Angola and Ghana: West Africa's New Gems

Sweet Angola’s Sweet, Light Crude

OPEC-member Angola is a leading producer of crude in Sub-Saharan Africa; more than one-third of all offshore oil discoveries in the region in the past three years have been in Angola. Onshore and shallow water pre-salt discoveries are currently being boosted both by new exploration results and by the government’s decision to open the playing field to the juniors with a new round of auctions.

Angola has proven reserves of 9.5 billion barrels of sweet, light crude oil, making it the second-largest in the region behind Nigeria. By the end of 2014, Angola hopes to be producing 2 million barrels per day thanks to offshore projects that will be coming online. For 2012, Angola’s production average is 1.7 million barrels per day, but that is rising fast. Angola will achieve, if not exceed, its goal.  Angola has 12 major deepwater projects onstream, exploiting 35 fields.

In 2011, the majors descended on the scene in full force, acquiring 11 deep-water subsalt blocks in the Kwanza Basin, including Italy’s Eni, Norway’s Statoil, Spain’s Repsol YPF, US ConocoPhillips, and France’s Total SA. BP Angola, ESSO Angola, Galp Energia, Denmark’s Maersk Oil, Petrobras, Chevron and Cobalt International Energy Inc. also participated in the bidding. The best block on offer in the Kwanza Basin (Block 20) went to Cobalt.

But these blocks were offered in a limited bidding round only. The next concessions, however, might be a game for the juniors as the government prepares to offer up licenses in an open auction, which in turn could boost onshore exploration. 

Angola’s three major basins are divided into 50 concession blocks, with 24 licenses already awarded (8 deepwater, 4 ultra-deepwater, and 12 shallow water), and 27 licenses open. The ultra deepwater western portion of the Lower Congo Basin is not included here as it has yet to be divided into blocks.  There have been 90 commercial discoveries to date, with an exploration success rate of 56%.

While the focus has been offshore (two-thirds of production is from offshore), onshore could provide a great opportunity for the juniors as there hasn’t been much by way of exploration. So far there has been one discovery in the Lower Congo Basin in the Cabinda South block. This is where the government is specifically hoping to lure juniors in its next round (we don’t know when it will be just yet, but preparations are in the works). Up for grabs are 23 blocks in the onshore Kwanza Basin for starters. There is also potential in the Owango interior basin which has remained almost completely unexplored.

Offshore, we’re talking about three major sedimentary basins:

Kwanza Basin: This is the hottest basin and where the most reserves are held. Most production here is in the Cabinda exclave.

In September 2012, Denmark’s Maersk Oil and its partner, Angolan state-run Sonangol, drilled to a depth of 5,334 meters in the Azul-1 well in this basin and made a discovery estimating a potential capacity of more than 3,000 barrels per day.

In February 2012, Cobalt made a big deepwater find at its Camela-1 well, with a 360 meter oil column and an estimated 2.5 billion barrels of oil gross.

Lower Congo Basin: Earlier this year, Maersk Oil made a new oil discovery at the Caporolo-1 exploration well in Block 16 offshore Angola in the Lower Congo basin. The drilling success rate has been particularly good here (80%), thanks in part to excellent seismic imaging. And though drilling has been going on for over a decade, explorers think there is still some 8.7 billion barrels of oil yet to discover in the basin’s Tertiary play.

Namibe Basin: While this isn’t the biggest basin in terms of reserves, it is the most popular for E&P, with an estimated 712 million barrels of undiscovered oil reserves. Denmark’s Maersk Oil and its partner, Angolan state-run Sonangol, earlier this year made a deep-sea pre-salt discovery here.

Politics (Smooth Sailing) and Infrastructure (Getting There)

Elections in August 2012 saw the incumbent president’s political party, MPLA, secure another victory and swear in Manuel Vicente, the former head of the state-oil firm Sonangol, as vice-president. It is most likely that Vicente will eventually be touted to replace President Jose Eduardo. Vicente’s ties to the state oil company are an indication of how Angola plans to prioritize the oil and gas industry.

Angola’s economy is already rebounding thanks to strong oil prices and a jump in production in 2012. For 2013, we’re looking at a potential 7.1% growth.

In terms of infrastructure, the government is increasingly ambitious. The commercial port of Lobito has been given a $1.2 billion government investment for expansion. This will include a new mining import and export terminal as well as an extension of the quay to accommodate more vessels. An oil pipeline is also under way, linking Angola to Zambia, and a new refinery will handle 200,000 barrels per day.

Angola is also launching a flagship liquefied natural gas project, which will go online in the second quarter of this year. The project will deal in 5.2 million metric tons a year of LNG in a venture between Sonangol and Chevron, with BP, Eni and Total each holding a 13.6% interest in the project. It’s gotten off to a bit of a rocky start and should have already begun commercial shipments, but its target was the US market, which the shale gas boom rendered irrelevant. Instead, it has had to find new customers in Asia and Europe.

Ghana: Record Move from Discovery to Production

Ghana is new on the scene, and while it may not have Angola’s reserves, it does have the advantage of better governance. The country went from producing zero oil in 2010 to becoming a major producer by the end of 2012. Some 13 discoveries have been made in the past three years. A key field is already reaching maximum production levels and new projects are ready to come on line.

Here’s the math: As of 2012, Ghana’s proven reserves were at about 660 million barrels, most of it in the offshore Jubilee field. But a recent find by Italy’s Eni raises that by about 20%, and exploration is only just beginning. Ghana thinks it’s really got several billions of barrels in reserves, which it hopes to confirm as more majors hit the scene. 

Key Fields/Blocks:

Jubilee: Run by UK-based Tullow Oil, crude production levels at this field are now at 110,000 barrels per day. In total, Jubilee has produced 50 million barrels of oil since it began commercial operations in 2010. Peak production will probably be about 120,000 bpd, which will likely be reached this year, so Tullow is now seeking other prospects, in deeper waters.
TEN (Tweneboa-Enyenra-Ntomme) Wells: Not far from Jubilee, this is what Tullow is now eyeing. These wells hold an estimated 380 million barrels of commercially viable oil equivalent, but will take around $4 billion in development investment. Tullow already owns a 49.9% stake in these wells along with Ghana’s state oil company, GNPC.  

Sankofa East: This field is in the Offshore Cape Three Points Block. In late January, Italy’s Eni said its offshore drilling operations at the Sankofa East 2A block had confirmed commercial viability. Eni is estimating 450 million barrels of oil equivalent in place with 150 million boe recoverable.

Tano/Cape: In December 2012, Hess (in partnership with GNPC) announced its fifth discovery at the Deepwater Tano/Cape Three Points Block at the Pecan-1 well.

Good Governance, Sound Regulatory Environment

In terms of the regulatory environment, Ghana is one of the more attractive African venues. It takes its cue from Norwegian regulatory frameworks and has a good, albeit embryonic, handle on managing its oil revenues, unlike much more corrupt Angola. It’s been a pretty impressive display of governance so far, especially considering that it had to start from the beginning with the oil and gas industry.

In 2011, Ghana passed the Petroleum Commission Act, which established an independent body to monitor and implement oil regulations and booted GNPC into the commercial sector. One problem that needs to be worked out, however, is the investment threshold: Right now, it’s a game for the majors or the larger of the juniors. The investment demands are too high and local oil and gas firms are particularly incapable of passing the bar.