Emirates of West Africa
At the end of 2016, British Petroleum announced to have signed a 1 billion dollars deal with an independent oil company, Kosmos Energy, “to acquire a 62% working interest, including operatorship, of Kosmos’ exploration blocks in Mauritania and a 32.49% effective working interest in Kosmos’ Senegal exploration blocks” .
In a period of low energy prices, the news of a Major investing hugely in a region not really well known for its hydrocarbon production could sound bizarre. Nevertheless, for those who follow regularly the updates from the energy sector, it didn’t come unexpected.
In fact, the deal will ensure to the company the lead of operations in an acreage of approximately 33 000 km², located inside the so-called “Senegal Province”, which holds world-class deep-water gas discoveries and has promising exploration potential.
Figure 1 - The Senegal Province and history of E&P
Source: US Geological Survey
The Senegal Province is the northern part of the West Africa Atlantic Margin and encompasses Mauritania, Senegal, Gambia, Guinea Bissau and Conakry, covering a total area of 230 000 km², whose 90 000 km² offshore.
Although small discoveries confirmed the presence of hydrocarbons in the basin already in the 1950s and 1960s, the region has never attracted major oil investments until recent years. Thus, it remains largely underexplored with a few hundred wells drilled, both in-shore and off-shore, during the last 50 years.
This situation is not rare in Sub-Saharan Africa, where the International Oil Companies (IOCs) have been reluctant to invest for a long time, with the great exception of Nigeria, Angola and a little number of countries in the Gulf of Guinea.
Despite the fact that Sub-Saharan Africa holds around 7% of world conventional oil resources and 6% of world gas resources (including non-conventional gas ), the IOCs preferred not to risk in the exploration of new basins in countries characterized by high political instability and security problems, with a lack of infrastructures and weaken local economies. That’s why Sub-Saharan Africa stands today as the least explored hydrocarbon region in the world .
Figure 2 - Number of wells drilled per million square km in World regions
Source: McKinsey, "Rising Up. Unlocking the potential of Africa's oil and gas"
During the last decade, however, the skyrocketing of oil prices, the widespread of new E&P technologies (3D seismic surveys, horizontal drilling, etc.) and more accurate assessments of potential resources increase the risk appetite of investors, attracting new investments in the region.
In the meanwhile, many Sub-Saharan African countries adopted appealing fiscal legislations and offered advantageous production sharing agreements (PSAs) terms to revive exploration investments.
As a result, Sub-Saharan Africa has become one of the world’s most exciting hydrocarbon plays and new high potential hydrocarbon basins have been opened during the last ten years: the East African Rift; the East African Coastal; the West-Coast Pre-Salt; the West African Atlantic Margin. The Senegal Province is part of them and its hydrocarbon fields stand among the world most important discoveries in 2014 and 2015 .
In 2014, the drill of two exploration wells by CAIRN Energy in Senegal’s "Sangomar deep off-shore" block (FAN-1 and SNE-1) resulted in the discovery of consistent oil reserves. Four other exploration wells, drilled between 2015 and 2016, certify the opening of a new world-class oil field with resources estimated to more than 2.7 billion bbls (378 Mtoe) of oil in place, and with estimated gross recoverable oil resources between 274 mmbbls (1C) and 906 mmbbls (3C) .
In the meantime, exploration in deep-waters between Senegal and Mauritania, conducted by KOSMOS Energy, resulted in the discovery of a natural gas giant deposit stretching between the two countries. The drill of four other wells, in 2015, confirmed the presence of a natural gas field and carried the estimation of resources to around 25 Tcf of gas (707 Bcm) .
Experts agree that the breadth of these discoveries allows foreseeing Senegal and Mauritania joining the group of international oil and LNG producers and exporters in the next years and they expect to see more international oil & gas players entering this area. Senegal, notably, offers very good perspectives thanks to its political and economic stability, which may attract international investors.
