Africa’s Atlantic Frontier: an E&P review

Posted on 30 October 2009

By Jeremy Cresswell, contributing editor

Africa is always in the headlines. The stories are rarely positive, and that’s a terrible shame given the extraordinary richness and diversity of this vast continent. But this review is a positive story, and our first stopping point is Mauritania.

From Mauritania in the north through “Golden Crescent” states like Nigeria and Angola, to Namibia, Africa’s western seaboard plays host to perhaps the most exciting hunt for offshore energy there has ever been – the stomping ground of more than 60 jackups, semisubmersibles, tender units and drillships.

But as always with natural resources, distribution of the oil and gas prize is uneven, and the hunt and exploitation are being played out against a political backdrop that is equally uneven.

To illustrate – 2007 saw Ghana celebrate 50 years of independence from the British, dignified and confident about its future, while three coastal states to the east, Nigeria continued to teeter on the verge of chaos.

Heading south, Angolans woke on the morning of 1 January 2007, mostly unaware that the day before their country had formally signed up to OPEC, or that roughly 10% of the population was by then Chinese.

A year later and we find excitement growing among Ghanaians that their country looks set to become a major offshore oil province thanks to a succession of drilling successes by Anadarko, Kosmos Energy and Tullow, collectively and aptly named Jubilee.

And Nigeria’s troubles seem to be getting worse as MEND (Movement for the Emancipation of the Niger Delta) intensifies its efforts against what it regards as Enemy No.1 – Big Oil.

Meanwhile Angola gets on with the ramp-up of its contribution to OPEC, while Sonangol allows BP to proceed with announcing a string of contracts for phase one of its Block 31 development.

Yo-yoing back to Mauritania, whose only offshore producing field is in heavy decline, a political coup has taken place, with an 11-member Military Council led by General Mohamed Ould Abdel Aziz deposing President Sidi Ould Cheikh Abdallahi, a day after Aziz was sacked as head of the presidential guard.

By comparison, and apart from Nigeria’s problems, other states on the Africa’s western seaboard are relatively quiescent. Moreover, neighboring states, in some cases at loggerheads for many years, have been burying hatchets with positive results. A good example is Nigeria and Cameroon calling it a day over their border wrangle.

As a result, these neighbours now plan to explore for oil on their common maritime frontier in the Gulf of Guinea after settling their decades-old row through an international court. The two countries agreed to a redefinition in March 2008 of their maritime border after the International Court of Justice ruled the long-disputed Bakassi Peninsula belonged to Cameroon. The resolution has a direct and positive impact on the territorial waters boundary too.

While the petroleum industry is relatively adept at coping with different regional and national politics, that Cameroon and Nigeria have agreed to cooperate will make the hunt for hydrocarbons easier.

It should be added that the Sao Tome et Principe agreement of 2001 leading to joint exploitation of offshore resources with Nigeria provided a valuable precedent.

The strategic importance of West Africa in the global rush to secure oil and gas resources cannot be overstated, with the Gulf of Guinea taking center stage in the region. Furthermore, it has become one of the most important deepwater provinces and subsea markets globally.

With China and, more recently, the US White House making overtures, and with Gazprom initiating talks with Nigeria regarding natural gas, battle lines are being drawn in a bid to control what has come to be regarded as a very large and still lightly explored offshore resource.

Moreover, the US is planning to reinforce its military presence in Africa, with bases to be established in Uganda, Djibouti, Senegal and Sao Tome et Príncipe.

Meanwhile, it appears that more states will join the 14-strong African Petroleum Producers Association (APPA), founded in 1987.

The grand tour Mauritania

It’s just a few years since Mauritania grabbed oil industry headlines (and fired up local media and political factions) when a consortium led by Woodside Petroleum made a string of discoveries in rapid succession – Chinguetti, Tiof and Banda, to name three. A bonanza was in the making.

