Oil exploration will continue in the sub-Saharan Africa this
year despite the significant slump in crude prices in the second half of
2014.
GlobalData, a think tank for the energy and
healthcare markets, says in its latest report that emerging oil and gas
hotspots in Kenya, Uganda and Tanzania are expected to accelerate
exploration in East Africa, compared to its counterparts globally.
Another
area of focus for exploration is West Africa with great attention being
paid to Ghana, Guinea, Ivory Coast and Senegal. This is because of
recent discoveries, high exploration success rates and relatively low
operating costs, the UK-based consultant said.
“Sub-Saharan
Africa can expect to see substantial investment in its oil and gas
resources as recent discoveries continue to attract companies to explore
its vast deposits despite the low oil price environment. The region has
shown resilience to falling oil prices, with exploration being planned
and executed due to its lower cost environment and supported by recent
commercially viable discoveries,” reads the report.
GlobalData’s
research contrasts a report released by the World Bank in January,
which warned that lower crude prices could discourage investment in
exploration and development, specifically for new undertakings.
REDUCED FUNDING
“If
lower oil prices persist, they could undermine investment in new
exploration or development. This would especially put at risk investment
in some low-income countries or in unconventional sources such as shale
oil, tar sands and deep sea oil fields,” World Bank said in its
Global Economic Prospects report.
Crude
oil prices fell by more than 57 per cent between June last year and
January 2015 to less than $50 per barrel — a six-year low.
As
a result, some international oil and gas companies operating in the
country announced plans to cut back their exploration budgets.
The
plunge in crude prices also forced oil and gas companies to shelve
borrowing to finance exploration and consequently opt for mergers and
acquisitions to spread the risks and plug deficits in their budgets.
In
January, Afren Plc, a British oil and gas company with two exploration
licences in Kenya, announced that it would reduce its financing
requirements.
It also revealed that it was considering a merger with Seplat Petroleum Development Company of the UK to boost its liquidity.
Last
year, Swala Energy, an Australian oil and gas explorer with a licence
for block 12B in Kisumu, put on hold plans to raise Sh378 million that
was meant for exploration in Kenya, among other countries it has
interests in citing an “unfavourable market” brought about by the drop
in crude prices.
LOW-RISK ACREAGE
UK’s
Tullow Oil recently announced that it would slash its global
exploration and appraisal budget for 2015 from $300 million to $200
million.
Tullow’s partner, Africa Oil
Corporation of Canada, is however undertaking a cash call to raise $125
million to fund ongoing appraisal and pre-development work in Kenya’s
South Lokichar basin.
“In East
Africa, the emerging countries of Kenya and Tanzania have seen companies
such as Tullow Oil focus their exploration objectives onshore. Tullow’s
drilling plan focuses on low-risk acreage rather than exploration in
the capital-intensive offshore,” said Young Okunna, an upstream analyst
at GlobalData
Kenya has discovered
more than 600 million barrels of oil at the Lokichar basin, which has
led to the start of development studies with production set to begin in
2018.
According to GlobalData, oil
and gas companies are keen to explore the onshore East African Rift
system where the Lokichar basin is located as a result of the crude oil
deposits.
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