West Africa makes up one third of the so-called 'golden triangle' of deepwater oil exploration and production (E&P) plays. While the US Gulf of Mexico and offshore Brazil have long been in the limelight, interest in West Africa has taken longer to come to fruition. Over the last few years, however, that has begun to change. And as we move into 2013, upstream attention is set to firmly focus on highly prospective deepwater plays in the region. Indeed, West Africa is fast establishing itself as the hotspot for the global oil industry.
The region's growing appeal comes as no surprise. West Africa's Atlantic margin is home to large unexplored offshore acreages that contain significant E&P potential. And where there is growing potential it is normally followed by a strengthening flow of investment, both local and from overseas. In this regard, West Africa is no different. According to a semi-annual report published by Barclays, E&P spending in Africa is set to rise by 4.5% year-on-year in 2013 to reach around US$25bn, with Western Africa and more specifically the Gulf of Guinea attracting the lion's share of that fresh investment. This falls in line with a broader uptick in activity. Indeed, global E&P spending is poised to reach a record US$644 billion by the end of 2013, Barclays forecasts.
So, what is fuelling the projected rise in E&P spending both in West Africa and worldwide? The principal bellwether for expanding budgets is the rising price of oil - something which is expected to remain strong over the coming quarters. In short, with prices rising the time to drill is now. The price of oil is high and it is expected to remain that way. 2012 closed with Brent averaging at US$111.70 a barrel (bbl) and WTI at US$93.30/bbl. As a result, the rising levels of E&P spending in the region are likely to continue.
In terms of geography, the buzz around the industry at present is focused on two nations in particular: Angola and Ghana. Both countries have a strong history in the oil industry, but both look set to eclipse that with an even stronger future.
At the time of writing Angola ranks as the more important of the two in the eyes of investors and in E&P focus. The abundance of oil and gas reserves in offshore areas has helped Angola to emerge as one of the most important countries in Africa for the exploration of oil and gas. Crude oil was first discovered in Angola in the offshore Kwanza basin back in the 1970s. Fast-forward to today and Angola is now home to over one third of all discoveries made over the last three years in the region. Of the 52 oil and gas discoveries made in offshore West Africa between 2009 and September 2012, Angola accounted for 18 (or 34.6%) of this tally.
While onshore and shallow water pre-salt discoveries in Angola date back decades, current efforts involve the much more difficult task of exploring in pre-salt and ultra-deep regions.
At present, Angola's reserves are located offshore and onshore along the coast in three main basins: the Namibe basin, the Kwanza basin, and the Lower Congo basin. A fourth basin, the Owango, is also under exploration for reserves. However, doubts are growing as to the latter's prospectively. The basins home to most of the country's reserves are Lower Congo and Kwanza, with the lion's share of production coming from one exclave in particular, Cabinda. It is the Namibe basin, however, that the strongest E&P potential can be found. The Namibe basin has significant potential for exploration, with the US Geological Survey recently estimating that undiscovered reserves of oil totalled around 712 million. This provides strong upside potential for the country's production levels over the coming years. A recent deep-sea pre-salt discovery by Danish firm Maersk Oil, in partnership with Angolan state oil firm Sonangol, in September of last year served to underline this potential. The duo found the Azul-1 well in the Kwanza Basin, drilled to a depth of 5,334 meters, has a potential capacity of more than 3,000 barrels a day.
Maersk is, of course, just one of a host of overseas firms conducting E&P activities in Angola. Angola's position as a leading producer of crude oil in Sub-Saharan Africa, and as a member of the Organisation of Petroleum Exporting Countries (OPEC), means that international oil companies are already very familiar with the country's resource endowments. Indeed the stage is set for the first large-scale exploration effort in West Africa's subsalt and ultra-deep region. A number of oil industry majors including Italy's Eni, Norway's Statoil, Spain's Repsol YPF (which had its assets in Argentina seized back in April of last year), US major ConocoPhillips, and French multinational Total were all awarded operatorships for 11 deep-water subsalt blocks back in 2011. To-date the country has delivered several major discoveries to overseas players and there is good reason to believe that there are plenty more to be found.
US Energy Information Association (EIA) data shows that as of the end of 2011, Angola had proven reserves of 9.5 billion barrels of crude oil. That figure is the second-largest in Sub-Saharan Africa behind Nigeria, and ranks 18th in the world. Successful exploration in Angola's pre-salt formations continues to drive optimistic oil production forecasts for the country, and the Angolan government is targeting 2 million barrel per day production levels by the close of 2014 as offshore projects come on-stream. With Angola's crude being sweet (low in sulphur) and light, it is well-suited for exports to the United States, China, and other large importers. Given the rising production targets and the quality of crude being produced, the interest of investors and the industry's leading players in the region is entirely understandable.
After Angola, Ghana is the next West African nation to appear upon the E&P radar. At the start of 2010, Ghana produced virtually no oil at all. As we move into 2013, the country's outlook looks set to be close to around 80,000 barrels a day. While such levels keep Ghana very much in the 'frontier' category as a producer, the fact that they country has seen a wave of discoveries in recent years means that this status could well change over the coming years. Of the same 52 oil and gas discoveries made in offshore West Africa between 2009 and September 2012 that we referenced earlier in the article, 13 were made in Ghana during this period.
When compared with Angola, E&P in Ghana is very much in its infancy. But things are gathering momentum, with all eyes closely watching the progress of the Jubilee Field. As of the end of 2012, Africa's leading independent oil firm, UK-based Tullow Oil, put crude production levels at Jubilee at 110,000 barrels per day (bpd). The Field is also reported to have produced a little over 50 million barrels of oil since it began commercial production in 2010. The gradual surge in output at Jubilee gives indication of a healthy outlook for the oil sector, which has become an important economic-growth driver and revenue source for government in Ghana. But with Tullow expecting to reach peak production of around 120,000 bpd at Jubilee sometime in 2013, E&P activity will need to begin looking further afield and into deeper waters.
Acutely aware of this fact, Tullow has a head start ion the rest of the overseas firms operating in the offshore arena in Ghana. 25 kilometres from the Jubilee Field is where the Tweneboa-Enyenra-Ntomme (TEN) wells can be found.
In the second half of 2012, the TEN project made good progress and Tullow and partners submitted the Plan of Development to the Minister of Energy in Ghana in early November 2012. The wells are estimated to hold commercial reserves to 380 million barrels of oil equivalent (mmboe). At least US$4 billion is expected to be invested in TEN's development over the coming years by Tullow - which owns a 49.95% stake in the tree wells - in collaboration with its partners, which includes the Ghana National Petroleum Corporation (GNPC).
While Angola and Ghana are the rising stars of the West Africa oil industry at present, there will no doubt be others to follow - especially as long as high oil prices continue to drive the wave of E&P activity in the region. This heightened level of investment is in turn set to force a sustained rise in output levels towards the end of the decade. On the demand side, meanwhile, strong economic growth in the region is likely to see oil and gas consumption continue to grow. As this happens we may see more national governments in the region following Nigeria's lead in reforming expensive fuel subsidies.