CAPE TOWN // Along with the rest of the world’s energy producers,
west Africa is being pummelled by the collapse of the oil price.
Senegal, however, although yet to produce its first barrel, may be the breakout story of the decade.
After nearly half a century of searching for oil off the country’s
coastline and coming up empty, explorers are now increasingly confident
that Senegal is going to be the next major energy play in coming years.
In mid-August the Scottish explorer Cairn Energy said it was to begin
evaluation and a multi-well exploration and appraisal programme, which
it hopes will reveal reserves of up to two billion barrels. The company
has rights to nearly 7,500 square kilometres off the Atlantic coast of
Senegal and last year announced it had made what could be one of the
biggest discoveries of the year.
More than 140 offshore wells have been drilled since the 1950s off
the Senegalese coast, by various explorers, with little to show for it –
until now.
“Many of the original wells found petroleum in one form or another
and demonstrated the potential for working hydrocarbon systems, but none
of these were commercial,” says the Cairn chief executive Simon
Thomson. All this changed in October 2014 when Cairn struck the first of
two significant deposits about 100km from the coast.
“With new techniques and technology we are able to improve our
understanding of the geology – and also our drilling ability – which has
enabled us to make the two discoveries we made last year,” says Mr
Thomson.
As is common in such projects, Cairn will not go it alone and will
share the risk with other stakeholders. The UK explorer itself holds 40
per cent, with the US major Conoco Phillips owning a 35 per cent stake
and Australia’s FAR 15 per cent. Senegal holds a share of 10 per cent
through the state-owned energy firm Petrosen.
Speculation is that Senegal could be sitting on another Jubilee – the
huge hydrocarbon-rich field discovered off Ghana in 2007. Mr Thomson is
cautious on the comparison but says intital indications are looking
good.
“It is too early to really be clear about the potential as we have
only drilled two wells,” he says. “However, on our large acreage
position it would seem unlikely if we had somehow managed to drill the
only two wells that will discover oil.”
Jubilee now has reserves of about three billion barrels, with a target of 85,000 barrels per day.
Mr Thomson adds that the exploration and appraisal phase would drill
up to six wells, increasing the scope of data on the resource.
The discovery is spilling over into neighbouring countries. The
Gambia, a peculiar colonial construct that is almost entirely surrounded
by Senegal save for a strip of coastline, is also now drawing the
attention of explorers.
In July, Dubai’s Polarcus said it would begin seismic 3D surveying
along a strip from Mauritania in the north, taking in Senegal, the
Gambia and Guinea-Bissau, which the company says is “… subsequent to the
recently announced dual well successes in Senegal”.
To some extent, the timing could not be better. The oil price is
taking a beating and along with it the margins of companies that service
the industry. Chris Bredenhann, the Africa oil and gas advisory leader
for PricewaterhouseCoopers in Cape Town, says service providers were
willing to make deals that would not have been contemplated even a few
years earlier.
“There’s a lot of pressure on companies right now,” he says. “They
are reducing their day rates between 30 and 40 per cent – they are
prepared to put numbers on the table that will win them the business
even if it means thinner margins.”
So cutthroat has the business become that there are signs some
explorers are considering new seismic surveys in greenfield areas,
because the contracting price has fallen so low, Mr Bredenhann says.
Many firms’ projects across the region had been conceived with an oil
price of US$100-plus in mind and they are now desperately cutting costs
to stay in business. “There’s been an overall significant decline in
exploring off west Africa. Those that are still out there are doing very
specific things, such as Cairn. They are doing work in areas with a
high confidence of being successful,” Mr Bredenhann adds.
Countries hoping to cash in on newly discovered resources are finding
that their ability to attract offshore money is also changing.
“Competition for capital investments in the extractive sectors continues
to heat up across west Africa, and indeed the entire sub-Saharan
Africa,” says Manji Cheto, the vice president of Teneo Intelligence, a
US corporate advisor and risk analysis company.
She says Senegal’s main competitive advantage lies with its status as
a stable democracy, which has undertaken significant investor-friendly
structural reforms. At the same time, the country has avoided the
resource nationalism urge – the attempt to squeeze every last cent from
its commodities to the point where investors pack up and leave.
This does not mean the country is invulnerable to such pressures.
Like much of Africa, it has urgent development needs to fulfill. For
instance, there is a growing distaste among oil producers on the
continent for the export of raw crude, only to see tankers docking to
offload value-added refined petroleum products.
“The current oil glut on the global markets increases the risk that
newer oil and gas producers will impose export restrictions on
production, potentially passing laws requiring companies to comply with
domestic market obligations,” Ms Cheto notes. While Senegal had not
indicated its intentions to tax crude exports, the possibility remains.
It is also a fairly cheap locale to do business in a corner of the world known for its high costs, adds Mr Thomson.
“These are relatively low-cost assets and have the potential to bring
great benefits to the economy of Senegal, local communities and the
government.”
Gavin du Venage
September 2, 2015
https://www.thenational.ae/business/tide-may-turn-for-senegal-oil-1.135147
