Project delays and cancellations coupled with less spending and lower oil prices are casting clouds on future oil and gas development in West Africa’s deep water, prompting an energy consultancy to lower its production forecast for the region.

However, the short-term forecast is bright as companies move on with projects sanctioned before market conditions worsened.

Douglas-Westwood now believes production will peak at about 2.8 million barrels of oil equivalent per day (MMboe/d) in 2019, a 44% fall from its previous deepwater drilling forecast. Production is expected to drop further, hitting about 2.5 MMboe/d by 2021.

The revised forecast delivered March 17 came in response to market conditions that have dramatically changed since a year ago.

“At the time, Brent crude was rebounding toward a mid-2015 peak of over $60 per barrel,” Douglas-Westwood said in a statement. “However, in the months since this peak, oil prices plummeted once more, with Brent reaching lows of $26 per barrel in January 2016.”

Although Brent crude’s front-month jumped 2.3% to $41.27/bbl on March 17 as West Texas Intermediate futures rose 3.5% to within 25 cents of $40/bbl at about noon ET, damage to companies’ profit margins has already been done. The costs cuts, layoffs and search for greater efficiency and improved contract terms continue.

Healthy activity offshore West Africa was expected to result in about 483 deepwater development wells through 2021. Now, the firm predicts deepwater wells drilled offshore West Africa could drop from 89 this year to 23 in 2020.

“Should low oil prices persist in the medium term, DW does not expect to see a recovery to activity levels similar to that of recent years until well into the next decade,” Douglas-Westwood said.

Deepwater projects in just about all parts of the world have been impacted, but many of the stalled deepwater projects are offshore West Africa. These include projects led by Royal Dutch Shell Plc (NYSE: RDS.A) and Total among others. In its fourth-quarter 2015 release, Shell said it postponed a final investment decision on the Bonga South West deepwater project offshore Nigeria.

“Many of these slippages have been high-profile developments for their respective operators,” Douglas-Westwood said before pointing out Eni’s Etan, where development is not expected to begin until the 2020s.

In addition, Maersk Oil has paused development of Chissonga offshore Angola, Douglas-Westwood said.

But the revised outlook was not all bad news.

Projects sanctioned before the downturn are bright spots. These include:

  • The Kaombo ultra-deepwater project offshore Angola. The Total-operated project is due to start up in 2017 with an estimated oil production capacity of 230Mbbl/d. Total said it is tapping oil deposits in six fields for the development, which will utilize two FPSO units that were once crude oil carriers.
  • Eni’s Offshore Cape Three Points oil and gas project offshore Ghana where first oil is expected in 2017. Gas production is scheduled to start up in 2018. Eni and its partners envision peak production of 80Mboe/d in 2019.
  • The ultra-deepwater Egina Field, set to start production in 2018. The Total-operated development offshore Nigeria will be connected to an FPSO vessel using umbilicals and risers. The field is expected to produce about 200Mbbl/d.
  • The Tullow Oil-operated Tweneboa-Enyenra-Ntomme (TEN) deepwater development offshore Ghana, expected to begin production between July and August 2016.

In addition, Tullow also has given the Greater Jubilee Full Field development plan to the government of Ghana. Its strategy is to increase reserves, but the plan was revamped “given the current environment to reduce the overall capital requirement and allow flexibility in the timing of the investment,” Tullow said in its 2015 full-year results.

Focus remains on keeping operating costs low. Tullow, for example, said its operating costs per barrel in West Africa averaged $10/bbl for Jubilee and $15/bbl across its West Africa nonoperated portfolio in 2015.

The company said it “is working to maximize Jubilee and TEN operational synergies in Ghana where combined operating costs are expected to reduce to [circa US]$8/bbl in 2018.”

Velda Addison can be reached at vaddison@hartenergy.com.

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