Congo holds back oil decline

Congo_-_Kouilou-Pipeline-activity-025Installation of a gas pipeline in Congo as international interest continues.OIL PRODUCTION IN the Republic of Congo is holding up. But it is a challenge.

With a history of civil war and political upheaval, the Republic of Congo has always struggled to make the most of its oil riches. Indeed, it is this oil wealth that has arguably spurred instability in the country, with control of the nation’s natural resources a key element in the political rivalries that have long dogged this nation. Crude oil remains the mainstay of the economy yet most of the 3.7mn people that live there remain desperately poor.

One thing that has not stopped working during these turbulent years is the oil industry, which, to an extent, has been able to operate in isolation. Producers have always churned out barrels of export crude for the international market despite the sometimes hostile environment that they face. It has meant a steady stream of income for the government and the wider economy. Other exports providing vital foreign currency income include diamonds, timber, plywood, sugar, cocoa and coffee.

In recent years, Congo has seemingly benefited from the peace dividend, with oil production rising again. Oil output has been erratic, but mostly on an upward curve through much of the past decade, reaching 274,000 bpd in 2009, according to BP’s Statistical Energy Review. This is an impressive leap on earlier in the decade when output hovered precipitously low around 215,000 bpd in the years 2003 and 2004.

More is to come. The state budget for 2011 is based on nationwide oil production of around 348,000 bpd, finance minister Gilbert Ondongo said last year. It is another big hike that will generate an extra windfall for both operators and the public purse.

Nonetheless, despite recent increases, Congo is facing the prospect of a long-term decline in the oil sector, unless new reserves are found. One of the reasons for this is that Congo’s reserves have barely gone up in a decade. These were estimated at around 1.9 bn barrels, at the end of 2009, according to BP, just ahead of the reported 1.7 bn barrels 10 years earlier.

This is behind Gabon’s 3.7 bn barrels, but ahead of another neighbouring producer, Cameroon. All of these numbers lag way behind those located in West Africa’s other big oil economies, Angola (with 13.5 bn barrels) and Nigeria (37.2 bn barrels).

The positive news is that Congo continues to attract interest from international investors, not just traditional French companies, such as Total, but increasingly those from the UK and the USA. As a proven and long-term oil producer, the country is in many respects enticing upstream play, while political risks have also subsided with the advent of peace.

The largest investor remains Total, which likewise has seen its own equity production rise in recent years as a result of new fields coming onstream. In 2009, its net liquids production was 106,000 bpd, representing a large chunk of total Congolese output. In 2008, this was 80,000 bpd, the year before just 77,000 bpd.

Although the French oil giant has its hands full elsewhere, in Angola and Nigeria, among other locations around the world, it has invested strongly in its Congo business as well. This includes bringing production online from the strategic Moho Bilondo field in April 2008, where development drilling is still continuing. It operates the field with a 53 per cent stake.

Current production at Moho Bilondo is approximately 80,000 bpd although this is expected to grow to reach a plateau of around 90,000 bpd this year, making it a field of vital national interest.

 

Further development

There is scope for further development in the area too. The Moho North Marine-3 appraisal well, drilled in late 2008 after two discoveries made in 2007 (Moho North Marine 1 and 2), confirmed the potential of this permit. In the same area, the Moho North Marine 4 well discovered resources in the Albian zones in 2009.

Separately, the development of the Libondo field – where Total is also operator with 65 per cent equity – was approved in late 2008, and is still underway. Commissioning of the new field – located on the Kombi-Likalala-Libondo operating field, 50 km off the coast in water depths of 114 meters – is expected during 2011. Anticipated plateau production at Libondo is estimated at around 8,000 bpd.

The renewed taste for development work has revitalised some of the country’s ailing infrastructure and services segment. A substantial portion of the equipment for the Libondo project, for example, is being produced locally in Pointe-Noire following the redevelopment of a construction yard that had been idle for several years.

Though Total remains the dominant foreign investor, it has been joined by an increasing number of smaller players seeking niche exploration and production opportunities. While Congo may not have the reserves of other regional states, it is proven oil territory nonetheless, and without the sky-high real estate costs associated with Angola’s deepwater, for instance.

But this is for a reason, with exploration results in the field, typically mixed. Another investor, US-based Murphy Oil, announced in January that it had turned up three dry wells in its more recent drilling campaign. The Cobalt Marine-1 and Turquoise Marine-3 wells both failed to find commercial quantities of hydrocarbons, while Turquoise Marine-4 found deeper reservoirs with a minor amount of oil, the company said. The total cost of the drilling programme was around $36mn.

Murphy’s local unit held a 58.8 per cent interest in the three wells, which were all plugged and abandoned. The group’s chief executive David Wood called the results “disappointing” but added that the company would continue to evaluate its Congolese exploration programme.

 

Discovery

The failed three-well exercise was fast-tracked after Murphy relocated a rig from the US Gulf of Mexico in the wake of the US drilling moratorium following the Deepwater Horizon oil spill last summer. This year, further geoscience work is planned for the area to particularly to re-assess the prospectivity associated with the deeper reservoir, drilled on the Turquoise Marine-4 well.

It has not been all bad news for Murphy since it arrived in the Congo though back in 2003. In 2005, the company announced a discovery with its first well on the MPS (Mer Profond Sud) block, offshore in the Lower Congo Basin, with Azurite Marine-1, now in the production stage.

But this has not yielded great results, with MPS partner PA Resources of Sweden announcing in January that production from the Azurite field was lower than anticipated in the development plan. All six planned production wells at the field have now been completed. The final three wells added at the end of 2010 have been producing at reduced rates awaiting the completion of planned water injection wells to provide necessary pressure to support oil output. This project is due to be completed by mid-year.

In the meantime, Murphy and PA Resources have brokered better fiscal terms with Brazzaville to offset the damage. The new deal means the license partners get a larger net entitlement share of field revenues from both the Azurite field and the MPS block. The revision has been approved by the Council of Ministers but must also be passed for Parliamentary approval.

Other notable French-based investors remain active. Perenco operates a trio of fields in production, all offshore, including the Emeraude field where it has doubled output since taking over a decade ago. It also operates the Yombo and Likouala fields, with a combined output of around 16,000 bpd. It also holds an exploration permit, Marine IV, where it confirmed the existence of oil and gas bearing reservoirs following a 2008 appraisal well.

While all of Perenco’s activities are offshore, Maurel & Prom is a significant investor onshore. It holds two large exploration tracts, including La Noumbi, to the north of Pointe Noire, and the shallow water Marine III permit. The company also has two small producing fields on its books, Tilapia and Kouilou.

Other non-French investors include Soco International, Lundin Petroleum, Raffia Oil, Petrovietnam and AOGC, while state-owned SNPC remains the country’s principal actor within the oil industry. For now, all are buoyed by the general rise in production numbers and a more tranquil operating environment. But unless these companies can start to bump up Congo’s reserves numbers, then the production surge may be short lived.

 

Martin Quinlan

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
T: +44 20 7834 7676, F: +44 20 7973 0076, W: www.alaincharles.com

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