Emerging prospects in East Africa balance maturing West Coast as local companies grow
By Joanne Liou, Associate Editor
Come nightfall, the majority of people in sub-Saharan Africa are left in the dark. Nearly 600 million people – approximately 70% of the sub-Saharan Africa population – are without electricity, according to the World Health Organization and International Energy Agency. Although countries in this region continue to face energy gaps, much of the continent is rich in natural resources.
Africa’s proven oil reserves have grown by approximately 120% from 57 billion bbl in 1980 to 124 billion bbl in 2012, according to the US Energy Information Agency. The group estimates that at least an additional 100 billion bbl are yet to be discovered offshore Africa.
Natural gas reserves also have been growing. Africa has 502 trillion cu ft of proven natural gas reserves, most notably in East Africa, according to the BP Statistical Review. This has led to strong interest and investment, stated Chris Bredenhann, Africa Oil & Gas Advisory Leader for PricewaterhouseCoopers (PwC). Investment in the continent’s E&P industry is evolving with a shift from IOCs to indigenous or local oil companies. In the short term, Africa’s “outlook is positive with a lot of focus on new developments, new exploration,” Mr Bredenhann said.
“In the longer term, Africa can probably contribute a larger share of the global production of oil and gas, given the extent of finds that have not come on-stream yet and developments around LNG.”
The number of active drilling rigs, including floaters, semisubmersibles and jackups, at any given time offshore sub-Saharan Africa is approximately 80, according to PwC, with nearly half located in southern Africa and the rest divided between East and West Africa. While the Gulf of Guinea, which runs from Guinea to Angola and includes Nigeria, Ghana and Gabon, remains bustling, activity is also ramping up in East Africa – offshore Tanzania, Mozambique and Madagascar. “We might start seeing some rig movement coming from Brazil for shallow-water opportunities in Africa,” Derek Boulware, Senior Manager at PwC, explained, “because Brazil has trended toward exclusively focusing on deeper water.”
While the infrastructure to support oil and gas activities is often still lacking, progress is being made. In South Africa, Cape Town is positioning itself as an oilfield service hub, with the ability to service rigs from both the East and West coasts. “About 140 rigs annually pass around the southern tip of Africa, creating an opportunity, if the infrastructure and facilities are available to service those rigs,” Mr Bredenhann stated. “There’s quite a bit of movement in Cape Town around positioning for rig repair work.”
Well counts also paint a picture of E&P development that is trending from coast to coast. While the more mature markets of Nigeria and Angola continue to develop, Kenya, Mozambique and neighboring countries are just arriving on the oil and gas scene. “We’ve only seen about 500 wells (onshore and offshore) drilled to date in East Africa,” according to Afren, an independent E&P company with assets in Africa and the Middle East, Mr Bredenhann said.
“In West Africa, the numbers quoted from Afren on the region is 15,000. It really demonstrates two things – the newness of the development in East Africa, and it indicates there’s potentially a much bigger upside if the drilling activity were to reach the level that we’ve seen in West Africa.”
Since 2012, the percentage of expats comprising the workforce has dropped significantly. Based on a PwC survey of 55 IOCs, NOCs and service companies active in Africa, the share of expats has dropped from 25% to 11% from 2012 to 2013. “Oil companies have expatriates on the ground to get things going, but as the industry matures, we see that the number of expatriates tends to decline,” Mr Boulware said. “They are constantly looking for ways to invest in those local communities. With the case of local content initiatives that are being driven by many of the countries in Africa, they now have an incentive or a compliance requirement to increase local skills.”
Onshore East Africa
Local companies, such as Canyon Drilling East Africa, established last year, are targeting the continent’s newest energy frontier in East and Central Africa. The Baker Hughes international rotary rig count for June indicates the industry’s sparse presence in East Africa – only 11 land rigs in Kenya, one in Uganda and none in either Mozambique or Tanzania. “There hasn’t been an on-land industry to speak of in East Africa. There are few rigs scattered over East Africa, but no big drilling programs to date,” Gary T. Holley, President and CEO of Canyon, explained. Based in Nairobi, Kenya, and with operational workshop facilities under construction in Mombasa, Canyon is the first dedicated land-based drilling contractor that is 100% incorporated in Kenya.
