West Africa E&P – Outlook for 2020 and beyond
FOREIGN DIRECT INVESTMENT
In 2018, of the West African countries, Nigeria received the highest foreign direct investment (FDI), followed by Ghana and Cote d’Ivoire. Nigeria’s increasing FDI could be attributed to its fast-improving ease of business rating and its increasing focus on becoming a technology hub, but as mentioned in the EY’s Africa Attractiveness report, the country should modify its policies to attract greater FDI in the future.
The African Continental Free Trade Agreement (AfCTFTA) was also sanctioned in May 2019 which aims to facilitate trade in the continent, aiming to increase trade from 18% to 60%. The agreement will reduce tariffs and trade agreements that previously restricted intra-continent trade and will spur more public and private US investment in the oil industry.
DEMAND ON EXPLORATION AND PRODUCTION
The projected growth in oil and gas demand within Africa is higher than that of China. There are many factors that are contributing to West Africa’s need to increase focus on ramping up exploration and production including better economic conditions, a rising population and increasing urbanisation that has resulted in higher energy demand.
West Africa, particularly Nigeria, is known for its high value, low sulphur crude which is highly demanded across European countries. As a step towards meeting the demand, most West African nations have held a licensing round in the past two years, have blocks conditionally awarded, or have a licensing round set to open in 2020. Open licensing rounds include Sierra Leone, Cote d’Ivoire, Cameroon, and Gabon. While Congo and Angola are pending awards and Equatorial Guinea and Ghana’s blocks are conditionally awarded. Nigeria, Senegal and Sierra Leone’s licensing rounds will be commencing shortly.
In Africa, Nigeria and Angola are expected to lead the way in oil and gas capital expenditure to 2030.
THE MAIN CHALLENGES
Challenges remain for oil and gas companies with corruption, security and crude oil thefts. The conflict in the Niger Delta has impacted affected oil production in Nigeria in the past and continues to be a risk for the region.
Moreover, projects are often slow to be sanctioned which has resulted in a decline in oil production over the last ten years and continues to deter oil and gas operators from investing in the region. Rystad Energy has predicted that capital investments in the region will not return to pre-downturn levels until at least five years.
Countries in the region have adapted their regulatory policies in recent years to make exploration and production more favourable for those operating in the region.
Gabon has revised its hydrocarbon legislation to facilitate better tax laws, a lower royalty rate to spur new developments and the time allowed for the exploration phase has been extended.
In 2016, Ghana passed its long-debated Petroleum Bill which removed a major barrier to exploration. As a result, hydrocarbon production has doubled in Ghana.
Nigeria’s Petroleum Industry Bill has been discussed for 17 years and still awaits to be passed. The Bill was split into four parts to help pass it into law, but it still awaits being approved by the President. It is now expected to be passed in June 2020, which will aid more oil and gas developments in the region, particularly in deep water.
Angola created the National Agency of Petroleum and Gas which will manage and sell oil blocks, aiming to increase investment and reduce bureaucracy.
Overall, the region is becoming more favourable in terms of a better regulatory environment and as the oil price continues to stabilise, project approval is expected to increase. At the time of writing, new discoveries include the OPL 310 block offshore Nigeria, which is being developed by Lekoil and Optimum Petroleum. In Angola, BP and Sonagol will be developing the Platina field which will go through to early 2021. The Greater Tortue/Ahmeyim is the ultra-deep-water development to take place on the maritime border of Mauritania and Senegal.
The region must continue to focus on the regulatory environment and speed up project sanctioning to meet increasing demand.
Africa Oil and Power (2019). Available at: https://africaoilandpower.com/2019/11/14/african-continental-free-trade-agreement-will-spur-more-us-investment-in-africas-oil-power-industries/
EY (2019) EY Africa Attractiveness Report, London: EY, Available at https://www.ey.com/Publication/vwLUAssets/ey-africa-attractiveness-2019/$FILE/ey-africa-attractiveness-2019.pdf
IEA (2019) Nigeria Energy Outlook, Available at: https://www.iea.org/articles/nigeria-energy-outlook
International Energy Agency (2019) Energy consumption, Available at: https://www.iea.org/statistics/?country=NIGERIA&year=2016&category=Energy%20consumption&indicator=TFCbySource&mode=chart&dataTable=BALANCES
Petroleum Economist (2019) Licensing Rounds, Available at: https://www.petroleum-economist.com/licensing-rounds
PriceWaterhouseCoopers (2019) Africa Oil and Gas Review, Available at: https://www.pwc.co.za/en/assets/pdf/africa-oil-and-gas-review-2018.pdf
Rystad Energy (2019) West Africa: lack of new projects driving decline wave , Available at: https://www.rystadenergy.com/newsevents/news/newsletters/EandP/eandp-newsletter-july-2019/
(OE Digital, 2019) https://www.oedigital.com/news/467378-west-africa-offshore-outlook
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