By Lynn Bolin

08-10-04

The African continent is becoming an increasingly important source of oil production and exploration for the global economy, with investment from the world's top energy companies expected to rise more rapidly than in the past and oil and gas production also set to accelerate.

This is according to representatives from oil majors ExxonMobil, Shell and Total, who were speaking at the 11th Annual Africa Upstream 2004 conference in Cape Town.

According to Kevin Biddle, Vice President for Africa at ExxonMobil Exploration Company, Africa currently accounted for 10 % of the world's total oil production, producing some 10 mm bpd of oil across 16 producing countries. For ExxonMobil, the continent accounted for a net 600,000 bpd of the company's total production of 4.2 mm bpd, and this was set to reach 900,000 bpd in the next four years, also representing a rising proportion of its production. Development projects the company was involved in with its partners in Africa could require asmuch as $ 50 bn in investment over the next decade, he said, representing a "huge commitment" by ExxonMobil.

"With worldwide demand for oil expected to grow at 2 % per year through 2020 and current producing fields depleting at 4 % per year, it will be a challenge to meet global demand," he noted. "African production now is just under 10 % of total world production, but it possibly could more than double and gain an increasing market share in the coming years, depending on the actions of governments and other factors."

The extremely high oil price also meant that certain smaller projects were now more viable, he confirmed. It would encourage smaller players to develop areas that might otherwise not be as commercially beneficial, although majors such as ExxonMobil did not base their own long-term exploration and development plans on the oil price. He believed an acceleration in oil production from both Nigeria and Angola would be required over the next few years if they were to meet their targets of 4 mm bpd and 2 mm bpd, respectively, by 2008. Angola was currently producing just over 1 mm bpd.
"The balance is tipped in favour of investment in Africa," he told conference participants. "The return on investment is competitive, the scale is there and there are many growth opportunities. The risks include long lead times, high capital operating costs in some cases, production delays, still uncertain reservoir performance in some deepwater areas, and the risk of more onerous terms imposed by governments over time."

Meanwhile, Demola Adeyemi-Bero, the Director of New Business Development for Shell International Exploration and Production, said his company was projecting that total worldwide investments required to produce the requisite oil and gas to meet global demand could be as high as $ 200 bn over the next 20 years. At the same time, going forward the company had a higher view of oil prices than in the past.
Currently, he told, Shell's African production accounted for just under 20 % of its total production (based on equity share of projects), and going forward this percentage should rise as the company's dominant assets in the North Sea and Gulf of Mexico saw their output levels plateauing and declining.

He estimated Africa's share of Shell's oil output could reach between 25 % and 30 % by the end of the decade, led by Nigeria, one of the company's major growth areas going forward for both oil and gas.
"Given this outlook, for oil investment Africa will be an increasingly attractive business environment that will enable companies to sustain their levels of oil production, while also going into new areas," he told the conference. "There will be increasing activity across the continent to supply the rising global demand for oil and gas, which should have a beneficial impact on countries through improved infrastructure and social development."

In both oil and gas the continent had a "huge resource base" to supply other markets, with the fourth largest proven oil reserves in the world at around 100 bn barrels, the third largest gas reserves, and it was the second largest oil exporter, he noted. Within the global context it was thus "very attractive" for oil and gas companies. This was particularly true since large oil consumers such as the US were continuing to diversify their supply sources, meaning Africa could only gain in importance as an oil supplying region.

A challenge for Africa was how to hold onto its large export potential while at the same time meeting internal demand as its economies grew.

"Africa is a key player in the oil market, and is uniquely positioned to supply major markets with its gas reserves in the Atlantic," Adeyemi-Bero added.

"These will be capital growth engines for the gas and oil industries compared to mature producers. Also, Africa has a strong track record of exploration success, especially in deepwater, and has a competitive cost structure. It has attracted a diverse range of players, and its continued success will require a focus on key opportunities, enabled by a competitively attractive investment environment."

Finally, Jean-Jacques Jarrige, Total's geoscience advisor in exploration and production, revealed that the company was planning to increase its African oil and gas production by 4 % year-on-year through 2008, driven mainly by its existing major oil and gas projects in Angola, Nigeria, Congo and Libya.
Total's production was set to rise from 783,000 bpd of oil equivalent (boepd) in 2003 to over 1.0 bn boepd in 2004. The group is currently active in exploration and production in nine African countries.

Total was closely examining its existing 300 fields (both operating and non-operating) to expend their profitability by optimising existing facilities and further developing their resources, which required an "active and creative" approach. The group aimed to maintain a high level of exploration, as well as accelerating its appraisal sequences.

"Our plan in Africa is for 'confident growth' based on aggressive exploration and appraisal projects and major oil and gas projects, as well as producing deepwater offshore and shelf discoveries, enhancing recoveries from mature fields, developing the gas business further, and exploring new plays," he concluded.

Source: Business Day