Kenya’s neighbor to the west, Uganda, is expected to break an eight-year hiatus from licensing rounds with open bidding in Q4 this year and the awarding of 13 blocks by mid-2015, according to PwC. To Kenya’s south, Tanzania completed its fourth licensing round in May for seven offshore blocks and one onshore block. Canyon’s first rig to be deployed, Rig 102, is destined for Eastern Tanzania in November 2014 following recertification in Houston. “It is contracted for 14 months to drill three wells that are assumed to be conventional gas,” Mr Holley said. “Three further rigs will be prepared in Canyon’s Houston yard and be ready for deployment to East Africa between Q1 2015 and Q1 2016.”
Rig 102, a refurbished 2,000-hp SCR rig, is expected to spud late November on a multiwell program. Rigs 103 and 104 are 2,000-hp, AC-drive newbuilds with walking capability to allow them to shift from exploration to development drilling programs. “With the seismic (that) operators are looking at, they think they’ll have some significant discoveries. Depending on the discoveries, that will determine how quickly they go to production,” Mr Holley said. “It is a lot easier to build the rig with walking capability rather than modify in the field.” Rig 105 is a 1,000-hp, trailer-mounted rig. Rigs 102, 103 and 104 target deep gas drilling – 12,000 to 18,000 ft – and each rig will be rigged up with 500-ton top drives, 10,000-psi well control equipment, hydraulic catwalks and three triplex, 1,600-hp mud pumps, Mr Holley stated.
“The crews will be trained for drilling deep gas with the potential for H2S and everything that you would encounter, for example, in Louisiana, West Texas or Oklahoma. All rigs will be designed for rapid mobilization or pad drilling and be capable of vertical or horizontal drilling programs.”
Based on a small supply and increasing demand, Mr Holley forecasts that dayrates for onshore drilling in East Africa will remain competitive, between $50,000 to $70,000. “We anticipate a huge demand for rigs over the next two years in East Africa. There’s a lot of work going on in the Mideast, and most competitors will want to stay in the markets that they know and understand.” He believes that, in Kenya alone, there will be a need to drill 50 to 60 wells in the next two to three years.
Setting up shop
Although Kenya has not established local content requirements similar to Nigeria’s, companies working in the emerging East African markets are nevertheless challenged to develop local resources and infrastructure. Canyon Drilling expects to begin by bringing in expats but replace them with local talent in the near future. “We’ll have an ongoing training center for the locals where we will integrate them into our operations,” Mr Holley explained. “The biggest undertaking we will have will be the training to bring East African people up to speed.” Lammergeyer Environmental Services will develop Canyon’s corporate environmental and social responsibility policy and programs. “This will be a very satisfying process to build long-lasting and proactive initiatives to support our drilling activities.”
Canyon’s “train the trainer” program is developing a classroom curriculum, and the company is working to achieve IADC Rig Pass accreditation. Once a student graduates from the classroom program, “we will take them to the rig site, and we will have a mentoring program to ensure that they understand the function of equipment and the dangers that are associated,” Mr Holley said.
He expects the mentor program to last about six months before the employee would be ready to graduate to a position on the rig floor. “In three to four years, we want the majority of the personnel to be local in East Africa. We want to be where we could walk away from it, and it would be an African-operated drilling company. That is our ultimate goal.”
Besides training, infrastructure is another key challenge in East Africa. Advanced planning and standardization will be key to addressing this, Mr Holley said. “We have to be sure our warehouse has what we need on a daily basis to operate and to keep our downtime at a minimum,” he explained. “Current plans are to ship all daily supplies required from a Houston base and use sources out of Dubai and Abu Dhabi for more urgent needs.”
Canyon’s warehouses in Mombasa will house spare parts, a training center and an office for superintendents. “We’ll have a workshop where we can overhaul engines, mud pumps and other major rig components. We will have our own mechanics and electricians – not only will we be training floorhands, motor hands, we’ll also be training mechanics, electricians and even drivers,” Mr Holley said.
All of Canyon’s rigs will feature standardized rig components, such as pumps, BOPs, top drives and catwalks, along with new drill strings. Such standardization will allow movement from rig to rig, of not only equipment but also people. “All of our rig power will be similar. Our mud pumps and BOP equipment are all going to be the same, and we’ll keep spare capital equipment in our warehouse,” he continued. “We’re trying to look at all ways to keep our rigs running every day.”
Between land and sea
With IOCs divesting interests in shallow-water plays, such as the Niger Delta, the market is being cultivated for smaller, indigenous companies, such as Seplat Petroleum Development Co and South Atlantic Petroleum. “Majors are divesting, not necessarily from (Nigeria) but from existing plays. They’re shifting toward more deepwater plays,” Mr Bredenhann of PwC explained. “Local independent oil companies are picking up these assets and operating them. It’s a good model for these indigenous oil companies because although (the assets) are not the size or scale Chevron or ExxonMobil would be interested in, it is a producing asset that generates cash flow.”
