Market focus: Libya takes lead in Maghreb

19 February 2010

Despite the challenges presented by deepwater drilling, there are sufficient indications of offshore oil wealth in North Africa to have excited the interest of international majors

Egypt currently dominates offshore oil and gas activity in the Mediterranean, its North African neighbours have not been as successful at exploiting their offshore reserves, even though they possess some promising geologies.

But BP of the UK planned $900m exploration campaign in Libya, with its predominantly offshore focus, could herald a migration of international oil company (IOC) investment and interest towards the Maghreb.

Advances in technology have opened up new offshore areas in Morocco, Libya and Tunisia, although the Maghreb’s energy giant, Algeria, remains a relative offshore novice; only a handful of exploration wells have been drilled in Algerian waters, and little of the area has been subject to seismic appraisal.

Multiple opportunities

Libya’s waters, too, have been only lightly explored, yet Tripoli is primed to emerge as a significant offshore producer in its own right. The National Oil Corporation’s (NOC’s) exploration master plan for 2005-2015 aims to raise the country’s oil output to 3.5 million barrels a day (b/d) by 2020, from 1.8 million in 2005, by increasing exploration in offshore and frontier areas.

Libya’s offshore acreage was first licensed in the EPSA IV licensing round in January 2005, and since then the majority of the blocks have been awarded to Australia’s Woodside Petrol-eum and Occidental Petroleum of the US.

In numbers
  • 3.5 million - Libya’s projected oil ouput in barrels a day in 2020
  • $900m  - BP’s planned exploration campaign spend in Libya
  • 1.8 million - Libya’s oil output in barrels a day in 2005

The deepwater Sirte acreage, extending to depths beyond 2,000 metres and up to 300 kilometres offshore, is unexplored, but is believed to be ‘on trend’ geologically with the onshore acreage. BP, which signed its $900m exploration deal with NOC in 2007 to explore Sirte together with the onshore Ghadames basin, says the area appears to be a buried rift with multiple opportunities, similar to those found in the North Sea.

The large size of the Sirte acreage is a key attraction for the UK energy major: it is nearly the size of Belgium and 10 times the size of the BP-operated Block 31 in Angola, where BP has announced 14 discoveries so far. BP has now completed its 3D seismic campaign in the Gulf of Sirte, the largest it has ever undertaken, and is evaluating the data ahead of drafting drilling plans. But it is a long-haul process.

“When we first announced the deal we said that, assuming everything went to plan, we wouldn’t look to produce hydrocarbons before 2018 at the earliest,” says a BP spokesman.

Geological challenges are par for the course in the offshore sector. Part of the Libya offshore prospect is 2.5km in depth, although the eastern part near Benghazi is much shallower.

For BP, deepwater is a significant focus of activities. It has already developed a sizeable deepwater presence in Angola and the Canadian Arctic and in September it announced one of the world’s largest finds in recent years, a giant oil discovery at its Tiber Prospect in the deepwater Gulf of Mexico.

In North Africa, its 3D survey uses its new wide-azimuth towed-streamer (WATS) technology. “WATS will help us build a better picture than before of the region,” says the BP spokesman. “It brings a step change in the geological knowledge of the area.”

WATS uses multiple seismic receivers towed behind survey vessels to collect information from many different angles. Processing the combined data results in a clearer picture of the geology than was achievable using previous methods.

Libya’s offshore challenges are analogous to those of the Egyptian shelf. While the drilling itself is unlikely to prove a challenge for BP, handling the hydrocarbons from a production perspective could prove more problematic – and potentially expensive.

“Drilling operations are more straightforward in Libya [than in Egypt], but the challenge here is that the hydrocarbons have very high inert gas and sulphur content,” says Craig McMahon, a North Africa upstream analyst at consultancy Wood Mackenzie.

Drilling operations are more straightforward in Libya, although the hydrocarbons are high in inert gas and sulphur

Craig McMahon, analyst, Wood Mackenzie

BP’s high expectations for Libyan offshore exploration jar with the more recent experience of Australia’s Woodside Petroleum, whose four ‘dusters’ – dry wells – have prompted it to walk away from the country. Woodside is to exit the Libyan offshore in 2010, it announced in November 2009. Another Australian firm, Oil Search, partnering with Brazil’s deepwater-specialist Petrobras in offshore Area 18 of Libya, also said in November that it had abandoned its A1-18/01 exploration well.

Offshore licensing

However, the dusters should not suggest that other hydrocarbon discoveries will not be forthcoming in Libya’s offshore exploration areas. In early December, the US Hess Corporation announced the discovery of new offshore gas deposits in the Gulf, with a well flowing at a rate of 27 million cubic feet a day (cf/d) of good-quality gas and 533 b/d of condensate. Upon conclusion of operations on this well, Hess’s Stena Forth drill ship will return to complete the drilling of an appraisal well, A2-54/01, located northwest of the discovery well.

