Nigeria, Angola’s Crude Oil Production to Stagnate in 2016, Says Wood Mackenzie
A new report by Wood Mackenzie titled “Global Upstream – What to Look for in 2016,” has predicted that this year would be a difficult year for sub-Sahara Africa’s two big producers of crude oil – Nigeria and Angola, as investment cuts bite.
This latest report by Wood Mackenzie was an attempt to establish how the global upstream sector would navigate through another volatile, uncertain, complex and ambiguous year.
Wood Mackenzie’s upstream teams from around the globe addressed this important question via this collective report, looking at the key items to watch for in 2016.
On the situations in Nigeria and Angola, the report stated that at best, crude oil production from both countries will stagnate in 2016 “as ageing fields, stubbornly high costs and a lack of new investment combine to challenge operators and governments alike.”
According to the report, oil output from Nigeria will be flat at 2.1 million barrels per day, while Angola’s production is also expected to flat-line at 1.8 million barrels per day.
“In the medium term, output from Nigeria will remain at similar levels with rises from onshore fields, offsetting lower deepwater project and explorations remain weak, a legacy of the doomed Petroleum Industry Bill (PIB), and a lack of available acreage,” the report added.
One of the key messages in the report was that capital budgets would be further cut and only the most robust, or strategically important, new projects will get the green light in 2016.
According to the report, as companies re-shape their portfolios for the lower oil price environment, exploration spend will be hit hard, to less than half of the 2014 peak.
The report further identified ageing, high-cost fields and a lack of new investment as a major challenge to operators and governments alike.
“But opportunities will still exist despite the tough environment. Iran and Mexico both offer new potential and mergers and acquisition (M&A) activity is expected to increase as the more financially sound players make counter-cyclical moves,” said the report.
The report further revealed that sub-Sahara Africa will offer a lot of mergers and acquisition (M&A) opportunities in 2016 as a range of companies look to generate cash.
“Majors, national oil companies (NOCs), mid-caps, independents and juniors will be looking to sell a variety of
assets. But the question is, where are the buyers? Several planned licensing rounds will provide opportunities for smaller exploration-focused outfits, the only peer group we expect to be noticeably acquisitive in Sub-Sahara Africa is Russia companies. Companies such as Rosneft, Lukoil and Gazprom have strong balance sheets and deals for African assets would have the further attraction of being sanction free,” said the report.
Wood Mackenzie recommended that with India and Indonesia having embarked on a review of their fiscal terms, other countries should also look at how to adapt their offerings to secure future upstream investment.
The report revealed that exploration budgets were slashed in 2015, while drilling and new licensing activity is expected to fall further in 2016.
“To avoid the potentially disastrous consequences of exploration investment drying up, we believe governments will begin to discuss a more collaborative approach with investors.