Geology v geography

Conscious, perhaps, of the political problems Exxon Mobil faced when it tried to enter the highly prospective play off west Africa (see A new frontier), Royal Dutch Shell is betting on a different mix: African geology in South America with European politics.Location-Guyane-France

The Guyane Maritime licence, covering more than 35,000 square metres off of French Guiana, belongs to Tullow Oil, which held a 97.5% operating interest before it sold Shell a 33% stake (with the option for a further 12%, according to reports). Tullow believes that it has identified “a number of leads and prospects…on the block which include the giant Matamata structural trap in the north and a number of stratigraphic traps analogous to Tullow’s Jubilee field in Ghana in the south of the block.”

Or, put another way, Tullow believes that the basin off the tiny French colony, north of Brazil, shares the same geology as the much-hyped basin running along Africa’s west coast, from Ghana to Sierra Leone. Shell, an expert in the above-ground risks of operating in Africa, is convinced enough to stump up US$167.4m for the stake in, technically, the EU. As access to cheap, hassle-free oil diminishes, expect to see more speculative deals of this type.

Giving peace a chance

President Umaru Yar’Adua’s attempts to quell violence in the Niger Delta, Nigeria’s main oil producing region, (see Peace dividend) have received a further boost as the region’s largest militant umbrella group reinstated the ceasefire it declared prior to the government’s amnesty offer.

The Niger Delta’s main rebel group, the Movement for the Emancipation of the Niger Delta (MEND), announced a new, indefinite ceasefire on October 25th, saying that it had been encouraged by the government’s “readiness to engage” in serious negotiations.

MEND said on October 21st that it was mulling reinstating a three-month ceasefire in the heartland of Africa’s oil and gas industry, which expired last week, if the government were willing to begin “serious and sincere” peace talks.

Seeking gainful employment (for now)

Seeking gainful employment (for now)

In its latest statement MEND said it had softened its stance following last week’s meeting between Mr Yar’Adua and former rebel leader Henry Okah. MEND said that to “encourage the process of dialogue … an indefinite ceasefire has been ordered”. 

The change in tone is notable. Earlier this month MEND had pledge to fight on.

MEND’s hand may have been forced. It appears to have been weakened by Abuja’s amnesty offer in the Delta region, which has seen thousands—more than 6,000 militants according to the Amnesty Implementation Committee—of militants emerge from the delta’s Mangroves. Pipelines have been repaired and output is picking up: this has only been made possible by an improvement in the region’s security (see Delta dawn). Royal Dutch Shell, for example, resumed operations at its Soku gas plant last week, nearly a year after it was forced to close because of attacks on its pipelines.

Mr Yar’Adua this month offered to allocate 10% of Nigeria’s oil joint ventures to Niger Delta residents, potentially providing them with hundreds of millions of dollars each year in cash benefits. Details of the initiative still need to be worked out in parliament, where political support for the bill is unclear.

It is unlikely that the rapidly reformed ex-militants have surrendered all their weapons, and some intransigent rebel factions have not accepted the amnesty offer. Nevertheless, the large quantities of weapons and fighters taken out of the rebel camps through the amnesty have led many previously sceptical observers to be cautiously optimistic that the government’s efforts may bring a significant reduction in the unrest in the Delta, which has cost the country billions of dollars of lost earnings and threatened its stability.

This isn’t to say that problems in the Delta have been solved: transforming this short-term advance into the conditions for long-term peace in the region will involve a number of challenges. For example, the government must deliver on its pledge to retrain and rehabilitate militants who have joined the amnesty scheme.

Certainly the former militants could easily return to the creeks and resume attacks if the government fails to quickly find them work and a new way of life. Worryingly, some have already indicated in the media that if the government fails to fulfil its promise to give them jobs to enable them to maintain a legitimate living, they will return to the bush and resume attacking oil pipelines.

Only time (something Abuja has precious little of) will tell if the government can convince remaining militants to lay down their arms and resolve the major outstanding issues, notably over how to distribute oil revenue. This will not be easy. However, it appears that with many of its top commanders “retired” both MEND’s capacity and desire to strike have been impaired (if only briefly). MEND has used other ceasefires simply to regroup—the hope is this one will be different.

Heating up – News Wrap – Sep. 16th

Reading_Paper_HotSpeculation that Italy’s Eni might launch a takeover bid for Tullow Oil sent the Anglo-Irish explorer’s share price soaring yesterday. Cold water was soon poured on the talk. Eni, which has problems of its own, always seemed an unlikely buyer. Finding another reason for the jump in Tullow’s share price was not hard: Anadarko’s discovery offshore Sierra Leone did the trick. Tullow holds a 10% stake in the project.

 But Tullow was not done. Keen to stoke the fire further; Tullow’s CEO Aidan Heavey weighed-in adding that the chance of another major discovery between Ghana and Sierra Leone was greatly increased by the strike. Cheers all round then as a new oil frontier offshore West Africa is opened.  

Jumping into hot water, the EU clashed with the Obama administration over climate change. Temperatures appear to be rising ahead of December’s sit down in Copenhagen. The disagreement concerns the way national carbon reduction targets would be counted, with the EU accusing the US of seeking to water down Kyoto‘s successor.

The heat over climate change was not confined to politics as the World Bank warned of the crippling impact on developing nations if temperatures rise further. World Bank president Robert Zoellick implored rich nations to deliver an “equitable deal” at Copenhagen that acknowledged their historic responsibility for global warming. The logic goes that only by reducing their own heavy carbon footprints will rich nations be able to convince poorer countries to do likewise.

