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Our Monthly Editions For 2017

The Africa Oil+Gas Report kickstarts its monthly editions for 2017 with a package focused on deepwater opportunities around the continent.

It’s a tradition that was established in 2004, when we evaluated 10 years of active deepwater foray in Africa.

Deepwater Annual 2017 is what we christen the January 2017 issue, released on January 22, 2017 as both e-copy and print issues distributed to our growing league of paid up subscribers around the world.

The February edition is themed Stepping On The Gas, and it features keenly observed narratives, maps and charts of the continent’s growing gas market, both internally and externally, offering both financing investors and technical solutions providers the tools to navigate the opportunity landscape.

March 2017 will witness the release of The African Independent Annual, our yearly take on the emerging African Independent company. This species of the African business entity has evolved in significant ways since its earliest incarnation in the 1970s.

The African Independent, like Angola’s Somoil, Nigeria’s Seplator Ethiopia’s Southwest Energy, is not the same as an Independent focused on Africa, like Cairn or Tullow. Because we don’t want to get it twisted, we have a separate edition, coming up in May, entitled Independents’ Day, which looks at the fortunes of the Kosmos, the Anadarkos, the Tullows, the Cairns, the Perencos, all such Western and non Western independents focused on Africa, in the past year.

Our April edition is the inaugural PETROLEUM PEOPLE issue. It’s an edition we are very proud of.

Each of our 12 editions in the year contains, apart from the main feature, our increasingly fine-tuned intelligence data, that enable our subscribers stay ahead of the competition.

Click here for fuller disclosure of the year’s offerings as well as our media pack.

Nigeria is one of the Highest Cost Producers of Crude-Draft Policy

By Toyin Akinosho

..Contradicts Minister’s Statement at Davos 2016

The draft Petroleum Policy for Nigeria, which is currently being debated by stakeholders, has delivered a verdict that has been subject of whispers in the boardrooms until now.

“Nigeria is one of the highest cost of extraction oil provinces in the world, estimated at $29/bbl, “says the 115page document on its 15th page.

“Nigeria has to substantially reduce the costs of production if the country is to be competitive in the modern low oil price world, and if it is to have anything more than a bare minimum government take,” the draft advises.

According to the document, Nigeria is only less expensive, as a cost per barrel producer, than Brazil and UK, in a 12 country ranking that includes Saudi Arabia, Iran, Iraq, Russia, Indonesia, Norway, US Non Shale, US Shale, Canada and Venezuela.

The cost ranking, pulled out of a U Cube analysis by Rystad Energy, the Norwegian consulting firm, doesn’t indicate whether this was an average of a basket that includes crudes from deepwater, shallow water and onshore terrains. Which is significant, especially as it features different figures for US Shale:$23.35/bbl and US Non Shale: $20.99/bbl.

What it does, however, is that it breaks down the cost structure for Nigeria as follows: Gross taxes: $4.11, Capital Spending: $13.10; Production costs: $8.81 and Admin/transport costs: $2.97.

This statement on cost by the Petroleum Policy Team at the Ministry of Petroleum contradicts the Minister of State’s January 2016 statement that Nigeria would still make profit if crude oil prices averaged $20/bbl.

Mr. IbeKachikwu caused a stir around the oil industry in the country when, at a meeting a year ago in Davos Switzerland, he declared that cost of producing a barrel of crude oil onshore Nigeria was less than $13.

“The deep off-shore projects, obviously we are putting on hold, given the fact that the returns on those, would not match the prices today,” Kachikwu said at the World Economic Forum. “Everybody is sort of coming back on land so this is time to put a lot of investments on ground, put a lot of incentives on ground, make everybody return on ground, where in fact our average cost of production is about $13 per barrel. So we need more on that, bringing those numbers down from $13 to somewhere $10. Obviously we won’t get the Saudi figures of about $6 or $7, but we can get it much lower,” he said.

