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Oil & gas: ExxonMobil makes its comeback
ExxonMobil, the third-largest crude oil and natural gas producer in the world with an average of 4.2m barrels produced daily, is back on the offensive in Africa. In early December 2017, the Texas-based supermajor acquired three exploration blocks in Mauritania, a new oil Eldorado pioneered by US-based firm Kosmos Energy. Around that same time, Egypt’s petroleum minister Tarek El-Molla announced that discussions were being held with the oil company for permits off the coast of Alexandria, a region that has regained explorer interest due to the gas discovery made in the supergiant Zohr field – the largest ever in Egypt and the Mediterranean Sea – by Italian multinational Eni in August 2015. ExxonMobil, also the world’s largest listed oil producer, has recently dealt with Eni, having acquired a 25% interest at a cost of $2.8bn in Mozambique’s gas-rich Area 4 block from the Rome-based company in mid-December. Earlier this year, Exxon launched its latest venture, signing a deal on 18 January with the government of Ghana to explore the Deepwater Cape Three Point (DCTP) offshore oil block. As the operator, the US firm holds an 80% stake; the state-run Ghana National Petroleum Corporation controls a 15% shareholding.
These huge investments made outside its two biggest sub-Saharan Africa bases of operation – Nigeria and Angola, where it produced an average of 253,000 and 169,000 barrels per day (bpd) in 2016, respectively – show that Exxon is spreading its wings and preparing for the future. It wants to stem the decline in its African production, from 594,000bpd in 2016 to a predicted 523,000bpd in 2018.
More responsive to the recent price swings than other major groups, the US oil giant made drastic cuts to its expenditure after prices dropped in mid-2014. The former chief executive of ExxonMobil and current US secretary of state, Rex Tillerson, spearheaded a relentless and effective cost-cutting campaign that contributed to an increase in net revenue from $3.5bn in the first quarter of 2016 to a record $7.1bn in the first quarter of 2017. This figure largely surpassed the revenues of all other oil industry heavyweights, including Shell, Total, Chevron and BP. Rising prices have also helped the industry. The oil price rose to more than $70 per barrel on 9 January of this year, the highest in three years.
Known for his in-depth portfolio analysis, Tillerson had stopped Exxon from exploring and developing new projects, particularly in Africa, due to regional operating costs that were deemed too expensive. Jean-Baptiste Bouzard, a sub-Saharan Africa oil and gas analyst at Wood Mackenzie, explains: “Across the continent, Exxon chose to focus its attention on completing projects that had already been decided in 2014, as well as exploiting what are now old fields. This explains the drop in production over the past three years – 12% between 2016 and 2017 in Africa and 4% at the global level.”
React to competitors
With Exxon’s excellent cash flow, Darren Woods, the successor to Tillerson appointed on 1 January 2017, is now capitalising on the rebound in prices to seek out new ventures that will increase ExxonMobil’s reserves and boost its production. Bouzard adds: “The company wants to reinvest in Africa, partly to compete against Eni and Total and to not leave them to dominate the continent.” Francis Perrin, a research associate at both Morocco’s OCP Policy Center and France’s thinktank the Institut de Recherche et d’Informations Socio-économiques, says: “ExxonMobil is the world number one, so neglecting any zone is out of the question, especially sub-Saharan Africa, a region representing about 12% of its hydrocarbon production and where it has maintained a historical presence.” Perrin adds: “ExxonMobil looks at everything and everywhere, from Egypt to Mauritania through South Africa, but that doesn’t mean it will buy all the blocks it is studying or start producing from all the fields it is exploring.”
Named 2017 explorer of the year by the World Oil and Gas Council, the US giant is not seeking to be a global pioneer in the exploration field. Its strategy is usually to react to investments made by competitors. ExxonMobil often seeks to acquire exploration blocks next to newly discovered fields, where its teams of geologists suggest the presence of other big fields are in close proximity. This was the case in Mauritania and at DCTP in Ghana, which is close to Tullow’s Jubilee field. The US supermajor also invests in projects with proven reserves that are led by other major firms, such as the Area 4 Block agreement signed with Eni in Mozambique, its deal with Norway’s Statoil on the Block 2 offshore gas field in Tanzania and its partnership with France’s Total on the ultradeep offshore Kaombo project in Angola. Exxon owns 35% and 15% of the Tanzania and Angola projects, respectively. Additionally, the company is seeking to optimise the end of life of its wells and to use its infrastructure to help in the search for more reserves in surrounding areas.
Following a decades-long presence in Equatorial Guinea marked by criticisms in the United States for its links to the regime of President Teodoro Obiang Nguema Mbasogo, Exxon announced a new oil find in December 2017. The discovery is in Block EG-06, located next to its depleting Zafiro field, a once prolific oilfield from which it extracted more than 1bn barrels over 20 years.
A North Africa expansion might also be in the works. “The foray into Egypt’s offshore oil and gas it is currently considering can be linked to a desire to combine recent gas discoveries in Cyprus with new Egyptian fields and also to find business opportunities for its gas in the highly populated – close to 100 million people – and top energy-consuming country in the region,” notes Stephen Fullerton, Wood Mackenzie’s upstream Egypt analyst. “Finally, the only notable exploration risk taken by ExxonMobil is in the Tugela South exploration area off South Africa’s east coast, where no one has yet made any significant discoveries,” adds the OCP Policy Center’s Perrin.
As for Chad, ExxonMobil led the development of the Doba project, and the company is trying to improve its often rocky relations with the government after N’djamena attempted to impose a huge fine for unpaid taxes in 2017. The two sides reached a compromise that included a $200m payment from Exxon in exchange for a 25-year extension to its licence.
Based on its recent activities, Wood Mackenzie estimates that the US firm has some 3bn barrels of oil reserves in sub-Saharan Africa – more than two-thirds of this is in Nigeria – and 32bn cubic feet of natural gas. This might suggest an important shift towards gas production in the future, particularly projects to export liquefied natural gas.
As a leading producer of hydrocarbons from unconventional sources in the US, ExxonMobil could have other long-term projects that involve exploiting shale oil and gas. Even though activity relating to these non-conventional energy resources is currently high in North America, where laws permit their extraction, ExxonMobil is looking at new territories where it can leverage its expertise. Last year, the company began discussions with Algeria – it has the third-biggest shale gas deposits in the world – provoking a massive public outcry due to the negative environmental impact the drilling could have. According to Perrin, “non-conventional resources can be found in Morocco, Algeria, Tunisia, Libya and in South Africa, even though a lot of work is required upfront to ensure the possibility of exploiting them.” And Perrin argues that ExxonMobil will be looking at those opportunities.
This article first appeared in the April 2018 print edition of The Africa Report magazine