Striking It Rich In Africa
The oil-rich Middle East is in turmoil, Venezuela's state-run oil company is a mess, and U.S. oil production keeps edging downward. Fortunately for motorists gasping over $3-a-gallon gasoline, there's one place on the planet where oil production is flourishing: Africa. Daily output in African nations that are not members of OPEC rose 25% from 2002 through 2005 and should climb an additional 35% by 2010, estimates researcher Wood Mackenzie in Edinburgh, Scotland. The world's largest oil company, Exxon Mobil Corp. (XOM ), revealed on July 27 that its production in all of Africa has doubled in three years and now accounts for 30% of its worldwide oil output -- more than its output in the U.S. and Canada combined.
Surprised? No wonder. Most of the headlines about oil in Africa concern turmoil in Nigeria, where thugs and rebels steal oil, kidnap workers, and sabotage pipelines and production sites. But those problems, bad as they are, obscure plenty of good news elsewhere on the continent, especially among the non-OPEC producers led by Angola. About 30% of non-OPEC African oil comes from deepwater fields that are far offshore and relatively immune to theft and vandalism. National governments, while sometimes corrupt, have been receptive to foreign investment. The quality of the oil is excellent: light and sweet, so it's easy to refine. And it's a straight shot across the Atlantic from West Africa to the East and Gulf coasts of the U.S. Add it all up, and "this is the new North Sea," says Lysle Brinker, a senior analyst at energy research firm John S. Herold Inc.
ExxonMobil has made the most of the African opportunity. It has brought six fields online in the past three years in the waters off Nigeria and Angola. African oil contributed to a robust 6% rise in Exxon's worldwide oil and gas production in the first half of 2006 from a year earlier. That was Exxon's first significant production increase since 1999. In contrast, output was down 5% at Royal Dutch Shell (RDS.A ) and 2% at BP (BP ). Acquisitions masked a decline of 5% at Chevron (CVX ) and no growth at ConocoPhillips (COP ), according to Jacques Rousseau, an oil analyst at Friedman Billings Ramsey.
The roots of ExxonMobil's success go back to the early 1990s, when Mobil -- which Exxon agreed to buy in 1998 -- bid extensively for West African exploration rights. In the years since, the company has proven especially adept at bringing the new fields online. It contracted for three giant production vessels at once, for example, to speed development time and cut costs. Thirty or more wells can connect to each of these specialized vessels, which look like oil tankers but are stationary.
Other big oil companies are chasing similar opportunities. In fact, West Africa accounts for about a quarter of all exploration and production spending by the oil majors. Angola alone is expected to provide 19% of all new non-OPEC oil production in the world over the next five years, second only to Russia, according to Wood Mackenzie. Recognizing a good thing, the Chinese also are competing aggressively for prospects. Beijing has loaned $5 billion to the government of Angola. China's CNOOC Ltd. paid $2.2 billion for an interest in a big Nigeria field in April, while Sinopec Ltd. has bid a similar amount for two Angola fields.
Africa presents challenges, of course. Both Nigeria and Angola, the fifth- and seventh-largest suppliers of crude to the U.S., are tinderboxes whose recent histories have been marred by civil war and corruption. Citizens complain, with justification, that their oil wealth is not being evenly distributed. Shell was forced to shut down two-thirds of its production because of attacks on oil platforms and a pipeline leak in Nigeria's shallow waters.
What's often overlooked, however, is that African oil production outside of Nigeria is climbing at a good clip. Even troubled Nigeria is far from a basket case: Wood Mackenzie expects its daily output to rise more than 30% from 2005 to 2010. Says George Ayittey, a distinguished economist in residence at American University in Washington: "It's not as dangerous as the Middle East. It's offshore.... It could be a win-win for the U.S. and Africa."
By Christopher Palmeri, with Mark Morrison in Austin, Tex.
— With assistance by Mark Morrison
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