Talking the exploration book: Africa E&P Summit

AfricaEPSUMMIT21092Exploration is back in Africa, was the message from the first day of the Africa E&P Summit, held in London

Presentations took an upbeat tone, with a particular focus on the offshore. The Brulpadda find, in South Africa, and the SNE field, in Senegal, were cited as demonstrating the appeal of Africa, with companies drawing comparisons between these finds and various prospects around the continent’s west coast.

There is a sense of competition, though. For African exploration and development to go ahead, it requires support from the industry but also from host governments. As Standard Bank’s Paul Eardley-Taylor noted: “there is a need for speed” from countries to encourage developments. In cases where approvals drag on, for deals or projects, this casts a shadow over all aspects of the industry, even hampering new exploration plans. A failure to seize opportunities could well see other locales move ahead, with much discussion of Guyana competing for industry dollars.

Namibia is one locale where the government has proved supportive – and industry eager to seize opportunities. A slew of drilling plans are kicking into action in the Southern African state, most notably with Total planning to drill the Venus well in the Orange Basin at the end of this year.

The well, said to be the deepest ever drilled in Africa, has excited considerable excitement. “Venus shares the same source rock as Brulpadda, probably with a very similar reservoir, but likely to be better. This is a billion barrel plus target, it’s huge,” said Impact Oil and Gas’ Phil Birch. The privately held company is involved in both wells, with a direct equity stake in the Namibian licence and a funding agreement with a minor partner on the South African well.

Namibia has excited considerable interest from super majors as the industry has begun to emerge from the downturn. ExxonMobil struck a deal to take stakes in the country’s northern Namibe Basin, while also pursuing blocks on the Angolan side, in talks with Luanda. Furthermore, Royal Dutch Shell has been working with Kosmos Energy inboard from Total’s Venus plan, with seismic acquired in 2018 and plans to drill in 2021.

Senegal, home of the SNE field – and the shared Tortue LNG project, with Mauritania – is another destination seen as friendly to investors. Woodside’s Jessica Zambrano highlighted the benefits for the Senegalese people and the importance of working closely with regulators on analysis of the impacts of such a development. Where Senegal has gone, its neighbours hope to follow, with The Gambia recently awarding blocks to BP and plans for drilling in Guinea Bissau, involving FAR, in early 2020.

Amid talk of benefits for locals, two indigenous Nigerian companies – Oando Energy Resources and Seplat Petroleum – both highlighted a move into supplying gas for local demand. Seplat has never suffered as a result of local communities protesting, the company’s Effiong Okon said. “We believe in the Niger Delta, we believe in Nigeria, we believe you can do business with the right people working in communities and give back. We account for over 30 per cent of Nigeria’s gas supply.”

While the emphasis of the African E&P Summit was clearly on exploration and production, the topic of climate change recurred in comments and speeches throughout the day. Gas may well have a part to play in efforts to reduce carbon emissions.

Kosmos Energy’s Tracey Henderson signalled as much. “If a company doesn’t have gas in its portfolio, it’s starting to say ‘how can we get this?’” Those pondering such a question may find, as Kosmos has demonstrated, that one answer can be found under African rocks.

Balancing challenges and opportunities

Africa has an abundance of resources, but companies must balance a range of challenges beyond geology. Local stakeholders, politics, commercial needs and investors must all be juggled in order for plans to move ahead.

ExxonMobil’s Pam Darwin made a compelling case for investment in the three “e’s”: energy, education and empowerment for women. Giving work and contracts to women allows communities to retain cash, improving prosperity. “It’s good for business, it’s good for communities – and our employees are from those communities.”

Picking up on Darwin’s first “e”, BP’s Jasper Peijs declared: “Life improves as energy is consumed.” Companies must help provide power to people, but do this in responsible ways.

Good relations with communities will go some way to aiding production plans, although these must be backed up by responsive governments. Production in the continent is around 8 million bpd of oil, down from 10 million bpd a decade ago, Peijs said. “Half of this is related to civil unrest in Libya, while the other half has come as a lack of investment. In Angola, we’ve got two billion barrels of discovered resource that have not progressed yet … [but] the new president has transformed the country’s approach, putting a new petroleum code in play.”

BP is taking an active stance in the exploration game. “There are plenty of opportunities available at the right terms, and there is a desire to work together,” he continued. “Four years ago we were only in four countries in Africa: Angola, Egypt, Libya and Algeria. In the past three or four years, we’ve added six countries to that.”

Another country that has responded to the need to provide greater incentives for companies has been Egypt. The North African state had been compelled to contract LNG imports in 2015 in order to meet domestic needs. That same year, Eni made the Zohr discovery, bringing it online at the end of 2017. It now accounts for around one-third of the country’s production.

The Egyptian opportunity was flagged up by Dana Gas’ Patrick Allman-Ward who expressed optimism about exports. “The Egypt LNG facilities are located close to the Suez Canal, exports can effectively play into Europe or Asia depending on price arbitrage,” he said.

Egypt and Angola are mature producers that have accepted the need to reinvigorate exploration and production. Some of the countries that are newer to the hydrocarbon scene have taken more time. Nairobi, for instance, is still working on contractual terms with the explorers in the Lokichar Basin.

“Kenya’s never produced oil and gas before so this is all brand new for them. So they're having to start at square one on a lot of this,” said Africa Oil’s Keith Hill. “I think we're very close, but if you asked me six months ago I would have said we're very close as well. I’m 100 per cent convinced Kenya will get developed. It's still feasible to [reach FID] by the end of this year, but everything would have to fall into place essentially tomorrow.”

There was a degree of disagreement over whether exploration companies should seek production to balance out their risk profiles. While this is a fairly widely cited view, it is not without its detractors. RWT Energy Advisory’s Rob Tims described it as a parachute for company management. “It changes the risk profile of the business, but I’m not sure that’s necessarily a good thing for investors, who can diversify their own portfolios.”

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