Is south-east Africa the new "promised land" for the oil and gas industry?
22 February 2011, Oil, Gas
Until recently, oil and gas companies have typically shied away from south-east Africa, due to its complex geology, poor seismic data, and difficult political factors. Some exploration activities have been carried out in the region in the past, but no major discoveries were made to justify further investment. More recently, driven by higher oil prices and the need to explore untouched areas, along with access to improved technology, the region has witnessed a new boost in its fledgling oil and gas industry.
Spanning from Ethiopia to Mozambique, the region presents 28 prospective sedimentary areas, corresponding to only 5-6% of all wells drilled to date in Africa, and its current oil production is negligible. However, the region is gaining momentum, and its low activity profile is expected to change dramatically. Datamonitor forecasts total oil production in the region (excluding Sudan and South Africa) to reach approximately 210,000 barrels per day (bpd) in 2015, and nearly 389,000 bpd by 2020.
Many companies are willing to invest in the area. Tullow Oil, for example, has already made significant discoveries in Uganda, and has demonstrated a desire to acquire interests in other exploration fields in the East African rift basins, mainly in Kenya and Ethiopia. In addition, Dominion Petroleum has invested nearly $40m in drilling activities in Tanzania and Uganda in recent years and will continue its efforts in the region, including some farm-out initiatives. For the last five years, the company has focused on assembling a portfolio of assets across the region, and it believes that its early entry has allowed it to make significant gains in highly prospective acreage.
Anadarko and Cove Energy also have plans to move into south-east Africa, and together intend to invest around $150m in drilling activities over the next two years. The potential size of structures and the geological similarities with already successful areas nearby, such as Ghana, provide the extra motivation for these players to invest more in the region.
Datamonitor forecasts a total offshore capital expenditure (CAPEX) in the region (excluding Sudan and South Africa) of nearly $400m in 2010 ($312m on drilling and $77m on seismic activities). The total offshore CAPEX is forecast to grow by a compound annual growth rate of 20%, totaling nearly $994m in 2015. In addition, Datamonitor analysis indicates that if the region's market barriers, mainly related to political and regulatory factors, were properly addressed, other players would follow suit, increasing expenditure in the area to much higher levels.
Nonetheless, regardless of such barriers, it is clear that the region presents enormous business opportunities, not just to exploration and production companies, but also to other market participants in the oil and gas value chain, such as drilling companies, service providers, and equipment manufacturers.
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