West Africa continues to draw investors despite security concerns

In July 2007, Total announced that its operating subsidiary in Nigeria, Elf Petroleum Nigeria Ltd., had agreed with Nigeria’s Conoil Producing to acquire 40% interest in OML 136. Conoil, the most important indigenous Nigerian petroleum company, holds the remaining 60% stake. The Nigerian authorities have granted the necessary approvals.

Covering an area of 1,295 sq km (500 sq mi), OML 136 lies 60 km (37 mi) offshore in water depths of 80-300 m (262-984 ft). EPNL will be the technical advisor. Conoil, which was formed in 1990 and operates six permits in the Niger Delta, remains the operator of OML 136.

The parties jointly will conduct additional exploration of the lease as well as appraisal and development of any discoveries. A total of 14 wells have been drilled in OML 136, producing two large natural gas discoveries, Toju and Akarino.

Appraisal of Toju, possibly followed by Akarino, will determine the block’s development potential. The acquisition is in line with an integrated strategy of developing upstream natural gas resources that can be monetized via downstream projects, in particular LNG production projects.

In Nigeria, Total is active in the LNG business through its 15% participation in Nigeria LNG and 17% participation in the proposed Brass LNG project, as well as the Obite and Afam power generation projects.

Equatorial Guinea LNG has claimed that it could build upwards of six trains at its project site on Bioko Island based on 30 tcf of discovered gas resources within a 100-km (62-mi) radius in waters held by Equatorial Guinea, Cameroon, and Nigeria. The EGLNG project company, led by Marathon Oil, is putting the final touches on its $1.4-billion 3.4 mtpa Train 1 project at Bioko Island. A second train has been on the cards for a while now and has been given a boost with both Nigeria and Cameroon agreeing to supply gas for it around the turn of the year.

FEED studies being undertaken by Bechtel for Train 2 are nearly complete, but EGLNG says it probably will be a year before a final investment decision will be made on the 4.4 mpta venture. This is hardly surprising, given the fact that three countries and a lot of companies could be involved in supplying gas to any future trains.

Matathon Oil operates EGLNG with 60% interest. Partners include government-owned Sonagas with 25% interest, Mitsui with 8.5% interest, and Marubeni with the remaining 6.5%

Leasing shows promise

Nigeria’s most recent oil licensing round has generated some excitement in Asia, Europe, and North America. While repeated delays are frustrating to investors, they do not detract from the emergence of the Gulf of Guinea as the world’s premier deepwater exploration and production center. Nearly half of the region’s more than 55 Bbbl of proven oil reserves were discovered in the past decade, and the Gulf of Guinea now accounts for almost 40% of total global deepwater oil production.

The Gulf of Guinea is likely to add nearly 3 MMb/d to global oil production by 2012. Although the region presently accounts for less than 5% of proven global oil reserves, more than 20% of global reserves discovered in the past 10 years were found in the Gulf of Guinea.

Deepwater oil, which accounted for less than 15% of all Gulf of Guinea production as recently as 2005, should account for 50% of regional production in 2010.

Compared to longer-established deepwater sites like the Gulf of Mexico, West Africa remains relatively unexplored and exhibits significant upside potential.

Current projects, future opportunities

In Nigeria, crude oil production averaged about 2.5 MMb/d in 2005, but fell as low as 2.26 MMb/d in July 2006 due to significant production losses in the Niger Delta. Kidnappings and attacks on oil installations by militant groups occurred throughout the year.

Production losses, which industry analysts calculate at more than 700,000 b/d in some months, were offset partially by rising deepwater production. ExxonMobil’s Yoho and Erha fields collectively added 360,000 b/d to Nigerian production, while Chevron’s Agbami field and Total’s Akpo field could bump up production by 475,000 b/d by 2008.

Instability in the run-up to the April elections, however, makes it doubtful that the government will reach its 2007 target of 3 MMb/d.

Offshore Angola, crude oil production averaged 1.4 MMb/d in 2006 and should reach 2 MMb/d by 2008 as new deepwater fields come online. Total expects the Dalia field in block 17 to reach 240,000 b/d in mid-2007. Similar production volumes are expected from BP’s Greater Plutonio field in block 18 later in the year. Deepwater production alone could reach 2 MMb/d by 2010.

Crude oil production increased from 5,000 b/d in 1995 to 355,000 b/d in 2006 offshore Equatorial Guinea. A licensing round for 28 additional blocks opened last year and is scheduled to close at the end of Jan. 2008.

According to the World Bank annual data book, Gabon’s production has declined by more than one-third from its 1997 peak. Production is now holding relatively steady at around 235,000 b/d. Future production hopes rest on extending the productive life of the Rabi-Kounga field (now producing at about 25% of its 1997 peak), bringing the offshore East Orovinyare field online in late 2007, and success in the next deepwater licensing round.

In Republic of Congo, production, which had declined to a low of 227,000 b/d in 2005, increased to about 250,000 b/d in 2006. Further increases should occur as new fields such as Libondo, Tchibeli, Moho, and Bilondo come online over the next few years.

The news for the Joint Development Zone held by São Tomé and Príncipe and Nigeria is not good. Progress remains slow, and production from block 1 is not expected to begin before 2010.

Africa and the environment

Much of the natural gas found in the Gulf of Guinea is flared. Nigeria alone is estimated to account for 20% of global gas flaring. The region is awakening to the commercial potential of natural gas exports, and a number of LNG facilities are under construction. Nigeria, with proven gas reserves of 185 tcf, is the gas giant of sub-Saharan Africa. The government hopes that gas revenues will equal 50% of oil revenues by 2010. A sixth train at the Bonny Island LNG facility is scheduled to open in 2007, increasing capacity to 22 mtpa.

The federal government’s 2007 budget commits more than $20 billion on the Olokola and Brass LNG projects. OK-LNG is expected to be completed in 2009 with an initial capacity of 11 mtpa.

Bioko Island LNG facility in Equatorial Guinea came online in May 2007, six months ahead of schedule. A contract was awarded to Bechtel in August for initial work on a second train. Nigeria already has agreed to supply gas to this second train, and Equatorial Guinea hopes to secure additional supplies from Cameroon as part of an overall regional effort to reduce gas flaring under the World Bank’s Global Gas Flaring Reduction Partnership. Initial discussions have already begun on adding third and fourth trains to Bioko Island.

The renegotiation and substantial weakening of terms in the Chad-Cameroon pipeline project was a major blow to improving transparency and revenue management in the region. The World Bank-sponsored Extractive Industries Transparency Initiative (EITI) has achieved mixed success in the Gulf of Guinea. While Nigeria has been widely praised for publishing audited and reconciled EITI reports, minimal EITI progress has been made in Chad, Congo, Equatorial Guinea, Gabon, and São Tomé and Príncipe.

Looking ahead

A generally favorable investment climate ensures continued interest from both Western oil majors and state-owned Asian firms. Chad’s attempt in August to evict Petronas and Chevron from the country over the alleged failure to pay back-taxes was resolved a few months later, but heightened resource nationalism fears. Angola’s decision to join OPEC on Jan. 1 raised similar concerns that the government was moving toward a more aggressive bargaining stance with the Western majors.

While West African governments will use the competitive threat of Asian companies to secure better contractual terms, the Gulf of Guinea will retain its overall friendly investment climate and continue to attract significant interest.

Significant concerns remain about corruption and revenue management. But despite this apprehension, oil exploration and production will increase substantially in the Gulf of Guinea region throughout 2007.

Deepwater fields in Angola and Nigeria will continue to spark investor interest and add reserve capacity.

References available.