Chinguetti was put on a fast-track development and, for a short while, produced significant volumes of oil. Then output began to collapse – and rapidly. So too did the exploration effort, with a string of failures reported. Then Woodside cut its losses and left, selling its portfolio to Petronas.

Mauritania dropped off the radar screen, so to speak.

But there are signs of a revival under way, including a thorough review of Chinguetti by its new owners in an attempt to solve its problems. That includes drilling more wells, but perhaps better located than in the original development.

Tiof, which is located 25 km north of Chinguetti, may contain up to 350 million bbls of oil, and Woodside did talk of first commercial oil by 2007. But this was stalled because of doubts over Chinguetti’s performance.

Conceptual planning for a phased development of the Tiof field using a tension leg platform (TLP) has continued under Petronas/Tullow leadership. Initial development is expected to cover the central area of the field, with potential tiebacks of the remaining areas subject to satisfactory performance from the core area.  A joint venture decision to proceed with a more detailed design tender is scheduled for 2008.

The Banda field may contain natural gas reserves of 3-5 TCF, and appraisal drilling started early 2008. If sufficient reserves are proved, Banda is a candidate for an LNG development.

The latest well was drilled and side-tracked. Results indicate that Banda NW ST-1 intersected an 85 m gross gas column, with 15 m net gas pay and a 15 m gross oil column, with 10 m net oil pay. It may be in communication with the original Banda-1 discovery well drilled in 2002. This suggests that a commercial project is in the making.

Senegal, Gambia, Guinea Bissau, Guinea, Sierra Leone, Liberia & Ivory Coast

None of these states have made their mark in offshore terms and poor quality communications hamper progress in some instance.

For example, in 2007, Nocal offered 10 offshore blocks in Liberia for bid, each extending into water depths as great as 3,000 m. Bidding was scheduled to close June 2008.

But in July 2008, Liberia’s Ministry of Land, Mines and Energy launched a new licensing round, with five offshore blocks on offer to the highest bidder. Minister Eugene Shannon said that three companies are participating in the round, namely Anadarko, Mittal Investments and Tongtai Petroleum. No reference was made to the 2007 offerings, as far as can be detected.

There is greater clarity coming out of Guinea Bissau, where, after years of slow progress, in May this year it awarded eight offshore exploration licences to five companies. Larsen Oil & Gas, Ser Petroleum and Svenska received two licenses each, and Super Nova and Sociedade de Hidrocarbonetos de Angola received one license each from state-owned Petroguin. However, Petroguin suffered a brief setback early 2008 when Premier Oil and Occidental pulled out. However, their licences, one of which is Block 2, are the ones awarded to Svenska, which now holds the geological and seismic data acquired by the incumbents.

Guinea Bissau did not charge for the licenses, on condition that if commercially viable oil is struck, profits will be shared between the prospecting company and the Guinean state.

There is no progress to report from Guinea, whereas in Sierra Leone there has been progress of sorts, though facts are hard to come by. There has been very little activity offshore Sierra Leone in the past, with only two wells drilled in 1982 and 1985. A civil war ended in 2003.

The new government offered seven offshore blocks during 2003. There were only three bidders. Repsol-YPF were awarded Blocks 6 and 7, and Woodside subsequently took a 50% stake in these. Block 5 was awarded to Oranto Petroleum of Nigeria and Block 4 to a US group known as 8 Investments, both of whom were reported as seeking farm-in partners.

A second offshore licensing round was under way in 2006, yet no trace of the outcome could be identified. However, in March 2008, Elixir Petroleum said it had been awarded the operatorship and a 35% interest in Block SL-4 in the Gulf of Guinea offshore Sierra Leone.

The company was due to start a 3D shoot no later than Q3 2008 and intends to map drill sites from the resulting data with the objective of farming out interests by early 2009. Might this be the catalyst that Sierra Leone needs? Time will tell.