Back in April, Spain’s Repsol and Austria’s OMV announced a first offshore oil strike in Sirte’s offshore basin, with initial tests yielding 1,264 barrels of liquids and 16,400 cm/d of gas. The well reached a total depth of 4.8km and tested a natural flow rate of up to 1,264 b/d from the Eocene Dernah Formation. 

However, as of early December 2009, there were only two offshore drilling operations in Libya, and both on high-profile exploration programmes. Hess’s Stena Forth, and the Noble Homer Ferrington rig contracted to ExxonMobil were drilling in 1.8km for the first of three deepwater exploration wells.

The latter rig, contracted from Noble Africa, can drill to a depth of 9km. ExxonMobil Libya has completed two 3D seismic surveys in offshore Contract Areas 20 and 21, and three 2D seismic surveys in offshore Contract Areas 44, 20, and 21.

“As the year progresses, we will see more offshore work in Libya,” says Rod Hutton, an analyst at US headquartered ODS-Petrodata. “[Russia’s] Gazprom will start a year-long exploration campaign in August 2010, focused on deepwater, and BP plans to drill at least one well in 2010.”

In contrast to Libya, Tunisia and Morocco’s offshore areas remain frontier provinces, but there is interest in them. Shell has taken a reconnaissance contract in the north of Tunisia’s offshore and will assess the acreage before committing to a drilling campaign. However, it is possible that some Tunisian offshore drilling would impact neighbouring Algeria, which is also considering licensing its offshore prospects but has yet to take the first big step. Algeria’s geological accumulations are more challenging, as the country has a narrow continental shelf.  

“Tunisia may prove more encouraging,” says Hutton. “Tunisia is seeing more jack-up activity.” He adds that one or two jack-up platforms for drilling are expected in Tunisia’s offshore in 2010.

In November 2009, Australia’s AuDAX Resources awarded Atwood Oceanics a contract for drilling rig services on the Sambuca prospect, off Tunisia, using the semi-submersible Atwood Southern Cross drilling vessel. Drilling is scheduled to begin in the summer of 2010.

Another Australian operator, Cooper Energy, has completed development studies for the Hammamet West oil field in the Gulf of Hammamet, aiming to drill the Hammamet-3 appraisal well in 2011.

Contractor WorleyParsons, also from Australia, which has been assisting operator Cooper Energy in the screening process, has recommended a small, normally unmanned, platform exporting oil and gas via a multi-phase pipeline to an onshore terminal. This facility would distribute the processed gas to local markets in Tunisia, with the oil diverted to an offshore loading buoy. 

The plan echoes Italian firm Eni’s development plans for the Maamoura field, which lies 10km south of Hammamet West. However, more seismic studies may be needed to appraise that field. Morocco, with its rather different Atlantic acreage, could be more attractive for offshore explorers in 2010.

Gazprom will start a year-long exploration campaign [in Libya] … and BP plans to drill at least one well in 2010

Rod Hutton, analyst, ODS-Petrodata

“Morocco has some fantastic fiscal terms to incentivise exploration, and they have attracted some big names, such as [Malaysia’s] Petronas, that just need to make a big discovery to prompt more attention on the region,” says McMahon.

Shell and Eni have in the past relinquished Moroccan offshore exploration programmes. Spain’s Repsol announced a gas discovery in March 2009 of about 100 billion cubic feet – not a huge amount in itself, but it proves the existence of hydrocarbon accumulations, which many had doubted.

Repsol discovered gas in the Tanger-Larache area, 40km off the Moroccan coast. Two columns of gas totalling 90m were uncovered in the Anchois-1 well, drilled to a depth of 2.3km. Repsol is working a number of exploration blocks in the Atlantic area, including Spain’s Canary Islands, and Sierra Leone.

“They need a few more discoveries before they start assessing these areas,” says McMahon. “There are some challenges – they’re out in mid Atlantic and that can be a tough operating environment.”

Export potential

In June 2009, Serica Energy of the UK announced it had signed with Morocco’s Office National des Hydrocarbures two offshore agreements for the contiguous areas of Sidi Moussa Offshore and Foum Draa Offshore. The concessions cover an area of about 12,700 sq km in the Agadir basin, a little-explored region 100km southwest of Agadir.

But it is Libya, above all, that will drive the Maghreb’s offshore exploration programmes over the next few years. The tough fiscal regime and general operating climate in the country present additional challenges for prospective players, but oil companies are likely to sustain their offshore interests. 

“Libya has said it is open to export gas; so there is the potential for exports if they should prove there are sufficient reserves to make it happen,” says McMahon. “Libya’s position is very much: ‘go and find the reserves and we’ll take it from there’.”

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