West Africa’s oil supply has been reduced by disruptions and mature field declines over the past years, and is expected to shrink further this year because of capital budget cuts and OPEC+ production curtailments. Due to sanctioning delays, the declining production trend is not expected to be reversed until the next decade. This article assesses the outlook for West Africa’s E&P industry, illustrated by three key drivers: production, economics of new projects and capital investments.
Figure 1 depicts oil production (crude and condensate) from West Africa from 2010 to 2025, split by country. Last year over 70% of total oil volumes in the region were produced in Nigeria and Angola, with the total output reaching 4.6 million bpd. In 2016, Nigeria’s oil production dropped by almost 500,000 bpd year-on-year as an ongoing conflict in the Niger Delta disrupted production. The country’s output began to recover in 2017, albeit still plagued by instability and outages, and grew to 2 million bpd in 2019. This year, however, Nigeria’s oil supply is expected to drop to 1.8 million bpd (of which about 1.5 million bpd is crude oil) as a result of reduced capital budgets in response to the low oil price and production cuts agreed under the latest OPEC+ deal. Angola’s oil production has been falling since 2015 and the decline is expected to continue over the next five years. The country’s largest oil field, Dalia in Block 17, has seen production more than halve from peak levels of 250,000 bpd to around 120,000 bpd expected this year. Recently sanctioned discoveries such as Mafumeira Sul (put on production in 2016) as well as the Kaombo project (Kaombo Norte FPSO coming on line in July 2018 and Kaombo Sul in April 2019), are expected to mitigate the decline. However, delays in sanctioning activity could lead to a significant drop in oil supply in West Africa after 2020 as the growth supported by new projects is only expected to resume after 2030.
Figure 2 shows total recoverable resources and breakeven prices for the top oil discoveries expected to start producing within the next 10 years in the countries that are the main contributors to the supply in West Africa – Nigeria and Angola. Nigeria holds the largest potential in terms of undeveloped resources. The Bosi field, operated by ExxonMobil, holds resources of nearly 800 million boe and is expected to be brought into development towards 2030. Its breakeven price is estimated at around $70 per barrel, making it sub-commercial in the prevailing market conditions. Along with many others, the field has recently seen an increase in its breakeven as the Nigerian government now requires royalty payments from deepwater fields that previously paid none. The deepwater Owowo West field with 550 million boe in resources has a breakeven price of $40 per barrel, making it a likely candidate for earlier development. In contrast to Nigerian discoveries, unsanctioned fields in Angola hold less discovered resources – the ultra-deepwater Agogo field is the largest in the group with nearly 250 million boe. Its breakeven price is competitive at $31 per barrel, and start-up is therefore currently expected towards 2025. Overall, given the prevailing market conditions, many E&P players have stated that they will focus on developing projects with breakeven below $35 per barrel and otherwise look to cut capital spending. This means that the majority of African discoveries that were previously approaching final investment decisions (FID) will now face delays.
Figure 3 shows the oil field capital investments in West Africa over the period 2010 to 2025, split by life cycle. Investments have seen a steady decline from peak levels of around $42 billion in 2014 to $14 billion in 2019. Around 75% of the investments last year were made in Nigeria and Angola. In the current low oil price environment, investments are forecasted to fall 20% this year and a further 20% next year. A lack of new project sanctioning and significantly reduced capital budgets are the key drivers behind this trend. After 2021 we expect to see a recovery in investments in the region’s key countries Nigeria and Angola, as well as increasing contributions from FIDs in Senegal, Ghana and Congo. The first phase of Senegal’s Sangomar field was approved for development in January 2020 and is expected to bring around $4.2 billion in greenfield investments. Ghana’s Pecan field was expected to be sanctioned by the end of 2019, but the FID has been delayed and investments in the field are now expected from 2022. Similarly, the third phase of Congo’s Nene Marine project is projected to be sanctioned by the end of 2022.
According to Rystad Energy’s supply outlook, West African oil production will follow a declining trend at least until 2025. A challenging market environment, exacerbated by the impact of recent changes to fiscal regimes, has led to further delays in new field developments in the region. However, Nigeria and Angola hold significant potential in terms of undeveloped resources. Oil and gas production in the region could therefore increase again in the future, given timely development of discoveries.