The ghost of Chinguetti

Whatever your take was on the recent paper on peak oil demand and long-run oil prices, co-authored by BP chief economist Spencer Dale and Oxford Institute for Energy Studies director Bassam Fattouh, it was hard to find fault with this line:

[If] no new investments are made and existing levels of production decline at a rate of 3pc/yr… this implies a huge and ever widening gap between oil supply and the demand profiles. Under almost any scenario, the world is likely to require significant amounts of investment in new oil production for many years to come.

As subscribers to Petroleum Argus will have read in last week’s issue, recent months have seen a resurgence in exploration activity in west Africa, bolstered by the recovery in crude prices and renewed interest among the majors. Additionally, natural gas reserves in the region — previously discarded as stranded assets — may now be commercially viable.

Prospective frontiers are being explored offshore Cameroon, Ivory Coast and Mauritania, among others. The presence of the latter country on the list provides a cautionary tale, one that came to a sorry conclusion at the end of last week.

In the early years of this century, Mauritania was the great new hope for crude production. It was dubbed ‘the new Angola’, or ‘another Gulf of Mexico’, after the Chinguetti prospect was confirmed as holding hundreds of millions of barrels of oil in place.

The operator, Australian firm Woodside, doubled down. It bought out Italian company Eni’s stake in the face of interest from ExxonMobil. In 2003, reserves were upgraded to 142mn bl of recoverable crude. The discovery of the nearby Tiof field, said to be even larger than Chinguetti, sent investors into overdrive. Mauritania, it was said, could be holding 400mn bl of recoverable crude, maybe even 2bn bl.

Chinguetti was declared commercial at the start of 2004. Half a billion dollars would be invested in the field. The UK’s BG farmed in and the project was go. By May 2004, it was a $600mn project.

Woodside shares hit a record in late 2004, and Mauritania created an oil ministry in April 2005. By that point, Woodside was warning of 10pc cost overruns, but it was still wildcatting away off Mauritania. By mid-2005, costs were blowing out — Chinguetti was now a $700mn project.

First oil came in February 2006, and the field quickly ramped up to its 75,000 b/d capacity. In March, the first cargo was lifted for a refiner in China.

But production was faltering by May. Each of the six producing wells had a different problem — unwanted gas production, too much water and/or limited productivity.

By August the gig was up. Minority partner Hardman Resources said recoverable reserves were likely to be half of the original estimate. By the start of 2007, Woodside was prioritising the maintenance of output at Chinguetti at 20,000-30,000 b/d. In September the Australian firm’s race was run, and it sold its stake in the field to Malaysia’s state-controlled Petronas.

All this played out against a price backdrop that is noticeably familiar. Brent ticked up from lows around $30/bl in mid-2003, and topped out near $80/bl in mid-2006, before the big push to the 2008-09 record highs.

Chinguetti was producing 7,500 b/d by mid-2011, a tenth of the anticipated output. Last week, the last rites were administered. A dry statement from UK E&P firm Sterling Energy, which ended up with an economic interest in the field, gave a timetable. Cessation of production will be undertaken from early 2018 into the second quarter. Final plugging and abandonment is planned for 2019-20.

Chinguetti stands as a reminder that while rising oil prices can and will encourage investment in exploration, there are no guarantees. But, if at first you don’t succeed… Woodside is now part of a consortium exploring offshore Senegal, where it says first oil production could begin in 2021-23. Operator Cairn Energy has said in-place resources in the three blocks it operates offshore Senegal are as high as 2.7bn bl. Recovery potential is yet to be evaluated.

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