By the end of the second quarter of 2020, data from drill bits may tell us whether or not the world has found the next Eagle Ford, and it’s all going down in Africa ...
To hear mainstream media tell it, you would think that the oil and gas era is coming to an end. That assertion, however, could not be further from the truth. The world’s thirst for oil is set to keep soaring with oil demand growth not likely to peak over the next two decades as economies in the developing countries continue to expand.
Over the past five years, we have seen far less exploration and discovery of oil than what we are consuming. In other words, the world still needs new oil. Existing fields are declining at 3-4% per year.
The new oil that’s coming online offshore Guyana, Brazil and Norway this year will help to close that gap somewhat, but the continued decline in U.S. shale fields could upset the equation.
That calls for the African continent to step up to the plate, and also brings to the world’s attention a country that has never before produced oil: Namibia, a new frontier and home to a basin that rivals Eagle Ford in size and hopes to rival it in potential.
This is the Kavango Basin, a 6.3-million-acre basin with a 12-billion-barrel original oil in place potential.
Africa: Vastly Underexplored
New producing countries from sub-Saharan Africa are beginning to redraw the continent’s oil and gas map. Today, the putative class valedictorians, Nigeria and Angola, together pump around 4 million barrels per day (bpd) of crude and also dominate natural gas output. Only a handful of other countries in the region produce more than a couple of hundred thousand barrels of oil and gas equivalent.
A few years from now, however, the balance could be very different with Uganda, Kenya, Ghana and Niger developing fields each with a potential capacity for over 100,000 bpd of oil.
The Kavango Basin is an extension of the Permian Karoo shales of South Africa, Botswana and Namibia. It’s never seen a drill bit, yet it could become an analogue to one of the world’s largest shale discoveries in South Africa. The ultra-deep basin simulates in many ways the kind of environment you see in Eagle Ford:
- 6.3 million total acres to Eagle Ford’s 6.7 million acres in geographic size
- Potential for an estimated 12 billion barrels OOIP (Original Oil in Place) and 119 TCF OGIP(Original Gas in Place), to be determined whether it’s actually there and if so, technically recoverable. If it were, that’s significantly higher than Eagle Ford’s 2.4 billion OOIP and 50 TCF OGIP.
Many otherwise high-potential states in Africa have struggled with their petroleum regimes. These countries tend to create regimes that are too complex and heavily taxed. They also fail to give investors the assurances they need.
The Kavango Basin has similar geology to the Eagle Ford, and it’s also been shown to have the same depositional environment as Shell’s Whitehill Permian shale play, part of the Karoo Supergroup in South Africa.
And while it’s pretty unheard of for a company this small to have a basin this big, Bill Cathey, go-to geophysicist for the supermajors, has weighed in as well.
Exxon (NYSE:XOM) recently acquired additional 7 million net acres from the Namibian government for a block extending from the shoreline to about 135 miles offshore in water depths up to 13,000 feet, with exploration activities to begin by the end of this year.
What Exxon’s banking on is that Namibia, which once fit together with Brazil, shares the same geology as Brazil’s pre-salt bonanza basins, Santos and Campos, which have already proved enormously resource-rich, according to Deloitte.
Likewise, French oil giant Total SA (NYSE:TOT) is ready to launch a three-well drilling campaign that includes one of the deepest wells ever drilled in Africa--two wells in Angola and one in Namibia. Even Qatar Petroleum is farming into Total’s Namibia blocks, while Shell (NYSE:RDS.S) is delineating a deep-water wildcat prospect offshore Namibia that it will spud this year. Shell is a veteran in the African oil and gas game. The company began drilling in the region in the 1950s, and now has assets in over 20 countries across the continent. Though it has sold off a number of assets in the region in recent years due to unfavorable regimes, it continues to maintain a strong presence in South Africa and Namibia.
Though there are a number of exciting hotspots popping up across Africa, it’s also important to pay attention to oil companies taking big risks on little-known exploratory projects.
Take Total, for example. It recently announced a major oil discovery offshore Suriname with its partner, Apache (NYSE:APA). Apache’s agreement with Total included $100 million upfront payment and expenses incurred in exploration. The find was a major boon for both Total and Apache, especially considering there had not previously made any commercially viable oil discoveries. The find is doubly beneficial for Suriname, which could be a significant turning point for the small country’s economy.
Though it’s not entirely off the beaten path, Egypt has also captured the attention of Big Oil in recent years. Just last month, in fact, the country awarded Chevron (NYSE:CVX) and Shell key exploration blocks in the red-hot Red Sea. The blocks cover a total area of around 10,000 sq km and carry combined minimum investment of $326 million, Egypt’s petroleum ministry said, adding that potential investment would rise to "several billion dollars" if discoveries were made.
Other companies to watch as the exploration and production industry ramps up:
Husky Energy Inc (TSX:HSE): This integrated oil and gas company out of Western Canada lives up to its name, fierce and driven for success. It’s already got a presence in some of the most well-known oil regions on the planet, but it hasn’t stopped there. It’s even positioned itself in Europe, Africa and as remote as the South China Sea.
Suncor Energy (TSX:SU): As one of the biggest names in energy, Suncor has adopted a number of high tech solutions for finding, pumping, storing, and delivering its resources.
While its primarily based out of North America, its assets in Africa and the Middle East should not be ignored. Though the oil downturn has weighed on the company’s share price this year, many analysts are pointing to a turnaround, from which Suncor is likely to benefit.
Tourmaline Oil Corp (TSX:TOU) is another Canadian resource producer focusing on exploration, production, development and acquisition within Western Canadian Sedimentary Basin. The company is in possession of an extensive undeveloped land position with long-term growth opportunities and a large multi-year drilling inventory.
Tourmaline’s strong leadership make the company a promising pick for investors looking to take advantage of the tremendous Canadian oil opportunities which are due for a strong rebound as oil prices inch higher.
Imperial Oil (TSX:IMO) still has some of the lowest cost producing oil sands in Canada and that is going to pay off as oil prices continue to rise and new tech breakthroughs bring breakeven prices even lower.
The management is well known for being conservative, but that certainly shouldn’t put investors off in a time when recovery is the buzzword of the day and consistency is sure to be rewarded.
Gibson Energy (TSX:GEI): has a long history in Canada’s oil and gas game. Established in 1953, Gibson knows the industry inside and out. The company has a diverse portfolio which includes transportation, storage, processing, marketing and distribution of oil, condensates, oilfield waste, refined products and natural gas.
With Gibson’s huge array of assets and its multi-platform sales strategies, investors look to Gibson with confidence.
By. Charles Kennedy