Drilling activity offshore Africa and the Middle East, led by an exploration surge in West Africa, is expected to get even hotter, helping to push spending in the region past US $77 billion between 2012 and 2016.

The forecast, delivered in a report by GBI Research, shows the expected cumulative spending spike represents about a 22% increase over the previous five-year period. Money spent annually on offshore drilling in the region could surpass $17 billion in 2016, up from more than $13 billion in 2012.

Driving attention to the area are offshore discoveries, including 16 made offshore Ghana between 2008 and 2012, with countries such as Sierra Leone and Liberia emerging as new players on the oil and gas scene. Off the east coast, Kenya, Mozambique, and Tanzania are gaining prominence as gas and oil producers. Meanwhile, in the Middle East, development in Saudi Arabia, Iran, and Qatar has ramped up with increased activity anticipated to continue.

“Compared to other regions of the world, a major portion of the potential offshore blocks in Middle East and Africa region are located in deep and ultra-deep waters,” said Bharath K. Sheela, analyst for GBI Research. “Drilling operation in the region is highly expensive as most of the wells are deepwater wells, and technical and operational costs associated with it increase drilling expenditure. Also, political instability and security issues in most countries of the region are delaying many deepwater projects leading to an increase in project development costs.”

However, the challenges accompanying exploratory efforts haven’t deterred companies, considering the potential payouts.

The latest move into the region included China National Petroleum Co. acquiring a 20% stake in deepwater acreage offshore Mozambique from Eni as part of a $4.21 billion deal announced March 14. And evidence of the region’s potential keeps flowing – Apache Corp. announced March 4 its Amoun NE-1X discovery in Egypt, which tested at a combined rate of 3,186 bbls of oil and condensate and 11 MMcf/d of natural gas. The well encountered 15 m (50 ft) of oil pay in three Cretaceous Alam el Buieb (AEB-3) sands in addition to 31 m (101 ft) of pay in the Jurassic Safa sands, Apache said in a news release. The well cost $4.2 million to drill and complete.

Further potential lies in Angola, where the report noted a subsalt geological similarity exists between the country and Brazil. “As shallow-water resources decline, deep and ultra-deep subsalt areas are expected to play an increasingly prominent role in offshore oil and gas production,” the report stated.

Angola is where GBI foresees companies will spend the most on drilling in the region, surpassing $6 billion in 2016. Nigeria and Egypt are expected to come in second and third, with about $2.3 billion and $1.5 billion in spending, respectively. Twenty-two discoveries were made in Angola between 2008 and 2012.

Sheela said “Exploration in Angola’s offshore blocks continues to attract investors due to the following reasons:

• Excellent petroleum working system;
• Well developed seismic imaging with international oil companies already familiar with the country’s resource potential;
• Political and contractual stability;
• Presence of significant hydrocarbon reserves in presalt formations; and
• Presence of low sulfur crude well suited for export to the major importing countries.”

GBI anticipates Ghana will emerge as the most prominent West African country for oil and gas exploration following Angola. The report noted Kosmo’s Jubilee discovery in 2007 led to additional successful discoveries such as at West Cape Three Points and deepwater Tano blocks, including Mahogany, Teak, Akasa, and Banda. The Jubilee field produces about 110,000 b/d, according to the company’s website.

Tullow Oil, which operates the Jubilee field and has interest in two offshore exploration blocks, is among the companies planning further investment offshore Ghana. In the second half of 2012, the company submitted a development plan to the Ministry of Energy for its Tweneboa, Enyenra, and Ntomme project.

In the Middle East, the report pointed out development in Saudi Arabia’s Manifa, Arabiyah, and Hasban fields as well as in Iran’s South Pars and Qatar’s North Dome as areas of increased drilling activity.

Saudi Aramco’s Manifa development, scheduled to be complete in June 2013, contains 27 drilling islands along with 13 offshore platforms, and 15 onshore drill sites, according to the company’s website.

In addition to Manifa, projected to go online in December 2014 and produce 0.9 MMb/d of Arab heavy crude oil, the company’s offshore plans include a five-year program to increase natural gas production. Saudi Aramco’s 1.2 Bcf/d Arabiyah and the 1.3 Bcf/d Hasbah gas fields are expected online within five years, according to the US Energy Information Administration (EIA).

In Iran, additional drilling activity is anticipated offshore South Pars, a natural gas field shared with Qatar in the Persian Gulf. The field makes up more than 47% of Iran’s total gas reserves and produces about 35% of gas produced in Iran, EIA data showed. The Pars Oil & Gas-managed project is a 24-phase, 20-year development. The company said the field’s reserves have an estimated 14 Tcm of gas and 18 Bbbls of condensate.

“The growth of drilling expenditure is expected to spread to all major countries in the region,” the report stated.

However, this growth is not without obstacles.

“Surge in exploration success and production activities led to huge demand for deepwater floaters and premium jackups in West Africa. As a result, rig availability has diminished rapidly,” Sheela said. “The market seems to be close to a supply/demand balance. However, increase in newbuild rigs is strengthening and these will be readily absorbed into the market without a significant effect on utilization or day rates.

“Demand for skilled workers, especially subsea engineers which are already in high demand, has increased due to a surge in the continent’s offshore activity,” he continued. “Companies have now turned to on-the-job training to meet the demand.”

Contact the author, Velda Addison, at vaddison@hartenergy.com.