His remarks made industry analysts scramble for their fiscal modeling templates, and not a few shook their heads in horror. Now Mr. Kachikwu’s ministry is passing round a document which declares that the average cost of extraction in the country is $29/bbl.

GE Will Build Its Calabar Plant, In Spite of Delays on Bonga South West

By Fred Akanni, in Lagos

General Electric (GE) says it will go ahead and complete construction of its Calabar Manufacturing Facility despite the fact that Bonga South West-Aparo (BSWAP), the deepwater oilfield project for which it was primarily conceived, has been put on hold.

Ado Oseragbaje, President and CEO of GE Oil and Gas Subsaharan Africa, acknowledges that the non-taking of Final Investment Decision (FID) on BSWAP, has “challenged” the plans for a Manufacturing facility in Calabar.

He would not mention BSWAP by name but he says: “It is true that we had big ambitions from the oil and gas perspective but with some of the delays that some of our customers are facing, that kind of challenged the project”.

“Having said that, overall, we are an industrial company and one of the things we are already doing is ensuring that the facility will be able to support the different GE businesses”.

“Let’s say that the whole thing was initially going to be 1000sqm and if oil and gas was initially supposed to use 600sqm but if they can’t, can we redeploy some of the space to power services or to transportation. We are committed to making that huge investment and it is still ongoing. Our contractor is still working on site”.

Oseragbaje won’t disclose a timeline to the inauguration “but there is a project team that is responsible for delivering the project on time and on budget. Overall, in our long term strategy for Nigeria, the Calabar facility is part of our thinking both as GE and the oil and gas division”.

TOTAL’s Block 17 Delivers Close to 700,000BOPD In Angola

By Toyin Akinosho, Publisher

BP in vigorous challenge for the top spot.

TOTAL operated Block 17 offshore Angola produced 661,795 Barrels of oil per day between January and September 2016.

It’s the most productive oil block anywhere in Africa.

The volume is over a third of the country’s 1.766Million barrels per day in the 274 day period, figures from the Ministry of Finance show. The performance of this prolific block leaves, in the dust, ExxonMobil operated Block 15, the second place producer, which came up with 314,847BOPD.

Although Angola is largely a deepwater producer, the third largest output comes from Chevron operated shallow water Block O, which output 235,440BOPD during the period.

There are 13 producing blocks in the southwest African country, but only six of them produce higher than 100,000BOPD.
TOTAL looks set for continuous dominance of the Angolan crude oil production scene in the near term, with the 230,000BOPD Kaombo project under construction in the ultra deepwater Block 32. The company holds 30% in the block and the field is expected onstream in 2017.

BP’s Challenge, A Distant Call?

It would seem, from these figures, that TOTAL is the company with the highest headroom, in the short term, to grow in Angola, but BP comes very close in terms of equity production. In the January to September 2016 data, the British major netted 310,417BOPD, coming a close second to TOTAL’s net of 322,047BOPD. BP announced, last December, that it was working on growing its equity production in the country to 480,000BOPD by 2020.

BP, however doesn’t have any field development project in view between now and 2020, going by data published by the US Energy Information Administration (EIA). Nor does it publish anyone on its own. So the best guess would be incremental increase in Blocks 18 and 31 as well as expected top-up in volumes from its non-operated equity in Block 15 and Block 17. BP operates exploratory Blocks 19 and 24 and holds non-operated positions in Blocks 20, 24 and 25. Out of all these, only the Cobalt Energy operated Block 20 has shown any real promise of becoming a producer.

Even so, with its signature Cameia discovery not yet sanctioned it is no longer looking like Block 20 can come on stream by 2020. Block 24 has a commercial discovery which is yet unappraised. The well in Block 19 was non-commercial, the one in Block 25 was an outright duster.

