Viewpoint: Politics define west Africa prospects

Nigeria faces a presidential election in February with the challenger propounding transformation of the upstream sector, while west Africa's second biggest producer — Angola — embarks on a journey without state-owned Sonangol at the helm.

In Nigeria, former vice-president Atiku Abubakar from opposition party PDPD runs against incumbent president Muhammadu Buhari. The former has laid out a seven-point programme, supporting the approval of the much-delayed petroleum industry governance bill (PIGB) that entails a partial privatisation of state-owned NNPC.

He has listed implementation of the bill as a key point in his agenda, putting the focus on enhanced transparency in the licensing process to incentivise investors to "tap the unexploited resources in the mature Niger delta basin" and boost production from marginal fields.

Passage of the bill would pave the way for other legislative measures to boost the upstream sector through new fiscal and operating terms for oil and gas developments.

Buhari has so far blocked the PIGB, citing concerns over the funding schemes for a new regulatory body. That said, perhaps under electoral pressure, his administration has latterly asked the Senate to provide a revised version of the bill, and said it is "fully committed to the passage".

Uncertainty over the legislative framework has deterred foreign upstream investors and hampered key projects such as Shell's 175,000 b/d Bonga Southwest and Eni's 120,000 b/d Zabazaba, with the two projects carrying a combined price tag of $40bn. Shell is likely to make a final decision on Bonga Southwest in 2019, while Eni's project is on hold amid pending legal disputes over block 245.

The last major upstream project to be signed off was Total's 200,000 b/d Egina, approved back in 2013. After five years, the field was billed to produce first oil in late December 2018, according to Nigeria's oil minister Emmanuel Ibe Kachikwu.

The field will provide a decisive boost to Nigeria's crude production, which Kachikwu has set at 1.75mn b/d in November. If Total's provisional assay is confirmed, Egina volumes will have to be included in Nigeria's monthly production figure. This could complicate Lagos' recent commitment under the Opec, non-Opec production restraint deal to cut 40,000 b/d from its October levels, which, according to Opec figures, stood at 1.75mn b/d.

Throughput at Nigeria's main export terminals seems to have stabilised, with no major disruption observed since July when Shell lifted force majeure on Bonny Light exports. But the number of pipeline attacks might resume in the lead up to the presidential elections, as interest groups try to lever concessions from the government.

The election winner will have the responsibility of keeping alive, or even renegotiating, the presidential amnesty scheme to former rebels in the oil producing Niger delta, which has ensured a suspension of attacks against oil and gas facilities.

In Angola, president Joao Lourenco is about to see the first fruits of his year-long efforts to restructure the industry.

Since his election in September 2017, Lourenco has issued a series of directives aimed at reforming state-owned firm Sonangol and the country's upstream investment environment. Lourenco's ambition to strip Sonangol of its omnipotent role in the industry was fulfilled with the creation of a new agency called the Agencia Nacional de Petroleos e Gas (ANPG), set to replace Sonangol in its upstream concessionaire role.

The new agency will oversee oil and gas licensing rounds, set to take place in 2019. But Sonangol's swan song as concessionaire will be to conduct the licensing of 5-10 blocks in the Congo, Namibe and Cunene basins. It will be the first round since 2011. It is not yet clear if it will include offshore blocks 20/11 and 21/09, bought from Cobalt Energy last year for $500mn.

In a bid to transform Sonangol into a more commercially driven oil and gas firm, the government plans to privatise 52 non-core Sonangol subsidiaries by the end of 2019.

But, despite the successful launch of Total's 230,000 b/d Kaombo offshore project in July 2018, Angola is struggling to offset the relentless decline of its mature oil fields, including Total's block 17, the largest producing license in the country. Angolan crude production averaged a decade low of around 1.47mn b/d in the third quarter of 2018.

The potential for new fields to come on stream in 2019 has led the government to base the 2019 national budget on an average production of 1.57mn b/d, up from 2018's envisaged 1.52mn b/d, although the government's five year plan for 2018-22 only envisages average production of 1.49mn b/d.

Angolan production averaged 1.51mn b/d in the first three quarters of 2018, down from 2017's 1.63mn b/d. Under the revamped Opec and non-Opec production restraint deal, the country is obliged to cut 29,000 b/d from October production that was assessed at 1.53mn b/d. Given the downwards trend in output, that will not be a challenge.

Luanda's strategy for rebuilding capacity revolves around the development of marginal oil fields, which the government estimates to hold a potential 4bn bl of oil.

Foreign firms have already started to take advantage of the favourable fiscal terms for satellite developments. In November, the leading operator in the country, Total, led the way by approving the development of the 40,000 b/d capacity CLOV phase two project and the 30,000 b/d Dalia phase three project in offshore block 17. These will be added to the Zinia phase two project in the same block, approved in May, to keep production above 400,000 b/d until 2023.

The French company is also scheduled to bring online its 115,000 b/d offshore Kaombo Sul field in the first quarter of 2019, which will be added to the 103,000 b/d coming from the Kaombo Norte development.

Eni has begun to boost production from marginal fields in block 15/06. The Italian firm achieved first oil from the Vandumbu field in late November, three months ahead of schedule and shortly before the start-up of a Subsea Multiphase Boosting System (SMBS) completed in early December. The two projects are adding 20,000 b/d to production from Block 15/06, through the West Hub's N'Goma floating production, storage and offloading (FPSO) vessel. Eni also announced an oil discovery in the same block, capable of producing in excess of 5,000 b/d of 37°API crude. The company is planning to drill up to four new exploration wells in the block in 2019.

Potential higher crude production in Angola might find keen recipient in China, where two new 400,000 b/d refineries are scheduled to start-up in 2019. Hengli Petrochemical's new refinery in Liaoning is expected to be on line by end of 2018, and Rongsheng's Zhejiang Petroleum (ZPC) refinery is scheduled to be full operational by mid-2019.

Meanwhile, work has started on a second very large crude carrier (VLCC) berth at Dongjiakou, part of Qingdao port in China's Shandong province, to support growing demand for long-haul crude imports. Chinese crude imports rose to a new record high of 10.43mn b/d in November, driven by strong demand from independent refiners.

Crude exports from Congo (Brazzaville) might benefit from the expansion of China's refining capacity. The country's crude exports averaged 302,000 b/d in 2018, more than 30pc higher than the previous year, thanks to higher production of Djeno and Nkossa.

The vast majority of the country's crude exports end up in Chinese refineries, and this is unlikely to change.

Fellow Opec member Gabon is scheduled to award an upstream licensing round for 12 shallow offshore blocks and as many as 23 deep offshore blocks in late June 2019.

Crude production from the offshore Tortue field, operated by BW Energy Gabon is scheduled to reach 15,000 b/d in 2019, more than doubling 2018's average 8,000 b/d. Drilling for a second phase development is scheduled to start in 2019-20, with first production by the second quarter of 2020.

Ghana launched an upstream licensing round for six blocks in the western basin, with the results likely by July 2019. Accra is expecting international operators UK independent Tullow Oil and Italy's Eni to bolster production recovery rates at existing fields.

Finally, the future of Equatorial Guinea's upstream sector looks rather rosy, after the country's oil minister was able to secure secured $2.412bn in foreign investment for 2019. Malabo's strategy for the next 12 months is to arrest the 10pc/yr decline of its crude output and maintain current 120,000 b/d.