Senegal Finally Hit Oil

 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