Reservoir Producibility Challenges Kenya’s First Oil Ambition

By Toyin Akinosho

Tullow Oil is having challenges of producing the waxy crude in the reservoirs of its operated oil wells onshore Kenya.
There are flow assurance and producibility issues in extracting the crude from the reservoirs, with water injection process experiencing obstacles, according to oil service sources close to the project.

Faced with a government insistence on commencing crude oil export by 2017, Tullow has been working up ways of extracting the hydrocarbon at a cost that is economically feasible, given the low price environment.

The London listed explorer only made Kenya’s first commercial discovery in in April 2012, in the very year that crude oil prices started heading south, but President Uhuru Kenyatta’s government, in power since 2013, is keen on first oil to happen before the next elections in August 2017.

Plans for a joint Kenya-Uganda crude oil pipeline from oil fields in both countries to Kenya’s Indian Ocean port at Lamu or Mombassa went up in smoke when the Ugandans decided on an alternative route through Tanzania in early 2016.

Kenya has since chosen to start small, producing 2,000Barrels of oil Per Day and trucking the crude from the oil fields in Turkana county, in the north of the country to the coast in the south for export, as the country’s refinery is not designed for the sort of crude that is trapped in the geological formations. Andrew Kamau, Permanent Secretary in the Ministry of Energy, says that the Early Oil Pilot Scheme (EOPS), will specifically utilise five existing wells to produce the crude, which will be transported from Turkana to Mombasa by road in insulated tanktainers. “At current oil prices, EOPS is not expected to generate significant revenue”. Mr.Kamau says.

The crude type in East African rift system (South Sudan, Uganda and Kenya) is like a long candle in the pipeline and has to be heated along the way.

“But It’s not just the evacuation infrastructure that is constrained, crude oil extraction at the reservoir level in Kenya has had to be studied extensively”, sources explain. “There has been water injection (meant to drive up the crude into the surface) that ended up damaging the formation”, the sources, who choose not to be named, disclose. “There are issues of what chemicals to use in the stimulating the upward flow of the crude”.

“Subsurface challenges are common in field development”, says Tim O’Hanlon, Tullow’s Vice President for Africa responded when Africa Oil+Gas Report asked him about the issue. “Whatever this issue is, we are dealing with it”.

Tullow has had prior experience in Africa in getting crude out from the subsurface to the surface. Ghana’s Jubilee field didn’t deliver anywhere close to its optimum in the first 18 months because of faulty design of the well completion jobs. But the challenges in Kenya’s oil reservoirs are different from the Ghanaian experience. Before a process like water injection happens, the completion infrastructure would have been installed.

Editor’s note: an earlier version of this report, published in the October 2016 edition of the monthly issue of the Africa Oil+Gas Report, did not contain Mr. Tim O’Hanlon’s views.

Chinese Rig To Drill Ororo-2

Sirius Petroleum will be drilling Ororo-2, a step out from the Ororo-1 well, with the services of COSL Drilling Europe AS, a subsidiary to China Oilfield Services Limited, (COSL) Beijing, China.

The contract is for a multi-well campaign that begins with Ororo-2, before June 2017.

The well management activities for the duration of the contract will be carried out by the Norway headquartered oil service firm ADD Energy, which claims, on its website, that it “was instrumental in working with Sirius to secure the drilling contract with COSL Drilling Pan-Pacific Limited”.

Part of what clinched the contract for ADD Energy was that it agreed “to extend delayed invoice and payment terms to Sirius in line with the Company’s other project partners.

The contract envisages a drilling programme on the Ororo Field and can be expanded to include other potential offshore assets.”

The other contractor or ‘project partner’ on the campaign-as Sirius describes them- is Schlumberger, which will provide Sirius with a comprehensive package of managed and integrated products and services including directional drilling services, logging, completion and production fluids, cementing and pumping services, well intervention and stimulation products and services, well testing services, wellsite communications and data and software solutions.

The main objective is to drill two to three wells that will lead to first oil in Ororo field, one of the 24 marginal fields awarded to 31 Nigerian companies by the Nigerian government in 2003.

