National Oil and Gas Exploration and Development Corp (CNODC), PetroChina, BGP International, and the China Petroleum Engineering

& Construction Group (CPECC).
They have gone head to head with the world’s largest oil majors in securing oil reserves in offshore deepwater blocks in countries like Angola and Nigeria. Few years back, the Chinese oil company, CNOOC Limited had announced a $2.3 billion purchase of a 45 percent stake in Nigeria’s OML 130 deepwater oilfield. This was CNOOC’s first venture into Africa and the single largest Chinese investment made on the continent at the time. A few months later, Sinopec beat off global competitors to lay claim to oil rich offshore deepwater prospecting blocks in Angola in deals worth $2.4 billion.

Generally, it has been stated that an excess of 12 billion barrels of deepwater oil had been discovered in West Africa since deepwater exploration began in Angola in 1994. This figure already equates the Brazilian total of 13 billion barrels of oil. The West African deepwater will continue to be a long-term focus for the oil industry and this would further heighten, as globally significant discoveries continue and successes elsewhere decline. With 211 out of the country’s 390 oil blocks yet to be allocated, Nigeria remains a veritable investment destination for investors looking to stake their funds in the country’s deepwater sector.

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