Industry Trend Analysis - Exploration To Gain Momentum In MSGBC - APR 2017

BMI View : The MSGBC basin will re-emerge as a global expl oration hotspot in 2017, as recovering oil prices and a returning risk appetite pulls investment back into this frontier but highly prospective play.

Stalled exploration of the Mauritania-Senegal-Gambia-Bissau-Conakry (MSGBC) basin is set to resume in 2017. The basin remains a relatively underexplored region of the Atlantic margin. It also boasts strong prospectivity: according to service provider TGS, 177 wells have been drilled in the basin to date, of which 115 have encountered hydrocarbons, a 65% success rate. The MSGBC has also yielded a number of major discoveries in recent years, including the Ahmeyim gas discovery in Mauritania and the SNE-1 oil discovery in Senegal.

Major Discoveries To Pique Interest
3C Gross Resource Estimate Ahmeyim (LHS - bcm) & SNE (RHS - mn bbl)
Source: Company data, BMI

Exploration slowed as oil prices slumped and companies pared back their spending in 2015 and 2016. However, with prices staging a recovery we expect to see a rise in global capex this year ( see 'Global Oil & Gas Capex Set For 2017 Growth', September 22 2016). Spending will be highly targeted, with investments tailored to a more subdued commodity price environment. While some more frontier plays will struggle to attract investment under these conditions, we believe that the number of high impact discoveries in the MSGBC will support interest in the basin.

In addition, development costs appear relatively favourable: partner FAR estimates full-cycle breakevens of USD35.0/bbl for the Cairn-operated SNE development, which would offer attractive returns based on our current price forecast. Ahmeyim is also slated for development, with final investment decisions on both projects on track for 2018. There is a risk that the re-inflation of services cost will begin to squeeze margins. However, costs are likely to remain low in 2017, in particular for deepwater where demand looks set to remain sluggish globally.

Sector heavyweights have also begun to shift their focus to the region, bringing needed financial and technological weight. In Q416, BP farmed into Mauritania and Senegal for UallSD916mn, committing to a multi-well exploration and development programme. Woodside - which has significant deepwater experience - has also grown its presence in the basin, acquiring ConocoPhillips' interests in Senegal for USD440mn. A number of smaller companies hold acreage in the MSGBC, offering attractive farm-in opportunities to the majors and large independents ahead of drilling.

Price Recovery To Spur Investment
Front Month Brent Price Forecast, USD/bbl
f = BMI forecast. Source: BMI, Bloomberg

Senegal will attract the body of focus. Cairn will continue exploration and appraisal drilling in 2017, with two firm wells planned and multiple further prospects identified: according to partner FAR, the undiscovered resource base may lie upwards of 1bn bbl. Other companies with positions in the country have been re-evaluating their own prospects and leads in search of structures analogous to SNE. CAP Energy - which partners Trace Atlantic Oil in the block directly to the east of the SNE discovery-says they have identified 11 structural leads and one major prospect, the Antelope. Drilling is planned for 2017, although this may hinge on farming out an interest in the block. Kosmos is also planning to spud two exploration wells over 2017-2018, likely targeting the Requin-Tigre and Teranga West prospects, which lie to the south of the Ahmeyim discovery in Mauritania.

In Mauritania, activities will focus around appraisal of Ahmeyim. However, two exploration wells are also planned by Kosmos, most likely targeting Requin (which is proximate to Ahmeyim) and Lamantin to the north. In addition, Tullow Oil must complete one exploration well by November 2017, in order to meet its minimum work commitments. Partner Sterling Energy says the partners have matured one drill ready prospect and will benefit from a significant reduction in drilling costs, at USD50mn for the well, down from USD77mn previously.

We also expect exploration to spread to other countries in 2017. A number of companies hold licences in Guinea- Bissau and The Gambia and are planning drilling programmes in order to meet their minimum work commitments. African Petroleum plans to spud a well in The Gambia in Q317. In Guinea-Bissau, CAP Energy plans to drill one well in Q217, with a second slated for Q118. Oryx Petroleum is processing seismic data on one of its blocks in the Senegal-Guinea Bissau joint development zone and has identified two drill ready prospects in the second. The company is committed to drill by Q118.

The laggard in the region is Guinea-Conakry. Excluding Simba Energy, which has plans to spud onshore in H117, we expect little exploration activity this year. In 2015, the government overhauled its fiscal and regulatory regime under the new Petroleum Code. The code streamlines the tax system and simplifies licensing procedures. This, alongside large discoveries elsewhere in the basin, suggests significant upside over the longer term.