By Ian Jenkins
The Middle East is oil. In fact, it’s a staggering 800+ billion barrels of oil, or nearly half of the world’s reserves. But there’s nothing left to discover.
Forget the Aramco IPO.
Today, Africa is King when it comes to oil exploration potential, and it’s the number-one venue for investors looking for real upside.
A string of successful exploration projects over the past decade has seen an additional eight African countries join the ranks of those with proven reserves, taking the continent’s tally to 28.
The African Oil Club has grown thanks to major new discoveries in Ghana, Mozambique, Senegal, Kenya, Mauritania, Niger, Uganda and South Africa.
Source: World Atlas
So far, that’s meant 128 billion barrels of oil and nearly 500 trillion cubic feet of proven natural gas reserves. That’s a 40-percent increase since 2000.
Africa’s oil & gas investment outlook is favorable, and money is pouring into the sector.
As per the Nigerian National Petroleum Company (NNPC) via Africa Oil Week, a staggering $194B is being primed for African capex between 2019 and 2025, but what investors are interested in is what comes next …
The 5 Hottest African Venues for Major Discovery Upside
Namibia is by far the best, most underexplored venue on the continent. Only six wells have been drilled in half a century—most of them in just the past four years.
But Andrew Sekandi, an investment advisor at Alpha Sierra in London, believes the country’s geological offerings are analogous to the amazingly prolific pre-salt fields offshore Brazil, which has up to 16 billion barrels of crude reserves.
That’s why Exxon (NYSE:XOM) has been scooping up offshore acreage here. It already owned 2.8 million gross acres offshore, and in April move to acquire an additional 7 million net acres in four deepwater blocks, with exploration to begin by the end of this year.
Exxon is gunning for what it believes will be an “elephant find”.
But onshore, there’s another potential bonanza shaping up in the Kavango Basin, where junior explorer Reconnaissance Energy Africa (TSXV:RECO) managed to scoop up a basin the size of Eagle Ford, all by itself.
That usually doesn’t happen, but in this case, the Africa-savvy oil experts behind Reconnaissance Energy Africa had the connections and foresight to bring critical aeromagnetic survey data to the only geological survey expert that the supermajors trust: Bill Cafy.
Cafy reported that the data showed up to a 30,000-foot sedimentary basin, and all the characteristics of a basin that’s going to be producing commercial quantities. Reconnaissance Energy Africa then bought out the entire basin, which is 6.3 million acres, compared to Eagle Ford’s 6.9 million.
Then, Sproule–a tier 1 resource assessment company–estimated that Kavango has a potential 12 billion barrels of oil and 119 trillion cubic feet of natural gas. That’s just for the shale. It doesn’t even count the conventional potential.
Reconnaissance Energy Africa (TSXV:RECO) will begin its three-well drill program at Kavango in the first quarter of 2020. That’s just a few months away before we find out what this Eagle Ford-size basin holds for one of the hottest venues in Africa.
What investors will like most about Namibia, is this: It’s one of the friendliest oil and gas regimes in Africa, with royalties set at only 5%. That’s because it’s aspiring to be the next Angola–the second largest OPEC producer in Sub-Saharan Africa, just to the north.
So, while Namibia doesn’t have any proven reserves yet, that means it’s got the most upside there is to offer in Africa, and for investors who want the biggest reward, this is the place to be when the first explorer strikes it big.
Mozambique might not be one of the continent’s top 10 hydrocarbon producers yet but is set to become a major beneficiary of the O&G dollars. Nearly $45 billion is set to be pumped into the country’s LNG megaprojects to unlock its giant reserves of natural gas.
Mozambique might not have as much upside as Namibia, but it’s still got plenty of potential.
The country has the potential to become a major LNG hotspot. S&P Global Platts reported last December that Mozambique could become the third-largest LNG producer in sub-Saharan Africa in a few years.
Already, nearly 90% of Mozambique LNG production has already been sold through long-term contracts with key buyers in Asia and Europe. Yet, production is expected to start until 2024.
The key supergiant on this playing field is French Total SA (NYSE:TOT), which just completed the acquisition of Anadarko’s (NYSE:APC) 26.5% stake in the LNG project for $3.9 billion.
Mozambique is also home to Exxon’s massive, $23.6-billion Rovuma LNG project, which is expected to produce 15.2 million tons of LNG per year, compared to Total’s expected 12.9 million tons.
Exxon’s final investment decision on Rovuma is expected in early 2020, with first production expected in 2025, a year after Total’s project.
