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West Africa Oil Projects To Face Longer Delays

  • SOURCE: | qwesa2big
  • TENP12

    Oil firms have put major projects in West Africa on hold because of low prices as they have across the globe.


    It is also expected that when the market finally picks up, development  is likely to recover much more slowly in the region than elsewhere.

    High costs bedevil the region, which includes established producers such as Nigeria and newer entrants like Ghana.

    Add to this long-standing problem of poor infrastructure, complex bureaucracy and politics and West Africa  may be well down the list for any investment revival.

    A dive in oil prices since mid-2014 has forced international energy companies to postpone or cancel hundreds of billions of dollars in investment all over the world.

    In West Africa it has made projects for Royal Dutch Shell and Tullow Oil uneconomic, and hurt regional economies that rely heavily on energy revenue.

    Already, Gabon has cut its 2016 budget because of low oil income and Ghana is considering doing the same. African oil exporters further afield, such as Angola, are also feeling the pain.

    “There is no doubt that the amount of capital expenditure over the next five years will be severely reduced,” said Andrew Hayman, an Africa oil and gas project specialist at data provider DrillingInfo.

    “From the bigger producers like Nigeria and Angola to the smaller producers, the capital will just not be available,” he told Reuters.

    According to the United Nations, overall foreign direct investment in Central and West Africa, which includes major oil and gas projects, fell 44 per cent to $14.2 billion last year, greater than the 31 per cent drop for Africa as a whole.

    The number of oil and gas rigs in the region dropped by two thirds to 18 in December 2015 compared with the same month in 2014, according to U.S.-based oil service firm Baker Hughes, which conducts surveys on rig activity globally.

    “Capital investors are getting cold feet about new investment,” Hayman said. “Countries in West Africa will be lower down their list so investment will be longer coming back.”

    BIG COST PROBLEM

    Africa holds 129 billion barrels of proven oil reserves, according to PricewaterhouseCoopers, or nearly 8 per cent of the global total. Development varies widely from Nigeria, a prominent world player, to Gabon, which is struggling to maintain output from maturing fields.

    There are bright spots. Senegal is beginning to establish offshore potential, with Kosmos Energy saying last month it had discovered a “significant” amount of natural gas off its Atlantic Coast.

    But much of West Africa’s oil and gas is offshore where drilling is expensive: sub-ocean wells can cost $100 million each and whole projects billions. Accordingly, many multinationals have cut offshore development.

    Offshore projects made sense back in early 2014 when oil was above $100 a barrel but this week it is little more than $30. By contrast, in the United States, which has large shale oil deposits onshore whose geological make up is well known, wells can be drilled for a few million dollars.

    These are the kind of projects that will be revived first whenever oil prices finally rebound. West African projects will need to be not only viable, but also compete with such production if they are to attract investments.

    “There is a big cost problem in West Africa,” said Gail Anderson of U.K.-based consultancy Wood Mackenzie. It reckons only a third of the $270 billion of oil projects in the planning stage in sub-Saharan Africa are viable when oil is below $50.

    CUTTING BACK

    On February. 4, Shell said it was delaying its Bonga South West project offshore Nigeria for at least another year as part of global cost cuts. Its final investment decision, first mooted for 2015 or 2016, will now not be made before 2017.

    For Shell it makes sense to wait. Bonga South West involves the construction of a complex floating production and storage facility and the project’s numbers were last crunched when oil was nearer $100.

    “Bonga Southwest … ought to be a good project,” chief executive Ben van Beurden told analysts. But, he said, “We need to get to a point that we believe not only is the project affordable — but also competitive.”

    Six days later, Africa-focused Tullow Oil said it was considering halting drilling of new wells offshore Ghana while prices remain depressed.

    Tullow has already halved investment in West and Central Africa to $100 million per year. It could come down further, Tullow said last week, and possibly remain low into 2018 – a factor likely to hit production.

    “Exploring today in this oil price environment is not something you should be doing,” chief executive Aiden Heavey said.

    “It will be very difficult to get banking for any developments, so you focus on the assets that you have,” he said.

    Source: http://business.peacefmonline.com/pages/news/201602/270523.php

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