Rystad Energy: Exploration & Production Newsletter - July 2019 - eng

West Africa: lack of new projects driving decline wave 

Africa’s oil supply has been subject to disruptions, mature field declines and a lack of new projects in the region’s key countries, Angola and Nigeria. Declining production trend is expected to continue over the next five years, with long-term potential largely dependent on active development of yet to be sanctioned discoveries. This article assesses the outlook for West Africa’s E&P industry, illustrated by three key drivers: production, economics of new projects and capital investments.

Figure 1 depicts the oil production from West Africa from 2010 to 2025 split by country. Last year over 70% of total oil volumes in the region were produced in Nigeria and Angola, with the total output reaching 4.6 million bbl/d. In 2016 Nigeria’s oil production dropped almost 400,000 bbl/d year-over-year due to an ongoing conflict in the Niger Delta and resulting production disruptions. The country’s production began to recover in 2017, albeit still plagued by instability and outages, and is expected to reach around 2.1 million bbl/d this year. Angola’s oil production has been declining since 2015, with the decline expected to continue over the next five years. The country’s largest oil field, Dalia, located in Block 17, has seen production decline from peak levels of 250,000 bbl/d to around 130,000 bbl/d expected this year. Recently sanctioned discoveries such as Mafumeira Sul (put on production in 2016) as well as the Kaombo project, are expected to mitigate the decline; however, a lack of large new projects in the pipeline could lead to a rather high oil production decline in West Africa post 2020.

Figure 2 depicts total recoverable resources and breakeven prices as of the sanctioning date for the top oil discoveries expected to have FID in the next ten years in the countries that are the main contributors to the supply in West Africa – Nigeria and Angola. Selected fields, all of which are offshore discoveries, are also split according to water depth. Nigeria holds the largest potential in terms of undeveloped resources, and nearly all top unsanctioned discoveries in the country are of the deep water type, which ranges from 125 to 1,500 meters. The Bonga North field, operated by Shell, holds the largest resources of nearly 700 million boe and is expected to be brought into development towards 2028. Its breakeven price is estimated to stand at $56.5 per bbl, making it commercial to develop in the prevailing market conditions. Owowo West field, which has the lowest estimated breakeven price in the selection, below $45 per bbl, holds around 550 million boe and is expected to come on stream around 2025. In contrast to Nigerian discoveries, unsanctioned fields in Angola are mostly of the ultra-deep water type, located at a water depth of 1,500 meter and more. The discovery holding the largest undeveloped resources in Angola is Orca with over 500 million boe of reserves. The field has a breakeven price of around $61 per bbl and is anticipated to come on stream closer to 2030.

Figure 3 displays the capital investments in West Africa over the period 2010-2025, split by life cycle. Investments have seen a steady decline from the peak levels of around $48 billion in 2014, to $17 billion in 2018. Around 80% of the investments last year were made in Nigeria and Angola. Investments are forecasted to grow from 2020, increasing to over $30 billion by 2025. The growth in spending is led primarily by new projects in Nigeria. Key contributions are expected from the Nigeria LNG Seven plus project (Trains 7 and 8) slated for sanctioning in 2021, as well as the Bonga Southwest-Aparo project in the Shell-operated OML 132 license area, the ExxonMobil-operated Owowo West field in OPL 223, and the Total-operated Preowei field, planned to be tied back to the Egina FPSO, and expected to be sanctioned in the first half of next year. Investment growth is also seen in Ghana, with the Pecan field expected to be approved by the end of this year, and from Congo’s Nene Marine project, with the third phase to be sanctioned by the end of next year. 

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As West African production continues to be challenged by disruptions and high rates of decline on mature fields, Rystad Energy’s supply outlook for the region envisions a declining trend at least until 2025. However, Nigeria and Angola, which are the main contributors to West Africa’s supply, hold significant potential in terms of undeveloped resources. Hence, given timely development of discoveries waiting to be put on stream, oil and gas production in the region could increase again in the future.