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The Three – Service Sector- Musketeers of the Energy Transition: The Emerging Energy Value Chain

By Gerard Kreeft

 

 

 

 

 

 

 

 

All- For-One; One-For-All

Musketeer 1 Oilfield Services

Musketeer 2 New Energy Service Companies

Musketeer 3 Energy Service Companies Africa

There is growing evidence of a new convergence between Musketeer 1 Oilfield Services  and Musketeer 2 New Energy Service Companies. 

Perhaps not so much convergence but cross-overs and falling by the wayside of others and in the process creating new alliances.

Little attention has been paid to Musketeer 3- Energy  Service Companies Africa- perhaps viewed as the junior musketeer, but nonetheless playing a significant role.

Their- All- For-One; One-For-All requires  further explanation.

Peak Oil and What to Anticipate From the Majors

Rystad Energy is a preminent independent energy research and business intelligence company, headquartered in Oslo, Norway.

The COVID-19 pandemic, according to the company, has accelerated the global peak demand for oil to 2028, instead of 2030 and cut peak oil demand to 102Million Barrels Per Day. This corresponds with BP’s peak oil analysis of 2025 and demand of 100MMBOPD.

Nonetheless, Rystad  calculated that oil demand,  in 2020, declined to 89.3MMBOPD, compared with 99.6MMBOPD in 2019. This is now termed “COVID-19 induced demand destruction”.  It is only in 2023 that demand will recover to pre-Covid-19 levels and jump back to 100.1MMBOPD.

There is also little evidence from the oil and gas majors to indicate that there will be a quick recovery. In 2021 the sector’s growth in Africa will be halting and slow:

ExxonMobil: Deepwater Offshore Guyana,  Rovuma LNG Mozambique are the company’s key challenges. Expect little else and no plans on renewables.

Chevron: Only $1.5Billion dedicated to possibly Angola, Equitorial Guinea and Nigeria. Attention is focused on Tengiz, Kazakhstan which is receiving 75% of Chevron’s budget outside the USA. Only fossil-based investments.

Equinor: Attention is largely  being devoted to expanding its offshore windpark capacity, all outside Africa.

ENI: With its large African footprint in Angola, Nigeria and Egypt the company is in prime position to expand its African operations. Green energy plans are being made.

Shell: reducing its oil and gas assets to 9 key hubs which includes Nigeria. Green shoots on the horizon.

TOTAL: its Brulpadda and Liuperd (Leopard) prospects in South Africa, together with its Mozambique LNG project will be the focal points in 2021. Little room for further plans. Green plans play a strategic role.

BP: intends to reduce its oil production by 40% .How will this affect the Greater Tortue Ahmeyim  development in Mauritania and Senegal, its Algerian, Angolan and  Egyptian assets? The first green plans are being unveiled.

Musketeer 1 : Oilfield Services

Global demand for oilfield services (OFS), measured in the total value of exploration and production (E&P) company spending, has in 2020 dropped a massive 25% as a result of the Covid-19 caused oil demand destruction, According to Rystad.

Spending in 2020 is at year’s end expected  to be $481Billion and take the first step to recovery will take place in 2021.

“The recovery will accelerate further in 2022 and 2023, with OFS spending by E&Ps reaching some $552Billion and $620Billion, respectively. Despite the boost, purchases will not return to the pre-COVID-19 levels of $639Billion achieved in 2019.”

 

Audun Martinsen, Rystad Energy’s Head of Energy Research, argues that the comeback will not be visible across all OFS segments. Well services and the pressure pumping market will be the first to see a boost, while other markets will need to get further depressed before recovering.