Don’t Blame Shell For Everything, Spokesman Laments

Precious Okolobo, media relations manager for Shell Companies in Nigeria, has responded to the persistent fingering of the Anglo Dutch company for just about any environmental hazard in the Niger Delta region.

“SPDC should not be blamed for everything that goes wrong,” Okolobo declared in the last week of 2016, in a response to the allegations of adverse impact of the Gbaran Gas Processing Plant, located in Gbarantoru, Tombia in Nigeria’s Bayelsa State.
The latest name calling had come from a certain Alagoa Morris, described by the press as an environmentalist, requesting for a scientific study on pollution from the plant, which, at 1Billion cubic feet per day capacity, is Shell’s largest processor of natural gas in Nigeria.

The government owned News Agency of Nigeria NAN reported that Morris “made the call in Tombia, near Yenagoa, shortly after an assessment tour of the area”.

NAN said that “Morris was reacting to reports of suspected air pollution from the natural gas gathering and liquefaction facility which is causing breathing discomfort to residents”.

NAN reported that residents of Tombia were complaining of air pollution, allegedly emanating from oil and gas facilities located near the community. “We have received reports of air pollution, very high temperature caused by gas flare and poor fish catch from the Nun River, among others”, Morris reportedly observed. “Who monitors compliance with the EIA to ensure that the steps prescribed to mitigate the negative environmental impacts of the operations of the plant were ameliorated?”, Morris reportedly queried, adding that the country’s environmental law “requires periodic study to determine the environmental implications of the project and ascertain when the indices are out of tolerable limit”.

The NAN report disclosed that Shell’s spokesperson Precious Okolobo, denied that the air pollution was from the company’s gas processing and gathering facility.

“There is no air pollution from our Gbarantoru plant; the plant is running efficiently,” Okolobo reportedly said. “He said that a similar occurrence was reported in Port Harcourt where there was no gas plant”, NAN said of Okolobo.
“There is a general problem that people do not understand and SPDC should not be blamed for everything that goes wrong,” Okolobo said.

Woodmac Was Wrong About Ohaji South, But Right about The Avengers

By ToyinAkinosho, Publisher

In the event, Wood Mackenzie, the oil and gas scout and hydrocarbon industry analyst, was wrong about the volume of natural gas reserves in the Ohaji South field in Seplat operated Oil Mining Lease (OML) 53.

The New Jersey based, Verisk Analytics owned company was, however right about what would happen in the Niger Delta region if (Nigeria’s current President) Muhammadu Buhari beat (then incumbent) Goodluck Jonathan, of the PDP, in the country’s polls in March 2015.

Seplat acquired the 40% equity belonging to Chevron in OML 53 in 2014 and finalized the deal after ministerial consent in early 2015. The Ohaji South field was pivotal to that acquisition.

Whereas Woodmac declared, in early 2015, that Ohaji South, as a gas tank, was “non-commercial”, with “611 Bcf of gas which is at the upper end of potentially recoverable resources”, Seplat has indicated, more than a year later, that it is carrying more than 4Trillion cubic feet in the field. The London listed operator has gone on a road show to raise about$1.3Billion for the midstream to downstream components of the development of the unitized Shell-operated Assa North and the Ohaji South (Full story in the current issue of Africa Oil+Gas Report). Planned capacity is 600MMscf/d.

Meanwhile, Woodmac’s negative assessment of the above ground challenges in the Niger Delta region has proven to be on point.

In a widely distributed “intelligence report on the prospect of the 2015 Presidential and National Assembly elections on the Oil Industry”, Woodmac observed that a win by Goodluck Jonathan would be the least disruptive for the oil sector. The status quo would mean business as usual, although a reduced mandate for the PDP would increase challenges for the passage of legislation, including the controversial Petroleum Industry Bill (PIB).

