Stakeholders see positive change in deepwater investments in Nigeria, Angola

…even as global deepwater faces investment dip

Global Oil and Gas analysts have said that there will be changes in investments in the Nigerian and Angolan oil industries, especially in the area of deepwater operations,

This is even as they have said that the increase in price of crude oil has not translated to higher investments in deepwater projects.

“The oil price recovery has not yet translated into a rush of cash into challenging offshore environments,” according to the analysts.

Shell Nigeria Exploration and Production Company SNEPCO, had earlier in the year called for tenders for the $10billion Bonga South West Aparo oil field. The project’s initial phase includes a new Floating, Production Storage and Offloading (FPSO) Vessel, more than 20 deep-water wells and related subsea infrastructure.

There is also the Zabazaba field being worked upon by Eni.

The analysts said the

world’s largest listed oil and gas firms are continuing to stress their financial discipline, showering their more buoyant cashflows onto shareholders through dividends and buy-backs, boosting acreage in the US shale basins and continuing to invest in renewable technologies.

“What they are not rushing to do, though, is to make a splurge of investments in offshore deepwater projects, despite a consensus view that the global oil market needs investment in new barrels to avoid a supply shock sometime before the middle of the next decade,” they said.

The analysts include David Phillips, head of equity research, developed Europe at bank HSBC, who said: “The majors’ cash flow profile is improving, they are generating just under $500bn. Even after dividends, that is $200bn of free cash flow.”

“There is a risk of a lack of investment and what gap that might leave in the supply picture globally in the mid-2020s.”

In his own opinion as reported by Petroleum Economist, Rob West, founder and CEO of oil and gas technology research firm Thunder Said Energy (TSE), calls the “euphoria of dividends and buybacks, where anything you do outside of dividends and buybacks gets you into big trouble”, and against other opportunities, in particular shale and renewables. While James West, senior managing director at financial services firm Evercore ISI said: “Shale is not the panacea of cheap oil that everyone thought it was going to be. Deepwater is coming back in a big way.”

“As an operator, how do you weigh up the best in offshore versus the best in shale versus the best elsewhere? We have exposed shale as a fraud. I will say it again, it is fraud,” he said.

According to Petroleum Economist, they all spoke at the Gulfquest’s MCE deepwater development (MCEDD) conference in London where they tried to make sense of the dichotomy between a reluctance to invest in the deepwater and the need for the barrels such investments could unlock.

As far as they are concerned there is still a pressing need for conventional oil and gas, and that deepwater will play a prominent role as a supplier of these hydrocarbons. “The outlook is improving, becoming more positive for the offshore, because the industry has realised we need offshore,” says Evercore’s West.

“The efforts the industry has done so far, reducing costs, changing business models, are really impressive. It means deepwater, in our view, is on a very good footing to compete for investment dollars in the next few years,” agrees HSBC’S Phillips. “I think investors are not correct that the rise of wind, solar and other renewables derails the need to invest in offshore oil and gas. That just means that we are going to have a cycle,” predicts TSE’S West.

Evercore’s West agrees. “To encourage investment, I think you will see changes in Angola, in Nigeria, we have already seen changes in Brazil,” he says. “It is adjusting, but not nearly fast enough. I think 20pc received by the US exchequer from shale is generous, I think it is less than that—if they are paying taxes at all—which does make it very cost-effective.”

But new private equity (PE) cash, which has been a major driver of shale investment, may start to look for alternatives, which could include deepwater, as might PE money coming out of US shale, if it can find an exit.

“PE firms are trapped at this point and are having massive problems getting out of their shale investments, both on the OFSE side and the E&P side,” says Evercore’s West.