“Despite the recovery in oil prices, it will take many quarters before all segments of the supply chain see their revenues deliver consistent growth. In case of an upturn, operators would prefer flexible budget items with production increments and high-return investments with short pay-back times. Therefore, we expect well service segments to be the first to recover, while long-lead segments will pick up much later.“

  • Maintenance and operations: is poised for consecutive yearly rises in the next three years after slumping to $167Billion this year from $202Billion in 2019.
  • Well services and commodities: is set for a similar recovery, but only after slumping to $152Billion in 2020 from $231Billion in 2019 – the biggest decline among segments in absolute numbers.
  • Drilling contractors: falling to $46Billion in 2020 from $62Billion in 2019, and then rising to $57Billion in 2023.
  • Subsea segment: will fall from $25Billion in 2019 to $22Billion in 2021 – before starting to rebound to $24Billion in 2022 and to $29Billion in 2023.
  • EPCI: fell to $81Billion in 2020 from $105Billion in 2019, sliding further to $74Billion in 2021, before rising back to $81Billion in 2022 and growing to $106Billion a year later.
  • Seismic: declined to $12Billion in 2020 from $15Billion in 2019, dropping to $10Billion in 2021, before rebounding to $11Billion in 2022 and to $13Billion a year later.

The Players- BakerHughes, Halliburton and Schlumberger

Baker Hughes, Halliburton and Schlumberger, the traditional giants of the service providers, have experienced a long trek through the wilderness. Is relief on the way? A mixed bag.

Their stock prices have tanked: in December 2016 Baker Hughes’s share price was $65, now December 2020, it was $21; Schlumberger in December 2016 was $85, December 2020 it had dropped to $21; Halliburton in December 2016 was $55; in  December 2020 it was $19.

81,000 jobs have been lost since November 2019, to go by the report of the Petroleum Equipment and Services Association  (PESA).  In a recent forum PESA President Leslie Beyer stated: “The majors are making carbon reduction and setting net zero goals. Then they’re turning to their OFS sector partners and saying, ‘How are you going to help us get there?’”.  How indeed!

The strategies of both Halliburton and Schlumberger are defensive and show little reason for optimism:

Halliburton on its website talks about further digalization of its services, lower capital intensity and being committed to provide technologies that reduce emissions/environmental footprint.

Olivier Le Peuch, Schlumberger’s CEO, recently announced a major strategic restructuring creating four new divisions- Digital & Integration, Production Systems, Well Construction, Reservoir Performance.

Within the confines of the E&P bubble both major service companies continue on with what they anticipate what the IOCs (International Oil Companies) are dictating: belt tightening, a reduced head count, with the hope for a better tomorrow. Simply re-shuffling the deck chairs on the Titanic.

The one exception is Baker Hughes who has recently unveiled a forward looking strategy focused on CCS (Carbon Capture Storage), Hydrogen, and Energy Storage. Key themes for the Energy Transition.

The Drillers

Hans Hagelberg, Bassoe Offshore, has estimated that in the last 12 months the offshore rig fleet has lost almost 42%, or $30Billion of its total value. A large portion of the global fleet is now cold stacked. Of the 103 cold stacked, 94 have been stacked for 12 months or longer.

West Africa has been one of the hardest hit areas in 2020, according to IHS Markit: the region saw 11 contract cancellations from March to July 2020, the most of any area. Most of those cancellations were associated with jackups.

Jackup utilization in West Africa fell from 71% in September 2019 to 29% in September 2020, while drillship utilization fell from 48% to an abysmal 19% in the same time frame, according to Bassoe.

Dayrates for drillships in West Africa are currently between $150,000 and $200,000 per day, while jackups currently sit between $70,000 and $90,000. Looking to 2021, Teresa Wilkie, Offshore Rig Market Analyst, Bassoe,  rig utilization in West Africa is likely to stay flat, unless there is a marked increase in oil demand. With rig oversupply set to continue in the region, she expects dayrates to remain at the same level in 2021; further reductions are unlikely as the current rates are around operating cost level.

Marine Contractors- Two  key players- TechnipFMC & Heerema

Marine contractors have not been sitting idle. They are demonstrating adaptation and innovation.

The 2017 merger of Technip and FMC featured distinct market segments: subsea, onshore and offshore and surface projects. Now Technip Energies- entailing LNG, sustainable chemistry and decarbonization- is being spun off, creating new innovative options.