In Gambia, only two companies of record have been exploring – Fusion and Amerada Hess. To date, only one offshore well has been drilled since the late 1960s, though hopes are rising that further exploration could take place under new licensee Buried Hill Energy.

Ghana

Ghana is a classic. Just a few years ago, it seemed that the big oil and gas prize had bypassed this relatively prosperous West African state. It had a small amount of coastal on- and offshore production, but seemed to be going nowhere.

In 1997, state-owned GNPC awarded three offshore blocks. Hunt Oil signed for the deepwater South West Cape Three Points area; Nuevo Energy with Yukong secured the Cape Three Points East block; and Cape Three Points West went to Dana Petroleum.

While Dana did make two small Tano finds, the company lost interest and walked away. Crucially, it relinquished deepwater acreage that in 2007 yielded a spectacular double find for Tullow, which gained its foothold in 2006 by being awarded the acreage that Dana dropped.

At the same time, Tullow concluded a farm-in agreement on a third offshore licence, thereby acquiring a 22.9% interest in the adjacent West Cape Three Points block.

As the saying goes, the rest is history. Teamed up with Anadarko and Kosmos, the breakthrough came in 2007, with significant discoveries made on West Cape

Three Points and Deepwater Tano. The wireline logs, pressure data and reservoir fluid samples collected in the two wells indicate the strong likelihood that the reservoir sands are in communication and that the Hyedua-1 and Mahogany-1 discoveries are part of a single very large accumulation extending across both blocks. These were followed in early 2008 with the shallower water Odum find.

In January 2008, Tullow revealed that it had a large commercial development on its hands and that it will require about $4 billion to bring Jubilee into production. Since then, as the scale of the project has become increasingly apparent, the overall CAPEX commitment to Jubilee is likely to be double that estimate, at $8 billion and perhaps more than $10 billion.

Up to four FPSOs may be needed for Jubilee, which has at its heart Mahogany, Hydeua and Odum. Early indications are that they are geologically connected and that this points to substantial upside.

From the drilling fraternity’s perspective, Ghana is terrific news and especially for Ocean Rig, which in February 2008 secured a three-year contract valued at $700 million, so setting a new dayrate record of $637,000 for a fifth-generation semisubmersible.

Since then, a multi-rig campaign has evolved. The Ghana story has barely opened, will surely become even more exciting and appears to have the potential to run and run.

Togo and Benin

Sandwiched by the latest happy elephant hunting ground and one that’s yielded a veritable herd of valuable hydrocarbons discoveries, Togo and Benin rank as poor neighbours; moreover they have tiny aquatories by comparison. But surely they possess some of the geology that has so blessed Nigeria and, lately, Ghana?

Alas, there is no convincing evidence yet.

After many years of inactivity, the Togolese government in 1999 opened its offshore waters to oil and gas exploration, using the results of a 3D shelf-to-deepwater seismic survey. Most of the acreage was awarded to Hunt in 2001 and, in 2005, Block B was offered for bid. After that, the trail goes cold, and Hunt’s website makes no mention of the 2001 licence.

It’s a little clearer in Benin, which has a single small producing oil field, Seme. Exploration activity has been sparse but is beginning to pick up, with drilling scheduled to take place in 2008.

Back in 2003, hopes of a major offshore find were dashed when Kerr-McGee drew a blank with its deepwater Block 4 Fifa-1 well. The company drilled a further well, Hihon-1, which encountered hydrocarbons. Details of the find are sketchy.

In 2005, Kosmos announced that it had acquired a 40% working interest in Block 4. In late 2007, Kosmos with Anadarko drilled the Sota-1 well on Block 4 using the drillship Belford Dolphin. Neither company responded to an inquiry as to the status of Sota-1.

Nigeria

It’s hard to know where to start with Nigeria, given the mounting problems experienced by the petroleum sector, notably a series of headline-grabbing kidnappings by MEND and even a daring raid on the Shell-operated Bonga FPSO.

