As nosediving oil prices pummeled the exploration budgets of oil and gas companies looking to salvage their bottom lines, Canada-based Africa Energy Corp. saw opportunity in a region that had essentially gone unnoticed by the majors.
Building on the expertise of industry veterans that were responsible for basin-opening discoveries in Equatorial Guinea, Ghana, Kenya and Uganda while at Energy Africa and Tullow Oil, Africa Energy targeted frontier regions offshore Namibia and South Africa. Many of those instrumental in these discoveries were previously part of Energy Africa, a South Africa-based company that was sold to Tullow Oil in 2004 for $500 million, before the team left Tullow in 2014 among exploration budget cuts and joined Africa Energy to start again from scratch.
Some might consider it a gamble for a small company—with just over a dozen employees and no producing assets to generate cash flow—to focus on near-term high-impact exploration as the industry recovers from a market downturn. But it is a risk worth taking for Africa Energy.
“The downturn in oil price was really the opportunity,” Africa Energy CEO Garrett Soden told Hart Energy in a recent interview. “This company was formed in 2015 with the contrarian view that it was the right time to build an exploration portfolio while the majors were cutting their exploration budgets.”
Rig rates were falling and access to acreage was inexpensive, Soden added.
Africa Energy now holds interest in three drill-ready prospects:
- Block 2B offshore South Africa (90%, operator), a proven oil basin with an existing discovery made by the South African state company Soekor in the 1980s. Africa Energy plans to drill a well on its Gazania prospect—likely in 2019—updip from the existing discovery as it seeks a partner to share costs and risks. Soden described the block as relatively easy to drill and commercialize given its water depth of 150 m and location 25 km offshore;
- PEL 37 offshore Namibia (10%), where operator Tullow Oil plans to drill the Cormorant prospect in September. Tullow recently contracted the Ocean Rig Poseidon drillship to drill the prospect located in 550 m of water in the Walvis Basin. Another larger prospect, Albatross, could also be drilled; and
- Block 11B/12B offshore South Africa (4.9%), where operator Total has contracted the Odfjell Deepsea Stavanger semi-submersible rig with plans to drill the large Brulpadda prospect in December.
“I think the key is to build your portfolio and drill wells before a lot of money starts going back into exploration again, before farm-in terms and rig rates become more expensive,” Soden said.
It also helps that the company, which previously operated as Horn Petroleum Corp. before changing its name with the ex-Tullow team in 2015, is backed by the Lundin Group, a natural resources group with a portfolio that comprises 13 publicly-traded companies. Lundin Petroleum, which discovered 2-3 billion barrels offshore Norway in Johan Sverdrup, is among them. Having the Lundin Group as a major shareholder—controlling about 50% of the company’s shares and providing the same percentage pro rata to meet its capital requirements—has been a key differentiator for Africa Energy, Soden said.
“This makes a big difference for a small exploration company, because it’s a capital-intense business,” Soden said. “The Lundin Group support is a huge advantage for us.”
Of all the places to search for oil, Africa Energy selected the Namibia and South Africa offshore region because it is one of the last underexplored regions, largely overlooked by the majors, and has potential for large discoveries, said Soden. He pointed out the successes of ExxonMobil offshore Guyana—an area that is analogous to the West African Margin—along with big finds by Cairn offshore Senegal and just recently Petronas offshore Gabon. “We still think there’s a lot more to be discovered in Africa, and we have a team with a track record of success in Africa that knows these regions very well.”
Africa Energy aims to replicate their team’s past success in two play types: submarine fans seen in Block 11B/12B offshore South Africa and PEL 37 offshore Namibia, as well as the rift basin seen in Block 2B offshore South Africa. The company’s team has had success with both play types and is focusing on near offshore exploration, given oil discoveries previously made in Equatorial Guinea and Ghanaian waters.
Soden said members of Africa Energy’s team were “responsible for four commercial basin-opening discoveries in Africa.” The group is working toward what it hopes will be another large discovery with attractive commercial terms in southern Africa and historic low rig rates helping the economics.
“Our strategy is to be early in these frontier plays and not to get into long, expensive development projects but to prove the resource and potentially sell to a larger company to develop,” said Soden, who also serves as a board member for other Lundin Group companies.
Since Africa Energy has been exploring in the area, it has gained as neighbors ExxonMobil, India’s ONGC and France’s Total near its Namibia block, while Statoil and Total have picked up assets offshore South Africa. Now the race is on to make the next big discovery, and Africa Energy will have the first wells to be drilled this year in both Namibia and South Africa.
Africa Energy’s asset offshore Namibia is a stratigraphic trap play similar to that off the Western Margin in Equatorial Guinea and Ghana, where the Tullow-operated Jubilee Field was discovered in 2007. Gross production from Jubilee averaged 89,600 bbl/d in 2017, according to Tullow.
“These are submarine fans with very large potential—up to 1.5 billion barrels of prospective resource,” Soden said of PEL 37, which is farther south in the Atlantic Ocean. “We have four prospects there. We’re going to drill the first prospect—Cormorant—on September 1, and if that’s successful, we open up the whole fairway, which is over a billion barrels. The geology is exciting and has been validated by the recent entry of companies like ExxonMobil to the region.”
The company was given some confidence when HRT drilled two wells just south of PEL 37 and struck oil about five years ago. The discoveries were not deemed commercial; however, they proved oil is present, Soden said. “PEL 37 is right where the oil source kitchen is expected to be—the best place to be drilling.”
The play is similar to the company’s South Africa Block 11B/12B, an oil-prone submarine fan play, which Soden says has even larger potential than their block in Namibia. “We believe the five prospects on Block 11B/12B have over 2 billion barrels of prospective resources with a high chance of success. This is one of Total’s top exploration prospects in their global portfolio.”
Farther south off the west coast of South Africa is the Block 2B rift basin play, which is also prospective for oil. Soekor’s discovery there in 1988 flowed “high quality light, sweet crude oil to surface,” Soden said. “The play here is similar to what our team saw in Kenya and Uganda. We believe Block 2B has over 800 million barrels of prospective resource with a high chance of success.”
Although Africa Energy is currently focused on Namibia and South Africa, it is eyeing other opportunities.
“We’re mainly looking from South Africa up the West Coast, through Namibia, Ghana, Gabon, Equatorial Guinea, Cameroon, all the way up to Senegal,” Soden said, “except the more difficult places politically or countries that we feel are over-explored like Nigeria or Angola.”
The new venture strategy is technically driven based on play types familiar to the company. Like others looking to gain acreage, Africa Energy is also seeking good commercial terms in politically stable areas.
“We’re trying to get into opportunities early where we have to put down minimal cash up front for exploration, where we’re negotiating directly with governments to get access to a good license, shoot 3-D seismic with a well option or alternatively negotiate with industry partners that already have an attractive license to help them identify prospects and drill a well.”
“But we would also look at acquiring producing assets, if it makes sense,” Soden said. “The goal here long-term is to create value for shareholders and build a sustainable E&P company.”
Velda Addison can be reached at email@example.com.