Africa Is The Undeniable Final Frontier For Oil

Authored by Irina Slav via OilPrice.com,

The pandemic has been devastating for the oil industry globally. Explorers suspended drilling, producers, idled wells, Big Oil majors put up assets for sale. But the world continues to need oil, albeit lower amounts of it than a year ago, and it will continue to need it.

Exploration is not dead. It is especially not dead in Africa – a hot spot in oil and gas before the pandemic.

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The East Africa Crude Oil Pipeline

Earlier this month, French Total and the Uganda government signed an important deal, for the construction of a pipeline that will carry Ugandan oil to the Kenyan coast. Two weeks later, the presidents of the two countries signed their own deal about the $3.5-billion infrastructure.

The final investment decision on the pipeline is expected by the end of the year in a rare good sign about the future of oil demand. Uganda and Kenya are both newcomers on the oil scene with hopes to join the oil exporting community soon. If the construction of a $3.5-billion oil pipeline still makes economic sense for countries that are not among the wealthiest in the world, there may be some hope for oil demand.

The South African oil discovery

Africa Energy, a Canadian exploration company, said last week it expected to strike a lot of oil in an offshore block in South Africa with reserves that could exceed those of an earlier discovery made by Africa Energy and Total in the same block. Earlier this year, Africa Energy doubled its stake in the consortium exploring the block to 10 percent. Total is the operator. Africa Energy should announce the results of the drilling project by the end of next month.

The Luiperd prospect is the largest of five prospects in the offshore block 11B/12B in South African waters that have attracted explorers’ attention. Consortium members estimate the resources of Luiperd alone to be in excess of 500 million barrels.

What’s more important is that, according to Africa Energy, the Luiperd prospect offers as much as 80 percent of success—”unheard of in frontier exploration today,” the company’s chief executive Garrett Sodden told an industry conference. The entire offshore block has potential reserves of several billion barrels.

Drilling in Zimbabwe

An Australian company, Invictus, is meanwhile preparing to start drilling exploration wells in Zimbabwe, with the start date scheduled for October 2021. These would be the first oil and gas wells to be drilled in South Africa’s neighbour to the north—another country hopeful it will strike oil, which will boost its energy self-sufficiency.

The drilling project is seen to cot some $15 million, Africa Oil and Power reported last week, adding that it builds on promising results from earlier exploration conducted by Exxon. In the 1990s, Exxon identified an area that was highly likely to contain hydrocarbons but dropped the project because it was after oil and the area was more likely to contain gas. The government of the country, which is currently 100-percent dependent on exports for its energy needs, seems fine with gas, too. It is currently putting the finishing touches to a production sharing agreement with Invictus in case oil and gas are found.

The Gambian license

UK-based explorer PetroNor earlier this month received a 30-year drilling license from the Gambian government after an arbitration process concerning two offshore blocks. After the successful completion of the arbitration, PetroNor will have rights to explore just one of the blocks, with the other passing to an unnamed “major oil company”.

The new license is based on a new production-sharing framework developed by the Gambian government, which, according to PetroNor, is more favourable for explorers and producers. The company now has a year to decide if it wants to proceed with drilling in the offshore block.

Pandemic delays

Despite all the positive news from frontier regions in Africa, the continent has not been spared the fallout of the pandemic that destroyed a lot of oil and gas demand. Kenya’s government, for instance, said recently that Covid-19 had slowed down exploration in the Turkana region, which would delay Kenya’s ambitions to become an oil exporter until 2024, from an earlier plan to start shipping oil abroad in 2022.

The pandemic has also delayed exploratory drilling in Mozambique following the distribution of new blocks in a government tender. It was supposed to begin this year but “some adjustments” the pandemic necessitated have pushed the schedule to 2021-2022.

One of the biggest producers on the continent, meanwhile, is working on a new exploration strategy to boost its oil and gas reserves. Angola’s government earlier this month approved a plan, to take effect by 2025, that would see the country boost its exploration activities to increase recoverable reserves and make sure it produces at least 1 million bpd by 2040.

South Africa, on the other hand, has delayed a new oil and gas exploration and production bill that was supposed to be passed this year, again because of the pandemic. Now, the deadline for the approval of the bill has been moved to the end of the third quarter of 2021.

Overall, however, the picture appears to be better in Africa’s frontier oil regions than in legacy producing parts of the world.