Plenty of optimism in West Africa

Largely dominated by Nigeria and Angola, West African oil and gas activity has taken off in the last couple of decades, driven particularly by advances in offshore/deepwater technology. The addition of Angola, Equatorial Guinea and Gabon to OPEC within the past decade reflects the increasing importance of the region within the industry.

With activity concentrated in deepwater areas, the region has tended to be dominated by supermajors typically working under joint venture or consortia arrangements. However, mid-sized and smaller independents are becoming more active with local content laws also helping to engage smaller domestic or regional firms.

Dealing with the oil price drop

Since the oil price drop, the number of sanctioned projects has significantly reduced. Nevertheless, several new field development projects in West Africa are on course for final investment decisions (FIDs) over the next few years as cost-cutting has enhanced their commercial viability in a US$50 per barrel market. In line with the depressed oil price, the regional industry has cut operating expenditure (OPEX) through cheaper services, improved optimisation and deferred project start-ups. As a result, per-barrel OPEX has dropped on average by more than 10% from US$4.70 in 2014, with Angola’s deepwater segment cutting its OPEX by up to 30%.

Look to West Africa

The West African oil industry is increasingly seen as an attractive place for enterprising UK businesses to expand their operations. Opportunities include:

• Drilling rig and services

• FEED, detailed engineering and other engineering services

• Geophysical survey and services

• Heavy lift equipment

• Information systems, information technology and communication services

• Liquefied petroleum gas, recovery and gas plant technology

• Marine vessel fabrication, equipment and security services

• Oil pumps

• Oil reservoir recovery potentiating

• Pipelines

• Project and asset management and maintenance

• Refining technology

• Refrigeration

• Research and development relating to in-country services

• Risk analysis and management

• Rotating equipment

• Rotor assembly, nozzles and related parts

• Subsea equipment, vehicles and services

• Training

• Valves

• Well drilling services

FIDs on the way

Ophir Energy is expected to make an FID on its Fortuna FLNG project, located offshore Equatorial Guinea in Q1 2018, while Tullow Oil’s Greater Jubilee development off Ghana and the Niger Delta Anyalu-Madu project being developed by a First Exploration & Production and Schlumberger joint venture were both set for an FID in January 2018.

Projects which are now targeted for FID in 2018 and 2019 include BP and Kosmos Energy’s Tortue floating liquefied natural gas project off Senegal and Mauritania and Shell’s US$10bn Bonga South West deepwater project offshore Nigeria. The Bonga South West project is especially significant as it indicates the industry’s willingness to spend in the traditionally high-cost deepwater arena.

A subsea hub

West Africa has long been a major hub for subsea contracting activity. Since 2000, the countries along its coast have accounted for nearly 10% of global subsea contract awards with over 75% of that demand coming from supermajors. Angola and Nigeria have represented around 80% of the region’s subsea demand since 2000. With an expected increase in regional diversity along the west coast of the continent, Angola and Nigeria’s market share is anticipated to drop to below 70% of the region’s subsea demand by the end of the decade as the industry looks to neighbouring countries for development options with lower costs.

Cairn Energy in Senegal

Edinburgh-based Cairn was the first company to drill deepwater wells offshore Senegal – a region which remains relatively underexplored today. Following two sizeable discoveries (SNE-1 and FAN-1) off the West African country in 2014 and a three-phase drilling programme, Cairn has now drilled a total of 11 exploration and appraisal wells.

Information from all three phases of drilling and additional seismic work is being integrated to build and refine the understanding of the full hydrocarbon potential of the area. Building on these foundations, Cairn is currently working with its joint venture partners, Woodside, FAR and the Senegal National Oil Company Petrosen to progress a multi-phased development plan of the SNE field.

Development

The foundation development concept is a standalone floating production storage and offloading (FPSO) unit with subsea wells and expansion capability. Up to 25 wells have been proposed for the first phase of the SNE development to target ~240MMbbl principally in the S500 lower reservoirs with an initial target plateau of 75,000–125,000bbl/d (dependent on FPSO capacity).

The concept selection and engagement with major contractors has commenced prior to formal tendering for the FPSO and subsea infrastructure which was expected to start by the end of last year.

The partners plan to submit an evaluation report and exploitation plan to the government of Senegal in 2018 and commence front end engineering and design. FID is due before the end of 2018 with first oil estimated in the period 2021–2023. The most recent 2C (best case) contingent resources estimates available put the resource base at 563MMbbl of oil.

The subsequent development phases will target the S400 upper reservoirs and additional areas, with current estimates of an additional well count of 40 wells, with 20 producers and 20 water injectors. The current SNE development plans assume gas re-injection during initial development with the potential for gas export in later phases. It is estimated that the SNE field holds more than 1Tcf recoverable non-associated gas and 0.3Tcf of associated gas.

The transfer of operatorship to Woodside for the development phase is planned to take place this year with Cairn continuing exploration activities on the acreage.

Local content commitment

To deliver Cairn’s programmes in Senegal the company has opened an office in in the capital Dakar and a supply base in the international port of the city. Given that oil and gas activities are relatively new to Senegal, local industry and regulatory expertise is in early development and as such creating capacity through training and education is a key part of operations.

Hot spot

The opportunity in Senegal is considerable. With recent findings attracting the attention of the global oil and gas industry, Senegal is set to make it on the map as a deepwater offshore oil and gas-producing nation.

Brownfield developments

While historically West Africa has concentrated on greenfield project development, in the past decade (and something that will be a trend going forward) there has been an increase in brownfield demand as a cost-effective method of increasing oil production. Projects such as Chevron’s Agbami, Shell’s Bonga and Total’s Girassol represent just a few of the major projects continually providing opportunities for the supply chain.

Major commitment to the region

The past couple of years have been a challenging period for the oil and gas industry and West Africa has not escaped the effects of a lower oil price. Delayed projects include Shell’s Bonga South West, where an FID has been postponed once again until 2018, and Maersk’s Chissonga which has gone back to the planning stage. However, the number of developments planned to be sanctioned over the coming years and the continued acquisition of exploration acreage demonstrates the future commitment of majors to West Africa.

Get help from:

Department for International Trade (DIT)

To increase your competitiveness in West Africa, contact DIT senior trade adviser Oluwafemi Adesanya at Oluwafemi.Adesanya@fco.gov.uk for a free consultation 

UK Export Finance (UKEF)

For trade finance and insurance cover, visit www.gov.uk/government/organisations/uk-export-finance
You can also check the current UKEF cover position for West Africa at www.gov.uk/guidance/country-cover-policy-and-indicators

EIC Dubai

The EIC Dubai team is on hand to support you in doing business in West Africa. For services including market intelligence, project data and industry connections and export assistance, email dubai@the-eic.com

Words: Andrew Scutter, Upstream Sector Analyst, EIC.