Arnaud Pieton, President and CEO of Technip Energies, says that the company is well placed to produce green hydrogen, given  that some  270 plants worldwide have their origin with TechnipFMC.  A strategic alliance with McPhy, a builder of electrolyzers, is expected to help enhance the production of green hydrogen. 

Heerema, which had its own enormous fabrication yard in Angola,  recently announced that it shut down operations citing poor  market conditions and sustained low oil price.  Instead the company is investing in the Offshore Wind Sector.

Heerema Marine Contractors recently signed a contract  to support the construction of the Changhua Windfarm Phase 1 project, Offshore Taiwan. Heerema will take on the installation of 21 jacket foundations (4 legged) for the Changhua project.

Musketeer 2 New Energy Service Companies

Siemens Energy

Siemens Energy has operations in 90 countries offering a full project cycle of services: generation, transmission and storage from conventional to renewable energy. Two examples:

  • Service center and a training academy in Egypt. The service center is the first of its kind in the region, combining a repair center, a tooling center and a spare-parts warehouse under one roof; and
  • Siemens Energy will supply six SGT-800 industrial gas turbines to the Mozambique LNG Project that will be used for low-emissions onsite power generation.

Cummins

Cummins operates in 51 countries in Africa and market leader in fuel cell and hydrogen production technologies. Cummins began developing its fuel cell capabilities more than 20 years ago.

In 2019 Cummins purchased Hydrogenics, a leader in hydrogen technology. This accelerated Cummins’ ability to further innovate and scale hydrogen fuel cell technologies across a range of commercial markets.

Two examples of Cummins’s presence in Africa:

  • Cummins Angola operations, which is a joint venture partnership with Angolan ProjectNet. Cummins Angola currently occupies 1,000-square meters of office and parts outlet space, as well as 1,750-square meters of rehousing.  Cummins is working closely with the Angolan government to maximize the Private Public Partnership Framework to invest in the energy sector.
  • Cummins has supplied a power solution based around four of its 630 kVA generator sets to Standard Chartered Bank in Ghana. The system will provide the bank’s head office in Accra with standby power whenever interruptions to the grid supply require it.

ITM Power

ITM Power Plc designs and manufactures products which generate hydrogen gas, based on Proton Exchange Membrane (PEM) technology. This technology only uses electricity (renewable) and tap water to generate hydrogen gas on-site and can be scaled  up to 100MW+ in size.

Two examples:

  • The REFHYNE project to be installed and operated at the world’s largest hydrogen electrolyser at the Shell Rhineland Refinery in Wesseling, Germany.The PEM electrolyser, built by ITM Power, will be the largest of its kind to be deployed on a large industrial scale.
  • HyDeploy the £6.8Million project, funded by Ofgem and led by Cadent and Northern Gas Networks, UK, is an energy trial to establish the potential for blending up to 20% hydrogen into the normal gas supply to reduce carbon dioxide emissions. HyDeploy will run a year-long live trial of blended gas on part of the University of Keele gas network to determine the level of hydrogen which could be used by gas consumers safely and with no changes to their behaviour or existing domestic appliances. ITM Power is supplying the electrolyser system.

Musketeer 3: Energy Service Companies Africa

Musketeer 3 has huge challenges if Africa is to be lit up by 2025. The African Development Bank envisages:

  • 160 GW of new capacity for On-grid generation;
  • 130Million new connections for On-grid transmission and grid connections;
  • 75Million connections for Off-grid generation, an increase 29 times more than what Africa generates today;
  • Access to clean cooking energy for 130Million households.

There is a strong need to enhance the capability of Musketeer 3- Energy Service Companies Africa- to build coalitions across the sector and the region,  including the oil and gas and the renewable sector.

