Petro-states in the making

Chad Barnes, EIC

July 1, 2016

Unlocking Senegal and Mauritania’s major finds will be a huge hurdle, with a lack of infrastructure in both countries. But, it’s also an opportunity for supply chain companies, says the EIC’s Chad Barnes.

A worker onboard the Ocean Rig Athena. Photos from Cairn Energy.

West African oil producing nations, along with the rest of the world, are suffering the effects of the low oil prices. However, in the north of this region two countries are attracting interest as potential new energy nations.

Recent major discoveries in Senegal and Mauritania have the potential to transform both countries into net exporters within the next five years. Senegal persevered with over 140 exploration wells of limited success until Cairn Energy’s FAN-1 and SNE-1 wells in the Sangomar Deep block in 2014 yielded major results. Both wells discovered significant hydrocarbon resources, with the SNE field having an estimated contingent resource of 561 MMbbl. Cairn is currently planning the SNE-4 appraisal well and could reach first oil as soon as 2021.

Cairn’s success was shortly followed by Kosmos Energy in 2015, when the Tortue West structure was discovered straddling the Senegal/Mauritania border. Subsequent discoveries in both Mauritania and Senegal established the Greater Tortue Complex that has a P-mean gross resource estimate of 25 Tcf of gas. A development concept will be selected in mid-2016, with a floating LNG facility looking the most likely option.

Although yet to produce any hydrocarbons, Senegal has great potential to become a petro-state due to its political stability and positive investor climate. Both Senegal and Mauritania were quick to enter into a memorandum of understanding with Kosmos Energy, which sets out the principles for an intergovernmental cooperation agreement for the development of the cross-border Greater Tortue resource. Kosmos Energy believes that gas demand will have risen by the time the field becomes operational and is looking to capitalize on the current low contractor costs.

The ultra-deepwater drillship Ocean Rig Athena was previously chartered for drilling operations offshore Senegal, most recently on Cairn’s SNE-4 appraisal well.

Senegal and the SNE discovery has much in common with petro-state Ghana and the Jubilee discovery of 2007. Ghana boasts political stability, like Senegal, and had no significant oil activity until the Jubilee field started production in 2010.

Initially, Ghana seemed set to thrive from new oil and gas revenues and had promised to learn the lessons from nearby African nations to avoid the “oil curse.” However, six years after first oil, Ghana’s economy is declining and the government was forced to take a near US$1 billion emergency loan from the IMF in 2015.

Senegal’s President Macky Sall, a geologist and former director general of Senegal’s national oil company Petrosen, has insisted they will not suffer the same fate and stressed that Senegal will take “every measure” to ensure the projects are carried out in the “best interests of all current and future generations.”

Kosmos Energy, which is a partner in the Jubilee field, has claimed an excellent working relationship with both Senegal and Mauritania, and is confident that Senegal will benefit from their 10% stake in the Greater Tortue Complex project.

Following the two major discoveries, neighboring countries have now also received attention as new frontier regions. A new 3D seismic survey was completed offshore Gambia last September by Erin Energy. The area has massive potential as it lies in the block directly south and on the same trend as the FAN-1 and SNE-1 hydrocarbon discoveries. Likewise, Woodside Energy has recently taken ownership of the AGC Profound block in Guinea-Bissau, as the discoveries have significantly de-risked the area.

Huge challenges will need to be overcome to develop the SNE and Tortue fields as Senegal and Mauritania lack the infrastructure and capabilities required for the billion dollar projects. This provides opportunities for supply chain companies with extensive offshore experience to offer their services to meet the future demand.

Chad Barnes
is the sector analyst at the EIC for the upstream sector, and covers this remit globally. He has a degree in geology from the University of Leeds, UK, and a master’s degree in integrated petroleum geoscience from the University of Aberdeen. Prior to the EIC, Chad worked with North Sea operator, Ithaca Energy.