After years of declining investment, capex spending in West Africa will double in 2025, setting the stage for an improving offshore oil & gas market in the latter half of the decade
By the mid-point of the next decade, capex spending in West Africa will likely have doubled, driven by new deepwater oil projects in Nigeria. It is welcome news to drilling contractors, OSV owners and marine service companies in a region that has been challenged by disruptions, under-investment and sagging productivity from maturing oil fields.
Investments in West Africa have dropped 65% from peak levels of around US$48Bn in 2014, to US$17Bn in 2018, according to Rystad Energy. About 80% of those investments last year flowed into Nigeria and Angola. The two West African countries are the region’s largest producers, accounting for over 70% of total oil volumes, with the total output reaching 4.6M bbl/d.
An ongoing conflict in the Niger Delta has resulted in production disruptions in Nigeria, which saw oil production drop almost 400,000 bbl/d year-on-year (yoy) in 2016. Nigeria’s production began to recover in 2017, albeit still plagued by instability and outages, and is expected to reach around 2.1M bbl/d this year.
“Nigeria and Angola are the two defining states,” Rystad Energy senior analyst Siva Prasad tells Offshore Support Journal when discussing West African oil and gas. Mr Prasad says the Angolan government “has upped its efforts to reverse the country’s declining production by announcing new Marginal field laws and tax incentives. If successful, this may result in increased near future crude oil output from Angola, but might not change the declining trend of crude oil production from West Africa until the mid –2020s.”
Angola’s oil production has been in decline since 2015, a trend that is expected to continue over the next five years. Production from the country’s largest oil field, Dalia, located in Block 17, has slipped from peak levels of 250,000 bbl/d to an estimated 130,000 bbl/d for this year. Recently sanctioned discoveries such as Mafumeira Sul, which began production in 2016 and the Kaombo project, are expected to slow the decline, but the lack of major new projects in the pipeline could lead to significant slippage in West Africa post 2020.
Another indicator of the level of activity is reflected in the number of drill rigs working in the region. As of January, there were a total of 32 rigs active in the region, up from 19 two years earlier. Still, this is only about half the level of active drilling rigs in January 2014, when 60 mobile drilling units were operating in West Africa.
In its analysis in April, Westwood Global Energy Group said the West African offshore rig market has been one of the hardest hit during the oil price downturn: “Once a region that attracted premium units and demanded some of the highest rig day rates – some rigs commanded over US$600,000 – it quickly descended into an area with a glut of stacked rigs and a demand drought.” It put utilisation rates for jackups at a dismal 37% and a not-much rosier 51% for floaters.
OSV owners show gains
Despite the sluggish rig market, there is some improvement reflected in the demand for OSVs. At the UBS Global Oil & Gas Conference in June, Tidewater president and chief executive John Rynd said the company had 54 vessels working in West Africa, 23 in deepwater, 16 in towing and supply operations and 15 in ‘other’, with a utilisation rate of 76.8%. Mr Rynd also said high-spec OSV rates were rising, hitting a high of US$13,000 per day for a large platform supply vessel.
Dubai-based Topaz Energy & Marine, which was acquired by DP World in a transaction valued at US$1,079M, reported overall utilisation in West Africa was 80% for 2018, while doubling its core fleet to 13 vessels — 12 in Nigeria and one in Angola — during the year. Fleet utilisation rates were 40% in 2017.
In its annual results, Bourbon’s Marine & Logistics unit said it had brought six diesel-electric vessels out of lay up for operation in Africa and the Middle East. It reported a recovery was underway in Nigeria and Congo and had “initiated the reactivation and repositioning of Surfers in West Africa to meet the new demands”. Surfers are crewboats operated by Bourbon Mobility.
Overall, there were about 110 vessels active in the region, with a utilisation rate of 65% as of January 2019 — down from January 2014 when about 130 vessels were active, with a utilisation rate of about 88%.
Mr Prasad expects overall crude oil production from West Africa to continue to decline through mid-2020s, with conditions improving in the “late 2020s going into early 2030s” driven by increased investment.
