Africa’s New Oil Frontiers
For decades, oil and gas investors in Africa have focused on exploiting the riches of the continent’s established producers Nigeria, Angola, Libya and Algeria. In recent years, however, spurred on by large discoveries offshore Ghana and in the Lake Albert region in Uganda, the industry has been looking beyond the traditional oil markets to a new crop of frontier oil plays.
Wild West
Ghana has led the way in West Africa, after Anglo-Irish explorer Tullow Oil sparked industry interest with a major oil discovery at the deepwater Jubilee oil field in the Gulf of Guinea in 2007. That discovery has drawn significant investment into Ghana already and looks set to transform the country’s economy once production begins in 2010 and significant exports begin in 2011. If the Jubilee and nearby Tweneboa discovery are both brought online BMI sees production reaching 450,000 barrels per day by 2014.
US explorer Anadarko further heightened interest in West Africa’s oil potential with a significant find at its offshore Venus field in Sierra Leone in September 2009. Since then industry players have set out aggressive exploration programmes off the coasts of Liberia, Côte d’Ivoire and Equatorial Guinea. A planned round to award exploration licences around the small island nation of São Tomé and Príncipe has also attracted significant interest.
Eastern Promise
Tullow again led the way in East Africa with its major 2007 discovery in Lake Albert on Uganda’s western border. The 2bn barrel field has been slower to develop than Ghana’s Jubilee discovery, with production not expected to begin until the end of 2011. Development of Uganda’s oil industry is expected to require US$8-10bn in investment for the construction of production facilities, a refinery and pipelines to send oil to the Kenyan coast, where it can be exported.
Significant interest has spread from Uganda across East Africa, making it one of the industry’s most attractive regions. Much of that interest has focused on East Africa’s significant offshore gas resources, with important discoveries in Mozambique and Tanzania. Kenya is still holding out hope for a major discovery in spite of a recent failure from China’s state-run oil company CNOOC to strike hydrocarbons with its latest well. The truly intrepid have even begun to look to Somalia.
While the resource potential of these frontier markets has attracted great interest from oil and gas explorers, political risks have contributed to a challenging business environment. In Ghana, for example, US explorer Kosmos Energy attempted to sell its minority 30.9% stake in the Jubilee discovery to industry major ExxonMobil. That deal, however, ran into stiff political opposition and in early July 2010 Accra notified Kosmos that it would not approve the sale. The government instead encouraged Kosmos to sell its stake to the state-run oil company Ghana National Petroleum Corporation (GNPC). With Ghana looking to the China Development Bank for funds to develop its oil industry, it has been widely expected that GNPC would eventually sell the stake onto one of China’s state-run oil companies, with CNOOC appearing to be the most likely candidate.
In spite of such political risks, we see the potential rewards in these new frontier markets continuing to attract significant investor interest as explorers seek out opportunities in some of the world’s last largely unexplored frontiers.