Some examples

  • Clean Energy Corridor which aims to support integration of cost-effective renewable power options to national systems, promote its cross-border trade and support creation of regional markets for renewable energy. The Clean Energy Corridor initiative has two African components:   (1.) African  Clean Energy Corridor(ACEC) for the member countries of Eastern and Southern African power pools.  (2.) West African Clean Energy Corridor(WACEC) within the Economic Community of West African States.
  • Partners should also include National Governments and their National Power Companies, including companies from Asia, Europe, the Americas, and the Middle East.
  • Finally this should include the oil and gas sector accustomed to carrying out large -scale projects. Providing them an opportunity to participate and be a partner in renewable energy.

The increased speed of the Energy Transition is not necessarily good news for Africa. The greening of Europe by the  majors could  mean reducing oil and  gas activities in Africa.

Why? Simply because the oil and gas majors are choosing  low carbon prospects and natural gas projects on a massive scale  leaving many potential prospects in doubt. Other smaller oil and gas projects will not be treated so kindly.

How will oil and gas prospects in Africa be judged? Do the various governments have the management skills to properly assess their energy scenarios?

Do they have the technical knowledge, capability and expertise to manage and implement oil and gas projects?

Then there is the matter of developing national service companies which have the technical capacity and knowledge to implement projects.

Conclusions

  1. Musketeer 1- Oilfield Services is in the sunset of his youth. Oilfield Services will continue but in a diminished marketplace. With the majors cutting back their oil and gas investments there is little room for optimism. Halliburton and Schlumberger must seriously re-examine their energy scenarios. Baker Hughes is showing investors that they have a Plan B.  Also the marine contractors- both TechnipFMC and Heerema- are making bold energy transition moves.
  2. Musketeer 2- New Energy Service Companies are defining the energy transition. Siemens Energy, Cummins and ITM Power are examples of new companies delivering energy systems for a renewable world.
  3. Musketeer 3- Energy Service Companies Africa could well become an alliance of national oil and gas companies, power companies and service companies in order to meet the requirements of the energy transition. They could well receive assistance from Musketeer 2-New Energy Service Companies.

Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe.  Kreeft has Dutch and Canadian citizenship and resides in the Netherlands.  He writes on a regular basis for Africa Oil+ Gas Report.

 

 


400Million Barrels of Oil Extracted from Ghana Since 2010

By Toyin Akinosho

Ghana has produced ~392Million Barrels of Oil since extensive commercial production started in November 2010.

The flagship asset, Jubilee field, delivered 284,016, 968Barrels, from November 28 2010 to January 31, 2020.

The TEN cluster of fields, which is operated by Tullow Oil, the same company that operates Jubilee, has produced 73,266, 506 Barrels between August 18, 2016 and January 31, 2020.

The ENI operated Sankofa Gye Nyamme (SGN) twin fields delivered 34, 790, 660Barrels between May 1, 2017 and January 31 2020.

Average production for each of the three fields in January 2020 were: 63,839Barrels of Oil Per Day (BOPD) for Jubilee; 52,300BOPD for TEN and 55,279BOPD for Sankofa.

SGN is the country’s top gas producer, delivering in excess of 60Million standard cubic feet per day.

 


Nigerian Companies Are the Biggest Defaulters on Ghana’s Concession Rentals

Sahara Energy Fields, Brittania U and Erin Energy, all founded by Nigerian businessmen, are among the the eight Exploration and Production Companies, that were in default of one payment or another to Ghanaian Tax authorities as of February 2019, the latest date for which data are available.

With $587671.23 behind in both arrears and 2019 outstanding, Swiss African Oil owed the most, according to  Public Interest Accountability Committee, Ghana’s equivalent of NEITI. SAO was followed by Brittania U and Sahara Energy Fields, both Nigerian owned companies, indebted to the tune of $456, 879.26 and $409,315.07 respectively. The fourth most indebted to the Ghanaian state was Gosco/Heritage, with $334,850.00 in both arrears and 2019 outstanding.

Erin Energy, also a Nigerian founded company, owed $151,200. The least indebted companies were Medea $78,050; UB Resources, $37,050 and Springfield, $33,650.


