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Africa’s deepwater race heats up

Filed under: main story,Oil,West-Africa Energy |

Oil exploration and production are now moving further out into the sea and deeper under the ocean floor, at depths greater than 1000 feet in the quest for the last residual pinches of oil and gas. Deepwater projects are technically and financially more challenging compared to onshore projects. With $15 million, an operator could drill an onshore well, while a deepwater well cost an average of $100 million. Less risky conventional technology is usually used in onshore production while deepwater require more risky complex technology. In financing, the government contributes between 55 to 60 per cent of investments in the onshore production; while the oil companies provide 100 per cent of funds for deepwater investments.Oil deepwater

Despite the high risk nature of deepwater exploration, oil firms are not turning their focus away from there. First, there are only a couple of places left to get oil. Global proven reserves of oil at the beginning of 2009 were at 1.342 trillion barrels, of which about 10% is deepwater. Secondly, even though deepwater is excessively expensive process, high crude prices in recent times have made the economics of deepwater drilling realistic.

Africa’s deepwater seem to be attracting some attention from oil firms. Unrivaled opportunities in the form of mergers, bid rounds, farm-ins/outs and deal making coupled with rising proven oil and gas reserves have made it one of the principal target destinations for global oil companies.

The next milepost

African countries are rapidly opening up their deepwater offshore as the build-up of international oil company interests proceeded rapidly through 2013 with 2014 shaping up to be an active year for seismic and exploratory drilling. Prospects and potential for further oil and gas finds remain exceedingly positive in Africa.

Angola have presalt prospects that are said to be similar to the subsalt layer offshore Brazil where large discoveries have already been made. New deepwater fields such as Total’s CLOV project should be able to increase Angola’s oil output to eclipse that of Nigeria if it comes on stream as scheduled.

Gabon’s subsalt, which sits on the west coast of central Africa, and where Total in October 2013 reported gas and condensate finds on the Diaba block have attracted a lot more oil firms. Gabon’s ministry of energy in October awarded 13 blocks to 11 companies as part of a long-delayed licensing round with the hope of reversing a decline in output from a peak of 370,000 b/d in the 1990s.

Liberia is planning to offer 11 offshore exploration blocks in a new licensing round planned for launch from mid-2014, which will include two ultra-deep concessions for the first time. The focus of the next round will be on the offshore Harper Basin, which borders the West African country’s eastern maritime boundary with Cote d’Ivoire.

Interest has also been piqued in offshore Cote d’Ivoire following discoveries by Total and Tullow Oil. The West African nation is now opening up new exploration acreage in the country’s ultra deepwater as it hopes to hit an ambitious 200,000 b/d by 2016 from current levels of 30,000 b/d.

Ghana’s parliament recently ratified a petroleum agreement between the country’s government and a consortium of exploration companies to explore and operate the South Deepwater Tano Block, offshore Ghana. The 1,340-square mile South Deepwater Tano Block is located in the deep to ultra-deep water part of the Tano basin in water depth ranging from 6,560 feet to 11,480 feet. It is in close proximity to the Hess-operated Deepwater Tano/Cape Three Points block, where seven discoveries have been made, and the Vanco/Lukoil-held Deepwater Cape Three Points block, which contains a discovery.

Republic of Benin is not left out of the deepwater race. Shell has started drilling block 4, in what it described as a new and untested area in the country. Nigeria’s South Atlantic Petroleum (SAPETRO), is exploring the Seme field in block 1 where it is targeting first oil in 2014. Seme went on stream in 1992 but it was abandoned in 1998 by a succession of companies including Pan Ocean and Ashland.

Where is Nigeria?

Deepwater production had contributed significantly to Nigeria’s oil growth strategy, accounting for 40 per cent of liquids production with broader impact on the Nigerian economy through the growth of Gross Domestic Product (GDP) and job creation. At present, Nigeria has five deepwater oil fields; Shell’s Bonga; ExxonMobil’s Erha; Total’s Akpo and Usan; and Chevron’s Agbami.

More is expected but deepwater projects seem to have stagnated in Nigeria. The setback, analysts attribute to the fiscal terms proposed by the Petroleum Industry Bill (PIB) which will make all planned deepwater projects non-viable, resulting in quick decline of deepwater production. The fiscal terms in the proposed reform bill, according to some of the oil firms operating deepwater are harsher than the current fiscal regime and the rest of the world. Other non-fiscal issues such as lease terms and contract sanctity would create uncertainty and affect global competitiveness of deepwater projects in Nigeria.

Oil firms in Nigeria, under the aegis of Oil Producers’ Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry (LCCI) said that deepwater oilfields had the potential to generate $66 billion of investments for the country. The oil firms which include Shell, ExxonMobil, Chevron and Total, said the deepwater would also contribute additional 900,000 barrels of oil equivalent per day to the country’s output in 2020 to offset natural decline in production.

FRANK UZUEGBUNAM

5 Responses to Africa’s deepwater race heats up

  1. Well written and researched article. However disagree with the conclusion that deepwater project development has stagnated in Nigeria because of the fiscal terms proposed by the Petroleum Industry Bill (PIB).

    The fiscal terms (i.e. Govt’s tax take) as proposed in the PIB are less than those that are currently in operation in Angola.

    Our legislature and Govt should stand firm. If the Oil majors don’t like the fiscal terms as contained in the PIB, then they should take their business elsewhere and stop this blackmail. No one is forcing them to do business in Nigera. On our part, our Govt MUST respect the sanctity of contracts.

    Yagazie
    February 19, 2014 at 2:57 pm
    Reply

  2. the major problem in this article is that most journalists in Nigeria like making factual conclusion without a well research work where did the writer of this article got the information that the fiscal regime in the proposed PIB is the harshest in the world. conclusion like this has completely rendered the good work in the earliest part of the article useless.

    Oladipo Sanusi
    February 19, 2014 at 3:20 pm
    Reply

  3. Nice article. A few errors though but still a good piece.

    Dolapo Oni
    February 20, 2014 at 8:47 am
    Reply

  4. Everybody knows that doing business in Nigeria is very difficult. You cannot compare doing business in Nigeria with Angola. If we want Companies to invest in Nigeria we must make Nigeria attractive. The US have a better ease of doing business yet their tax rate is much lower.

    If the PIB is not responsible for the lack of investment the what is responsible ?

    Ojo Sanni
    February 21, 2014 at 2:03 pm
    Reply

  5. Correction! The author claimed there are five producing deepwater fields, in Nigeria at present. No, there are SEVEN: Bonga; Erha; Akpo, Usan; Agbami, ABO and OYO.

    Joe Akinlawon
    March 18, 2014 at 8:00 pm
    Reply

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