Exploration Activities in East Africa to Rise in 2017 as Global Prices Recover

Posted on :Thursday , 22nd December 2016

Oil and gas exploration activities in East Africa are expected to rise in 2017 as global confidence in the sector increases with improving prices.

London-based Wood Mackenzie (Woodmac) energy, metals and mining consultancy firm, expects a resurgence of activities in the region, as explorers create more value by drilling wells when crude oil prices on the international market begin to rise.

Crude prices had risen to $53.24 per barrel by December 12 due to the recent decision by major global producers to reduce production as oil had in the past one year traded for less than $50 due to oversupply.

Woodmac expects the Brent crude oil price to rise sharply from 2019, averaging $77 per barrel in real terms for the year. If this happens, then recovery in exploration spend will follow a year or two later.

Exploration should return to profitability in 2017 after five years of single-digit returns.

Woodmac's South and East Africa upstream research manager Mansur Mohammed said in 2017, the industry will see continued focus on near-field exploration as companies firm up reserves for their projects.

"Kenya will have to build a standalone pipeline, as Tullow Oil Plc will drill up to four wells in South Lokichar basin in northwestern Kenya. Positive results will improve project economics," he said.

Tullow, Africa Oil Corporation and Maersk Oil have discovered 750 million barrels of crude in blocks 10BB and 13 T. Kenya plans to build $2.1 billion crude oil export pipeline covering 855km from South Lokichar to Lamu port on the shores of Indian Ocean.

"Tullow is reviewing its plans for the Kenya pipeline and is assessing the merits of a standalone project. Commercial discussions will be the main focus for the Uganda to Tanga pipeline," said Mr Mohammed.

Uganda oil

Tullow, Total SA of France and China National Offshore Oil Corporation have found 650 billion barrels of crude in western Uganda. The country plans to build a 1,443 km crude oil export pipeline from Hoima through northern Tanzania to Tanga port at a cost of $3.5 billion.

"Aminex Plc has embarked on exploration and appraisal onshore Tanzania. Shell is drilling in Tanzania's deepwater and we could see more offshore wells," said Woodmac.

Exploration firms have found 57.2 trillion cubic feet of natural gas offshore Tanzania.

Exploration budgets have not fully recovered from the cuts over the past few years. Woodmac is tracking at least 30 exploration and appraisal wells, that have been proposed across East Africa in 2017.

Industry players will keep an eye on competitive licensing for exploration acreage because many companies will reload their long-term positions given that East Africa has a lot of blocks to offer.

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