Mozambique, for its part, is drawing growing attention as an LNG hot spot. S&P Global Platts reported last December that Mozambique could become the third-largest LNG producer in sub-Saharan Africa in a few years, with total planned capacity to be added standing at 25 million tons per year, as per Wood Mackenzie calculations.
Massive oil and gas discoveries and major infrastructure have transformed the country from an importer to an exporter. Those tension-raising power cuts shouldn’t cause any more problems, and debt to foreign oil companies is due to be zeroed out sometime next year.
Egypt is also set to boost its global power as a key energy hub, exporting to Europe (to beat dependence on Russian gas), Lebanon and Jordan. And while technically it has a rival in Israel when it comes to gas, all of Israel’s gas will make its way to Europe via Egypt. (The only kink in this chain is the potential for another Arab Spring as protesters launch an unprecedented move against the Al-Sisi leadership for corruption and the regime fights back with an iron fist).
Foreign investors are swooning over Egypt, thanks to reforms and declining prices of oil and gas production. Nowhere has investment been higher: In five years, oil and gas companies have dropped $30 billion in Egypt.
Egypt’s discovery of natural gas in the giant Zohr Field off the Mediterranean coast has catapulted it into one of the Middle East’s gas majors with an annual production of 1.7 billion cubic meters of gas. BP (NYSE:BP) has already committed to $15 billion adding to previous investments in the country. The company, with its partners, currently produces close to 60 percent of the entire country’s gas production. And it’s on track to increase its stake even further.
Eni (NYSE:E) is another oil giant with a massive footprint in the Zohr field. In fact, its gas production in the region accounts for 16 percent of the company’s total hydrocarbon output. Not only does Eni have a major stake in the Zohr field, it operates with a number of exploration and production endeavors across Egypt with various regional partners.
Don’t be fooled, either. Egypt is positioning itself to become an extremely powerful oil and gas hub that will take on Russia and bridge three continents.
This is a story of regime change that may work in the favor of investors.
Angola is already the second largest producer in Africa, after Nigeria. But decades of corruption and mismanagement of the state-run oil company, Sonangol, have left it high and dry in combination with the oil price crisis that started in 2014.
In 2017, Joao Lourenco took power, ending the four-decade power play of Jose Eduardo dos Santos, along with his daughter’s destructive leadership of Sonangol.
Now, Angola is hoping to lure investors back into its fold with a much more sensible and attractive investment regime.
For starters, it’s hoping to sell stakes in Sonangol and a string of other energy companies, so there are plenty of opportunities on the horizon.
To do that, it’s banking on major economic reforms to attract investors and bring in much-needed cash. No one’s forgotten the gross mismanagement of Sonangol under its previous leadership, though, so the Angolan government is going to have to pull out all the stops on this one. The goal is an IPO for Sonangol in 2022.
Beyond that, the government is also hoping to lure investors into stakes in Puma Energy, the China-Sonangol oil venture, and the Ivory Coast SIR refinery.
The government has made it easier for investors to repatriate money via commercial banks; it’s made it possible to invest in the sector without a local partner; and it cut taxes on some oilfields by 50%, creating an independent body for managing oil and gas concessions. The first litmus test will likely come later this year with the attempted sale of stakes in the SIR refinery.
Italian oil giant Eni has made five oil discoveries in Block 15 just in the past 15 months, estimated to contain up to 1.8 billion barrels of light oil in place.
Next year, Angola expects output to increase by 35,000 bpd, but overall production is down more than 300,000 bpd in the past two years. The next licensing rounds are key to the recovery.
This is the freshest discovery so far, with Kosmos Energy (NYSE:KOS) and partner BP announcing on October 28th that its Orca-1 exploration well made a major gas discovery offshore Mauritania in the BirAllah area. So far, that’s a 100% success rate from nine wells targeting the inboard gas trend in Mauritania/Senegal.
In total, Kosmos believes that Orca-1 and Marsouin-1 have de-risked up to 50 TCF of GIIP from the Cenomanian and Albian plays in the BirAllah area, more than sufficient resource to support a world-scale LNG project.
This is one new gas venue that is hoping to rival its neighbors in the emerging LNG boom.
The bottom line is this, if you want oil and gas upside, it’s mostly to be found in Africa, and if you want the biggest upside, it’s found in the smaller explorers who have so much more leverage. When they make a hit, it resounds very loudly with share prices.
By. Ian Jenkins
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By Ian Jenkins