The expression force majeure has been used with monotonous regularity in stock exchange announcements, signaling reductions in production and headlines in oil cities like Houston and Aberdeen.

The situation appears not to be improving, despite assurances from Nigerian authorities that steps are being taken to curb factions such as MEND. Basically, Western petroleum companies are trapped between a rock and a hard place; meanwhile, Nigeria is being courted by that bear of a Russian corporation, Gazprom, which is after the state’s gas resources; and the Chinese, who are anxious to secure what they can.

The current situation is not at all healthy, and it is hampering both exploration and development work. That said, Shell, Chevron and others soldier on, determined not to be cowed but nonethless respectful of their position.

If Nigeria could recover currently shut-in production capacity, the US EIA estimates that this country could achieve 3 million bbl/day and, with the help of new projects coming online, the Nigerian government hopes to increase oil production capacity to 4 million bbl/day by 2010. This compares with around 2 million bbl/day thus far this year, with 500,000 bbl/day worth of capacity shut-in.

The petroleum sector is hesitating to invest further or seek more acreage until the Nigerian government can demonstrate that it can stabilise the situation, then restore order and sustain it.

One would think President Umaru Musa Yar’Adua, who has lately condemned the August 2008 coup in Mauritania, has ample reason to straighten out the politics of the Niger Delta. After all, his government has estimated that, in 2006 alone, the Nigerian state lost $4.4 billion in oil revenues due to increasing violence in the Niger Delta region. The impact is clearly enormous.

Notwithstanding, the industry is doing its best to honour its side of the bargain, such as Chevron successfully bringing Agbami onstream and Shell starting work on Bonga SW (OPL 118) as part of a wider development proposal that will also involve Chevron’s Aparo discovery. The target is some 450 million to 650 million bbls of oil from the “most attractive” Bonga SW and Aparo reservoirs. However, the “unrisked” reserves estimate is 2.7 billion bbls.

Linked with the Bonga SW/Aparo development is a further Chevron-led project, Nsiko, about which very little is in the public domain. Nsiko lies 30 km to the southwest and has gone through pre-FEED analysis. The initial development plan includes the drilling of up to five subsea producers and up to five injectors.

Chevron is also working on the planned Aje field development on deepwater Block OML 113, plus TOTAL has Akpo and Usan. It all adds up to a lot of development wells, not forgetting commitments to exploration.

Cameroon, Equatorial Guinea, Gabon, DR Congo

Of this group, perhaps it is Equatorial Guinea that has attracted the greatest investment, though it had just 1.1 billion barrels of proven reserves as of January 2007.

The backbone producer is ExxonMobil-operated Zafiro, but there is pressure for greater state participation, and one result is that Zafiro stakeholder Devon Energy has sold out to state-owned GEPetrol.

How this policy will impact the owners of Equatorial Guinea’s three other offshore producing assets, Alba, Ceiba and Jade, remains to be seen. Meanwhile, Asian firms from China, India and the Philippines are especially interested in gaining exploration rights and, in February 2006, China National Offshore Oil Company (CNOOC) gained a foothold via a PSA with GEPetrol.

In terms of political attention and frustration for oil companies, it is DR Congo that takes the prize. While most of DR Congo’s oil output comes from offshore, that is the seven offshore fields still operated by Chevron, this African state has been bickering with Angola on who owns what offshore.

In contention are fields such as Mondo, Vicango, Batuque, Dikanza, Hungo, Chocalho, Marimba and other fields operated by ExxonMobil via the Kizomba A and B projects. The root cause of the problem is that, 50 years ago, Gulf Oil – now ChevronTexaco – delineated DR Congo’s aquatory without apparently paying any attention to either geographical or political rationales.

DR Congo believed that its aquatory should be redefined in accordance with the International Law of the Sea’s established rules. That would require Angola to give up Block 15 acreage with enormous proven potential and, of course, output from projects like Kizomba.

