What’s new in West Africa?: part two

Focus: Nigeria

Nigeria, which has access to 37 billion bbls of proven crude oil reserves and over 5 trillion m³ of natural gas, is Africa’s largest hydrocarbon producer and one of the continent’s economic powerhouses. However, some long-term forecasts are predicting a gradual drop in output as a consequence of underinvestment.⁷

As the scope of the current downturn in oil prices became clear, NNPC, Nigeria’s state oil company slashed its budget for Joint Venture operations by 40% to US$8.1 billion. This is expected to have a knock-on effect to the country’s oil output as joint ventures between various IOCs and NNPC account for roughly half of all production. Some reports have calculated that as a result of this cut in expenditure, various projects amounting to the equivalent of an additional 750 000 bpd will never get off the ground.⁸

However, investment in the Nigerian oil sector from IOCs had been in a state of decline for several years before NNPC’s cuts, with recently developed fields failing to sustain output and exploratory drilling declining. Some companies, such as Shell and Chevron have even begun to divest their assets, whilst

ConocoPhillips has left the country altogether after selling its upstream assets to Oando Energy Resources.

Exactly why IOCs are losing enthusiasm for Nigeria is down to a variety of factors, but perhaps the most obvious reasons are security related. To quote Shell on the matter, “The Niger Delta is one of the most challenging locations in which Shell companies do business. Crude oil theft, sabotage and illegal refining have become increasingly serious problems, with long-term social, economic and environmental impacts.”⁹ Some reports have calculated that as much as 100 000 bbls of oil are stolen each day, often taken directly from pipelines via a dangerous process known as bunkering. There are even reports that senior politicians and military officers are involved in the industrial-scale theft, which generally sees stolen oil shipped out to tankers waiting offshore and sold to international markets.

As mentioned earlier, piracy and kidnapping are also significant concerns for companies operating on and offshore Nigeria. Gerry Northwood, COO of maritime security firm, MAST, was quoted as saying: “While the Nigerian Government and Nigerian Navy should be commended for the effort recently made to try and eradicate product theft, this incident indicates that kidnap and ransom of personnel is likely to remain a threat for the foreseeable future.” The ongoing threat of Boko Haram, an Islamist militant group operating largely in the northeast of the country, also remains an ongoing security concern despite recent advances made against the group by Nigerian security forces with US assistance.

Despite these challenges, one can perhaps be hopeful that Nigeria has turned a corner with the election of its new President, Muhammadu Buhari. Buhari has vowed to clean up the industry and combat oil theft and eradicate Boko Haram; solving these issues, will be key to restoring IOC confidence and enthusiasm when it comes to investing in Nigeria.

Focus: Ghana

Ghana is believed to hold between 5 and 7 billion bbls of crude oil and up to 6 trillion ft³ of natural gas, giving it some of Africa’s largest proven reserves. The country’s oil industry has grown significantly over the last decade, especially since Tullow Oil’s discovery of the significant Jubilee field, and has attracted a number of major operators including Kosmos Energy, ENI, and Hess Corporation.

Ghana appears to hold significant future prospects for oil and gas operations and the government is keen to encourage growth in this sector; “Recent discoveries are that the country’s oil and gas resources stretch across the country’s shoreline from Cape Three points in the West to Keta in the East. The Volta Basin as well is also believed to hold oil and gas reserves. Government through GNPC is seeking to fully maximise Ghana’s prospects in the oil industry. It has recently sought to extend the country’s continental shelf to increase the country’s oil and gas scope.”¹⁰

Earlier this year, the country received US$700 million in guarantees from the World Bank for its new Sankofa gas project, which is expected to attract just under US$8 billion in investment. The Sankofa project, located 60 km offshore, holds approximately 1.5 trillion ft³ of gas and 500 million bbls of oil and is expected to provide 80 000 boe/d by 2019.

Concerns were raised earlier this year after the neighbouring nation of Cote d’Ivoire asked the International Tribunal for the Law of the Sea to settle a maritime border dispute with Ghana; this could have had grave implications for the future of Tullow Oil’s US$4.9 billion TEN project, which lies in the disputed territory. Fortunately for Ghana and Tullow, the Tribunal ruled that development of the TEN project could continue on the proviso that no further drilling be carried out. However, this was a temporary settlement and the Tribunal has not yet come to a decision over the merits of the case; a final decision is expected in 2017.¹¹

The future of Ghana’s oil and gas industry looks comparatively bright, though like elsewhere, it too will have to endure the challenges posed by the current low oil price.

Summary

West Africa remains a challenging region for oil and gas companies, despite long-term industry activity; problems such as piracy, kidnappings and corruption pose significant security risks for operators. However, for those willing to make the investment and take adequate precautions, the lower operating costs and significant untapped potential of West Africa make it an attractive opportunity. As a consequence, the region is likely to see continued growth over the coming years.

References

7.http://energy.globaldata.com/resources/expert-insights/oil-and-gas/reversal-of-fortune-in-nigerias-oil-sector-challenged

8.Ibid.

9.http://www.shell.com/global/environment-society/society/nigeria.html

10.http://www.pwc.com/gh/en/industries/energy-utilities-mining.html

11.http://www.reuters.com/article/2015/04/25/us-ghana-ivorycoast-oil-idUSKBN0NG0IX20150425

Read the article online at: https://www.oilfieldtechnology.com/exploration/31122015/whats-new-in-west-africa-part-two/