The report argues for rich nations to invest US$400bn a year by 2030 to help developing nations cut emissions. To date the only offer of climate change investment has come from the UK. But even Gordon Brown’s proposal that rich nations invest US$100bn a year to help poorer nations cut emissions falls short of the new reports recommendations, which will give China and India statistical clout at Copenhagen.

Joining the politicians and economists, it appears that climate change scientist can’t decide if the world is getting hotter or colder. Philip Stott says the will get cooler before getting hotter.

Something of a climate change skeptic, Professor Stott said his main concern is that a cooling could lull the public into a false sense of security with profound political implications, especially if climate change slips out of the public consciousness.

The Met Office’s head of climate change advice Dr. Vicky Pope was on hand to politely disagree. Dr. Pope argued that warming will continue over the next decade, however, even she conceded that periods not displaying strong temperature rises are possible.

Africa’s oil king

Life's a beach

Life's a beach

Another day, another attack on Nigeria’s beleaguered oil infrastructure as violence in the Niger Delta, Nigeria’s main producing region, ratchets up with no near term resolution to the situation in sight. To make matters worse, plans to reform Nigeria’s oil industry have been widely criticised by foreign oil companies active in the country. Shell’s local head Basil Omiyi said that the Petroleum Industry Bill in its current form would have a “significant negative impact” on investment.

How different things look further down the coast of west Africa. Nigeria, which should be producing upward of 2.5m barrels a day (b/d) of oil and tapping its vast domestic gas reserves to power an industrial revolution, has been usurped by Angola as Africa’s leading oil producer. In contrast to Nigeria, where President Umaru Yar’Adua’s government is looking increasingly weakened by its inability to reign in militants, Angola’s relative political stability has made it more attractive to oil companies. Indeed many are pinning hopes of reversing output declines on Angola’s offshore deposits.

Quietly the country has ramped-up output, bringing onstream new offshore developments. In July, Angola produced over 1.8m b/d while Nigeria’s output has plummeted from around 2.4m b/d prior to the onset of unrest in the Niger Delta, to around 1.75m b/d. With significant new offshore developments due online this year Angolan output is set to continue growing, and with competition for acreage when new licensing rounds take place — likely in 2010 — set to be fierce, its medium-term prospects look bright. Nigeria’s superior oil reserves mean that Angola will retain its position as Africa’s largest producer for only as long as unrest drags on – on current evidence this could be quite some time.

Angola’s offshore play has also proved prolific for, among others, BP, which produced 202,000boe/d from Angola in 2008, a 45% year-on-year increase. BP has already invested over US$10bn and plans to invest a further US$3bn a year through 2010. Following further exploration success on Block 31 – it announced its seventeenth and eighteenth discoveries on the Block – BP is targeting output of 300,000b/d by 2012.

French oil company Total is looking to Angola help reserves years of falling output. Total’s deputy general director has already said that the company is looking to participate in Angola’s next licensing round, which was suspended in 2008 prior to the country’s first parliamentary elections since the end of its civil war. In 2008 Angola accounted for around 9% of Total’s output. It is spending US$9bn on Pazflor, the third production hub in Block 17, which is expected to begin production in 2011, while exploration activity continues on Block 32 (operated by Total). With its Nigerian output stunted, Angola is taking on far greater strategic significance for Total.

Total holds a 20% stake in the Chevron operated Tombua-Landana development on Block 14, which is scheduled to enter production in the second-half of this year. The US$3.8bn development of the Tombua and Landana fields is expected to reach peak production of 100,000b/d in 2011. Angola is a key growth area for Chevron, which has four concessions in the country and had net production of 145,000b/d in 2008. In July it announced the start up of production from the offshore Mafumeira Norte project, the first development phase of the Mafumeira Field located in Area A of Block 0. Production is expected to hit 30,000b/d and 30m cu feet per day of natural gas in 2011.

Gas from both fields may be used to supply Angola’s first liquefied natural gas (LNG) plant. The plant, expected to be ready by 2012, is the first major development of Angola’s gas reserves. Again the contract with Nigeria is pertinent – a decision on the development of the Brass LNG terminal, in which Total is a shareholder, has yet to be made because of concerns over security.  Despite escalating project costs, which could more than double the total cost of the facility to US$10bn, work on the 5.2m tonne a year facility has started. Gas will be exported to the US, where Angola’s state-owned Sonangol has a stake in an LNG re-gasification plant near Pascagoula, Mississippi, Europe and Asia. Sonangol has a 22.8% stake in Angola LNG, Chevron holds 36.4%, while Eni, Total and BP each hold a stake of 13.6%. Sonangol is also building a new US$8bn oil refinery in Lobito, a city south of the capital Luanda. Again the contrast with Nigeria is prescient. Its downstream sector remains a mess and Nigeria’s state-owned oil company, despite massive investment, has failed to rectify the situation.

Unsurprisingly, Angola’s potential has not gone unnoticed by capital rich Asian state-owned oil companies. China, long an investor in the country, is also keen on its national oil companies increase their upstream presence. China National Offshore Oil Corporation (CNOOC) and Sinopec recently paid US independent Marathon for US$1.3bn for a 20% stake in Block 32. Both private and national oil companies have found a reliable partner in Sonangol – though admittedly the company remains under some pressure to reform. This is not to say that Angola remains free of security risk but as Nigeria sinks further into the abyss its status is as West Africa’s most exciting offshore play is only enhanced.