Expectations High off Equatorial Guinea

April 4, 2019

Alen platform offshore Equatorial Guinea (Photo: Noble Energy)
Alen platform offshore Equatorial Guinea (Photo: Noble Energy)

Equatorial Guinea, one of Africa's top natural gas producers, is struggling with the reality of dwindling oil and gas resources and the hurdle of attracting financing for the monetization of the current output from its offshore fields.

The country is hoping to ride on its offshore oil and gas potential to reverse the natural gas field declines by wooing more exploration and production investors in the drive to transform Equatorial Guinea into a natural gas megahub in sub Sahara Africa.

Two years after becoming a member of the Organization of the Petroleum Exporting Countries (OPEC), Equatorial Guinea, now with an estimated 1.3 trillion cubic feet of proven offshore natural gas reserves, has high expectations on its offshore gas exploration, production and monetization projects to scale up output and assert itself as a dependable supplier of liquefied natural gas (LNG) in West Africa.

In what appears to be a major boost the country's attempt to maximize commercial dividends from the existing natural gas resources, US-based independent oil and natural gas exploration and production company Noble Energy has approved the Alen natural gas development offshore the West Africa country, through its subsidiary Noble Energy EG Ltd.

Noble Energy, which made the first gas condensate discovery in Equatorial Guinea's part of Douala basin in 2005, had its Alen field development plan approved by the government in January 2011 with initial production commencing in 2013.

“We are excited to announce this high-return, capital-efficient development as our next offshore major project,” said Keith Elliott, Noble Energy's Snr VP Offshore in a statement early this week.

“The Alen development is the first step towards creating an offshore natural gas hub in Equatorial Guinea, which will open the potential for future monetization of additional discovered resources through existing infrastructure,” he said.

“Noble Energy has discovered 3 trillion cubic feet of gross natural gas resources in the Douala Basin, which positions us well for LNG sales exposure over the coming decade,” added Elliot.

Equatorial Guinea, whose deepwater basin remains largely unexplored despite being highly prospective for oil and gas, is hoping to ride on Noble Energy's project to kick-start delayed ambitions including the implementation of the 15-year deal with Ghana for the supply of between 150 million cubic feet and 200 million cubic feet.

Further, the West Africa oil and gas producer, which relies on its hydrocarbon resources for 80% of its fiscal revenue and nearly 86% of exports, is hoping to use anticipated gas monetization success stories from  projects such as Noble Energy's venture to woo more foreign investment in the country's offshore oil and gas drilling operations.

However, Equatorial Guinea has little to show from its efforts to commercialize the country's oil and gas resources with some high capital expenditure projects supported by international oil and gas companies still delayed for either lack of financing or political goodwill.

Early this year, President Teodoro Obiang Nguema's government threw a spanner into the works when it rejected an application from UK's oil and gas exploration and production company Ophir Energy for an extension of the licence on offshore block R, where the long-delayed $1.2 billion Fortuna floating LNG (FLNG) project is located.

“Ophir announces that it has received notification from the Equatorial Guinea Ministry of Mines and Hydrocarbons that the Block R Licence, which contains the Fortuna gas discovery, will not be extended following expiry of the licence on December 31, 2018,” the UK firm said in January. Production had been slated for 2022 and Guvnor Group had been touted as the preferred LNG offtaker.

Ophir said the decision by Equatorial Guinea to reject extending Block R License will result in “an additional non-cash impairment of the asset, expected to be around $300 million.” The move also evoked memories of the 2015 unprecedented publication of a financial law by the government cancelling all tax and customs exceptions arranged with companies violating existing contracts and which global consultancy firm Deloitte said “elicited concern regarding regulatory stability, harmed the government’s credibility, and thus damaged investor trust in the country.”

Earlier, Equatorial Guinea was forced to suspend indefinitely the construction of the second phase of the existing sole LNG plant, Punta Europa (EG LNG) in Bioko Island and which was meant to process natural gas from Cameroon and Nigeria. The existing Train 1 of EG LNG utilizes feedstock from the Alba field with a large of the facility's processed gas destined for Asia-Pacific and Middle East two regions which imported 88 billion cubic feet and 42 billion cubic feet of gas respectively in 2016.

Nevertheless, Equatorial Guinea has no illusions on her fast-diminishing oil and gas resources and constrained local consumption especially of gas and hence the need for more international investment especially in deepwater drilling for additional discoveries that could lead to increased production.

It is estimated that between 2010 and 2017 the country's gas resources were depleted at the rate of 12% that is partly attributed to falling output from the Alba and Zafiro maturing fields.

If Noble Energy's Alen gas monetization project pulls through, the natural gas from the Alen field will be processed through the existing Alba Plant LLC liquefied petroleum gas processing plant and EG LNG’s liquefied natural gas production facility located at Punta Europa, Bioko Island according to the company's statement this week.

According to Noble Energy “definitive agreements in support of the project were executed between the Alen field partners, the Alba Plant and EG LNG plant owners, as well as the government of the Republic of Equatorial Guinea.”

Going forward, the government of Equatorial Guinea appears to have its plate full and would have to carefully play its offshore cards well if it expects to attract more international oil and gas investments that can help the country reverse the systemic declines of its oil and gas reserves and maintain sustainable production volumes.



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