Diezani Alison-Madueke, Nigeria’s Minister of Petroleum Resources, disclosed at the 2014 OTC in May that between 2010 and year-end 2014, IOCs are expected to divest more than 20 oil blocks. This is led by Shell, TOTAL, Agip, Chevron and ConocoPhillips. The Nigerian Voice news source quoted Ms Alison-Madueke at OTC: “A number of these IOCs are moving into the more challenging frontiers in the deep offshore and are leaving the onshore blocks, which they consider less profitable.”
Along with the rise of indigenous oil companies, indigenous drilling contractors are entering the scene. Nigeria-based drilling contractor Depthwize, which was founded in 2011 to address the swamp and shallow-water markets, is currently working for two independent Nigerian operators – Conoil and Century Energy. Depthwize currently has two swamp barges – the Majestic and the Imperial – operating in the Niger Delta. It also has one submersible rig being refurbished and another submersible that is warm stacked.
The Majestic is under a three-year contract that began in May 2012 with Conoil, and the Imperial is working for Century Energy under a three-year contract that commenced in August 2013. Both are built for HPHT operations. The 3,600-hp Majestic is a cyber-drilling rig with variable frequency drive and 2,200-hp quadraplex mud pumps instead of triplex pumps. It has an 850-ton top drive system, can drill up to 35,000 ft and can operate in water depths between 9 and 25 ft.
Capable of operating in similar water depths, the 3,000-hp, SCR Imperial rig is rated to drill up to 30,000 ft and is equipped with two 1,800-hp quadraplex pumps. It has a 650-ton top drive system and can accommodate 102 people. Depthwize stores up to $3 million worth of spare parts and rig equipment, primarily on the rigs and in a warehouse in Port Harcourt, to alleviate the lack of infrastructure and supporting service companies.
“You could very easily have 15 to 20 days of downtime because you do not have extra equipment that may cost $2,000,” Uche Dimiri, Managing Director of Depthwize, said. “By the time you get it from the States, fly it in and take it to the swamp, you probably have lost close to two weeks.”
Depthwize has drilled one exploration well and one appraisal well for Conoil to approximately 19,000 ft. The Imperial has also drilled a deviated appraisal well to 16,000 ft, according to Mr Dimiri.
The submersible rigs – the Monarch and the Regal, which were purchased from Noble Drilling in Q4 2013 – can actually sit on the seabed, he continued. These column stabilized rigs are being refurbished in the US.
The Monarch is expected to arrive in Nigeria in November this year. “We believe there is a gap in the shallow-water market where the fully submersibles can fit in,” he said. “The Monarch and the Regal will provide a solution for the clients in drilling shallow areas that are between 16 ft and 85 ft of water without any issues with penetration, which we have had in the recent past with jackups.”
In 2007, Nigeria-based Oando Energy Services (OES) entered the drilling scene with the acquisition of two swamp rigs. Indigenous companies, such as OES, compounded with Nigeria’s local content laws that were established in 2010 “essentially pioneered the return to the Niger Delta, because in the mid-2000s a lot of the multinationals left the swamps,” Olusola Falodun, General Manger for OES, said. Today, the two acquired swamp barges are operating in the Niger Delta – the OES Integrity for Nigerian Agip Oil Co and the OES Passion for Shell. OES also has two warm-stacked swamp barges, of which one will commence operations in Q4 this year.
The 3,000-hp OES Integrity is drilling challenging, HPHT production wells up to 30,000 ft in the Niger Delta, encountering between 9,000 to 13,000 psi. The barge was upgraded in 2008 and is equipped with 15,000-psi BOP systems and a joystick-operated drawworks system. The OES Passion is a 3,000-hp cantilever swamp barge equipped with a 10,000-psi BOP system. The unit is capable of drilling up to 25,000 ft, and the cantilever enables the rig to drill multiple wells from one location. Dayrates for swamp barges range from $90,000 to $110,000, Mr Falodun said.
Contract lengths are regulated by the government, and typical rig contracts in the Niger Delta are two years with a one-year option, Mr Falodun stated. “There have been discussions with operators and regulators to extend that period to five years,” he explained, “to enable the operators to recoup investments. I strongly believe we’ll see a change in the coming years.” He believes that if five-year contracts can happen in deepwater, they can also happen for onshore rigs. “Five-year contracts provide the necessary cash flows to meet financial obligations to investors and engender proper project planning, improved accessibility to financing and improved profitability.”
