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07 July 2023

Advancing Oil and Gas Exploration Frontiers in Africa

Frontier exploration remains a pivotal force in shaping investments across Africa, even amidst the backdrop of oil companies divesting from mature assets. Notably, Namibia stands out as a coveted petroleum region, drawing significant attention from the global industry.

While recent years have witnessed a prevailing narrative of retreat and downsizing within Africa's oil and gas sector, frontier exploration continues to hold sway. International oil companies have been streamlining their portfolios, often divesting assets across the African continent. Industry giants such as BP, Exxon, and Shell have been more focused on downsizing than seeking new opportunities.

For instance, Shell is pursuing annual divestments averaging $4 billion as it strives to achieve net-zero targets. This strategic move includes plans to sell its 30% stake in the Shell Petroleum Development Company of Nigeria (SPDC). Meanwhile, the Eni-BP Azule Energy joint venture has seen partners collaborating to secure economies of scale in Angola, one of Africa's major oil producers.

Consequently, Africa's share of global oil output has experienced a decline, dropping from 12.3% in 2010 to 8.1% in 2021, as reported by BP's Statistical Review of World Energy.

However, conversations with international oil executives reveal an intriguing dimension. Many executives highlight Namibia as a hub of exciting exploration prospects. TotalEnergies and Shell are driving ambitious drilling campaigns in the offshore Orange Basin, where resources are estimated to be in the multiple billions of barrels.

According to Keith Hill, CEO of Africa Oil, which partners with TotalEnergies, the Orange Basin emerges as "probably the most sought-after new petroleum region globally."

Recent indications suggest robust flow rates from Shell's Graff field off Namibia's coast, surpassing expectations and pointing to resource richness and cost-efficiency.

As observed by consultancy Westwood Energy, TotalEnergies' Venus discovery and the broader exploration of the Orange Basin coincide with a resurgence in frontier exploration. The commercial success rate of frontier exploration reached a record high of 25% in 2022.

Shell's endeavors in 2023 commenced with a third light oil discovery at the Jonker-1X well in Namibia's offshore licence block PEL 39. Prior achievements include the Graff-1 and La Rona-1 drilling in the preceding year, prompting Chevron and Woodside Energy, among others, to participate by "farming in" for drilling rights in neighboring blocks.

Among the acquisitive entities, state-owned Gulf company QatarEnergy (QE) has actively expanded its overseas presence through merger and acquisition (M&A) ventures. Energy consultancy Wood Mackenzie notes that QE's partnerships with Shell and TotalEnergies across four blocks have secured 2.5 billion barrels in Namibia. This underscores the success of QE's strategy to collaborate with major players in high-impact frontier exploration regions.

While growing interest centers on Namibia's Orange Basin, the emphasis remains on substantial STOIIP (stock tank oil initially in place) forecasts, a pivotal driver for this engagement, as explained by George Maxwell, CEO of Vaalco Energy.

Frontier Opportunities and IOCs' Resilience

The allure of frontier opportunities illustrates the continued appeal of Africa to international oil companies (IOCs), even amid their divestments from mature assets. The evolving landscape provides openings for nimble, smaller independents. The entry of more majors into basin exploration, albeit with higher costs, reinforces this trend.

Namibia's resource potential is evidenced by its rapid progress. While Guyana, another recent frontier, required 15 discoveries to reach 7 billion barrels of reserves, Namibia achieved this milestone in just three discoveries. Notably, major deep-water oil finds are occurring off Africa's coastlines. Eni's Baleine discovery in 2021, for instance, is Côte d'Ivoire's largest and is already under development. Such discoveries offer low-cost, low-carbon production – a valuable asset in a sustainable future.

Recent exploration and production (E&P) activities highlight the shift in oil company capital expenditure away from established giants like Angola and Nigeria. Investment diversification encompasses various plays, including Senegal, Namibia, and Uganda, which plans a major export pipeline to Tanzania.

S&P Commodity Insights emphasizes that new licensing initiatives in Africa prioritize deep offshore areas, leveraging technical and financial advantages. While political volatility may pose constraints, some governments are enhancing E&P terms for new licenses.

Timing is critical, notes S&P. With the window for foreign upstream investment potentially closing, host governments are enhancing fiscal and contractual terms to attract investment. Angola, Nigeria, and Tanzania may improve "acreage offers" with favorable terms. However, attracting IOC capital remains challenging due to elevated above-ground risks and operational complexities in the region.

Emergence of New Hydrocarbons Provinces

Following Namibia's lead, South Africa is emerging as another hydrocarbons province capturing IOC attention. Operator Africa Oil Corp is collaborating with Eco Atlantic Oil & Gas and Ricocure for seismic data reprocessing and a two-well drilling campaign. In Zimbabwe, the Australian independent Invictus Energy has identified 13 potential hydrocarbon-bearing zones, with drilling planned for later this year.

Liberia presents a promising prospect. ExxonMobil's application to pre-qualify for offshore oil exploration blocks indicates growing interest. Notably, Sierra Leone mirrors Guyana's geology, offering another exciting play. London-listed independent oil company Wildcat Petroleum and TGS are conducting assessments of Sierra Leone's offshore potential, highlighting exceptional exploration opportunities.

Infrastructure-led Exploration and the Future

The concept of "infrastructure-led exploration" gains traction, focusing on regions with existing export facilities. This approach enables quicker monetization of discoveries, reducing development costs.

While smaller fields become economically viable through existing infrastructure, the future of frontier exploration remains intact. Large-scale frontier exploration continues to allure IOCs seeking advantaged reserves to enhance their resource base.

Italy's Eni demonstrated the significance of frontier exploration with the Zohr gas discovery in Egypt. As billion-barrel reserves surface in uncharted territories like Namibia, the pursuit of newer oil and gas provinces remains a driving force propelling the industry toward Africa.