Is Ghana Stuck At Tano Basin?

Since commercial production commenced with the deepwater Jubilee field in December 2010, Ghana has ranked prominently on the hydrocarbon map of the world.
It looks likely to record average 2013 production in excess of a hundred thousand barrels of crude oil per day as Jubilee ramps up to peak of 120,000BOPD.
But all the current production, planned production and drilling successes are clustered around the Tano Basin and its sub-basin: the Cape Three Points.
Any step out of the Tano, into another basin has so far resulted in failure.
The UK listed Afren Corp., has felt the full brunt. Barely six months after it acquired 68% interest in Keta Block on the Accra Keta basin, Afren spudded Cuda 1. It came out unsuccessful.
The company beamed with optimism after the failure, saying that the block, located farther east, towards the Ghanaian border with the Republic of Togo, had both Tertiary and Cretaceous prospectivity, with the principal exploration focus being the Cretaceous Albian to Campanian sections. “The block offers multiple prospects and leads, with a variety of trapping and depositional settings. A number of these show potential for significant stratigraphic trapping and giant field potential”, Afren enthuses on its website. In 2011, Afren farmed out 35% participating interest and operatorship to Italian major Eni, who in turn drilled a well within a year of buying in.
Eni’s well, Nunya-1X(formerly named Cuda 2) was a spectacular failure. It didn’t encounter a drop of hydrocarbon and more, it gave the lie to Afren’s claims that Cuda-1 would have encountered oil if it had drilled deeper.
Apart from the Afren/Eni adventure in Keta, there hasn’t been drilling on any other basin outside the Tano. The Saltpond basin still delivers trickles (less than 500BOPD) through the Saltpond filed. Operators have not ventured to drill in the deepwater Saltpond/Central Basin, which is the country’s third prominent deepwater basin.
Still, who cares whether these other basins deliver, as long as there’s continuing success in the Tano Basin?
A field development plan of a 100,000BOPD(peak) has been submitted to government.
The Plan Of Development (POD) looks to bring together a cluster of fields collectively named TEN(Twenoba, Enyenra and Ntomme).
Another such cluster of fields, the MTAB(Mahogany, Teak, Akasa and Banda) is in pre-development plan stage and is expected to deliver 100,000BOPD at peak.
Both projects, located in Deepwater Tano/Cape Three Points Blocks, envisage the crude to be produced through an FPSO each. ghanaThey are also, both, being operated by the British explorer Tullow Oil, with partners including American independents Anadarko and Kosmos Energy.
Meanwhile, Eni, which has failed in Accra Keita, announced a successful find in the Offshore Cape Three Points(OCTP), in the Tano Basin early in 2012, testing 5,000BOPD of “high quality oil” from a gross oil column of 76metres.
And Hess Corp, reported, in 2012, its fifth discovery in Deepwater Tano-Cape Three Points License. The company reported that Pecan 1 follows the previously reported discoveries at Almond (16metres net oil pay), Beech (44metres net oil pay), Hickory North (30 metres net gas-condensate pay), and Paradise (37metres net oil pay and 90 metres net gas-condensate pay). Ghana has had a good five years, since the discovery of Jubilee(2007-2012) in terms of overall oilfield activity relating to both the drillbit and the commercial playground: almost as soon as Tullow Oil announced the discovery of the Twenoboa held, proving that the deepwater oil tank extends beyond Jubilee, news filtered in about ExxonMohil s interest in acquiring Kosmos Energy’s stake in Jubilee for $4billion. The reputation of the putative buyer and the amount of money on the table heightened the perception of profitability of the overall Ghanaian portfolio. But beyond the Deepwater Tano and Cape Three Points blocks and adjacent acreages, what other acreages can be prospective enough to interest any company? The Tano Basin itself was a grave yard of hopes just 15 years ago, until Kosmos, Anadarko and Tullow started re-interpreting the data differently from earlier explorers. Kosmos itself described the Tano Basin as a bad address only six years ago.

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