However, by April 2008, it appeared that a way forward had been found covering the search for and production of hydrocarbons in the so-called Common Interest Maritime Zone between DR Congo and Angola. This appears to extend across portions of DR Congo Block 14 and Angola Blocks 1, 15 and 31. Time will tell if this 50:50 arrangement is workable.

Most hydrocarbon-dependent, in economic terms, of this group is Gabon as oil exports account for 51% of GDP and 63% of government revenues. But output is falling rapidly. Efforts are being made to boost production through new licensing rounds and field overhauls. For example, TOTAL has committed $2 billion to redeveloping the key Anguille field, and Tullow sees Gabon as an important part of its portfolio.

In July 2006, Addax Petroleum purchased the interests of Pan-Ocean Energy for $1.4 billion. The acquisition makes Addax the largest producer in Gabon, and its near-term development plans include the continued drilling in the Tsengui and Obangue fields.

As for Cameroon, being across the border from Nigeria has not been a guarantee of hydrocarbon riches. Despite the fact that it benefits from the influence of the enormous Niger Delta, Cameroon was producing a mere 86,000 bbl/day of oil in early 2008.

Production is derived from some 30 offshore fields, with the prospect that this number may increase thanks to recent exploration successes. The largest player is TOTAL. Others include Pecten, Perenco, BowLeven and Noble.

Cameroon is underlain by two producing “pull-apart” basins, Rio del Rey and Douala. The Rio del Rey Basin, buried under thick Niger Delta sediments, is well explored, with producing fields mostly discovered in the 1970s.

A small southern portion of Cameroon’s offshore area lies in deepwater, but its southern neighbour, Equatorial Guinea, by reason of its sovereignty over Bioko Island, owns most of the area. Sadly, it lacks deepwater acreage overlying the Niger Delta with the net result that, for now at least, few deepwater prospects seem likely. However, the on-trend Ceiba field in Equatorial Guinea will lead to further exploration in the south.

There have been recent exploration successes that could lead to new developments, notably Dissoni operated by TOTAL, which in 2006 announced that it had struck oil after drilling its first well on the block, though the discovery was in fact made the prior year. The discovery well encountered approximately 50 m of oil pay, and TOTAL has signaled the likelihood of a commercial development, subject to further evaluation being undertaken.

The following year, Noble made a find on deepwater Block PH-77 with the exploration well YoYo-1. A high-quality Miocene reservoir containing 29 m of net hydrocarbon pay was encountered. Additional appraisal work will be necessary to verify the extent of the discovery.

Angola

This country is increasingly regarded as offering the prime real estate of all of offshore West Africa, witness the huge successes notched up on Blocks, 15, 17, 18 and 31. On Block 17 it seemed for a while that every exploration well sunk came up trumps, leading to groundbreaking projects like Girasssol. ExxonMobil has had a brilliant run on Block 15, while, on Blocks 18 and 31, BP has come up trumps big time.

Angola has effectively achieved its ambition of joining the 2 million bbl/day club, plus OPEC. It has far and away the most active development programme of the West African diaspora. Current main projects are summarised in Table 1.

Perhaps the hottest current news emanates from Block 31, where, in January 2008, BP announced its 15th successive discovery from 15 wells drilled.

Project planning is at an advanced stage. It will basically clone Greater Plutonio, with a number of major contracts launched via frame agreements awarded in July 2008, with more to follow. Phase One alone will involve 48 wells, 15 manifolds, 170 km of flowlines and 95 km of umbilical. That covers just the Plutao, Saturno, Vênus and Marte discoveries. At least three more phases are in the pipeline, and speculation is of another two or three beyond that.

Indeed further success there will be, not just in Angola but throughout much of offshore West Africa, perhaps even in Namibia too, which is where this journey ends. While frustration surrounds the future of the possibly immense Kudu discovery of 1996 and although this year’s probe in waters next door to Angola’s aquatory failed to locate hydrocarbons, reality is that it is early days for Namibia, as it still is for so much of West Africa.

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