Indeed, Rystad Energy expects capex investments in West Africa to begin to grow in 2020, increasing to over US$30Bn by 2025. The growth in spending will be led primarily by new projects in Nigeria. Among the most prominent of these are the Nigeria LNG Seven plus project (liquefaction plants Trains 7 and 8) slated for sanctioning in 2021, the Bonga Southwest-Aparo project in the Shell-operated OML 132 license area, the ExxonMobil-operated Owowo West field in OPL 223, and the Total-operated Preowei field, planned to be tied back to the Egina FPSO, and expected to be sanctioned in H1 2020.
In-country content is becoming increasingly important. The work scope for Nigeria LNG Seven, for instance, is expected to deliver 100% in-country fabrication of the condensate stabilisation unit, pipe-racks, flare system, and non-cryogenic vessels, along with civil works on roads, piling, and jetties. The FID for the project is expected before Q4 2019.
Nearly all the top unsanctioned discoveries in Nigeria are in deepwater, ranging from 125 to 1,500 m. Operated by Anglo Dutch oil major Shell, the Bonga North field has an average water depth of 1,000 m, with resources of almost 700M barrels of oil equivalents (boe) and is expected to be brought into development in 2028. Its breakeven price is estimated to stand at US$56.50 per bbl. Owowo West field, which has the lowest estimated breakeven price in the selection, below US$45.00 per bbl, holds around 550M boe and is expected to come on stream around 2025.
Unsanctioned fields in Angola are mostly in ultra-deepwater of 1,500 m or more. The discovery holding the largest undeveloped resources in Angola is Orca, with over 500M boe of reserves. The field has a breakeven price of around US$61.00 per bbl and is anticipated to come on stream closer to 2030.
Investment growth is also seen in Ghana, with the Pecan field expected to be approved by the end of this year, and from Congo’s Nene Marine project, with the third phase to be sanctioned by the end of next year.
Mr Prasad expects growth to be driven by ‘mega’ deepwater projects operated by oil majors offshore Nigeria. “This is conditional to the Nigerian government not revising the fiscal terms, mainly contractor – government share profit oil split, in the existing production sharing contracts. If the existing deepwater PSCs between the Nigerian government and the majors become more government friendly, there is every possibility that these mega projects can get further delayed, thereby delaying the trend reversal in declining West African crude production”.
He says unsanctioned projects likely to go forward in Nigeria are the Eni-operated Etan – Zabazaba, the Shell-operated Bonga Southwest – Aparo and ExxonMobil-operated Owowo West. All are in deep water, which, combined with a few onshore developments, are expected to see FID in the next two years.
In Angola, those most likely to see investment are the BP-operated Palas – Astreae – Juno (PAJ) and Greater Plutonio projects, the Total-operated Alho – Cominhos – Cominhos Este (ACCE) project, and Eni’s Agogo – Ndungu – Agidigbo discoveries on Block 15. Those, too, will be sanctioned in the next two years.
LNG export projects are also under development in the region, led by the Greater Tortue Ahmeyim LNG project at the Mauritania – Senegal maritime border. With BP as the operator, the Greater Tortue Ahmeyim project will produce gas from an ultra-deepwater subsea system and mid-water floating production, storage and offloading (FPSO) vessel, which will process the gas, removing heavier hydrocarbon components.
The gas will then be transferred to a floating liquefied natural gas (FLNG) facility at a nearshore hub located on the Mauritania and Senegal maritime border. The FLNG facility is designed to provide 2.5M tonnes of LNG per annum, with the total gas resources in the field estimated to be around 15Tn ft3. The project, the first major gas project to reach FID in the basin, is planned to provide LNG for global export, as well as making gas available for domestic use in both Mauritania and Senegal.
Other LNG export projects include Fortuna and Block R FLNG offshore Equatorial Guinea. These projects will lead to growth in West African LNG output starting from late 2020s, going into 2030s. Mr Prasad says: “Apart from these, there is no news of specific focus on LNG for the future and crude oil seems to continue to remain as the primary hydrocarbon.”