Oil and gas frontier exploration pushes forward in Africa

The overarching narrative for Africa’s oil and gas sector in recent years has been retreat and retrenchment. As international oil companies slim down their portfolios, they have generally sought to divest assets across Africa. The biggest guns in oil’s firmament – BP, Exxon, Shell and many others – have not generally been in the business of seeking out new opportunities, but rather in downsizing.

For example, Shell is pursuing divestments averaging $4bn annually as it aims for net zero targets. That means plans to sell assets such as its 30% interest in the Shell Petroleum Development Company of Nigeria (SPDC). Meanwhile, the Eni-BP Azule Energy joint venture has seen the partners doubling up to secure economies of scale in one of Africa’s largest producers, Angola.

This trend has coincided with Africa’s share of global oil output declining from 12.3% in 2010 to just 8.1% in 2021, according to BP’s Statistical Review of World Energy.

But talk to any international oil executive about the most exciting exploration prospects worldwide and many will identify one new hydrocarbons province above all others: Namibia, where TotalEnergies and Shell are pushing forward with ambitious drilling campaigns in the offshore Orange Basin, with resources measured in the multiple billions of barrels.

In the words of Africa Oil CEO Keith Hill, whose company is partnered with TotalEnergies, the Orange Basin is “probably the most sought-after new petroleum region globally”.

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Meanwhile, the indications are that the flow rates on Shell’s Graff field off Namibia’s shore have been very impressive and have more than matched expectations, pointing towards very “advantaged” resources – with low production costs.

And as the consultancy Westwood Energy notes, TotalEnergies’ Venus discovery and the opening of the rest of the Orange Basin coincide with a short-term revival in frontier exploration. It said frontier exploration commercial success rates were at record highs in 2022, reaching 25%.

Shell started 2023 with a third light oil discovery at the Jonker-1X well in Namibian offshore licence block PEL 39. This followed on from drilling of Graff-1 and La Rona-1 last year, which led other operators, including Chevron and Woodside Energy, to “farm in” – buying rights to drill in neighbouring blocks.

Among the most acquisitive oil companies has been state-owned Gulf company QatarEnergy (QE), which has been expanding its overseas footprint with merger and acquisition (M&A) forays in the past year. According to energy consultancy Wood Mackenzie, QE has accrued 2.5bn barrels in Namibia on account of its partnerships with Shell and TotalEnergies across four blocks, providing further vindication of its strategy of partnering with the majors in high-impact frontier exploration acreage.

“There is certainly increased interest in the Orange basin area in Namibia, however, this is linked to incredibly large forecast STOIIP (stock tank oil initially in place) which is a key driver for the interest,” said George Maxwell, CEO of US-headquartered Vaalco Energy, which has producing assets in Africa. “The impact of this on other established resource holders will have a knock-on effect but from our perspective near-term production opportunities that can then self-fund exploration prospects remain the key opportunities, both for the host countries, with near-term fiscal returns, and for investors.”

IOCs retain strong interest in Africa

Such frontier opportunities indicate how international oil companies (IOCs) retain a strong interest in Africa, even if they are continuing to sell their mature assets – which is in turn providing opportunities for smaller, nimbler independents to come in. More majors are entering exploration of the basin, albeit with higher entry costs.

The potential scale of Namibia’s resource is found in the fact that whereas Guyana, another recent frontier province, saw 15 discoveries before it reached 7bn barrels of reserves, Namibia took just three discoveries to get to that level. Exploration success is continuing with major deep-water oil discoveries off African shores. Eni’s Baleine in 2021 was Côte d’Ivoire’s largest-ever discovery and is already under development; giant discoveries like these offer the type of low-cost barrels with low-carbon production that the world needs, notes Wood Mackenzie.

One clear theme that has emerged from recent exploration and production (E&P) activity in Africa is that oil company capital expenditure is no longer dominated by the established giants such as Angola and Nigeria. Investment will be spread across a variety of plays – among them Senegal, Namibia and even Uganda, where there are plans for a major new export pipeline to Tanzania.

According to consultancy S&P Commodity Insights, new licensing in Africa remains focused on the deep offshore, where certain IOCs and foreign national oil companies (NOCs) can leverage technical and financial advantages. Although political volatility may constrain E&P progress, some governments are improving E&P terms for new licensing efforts.

Timing is of the essence, says S&P. Mindful that the window to capture foreign upstream investment may soon close, host governments have enacted or are considering how to improve their fiscal and contractual terms. In the coming year Angola, Nigeria, and Tanzania may try to bolster possible new “acreage offers” of drilling licence blocks with more attractive terms. This is not a foregone conclusion. Although current elevated crude prices are likely to be sustained, attracting IOC capital remains challenging, owing to the region’s high above-ground risks and operational difficulties.

New hydrocarbons provinces open up

Following in neighbouring Namibia’s slipstream, South Africa is another new hydrocarbons province catching IOC attention. Africa Oil Corp, operator of block 3B/4B, is partnering with Eco Atlantic Oil & Gas and Ricocure on reprocessing 3D seismic data and preparing for a two-well drilling campaign this year. And in Zimbabwe the Australian independent Invictus Energy has identified 13 potential hydrocarbon-bearing zones, with drilling planned for later this year.

Liberia is another promising prospect. In April, ExxonMobil applied to pre-qualify to bid for four offshore oil exploration blocks, before they negotiate a petroleum-sharing agreement for blocks 15, 16, 22 and 24 in the Liberia Basin. The US supermajor is pursuing a direct negotiation policy that was put in place after the Liberian government withdrew a block bid round focused on the Harper basin, in Liberia’s eastern waters. Interest in Liberia has been triggered in part by Guyana’s exploration success: the two coastlines can be “tectonically reconstructed” – matched up across the Atlantic, to suggest where oil might lie off Liberia – said TGS, a geophysical data company.

Sierra Leone is another exciting new play where the geology is similar to that of Guyana. London-listed independent oil company Wildcat Petroleum recently completed its own assessment of the potential of Sierra Leone’s offshore blocks. TGS, which is working on the licensing round, suggests that “studies of the extensive seismic coverage in the area indicate potential multibillion-barrel prospects, presenting an exceptional exploration opportunity.”

Analysts see “infrastructure-led exploration” – which is focused on territories where there are existing export facilities, such as export pipelines and production platforms – as enabling companies to “tie in” and monetise discoveries more quickly than in areas that have no infrastructure. This lower-risk exploration offers lower costs for development.

“To be able to tie back and utilise key infrastructure such as pipeline and LNG facilities is becoming increasingly attractive in the sector, allowing trapped reserves to be utilised or commercialised,” said Maxwell. “Being able to bring production into existing systems provides for faster cycle times and potentially lower capital outlays, making smaller fields more economic. Blue water or greenfield opportunities have a higher risk profile given the discounting of the higher required capital expenditure.”

But that doesn’t mean that frontier exploration will not figure in E&P plans looking ahead.

Large-scale frontier exploration will continue to attract IOC interest, so long as companies want to find the best, most advantaged barrels, to improve their reserves positions.

As Italy’s Eni proved with its Zohr gas discovery off the Egypt shore in the last decade, it is frontier exploration that offers the best prospect of adding to resources. With billion-barrel reserves still showing up in previously undeveloped regions such as Namibia, the focus on newer oil and gas provinces will continue to drive companies towards Africa.