Focus still on Africa’s oil ‘sweet spots’ – analysts
AFRICAN oil explorers would keep drilling in select locations such as onshore east Africa and less complex projects off the west African coast even with oil at $60 (R723) a barrel, executives and analysts said.
But they warned that African governments with reserves in less attractive locations should revise terms now or forfeit the investment, leaving the oil and gas underground.
“There are still some exciting areas like east Africa, in particular the onshore areas,” said Aidan Heavey, the chief executive of one of Africa’s biggest explorers Tullow Oil, referring to drilling projects in Kenya and Uganda. “This is not the end of African oil – far from it.”
Oil prices have collapsed from $115 a barrel in June, prompting oil firms to slash hundreds of millions of dollars from exploration budgets, hitting relatively expensive African projects hard. Tullow has cut its budget from a peak target of $1 billion to around $200 million this year, mostly focused on Kenya, although it may double from next year.
Stuart Lake, the chief execu- tive of African Petroleum, which has licences offshore Senegal and Ivory Coast in the West Africa Transform Margin, says the firm has no plans to cancel projects in Africa’s “sweet spots”.
“It’s an area that is oil-rich with little gas and it’s cheap to drill,” said Lake, pointing to two Cairn finds in Senegal. He said the mothballing of projects further south had dragged down rig rates, saying costs were now between $35m and $50m per well versus $200m in Angola.
Low operating costs of around $10 a barrel for Ghana’s Jubilee field will mean cuts have a limited impact there, said Jacques Verreynne, an economist at NKC Independent Economists.
“You need to be close to or at production and have visibility on cash flow. That’s critical right now,” said Chris Bake, an executive at top energy trader, Vitol, which has a stake in a $7bn Ghana project.
Paul Eardley-Taylor of Standard Bank Oil and Gas said he expected liquefied natural gas projects in Mozambique – home to an estimated 180 trillion cubic feet of gas, or enough to supply Germany, Britain, France and Italy for 18 years – to go ahead.
“Mozambique achieved a lot over the past two months with the passing of enabling legislation. Standard Bank is hopeful a final investment decision can be reached this year.”
The chief executive of petrochemicals group Sasol David Constable said Mozambique remained a priority.
Frontier projects are seen as vulnerable to cuts such as offshore Namibia, South Africa, Angola and Gabon where vast reserves are thought to be trapped deep underwater under a layer of salt.
Oil-dependent countries with reserves that are costly to develop such as Gabon and Angola should revise terms. – Reuters