Archives for posts with tag: West Africa

West Africa, which accounts for 16% of global offshore oil production, has been perhaps the most challenged region in the offshore downturn. Rig utilisation, for example, fell to a lower level (48%) than in any other region. But with oil prices currently back in the $70-$80/bbl range, there are some signs that things could be picking up, not least Total’s recent FID at the $1.2bn Zinia Ph.2 deepwater project off Angola.

For the full version of this article, please go to Offshore Intelligence Network.

 

Global excess oil supply still looks likely to average 0.5m bpd in 2016 – sufficient, it would seem, to stop oil prices rising much above $50/bbl and therefore to forestall a recovery in E&P activity and the offshore markets. On the supply side of the equation, US shale production and Saudi policy tend to be seen as the key “swing factors”. However, an appreciable degree of relief could also come from elsewhere.

Taking A Swing At Production

West Africa, a fairly mature oil producing region, accounted for 6% (5.3m bpd) of global oil supply in 2015, including 17% (4.4m bpd) of world offshore oil production. To put this in context, world oil oversupply in 2015 stood at around 1.7m bpd – 2% of total supply, i.e. 95.8m bpd, to which the US contributed 12.6m bpd (13%) and Saudi Arabia 12.4m bpd (13%). Saudi Arabian production so far in 2016 has been stable, while US shale oil production in May 2016 was down just 8.9% on May 2015, representing a far slower decline than many observers anticipated. It follows, then, that a severe disruption to West African oil production could have significant implications for the global oil supply-demand balance. Such a scenario seems to be unfolding in Nigeria, which in 2015 produced an estimated 2.3m bpd – 43% of West African oil production. In a series of high-profile attacks, the Niger Delta Avengers (NDA, a new permutation of the old militant group MEND) have sabotaged pipes and wells in the Niger Delta, crippling onshore and shallow water output. At the same time, only 12,000 bpd of offshore capacity (from the Antan field) is set to start up in 2016, and even fixed platforms further from shore, like “Okan NWP PRP”, have come under attack. As a result, Nigerian oil production reportedly fell to 1.1m bpd in May, and 2016 production is projected to average 1.8m bpd – a production loss equivalent to 28% of oversupply in 2015.

In Full Swing No Longer

Political risk is thus one reason West Africa can be a “swing factor” in oil production; another is project economics, especially over the medium term. Angola, for instance, accounts for 43% of West African offshore oil production and 33% of projects in the region yet to reach EPC. However, most of these are deepwater FPSO hubs with high breakevens. In fact, the last project sanctioned off Angola was the $16bn Kaombo Ph.1 project in April 2014, with a reported breakeven of $74/bbl. Given the dearth of project FIDs since 2014, a paucity of start-ups is expected in 2018-21, which would feed into weaker world oil supply growth.

The Swinging Sixties

In the long term though, West Africa has the potential to act as a swing region for (offshore) oil production in the opposite direction. Given stronger oil prices, c.$60-$80/bbl, prolific projects such as Chissonga (Angola, 150,000 bpd) could be feasible again, while an oil price of c.$90/bbl would unlock the potential of many of the 39 Equatorial Margin frontier fields discovered offshore since 2010. West Africa could thus, in a favourable price environment, make an important contribution to world oil supply growth once again.

Of course, political risk and costly projects make West Africa a challenging region at present. But taking a macro view, that could actually be positive for oil prices. West Africa is clearly one among a range of important swing factors in the world oil supply-demand balance.

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‘Pre-salt’ is usually a term associated with Brazil, where giant offshore field discoveries in the Santos and Campos basins have been grabbing headlines since 2007. Now oil companies are looking across the ocean for their pre-salt game. Conjugate basins offshore Gabon, Congo and Angola could be as juicy as the Santos and Campos pre-salt plays have proved. Following a number of recent scores by Cobalt, Eni, Harvest, Maersk and Total, the hunt is on.

Gearing Up

As the Graph of the Month shows, 16 wells targeting West African pre-salt reservoirs have been drilled since start 2011 with a success rate of 75%: 9 offshore Angola, 6 off Gabon and one off Congo. Oil from West African pre-salt was in fact first found in 1968. Its prospective yield was not appreciated though, as only recently did seismic imaging become able to give an accurate picture of the pre-salt. The ultra-deepwater of Angola’s Kwanza Basin also inhibited pre-salt exploration before sixth generation floaters. But, as Brazil has shown, operators now have all the technology they need to pursue the pre-salt.

Hunting Elephants

Some 27 future pre-salt wells are reportedly planned by oil companies or are anticipated through to end 2015, as the Graph of the Month shows. Four of these wells have been spudded. Often smaller E&P companies play a vital role in opening up new frontiers. In West Africa though, supermajors and other large players are already loading up. Conoco has 4 planned wells; Repsol, 3; Eni, 2; Shell, 2; and Total, 2. Of the 27 wells, 70% are offshore Angola and will therefore be in water depths ranging from 800-2,000m. The remainder are to be spudded off Gabon, likely in water depths up to 300m. In either case, companies will be hoping to hit world-class finds, like Cobalt’s Cameia discovery, which is expected to be brought onstream at 80-120,000 bpd in 2017.

Fieldcraft

So, the West African pre-salt play is still in the early stages of exploration and appraisal. If it proves prolific though, and if operators can bring it to fruition, a pre-salt bonanza would more than offset production decline from West Africa’s mature fields. With less stringent local content requirements and more international oil company control, development may be less fraught than in Brazil. Cobalt have already announced plans for 3 multi-field pre-salt hubs centred around the Cameia, Lontra and Orca fields offshore Angola. Given that the average water depth of Angolan pre-salt wells is 1,274m, MOPU solutions are likely to be favoured. The previous caveats noted, the FPSO ordering boom in Brazil could be replicated in Angola, which already accounts for 23% of world FPSO deployment (second to Brazil). In the shallower waters off Gabon, fixed platform solutions are probable, if finds reach the development stage.

In the near term then, the pre-salt safari offshore Africa looks to be an exciting campaign, with potential to generate even more interest in the region and hence opportunities for survey vessel and rig owners. Out towards the end of the decade, Angola could be the new Brazil, with pre-salt development contracts abounding.

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