East Africa’s Energy Boom
Meanwhile, ExxonMobil Corp (NYSE: XOM) projects that deepwater oil production will double by 2040, making the region the fastest-growing source of new crude supply. Strong growth and spending in this segment present tremendous opportunities for energy investors.
At least three-quarters of global deepwater spending historically has focused on the Deepwater Golden Triangle: offshore Brazil, the Gulf of Mexico and offshore West Africa. But over the past few years, a number of giant fields have been discovered outside this traditional core, prompting international oil companies to ramp up investment in these emerging plays. One of the newest, most promising areas for deepwater exploration is offshore East Africa.
In the past two years, exploration and production companies have announced a number of major oil and natural-gas discoveries off the coasts of Mozambique, Tanzania and Kenya.
Here’s a look at recent developments in each of these three nations.
Mozambique: US-based Anadarko Petroleum Corp (NYSE: APC) owns a 36.5 percent working interest in Area 1, the site of a series of significant gas discoveries in the Rovuma Basin, offshore northern Mozambique.
The company, which also leads operations in this block, estimates that Area 1 contains 100 trillion cubic feet of natural gas, about 30 trillion cubic feet to 60 trillion cubic feet of which is technically recoverable. To put those figures into perspective, North America has proven gas reserves of almost 400 trillion cubic feet; many industry observers regard Anadarko Petroleum’s finds offshore Mozambique as the largest discoveries of the decade.
Anadarko Petroleum plans to drill additional exploration wells in the region to further delineate the play and will make a final investment decision in 2013. If management opts to proceed with the project, the company will build two liquefied natural gas (LNG) trains that would begin shipping gas by 2018.
Italy-based integrated oil company Eni (Milan: ENI, NYSE: E) operates Area 4 offshore Mozambique and owns a 70 percent participating interest in the block. The firm on Aug. 1 announced its most recent discovery at the mamba North East 2 well site, in water that’s about 6,000 feet deep. In light of this most recent discovery, Eni now estimates that its Block 4 concession contains 70 trillion cubic feet of natural gas. The company is considering a development plan that also includes LNG export terminals.
Further to the south, Statoil (Oslo: STL, NYSE: STO) holds a 65 percent working interest in Block 2 and Block 5, which are located in waters that are about 1,000 feet to 7,500 feet deep. The company has farmed out an interest in some of this acreage to Tullow Oil (LSE: TLW, OTC: TUWOY), a firm that has made significant deepwater discoveries off the coasts of West African nations such as Ghana and Sierra Leone.
Tanzania: Statoil operates and owns a 65 percent working interest Block 2 offshore Tanzania; ExxonMobil owns the remaining 35 percent. In June 2012, the partners announced their second gas discovery in the block, raising the estimate of resources in place to 9 trillion cubic feet. These finds are located around 100 miles north of the large Mozambique finds, in Area 1 and Area 4.
BG Group (LSE: BG/, OTC: BRGYY) operates Block 1, Block 3 and Block 4, all of which are located south of Statoil’s concession. The UK-based firm announced its fifth gas discovery offshore Tanzania and estimates the combined recoverable resource in its blocks at more than 7 trillion cubic feet. BG Group plans to sink a series of additional exploration wells in the back half of 2012. The potential upside is huge: Evidence suggests that the same gas-bearing structures offshore Mozambique extend north into Tanzanian waters.
Kenya: US-based exploration and production outfit Apache Corp (NYSE: APA) recently commenced drilling its first Mbawa well in the Lamu Basin offshore Kenya, a play in which the firm owns a 50 percent working interest. The east African nation produces negligible amounts of oil and gas, though seismic surveys suggest the presence of hydrocarbons, as do the oil slicks that occur from natural seepage.
Apache Corp expects to announce results from this well toward the end of 2012 or in early 2012. Mbawa is one of eight prospects that the firm estimates could contain a total of 1.4 billion barrels of oil–an impressive find, if the company’s hypothesis proves out.
Anadarko Petroleum, Eni and Total (Paris: FP, NYSE: TOT) also hold significant working interests in exploratory blocks offshore Kenya. Most of these companies are still accumulating seismic data ahead of initial drilling programs. If the Apache’s test wells pan out, expect a flurry of activity in the region.
Strategy Session
Investors have a number of options to play the boom in east African exploration and drilling activity. Although producers with significant working interests in emerging offshore blocks are obvious bets, the boom in deepwater activity has far-reaching ramifications.
For example, several major oil services firms have indicated that strong deepwater spending has bolstered demand for offshore seismic surveys, or maps of subsea rock formations generated based on sound waves. The market for marine geophysical services has tightened to the point that vessel operators have been able to push through price increases.
Accelerating deepwater drilling activity also pushes up demand for other services such as logging while drilling, an innovation that enables operators to assess the quality and characteristics of an oil or gas reservoir as a well is being drilled.
In addition, the emergence of a new major deepwater basin outside the traditional Golden Triangle has tightened the supply-demand balance in the market deepwater and ultra-deepwater drilling rigs. Producers have signed contracts for deepwater rigs at daily rates that exceed $600,000 for the first time since oil prices peaked in 2008. Contract terms have also lengthened, suggesting that producers expect the market for deepwater rigs to remain tight.