Major oil company cutbacks account for the bulk of the reductions.
Femi Oso, senior research manager for Sub-Saharan Africa at Wood Mackenzie, said: “Exploration cuts in the region will also contribute to a longer-term production slump as explorers have shied away from greenfield prospects, in favor of appraising known discoveries.
“However, the confirmation of the giant [ExxonMobil-operated] Owowo discovery in deepwater Nigeria shows the quality of resources Sub-Saharan Africa still has to offer.”
The recovery in exploration will likely be slow, the analysts add, with operators taking advantage of cost deflation to improve efficiency through streamlining design of their projects.
“Governments in Sub-Saharan Africa need to revive the upstream oil and gas industry by offering attractive fiscal terms rather than look to increase state revenues in the current climate,” Oso added.
Wood Mackenzie’s report highlighted the following trends:
- Deepwater has incurred the deepest capex cuts due to its high breakeven price relative to other sectors, with Nigeria and Angola the worst affected. As a result, Sub-Saharan African liquids production will decline from 4.8 MMb/d at present to 2.6 MMb/d by 2030.
- The mergers and acquisitions (M&A) market has slowed down, with buyers and sellers unable to agree on asset values due to oil price volatility
- Deal activity may pick up if prices remain low for longer, as companies opt to offload their non-core assets
- Mozambique, Angola, and Nigeria lead the way in upstream M&A opportunities for cash-rich companies
- Gas dominates recent exploration success, notably in frontier basins such as the Senegal-Bove offshore Mauritania and Senegal.
East Africa, however, has emerged as a gas region of global importance with more than 168 tcf discovered to date. The region is on track to become a major global LNG supplier with decisions pending on various export projects.
According to Oso, “Mozambique and Tanzania’s LNG projects have remained relatively unscathed by cuts and will be timed to align with global LNG demand growth to achieve a better price.
“The projects will appeal to buyers looking to diversify their portfolios and BP has already committed to offtake all volumes from Eni’s Coral FLNG.
“The expected increase in gas production in Sub-Saharan Africa, from 6 bcf/d currently to 13 bcf/d next decade, is very good news for the region.”
Onshore LNG plants remain the preferred solution for monetizing the offshore gas, although liquefaction via third-party-owned FLNG vessels is also emerging as an alternative.
Floating storage regasification units (FSRU) and piped gas supply to the power industry may also play a part in the longer term, the analysts add, as domestic markets develop from their very low base.