Oil and Gas Africa: Ophir Runs Up The Score In Equatorial Guinea

Written by Jeffrey Cavanaugh

As a frontier market, the countries of Africa represent both tremendous opportunities and tremendous risks. On the risk side of the ledger are all the usual complications of international trade and investment compounded by the problems inherent in a developing, emergent continental market consisting of 54 countries and 1.1 billion people – it’s a lot to keep track of.

Luckily, the ups and downs of the African oil and gas trade aren’t one of them if you know where to look. To help with that, AFKInsider has compiled all the news you need to know now in order to slim down your risk in the weeks ahead. Let’s see what’s happening out there.

Block R’s Riches

Ophir Energy, which turned ten this year, has been hitting gas nearly everywhere it looks in Equatorial Guinea’s waters.  At its latest well, Fortuna-2, natural gas flowed at a rate of 60 million cubic feet of gas per day, confirming yet again the rich find Ophir has made in this portion of the country’s offshore.  Altogether the company has discovered around 1.3 trillion cubic feet of gas discoveries in Block R’s Fortuna complex, and once Ophir’s other on-block discoveries are added the total rises to 3.4 Tcf.

Ophir has an 80 percent interest in offshore Block R, which lies in the southeastern Niger Delta Basin close to several oil and gas discoveries in the Nigerian sector of the Gulf of Guinea.  So far, Ophir has drilled over six wells in the block since 2008 and made five major discoveries.  In addition to the gas that Ophir has discovered, there is significant potential for oil existing in deeper formations underlying the lighter hydrocarbon.  Even without the oil, however, analysts have pegged the value of Block R’s finds at well over $1.0 billion. If a liquefied natural gas export project is eventually constructed — a decision for which is expected in the near term — then that valuation will go even higher.

At the moment, Equatorial Guinea is at best a bit player in the global gas trade.  The U.S. Energy Information Agency reports that dry gas production increased from 1.0 billion cubic feet in 2001 to 243 Bcf in 2012, but since domestic consumption has also increased dramatically only about 186 Bcf of that production has been available for export.  Those exports flow from Equatorial Guinea’s sole LNG terminal on Bioko Island, which is operated by U.S. independent oil company Marathon.  That facility came online in 2007 with one train — the plant needed to process and condense the gas through freezing into a transportable liquid — capable of exporting around 173 Bcf of gas a year.

Equatorial Guinea’s Expanded Resource Base

These finds mean that Equatorial Guinea, already known as the Kuwait of Africa, could eventually become known as its Qatar, too. The addition of significant amounts of natural gas to the country’s hydrocarbon mix is very important for its long-term future.  While it remains one of Africa’s largest oil producers at around 318,000 BOPD, Equatorial Guinea’s fields are nonetheless in the midst of a long-term decline that is not likely to be reversed in the near future.  Just seven years ago in 2007, production was fully 16 percent higher at 369,000 BOPD, and while advanced oilfield recovery techniques may eventually expand the production lifespan at the country’s existing assets, the long-term outlook is for production to continue to diminish over time.

Since Equatorial Guinea’s economy is so heavily dependent on oil exports, the prospect of developing a large amount of gas to supplement its declining petroleum base will be crucially important in the coming years.  Everything in the country revolves around how oil wealth sloshes around the economy, and dips in output or international prices necessarily impacts the country particularly hard.  This is true even with Equatorial Guinea’s relatively low population, which gives the country additional breathing room in case prices or output dips.  If the country is to prosper, then the spice, so to speak, must keep flowing.

Looking ahead, it is likely then that expansion of the country’s gas export capabilities will become a top priority in coming years.  Already, plans are in the works to increase the number of gas trains present on Bioko Island, and Ophir’s large discoveries means not only that the Marathon-run LNG terminal may see additional investment but also the construction of other LNG export facilities as well.  All that will of course mean more money pouring into the country even if global prices remain at the relatively low levels they’ve fallen to recently.

If, that is, Ophir’s gas discoveries can be put into production relatively quickly.  That’s because huge amounts of LNG supply are about to come onstream in the next few years, sourced from places like Australia and Southeast Asia, Eastern Africa, and the United States and Canada.  As each one of those areas brings another major project online and puts ever more LNG onto the market, prices will fall further until they are too low to make development plans, already very expensive, uneconomical to go through with.  This puts a premium on getting to market as quickly as possible, a race Equatorial Guinea may or may not be able to win.

Jeffrey Cavanaugh holds a Ph.D. in political science with a specialization in international relations from the University of Illinois at Urbana-Champaign. Formerly an assistant professor of political science and public administration at Mississippi State University, he writes on global affairs and international economics for AFKInsider and Mint Press News.

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