Uptick In Exploration Offers Upside To Outlook
BMI View: Eni's upcoming frontier exploration in the Cuvette Basin could bode well for Congo-Brazzaville's maturing oil reserves and declining oil production . E xploration in the country's onshore and offshore sector s provide significant upside to long-term reserves and production growth. In the long-term, we believe that such efforts could have the potential to stem the decline of Congo-Brazzaville's oil production.
E ni and the Congolese state company Société Nationale des Pétroles du Congo (SNPC) will jointly explore the hydrocarbon potential of the Ngolo block, part of the frontier Cuvette basin. Eni will participate as operator in the joint venture with SNPC for the exploration of the block. The Republic of Congo's Ministry of Hydrocarbons had assigned the Ngolo exploration license to SNPC in mid-July.
The block is located some 350 kilometres north east from the capital Brazzaville and covers an area of over 16000 square kilometres. As mentioned by the company in a statement: 'the Cuvette basin, so far little explored, is one of the new themes of frontier exploration in Africa'. Exploration activities will take place over a period of 10 years and will target the Mesozoic and Paleozoic sedimentary geological sequences. Exploration on Ngolo is expected to begin in the next few months, and will be carried out using prospecting techniques such as remote sensing and geophysical surveys.
A Maturing Oil Sector In Need Of Exploration
Increased exploration efforts are crucial for the country's maturing oil sector: oil reserves in Congo-Brazzaville have been falling since 2008, with EIA figures pointing to 1.51bn barrels in 2013, down from 1.60bn barrels in 2011. We expect this to further decline to 1.30bn bbl by 2022.
Similarly, oil production has been falling since the peak reached between 2009 and 2010. Congo-Brazzaville achieved a production of 291,900b/d in 2012, down from its 2011 level of 298,900b/d. This decline is set to continue over the long-term as we expect production to drop further to 277,200b/d in 2017, and 263,600 b/d by 2022.
|Progressive Decline In Reserves And Production|
|Congo-Brazzaville Oil Production and Proven Reserves (000b/d), 2007-2019|
Eni's frontier exploration therefore bode s well for the country's oil sector over the long term. Successful exploration activity could provide a long-term boost to the country's overall mature and declining oil reserves and production, which accounts for 80% of government revenues according to the EIA.
Onshore And Offshore Exploration Efforts
Eni already has an extensive presence in Congo-Brazzaville. The company is the leading natural gas producer in the country and accounts for nearly 30% of the country's total oil production, producing 87,000b/d of the country's total 298,000b/d 2011 production.
Eni's upcoming exploration efforts in the Cuvette Basin further builds on other onshore exploration and development efforts by the company, most notably in the Tchikatanga and Tchikatanga-Makola prospects : i n May 2009, Eni discovered a large oil sands deposit with estimated recoverable reserves of between 500mn and 2.5bn bbl. Eni suggests a total development cost of up to US$7.5bn and a peak production of up to 200,000b/d, with production potentially starting as soon as 2014. This discovery offer the main upside to our oil reserves forecast for the country.
However, i n addition to onsho re exploration , we also note the offshore potential in Congo-Brazzaville, where recent discoveries by Eni and Oryx point to the high potential of deepwater offshore exploration. In an effort to stem reserves and production decline, the government has been trying to encourage the development of offshore fields. With recent discoveries and the potential for deepwater subsalt play offshore Congo-Brazzavile, this has been met with increasing company interest ( See , 'Eni Find Boosts Production Outlook', August 6, and 'Discovery Points to long-Term Offshore Potential', September 11 ).
While this is unlikely to have an impact in the short-term, we believe that current onshore exploration efforts and deepwater exploration provide upside to the country's oil sector and hold scope for a potential improvement to Congo -Bra Congo-Brazzaville 's long-term oil production outlook.