Figure 3 - Senegal Basin oil (Bbls) and natural gas (Tcf) potential reserves
Source: US Geological Survey
Despite a 22% drop in E&P investments in Sub-Saharan Africa  due to the recent oil prices crisis, operators remain optimistic about the potential of their discoveries. Exploration will continue in the acreage in the following years and commercial exploitation shall begin around 2021/2023.
According to shareholders’ forecasts , oil production costs shall be from 25 to 29 dollar per barrel (excluding gross taxes), which should guarantee the commercial viability of the fields, even in case of low oil prices. No price forecasts are available, at the moment, for gas fields.
As a matter of fact, the Northern West-Africa region presents interesting competitive advantages for energy exports  and the BP’s decision to invest around 1 billion in the region seems to confirm it. The geographical proximity with western markets, notably with Southern EU’s ones, and the good conditions of port infrastructures, already managed by international logistic companies, can reduce exportation costs against other producing regions. In addition, the oil quality of the region, a light and low sulphur oil, is well suited to the European and North-American refineries demand.
Besides exports to Western countries, local and regional markets may offer good opportunities to the investors. Beyond the great poverty of the region, some national economies of West Africa are experimenting a stable growth of GDP since the last 5/10 years, as for Senegal, Mauritania, Ivory Coast, Cap Vert. In 2015, for instance, Senegalese and Mauritanian GDPs grew, respectively, by 6.5% and 2% in 2015, after a growth rate of more than 6% in 2014 for both countries.
If, today, yearly oil consumptions remain low, between 650.000 and 860.000 toe in Mauritania and around 900.000 toe in Senegal, the region shows growing national energy demands and promising growth perspectives. Locally, total energy consumptions of Mauritania and Senegal are growing constantly since the last 10 years, at yearly average levels of +4,9% in Mauritania and +6% in Senegal. Fossil fuels covers around 60% of the Mauritanian primary energy demand and more than 50% of the Senegal’s one and those demands are satisfied, for the most part, by imports.
Thanks to the new resources both countries will be able to drastically reduce their energy imports and could aim at becoming energy hubs for North-West African countries and Sahel region. Senegal, notably, has already a national refinery, the Société Africaine de Raffinage-SAR, which is one of the last still functioning in West Africa. Today, the Senegalese Government plans to reinforce its refinery capacity, planning to cover more than 80% of national demand, gaining almost its energy independence, and to export oil derivatives to Mali, Gambia, Guinea Bissau and Guinea.
Moreover, the discoveries open up new possibilities in terms of transformation of national energy systems, notably the power systems. Senegal, for instance, is foreseeing to build more than 2000 MW of new natural gas fired power plants in the next 15 years to replace its old diesel-fired power plants.
New exports incomes will bring fresh air to the public budgets of both countries, helping to reduce their external commercial deficits burden by energy imports. The new hydrocarbon windfall may play a key role in support social and economic development, boosting growth and employment in two of the world’s poorest countries.
Today, the main concern is how to ease an agreement between the two Governments for the common development of cross-border resources. KOSMOS has facilitated the signature of a Memorandum of Understanding (MoU) between PETROSEN and SMHPM, at the end of 2015, fixing the principles of the future cooperation. Despite the agreement on the host-country of industrial facilities, which seems to have been already overcome opting for a LNG Floating facility, cooperation between the two countries could go far beyond.
Then, Senegal and Mauritania will most probably become energy exporters in the next years. Despite the high level of investment risk in one of the poorest regions of the world, the breadth of the discoveries should allow Senegal and Mauritania to sell their productions on a regional and international scale, particularly in view of their national consumption levels.
While it is still hard to predict when this will happen and how this will impact the economies of the two countries, someone already started to foresee the two little Sub-Saharan States as the new Emirates of West Africa.
 BP’s Press Release, "BP agrees deal with Kosmos Energy to partner on world-class discoveries in Mauritania and Senegal and cooperate on future exploration", 16 Dec. 2016, http://www.bp.com/en/global/corporate/press/press-releases/bp-agrees-dea...
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