“A victory by the opposition APC would be the most uncertain scenario for the oil sector, both from a security and legislative perspective”, the analyst warned. “The militant group Movement for the Emancipation of the Niger Delta (MEND) has stated that it would resume attacks in the Delta, if Delta-native Jonathan is not returned to power.”

Since February 2016, a new group, named Niger Delta Avengers, has done even more than MEND had ever done to disrupt Nigeria’s oil production: the entire TransForcardos system, delivering about a fifth of the country’s output, has been shut in for 10 months of 2016.

Africa’s E&P Hotspots, 2016-2025

By Toyin Akinosho

When Duncan Clarke, moderator of the Africa Hydrocarbon Arguments at the Africa Oil Week conference in Cape Town, asked me what I thought would be Africa’s E&P hotspots in the next 10 years, it was the face of Luca Bertelli that flashed in my mind.

Bertelli, Chief Exploration officer for the Italian giant, ENI, has brought a lot of cheer to the conference every year since 2014.

Through his presentations, you get a sense that ENI is getting everything right; with the drill bit, with offtake agreements, with farm downs, with budgets, and with timing around discovery to market, at a time when just about everyone else is complaining.

So my response to Duncan Clarke could have been: “To know where the hotspots would be is to follow where ENI is taking positions”.

Instead, I uttered: “What out for Northwest..”

The Projects of 2017

2017 will pull in more petrodollars into Africa than 2016. More of the proposed‘transformational projects’ will leave the drawing board and take Final Investment Decision in the new year.

The Seplat operated $1.3Billion Assa North –Ohaji South (ANOS), gas development project is on course for FID (See story on Page 11).

Commercial sanction for oil production in Uganda and Kenya, which looked so uncertain this time last year, is so sure now. The decision, if not made in 2017, will be made very early in 2018.

The most stubborn of the dark clouds surrounding the Ophir operated, 2.2MMTPA Fortuna Floating LNG off Equatorial Guinea have been lifted. The road is clearer for FID to happen in 2017, with the first gas pushed forward to 2020. Unlike the ENI operated CORAL Floating LNG (3MTPA capacity) to be sited off the coast of Mozambique, Fortuna hasn’t sold its entire supplies. And the way it’s going, CORAL is likely to come on stream before Fortuna.

As we predicted last year, ENI has been aggressively developing Zohr, the mammoth gas find it made in the deep waters of the Mediterranean in August 2015. It is on course to deliver first gas from this 30Trillion cubic feet property by the first quarter of 2018.

There’s pressure on both Anadarko and ENI to take FID on the largest single LNG trains ever to be installed on the continent; the onshore 6MMTPA projects (apiece) in Mozambique. The LNG market is so murky now that neither side wants to nail down a date. Still it’s tougher for Anadarko to take that decision than ENI, who seems to have found a formula for getting ahead with projects.

We asked you not to expect much exploration activity in Angola and Nigeria in 2016; and we predicted an uptick in infill drilling in the latter and lower rig count in the former. In the event, the two countries were disappointing. The resurgence in rig activity expected in Nigeria didn’t happen in 2016, but watch out for Nigeria in 2017. For Angola, the adventure will continue to be on hold.

Kosmos is keen on finding oil outboard of the gas discoveries in the Mauritania-Senegal area, so it will be doing a targeted three well campaign. The American minnow wants to be like Cairn, which has been the only independent to have discovered commercial quantities of crude oil offshore Africa in the current low price regime.

Congo continues its bid round, as does Equatorial Guinea. Egypt too, the perennial bid round holder, has announced its umpteen lease sale. The deal flow market was lack lustre in 2016, and we don’t expect significant shift in the coming year.

This full bodied Who is doing what and where in 2017 edition is yours for the taking.
The Africa Oil+Gas Report is the primer of the hydrocarbon industry on the continent. It is the market leader in local contextualizing of global developments and policy issues and is the go-to medium for decision makers, whether they be international corporations or local entrepreneurs, technical enterprises or financing institutions.

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