Nigeria Chapter guides improved performance
By Joanne Liou, Associate Editor
In between opportunities to grow and challenges to operate, the IADC Nigeria Chapter is helping to put the local oil and gas industry on the right path. By uniting operators, drilling contractors and service companies – and even opening select meetings to nonmembers – the first IADC chapter on the African continent is nurturing young companies and elevating industry performance.
“The IADC Nigeria Chapter is a young organization. We’re very passionate; we have a very high energy drive and passion to place the Nigerian oil and gas industry on the world stage,” Omesiri Adegite, National Content Compliance Manager for Transocean and Treasurer of the Nigeria Chapter, said.
“IADC brings a lot of value because it brings companies together to cooperate and collaborate even though we compete,” Ms Adegite continued. “We share ideas, experiences, lessons learned and best practices with the underlying goal of being able to elevate the standard of the industry as a whole.”
The IADC Nigeria Chapter was established in October 2012 with four companies and has grown to 26 member companies as of August. The chapter has worked on three main initiatives in the past two years – a safety statistics database, technical sessions and training gap analysis.
The safety database will be similar to the one compiled by the IADC North Sea Chapter. “The intent is to keep the focus on HSE practices, with the ultimate goal to maximize uptime for an operating rig,” Ms Adegite explained. “The intent is to create high-level safety statistics to recognize positive achievements and look for areas of improvement.” The Nigeria Chapter is tentatively planning an awards ceremony for Q4 this year. The goal is to recognize companies’ achievements in promoting safety culture, based on the findings from the database.
The chapter also organizes quarterly technical sessions where experienced and senior-level members of the local industry present papers or lectures. “These sessions are open not only to IADC member companies but also to non-IADC member companies,” Ms Adegite said. Case studies on a range of topics, such as cementing practices and BOP maintenance, have been presented and discussed. “It also serves as a business networking platform for the industry,” she added. The most recent technical session in June featured two speakers representing operators, who focused on maximizing rig uptime and HSE.
The training gap analysis was recently completed by an independent third party. It will help to review the current state of Nigeria’s drilling industry. “Because we have this influx of younger, newer companies, one needs to ensure that the orientation is the same so that the standards of the Nigerian drilling industry as a whole are maintained or – better yet – elevated,” Ms Adegite said.
The Nigeria Chapter commissioned the gap analysis project to investigate skill gaps, with a focus on drilling operations. “We’re reviewing it at the moment to understand what the competency gaps are,” Olusola Falodun, General Manger for Oando Energy Services (OES) and Chapter Chairman, said. “Coincidentally, the IADC KSAs was released, so we’re trying to merge or align the reports to see areas of interest.” The chapter has notified all drilling contractors in Nigeria of the KSAs. OES, for one, is already using the KSAs to ensure its competency assurance program is up to speed. “It’s working well for us, and we’re encouraging other companies to do the same thing.”
Coast to coast
From Ghana on the west to Madagascar on the east, onshore and offshore, Tullow Oil has a balanced spread of exploration and appraisal campaigns. For 2014, Tullow is targeting the Jubilee and TEN (Tweneboa, Enyenra and Ntomme) developments in Ghana, exploration and appraisal drilling in Kenya, appraisal drilling and development in Uganda, and maintaining mature production and high-impact exploration in other countries in Africa.
To meet operational requirements for its deepwater plays, Tullow has contracted sixth-generation, dynamically positioned (DP) rigs, Brian Teggart, Well Engineering Manager – Offshore Group for Tullow, said. Stena Drilling’s Stena DrillMax drillship is under a three-year contract that commenced in August 2013.
The DP3 drillship has a maximum drilling depth of 10,700 m, is capable of operating in up to 3,000-m water depths and offers dual-derrick capabilities. Seadrill’s West Leo, a sixth-generation semisubmersible, commenced operations for Tullow offshore Ghana in April 2012 and is on contract until June 2018. The West Leo, which has a rated water depth of 10,000 ft and drilling depth of 35,000 ft, will carry out the drilling and completion of development wells for the deepwater TEN project.
