As the surge of oil and gas exploration activity in Africa continues apace, a clutch of countries are emerging as particular hot-spots on a continent filled with resource potential.
In East Africa, Kenya, Tanzania and Mozambique have seen significant investment from oil explorers both onshore and off the coast, while in North Africa, Morocco looks set to host a flurry of new operations targeting the Aaiun basin, one of the largest undrilled regions along the South Atlantic Margin. Even South Africa, which has historically made little effort to foster an offshore industry, has recently turned its gaze to the riches that might lie offshore.
West Africa’s oil and gas world is dominated by Nigeria, Africa’s largest oil producer. Nevertheless, other countries in the region are developing active oil and gas industries, particularly Gabon, which has attracted companies like Total and Ophir to explore the country’s deepwater pre-salt play.
And then there’s Mauritania on the northern outskirts of the West African region, an Islamic republic rich in resources (the country sits within the top 15 iron ore producers in the world) but whose people still struggle with the daily grind of poverty. More than half of the country’s population is reportedly living below the poverty line, an issue that has its origins in the societal upheaval caused by the sudden transition from nomadic to sedentary lifestyles, a transition that was forced on many travelling communities by extreme drought conditions over the last 50 years.
Developing Mauritania’s offshore oil
Within this context, new sources of revenue for a vulnerable economy are especially important, and hydrocarbon deposits have the potential to provide exactly that. Along with French Guiana, Kenya and Gabon, Mauritania was named by BNP Paribas as one of the four top exploration hot-spots for oil and gas in 2013.
Far the from the eyes of protestors and free from many of the environmental objections so far raised, offshore fracking seems to hold obvious appeal.
"Recent exploration efforts have only scratched the surface of these areas and we feel their full potential remains underappreciated," said BNP Paribas analyst Alejandro Demichelis. "The significant de-risking that has already taken place in Kenya and the Guyanas look underestimated by the market. Mauritania and Gabon are the true wildcards."
Mauritania is an oil and gas wildcard in the truest sense; precious little is known about the country’s true offshore potential. The discovery of the Chinguetti oil field by Australian firm Woodside Energy in 2001 was an important milestone for the Mauritanian oil sector, and since production started in 2006 it is still the country’s only project in production.
Disappointment and disputes
Unspecified technical issues at the Chinguetti field led to a drastic decline in production rates, tumbling from an initial 60,000bpd to just 20,000bpd within 10 months, and further slides have brought average rates down to less than 9,000bpd more recently. Similarly, the field’s proven and probable reserves have been consistently revised downwards from the original estimate of 120 million barrels to just 34 million barrels.
On top of the field’s poor performance was a major dispute between Woodside Energy, the field’s original developer, and the Mauritanian government, highlighting a common investment risk in countries with potential unstable political frameworks. The company signed four production-sharing contracts (PSCs) for Chinguetti in 2003 with Mauritania’s unpopular authoritarian leader President Maaouya Ould Sid’Ahmed Taya, but after Taya was deposed in a bloodless military coup in 2005, it wasn’t long before the successor government raised objections to the terms of the deal.
The quarrel centred on several amendments to the contracts, which according to the new regime reduced the government’s share in Chinguetti’s oil revenue as well as lowering taxes for Woodside and eliminating bank guarantees that were written into the original contracts. The government declared that the amendments were agreed "outside the legal framework of normal practice, to the great detriment of our country".
Woodside and its joint venture partners eventually came to terms with the state, agreeing to pay $150m to the country as a ‘profit oil bonus’ and suspend the offending amendments. But the row and the field’s falling production rates combined to sour the company’s operations in the country, and it sold its share in Chinguetti and nearby discovery areas Tiof, Tevet and Banda to Malaysian state-owned oil company Petronas in 2007 for $418m.
Mauritania’s intrepid offshore explorers
Despite Chinguetti’s disappointing performance and its chequered history, Mauritania’s unexplored expenses on land and at sea leave plenty of room for lucrative new discoveries, and whether it’s Total investigating the onshore Taoudeni basin or the handful of companies exploring offshore, there is no shortage of candidates racing for the next big find.
"Mauritania is highly underexplored with just 1.7 wells historically per 10,000 square kilometers of licensed acreage," wrote Bernstein Investment analyst Clint Oswald last year. "Mauritania has considerable potential, but it will take peer-leading explorers to locate the reservoirs."
Mauritania’s intrepid frontier explorers include Premier Oil, US company Kosmos Energy, which won exploration and production rights to three offshore blocks in 2012, and Chariot Oil & Gas, which in 2013 signed a farm-in agreement with Cairn Energy to share development costs for the C19 block. The partners believe the block, which lies north of existing Mauritanian offshore discoveries, shares the potential of the neighbouring deepwater fan plays.
Tullow Oil takes the lead
The oil & gas industry is circling back to take another look offshore South Africa amid a broad surge of activity around the African continent.
But the largest presence offshore Mauritania belongs to London-headquartered Tullow Oil, an exploration specialist in Africa and the Atlantic Margins that also has operations running in Ghana, Uganda, Kenya and Gabon. The company, which is a partner in Chinguetti, has been busy in Mauritania, with exploration, development and production activities in ten offshore licences, covering 50,000km² stretched over 750km of the country’s coastline.
Indeed, Mauritanian Oil Minister Taleb Ould Abdi Vall declared Tullow "the most important partner of Mauritania in the field of exploration and production of [offshore] oil and gas" after signing the contract for the company’s tenth and most recent exploration licence in April 2013.
As with most extensive frontier exploration projects, Tullow has encountered disappointments in its search for commercial finds. In 2011, drilling at the company’s Gharabi-1 well was announced as unsuccessful, with the well plugged and abandoned. February 2014 brought news that the much-anticipated Fregate-1 was not a commercial find, impacting on Tullow’s share prices, although Morgan Stanley noted that the 30m of gas condensate and oil encountered at the well "reaffirm the potential of making a big oil find offshore Mauritania via the follow-on wells".
Tullow has also faced the challenge of the relative lack of infrastructure and skilled labour in Mauritania. "We’ve had to prepare a base at the port, we’ve had to build a hangar for our own helicopters and we needed offices to accommodate all the engineers and personnel to help with this campaign," said Tullow’s country manager for Mauritania Kemal Mohamedou. The company’s local offices were set up in the capital Nouakchott in March 2013, and its Group Scholarship Scheme is helping to foster engineering and technical skills in Mauritania and across its African operations.
In the short-term, Tullow is investing in an aggressive four-well exploration campaign in 2013-14 while also developing the Banda gas field, which, while modest in size, was declared commercial in 2012 and will provide gas for an onshore gas-to-power project in Mauritania, with first production expected in 2016.
In many ways, Mauritania’s oil outlook fits into the broader template of other wildcard offshore exploration regions in Africa. The potential for oil is significant, but risks like poor infrastructure, a changeable political landscape and significant technical challenges make it far from a sure bet. Nevertheless, the companies investing in the country’s nascent offshore sector are confident that the finds will come, and their success could bring energy independence and accelerated economic development to a country whose population desperately needs it.