Located in the deepwater Tano license, the first gas discovery was made by Ocean Rig’s fifth-generation semisubmersible in March 2009. In May 2013, Ghana’s government formally approved the TEN development plan, and first oil is expected by mid-2016. “It’s become a very mature area for us now,” Mr Teggart said. “One of the things we’re particularly working toward is a transition to more local content in terms of Ghanaian personnel. We’ve invested considerable resources into training Ghanaians through a comprehensive training scheme, and we’re reaching the stage where they’re ready to take on operational positions. That’s going to be our focus for the next three to five years.”
Kenya has been on the radar for Tullow with a number of successful exploration, appraisal and testing results onshore in the South Lokichar Basin. Tullow plans to extend the basin potential throughout 2014. “Exploration and appraisal success in Kenya has further de-risked the 600 million bbl of discovered resources. We are also making good progress towards developing the oil that our exploration team has found in Ghana, Kenya and Uganda and in assessing the significant upside potential in each of these areas,” CEO Aidan Heavey stated in a news release in July.
Waves on the west
As the seedlings for the oil and gas industry grow onshore East Africa, activities offshore West Africa are in full bloom. TOTAL remains a key operator in the region, and this year marks the 60th anniversary of its presence in Angola. In 2013, more than 30% of the company’s exploration spending was focused on Africa, and that share is expected to remain unchanged in 2014. In 2013, TOTAL’s exploration investments totaled nearly EUR 3 billion. “The share of Africa exploration will diminish (in 2015) while that of the Americas will increase,” Christian Longis, Exploration-Drilling Coordinator for TOTAL, said. He also cited the operator’s plans to target new exploration areas in South America, Asia and Europe.
TOTAL currently has seven drillships and one semisubmersible operating offshore Angola. In Gabon, the operator has two jackups and two tenders, as well as a semi in Congo and one rig each offshore Libya, Nigeria and South Africa. More than 20% of TOTAL’s wells are in deepwater – approximately 1,500 ft – with West Africa contributing the largest contingent.
In addition to the 16 rigs operating as of July, the operator expects to add four ultra-deepwater drillships and one tender to its Africa fleet in the next two years. These drillships will be supplied by Ensco, Ocean Rig, Seadrill and Vantage Drilling. Atlantica Drilling will also provide the tender.
In support of the EGINA ultra-deep offshore project in Nigeria, TOTAL awarded Seadrill a five-year contract for the West Jupiter. The sixth-generation drillship is under construction at the Samsung Heavy Industries shipyard in Geoje, South Korea, and will be mobilized at the end of 2014. The ENSCO DS-8, which also is under construction at the Samsung shipyard, will commence a five-year contract in Q3 2015 in Angola, with dayrates in the high $610,000s.
“Within the next five years, our demand will continue to be driven primarily by development drilling, be it offshore or onshore,” Patricia Claverie of rigs & services coordination for TOTAL said. “Offshore, we could have further requirements for deepwater rigs in Nigeria and Angola. We anticipate potential growth onshore Uganda at our operated Buliisa Block 1, north of Lake Albert. A multi-year, multi-rig development project is currently at FEED stage.”
Although today’s drilling rigs are meeting operator demands, NPT remains a constant challenge. “Equipment-wise, we are concerned and severely impacted by nonproductive time related to BOP equipment failure, especially in the subsea arena,” Ms Claverie explained.
NPT stemming from the BOP has been identified as one of the top priorities in TOTAL’s 2015 road map, Benoit Ludot, Vice President of Drilling & Completion, said. “In a first step, we reinforce specifications, acceptance and audits, but it may be not good enough. We will investigate technical and non-technical actions, such as backup policies, redundancies, maintenance, incentive schemes, etc,” while also reinforcing the company’s BOP performance reporting and analysis.
Local content development is not new to Africa, but requirements can be a challenge to meet, “mostly because requirements are still maturing before they become an opportunity for sustainable growth of all stakeholders,” Ms Claverie explained. “Our presence in Africa will keep strong, and we will continue to pride ourselves on developing the local industry by recruiting and training local collaborators and via technology transfer.”
TOTAL’s local content efforts were prominent most recently in the CLOV project – a major deepwater development offshore Angola. Production at CLOV began in June, after four years of preparation and construction carried out principally in Angola, South Korea and Norway, said Andre Glowacz, Technical Director of TOTAL E&P Angola.
“CLOV has reaffirmed TOTAL’s commitment to the social and economical development of Angola, where 10 million manhours of work were carried out in Angola and 64,000 tons of equipment were built in-country. In a few months from now, CLOV production will reach its plateau of 160,000 bbl per day, increasing the daily production of Block 17 to 700,000 bbl per day.”
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