FEATURE: Crunch time for Equatorial Guinea as biggest oil field to enter government hands

Equatorial Guinea's beleaguered oil sector is facing its biggest challenge yet as ExxonMobil prepares to exit the Central African country after almost three decades, leaving inexperienced state-owned GEPetrol to operate its biggest field.

After years of tumbling output, the crude-reliant country faces an uphill battle to attract foreign operators to its oil and gas sector, while also finding itself at the center of a geopolitical struggle between China and the US.

Analysts from S&P Global Commodity Insights expect production at existing projects to fall by 28,000 b/d by 2034, almost half of the country's current production of 60,000 b/d, according to the Platts OPEC Survey, leaving it reliant on undeveloped discoveries to maintain or boost output.

Production has already fallen by 79% from a peak of 289,000 b/d in 2015, leading OPEC to slash the country's output quota in January.

Vital field

ExxonMobil blazed a trail in Equatorial Guinea following discoveries there by its predecessor, Mobil, in the 1990s. But in 2022, a leak on a production vessel at Zafiro, its main asset, forced the platform into retirement and cut ExxonMobil's Equatorial Guinea production from 45,000 b/d to 15,000 b/d.

In February, the company said it would depart in Q2 2024 in line with its "long-term strategy to strengthen our portfolio of assets." It follows an IOC exodus from mature basins like Nigeria and Equatorial Guinea, with majors shifting towards frontiers like Namibia and Guyana.

ExxonMobil would not comment on the specific date of departure, but a spokesperson said the company was on course for Q2. GEPetrol did not respond to a comment request.

With plenty of warning, Equatorial Guinea began offering Exxon's assets to a host of foreign companies but received no offers, sources said. As a result, GEPetrol, which does not operate any oil projects, is set to take over the asset this year.

"They shopped it around to a lot of different companies," said a person familiar with the effort. "It's old and it hasn't seen the investment that it probably should have. Whoever takes it over is going to have to put some money in."

That has left oil minister Antonio Oburu Ondo "in the unenviable position of managing the transition," the source added. "So he is under a huge amount of pressure to get that right."

Attempts to reach the country's Ministry of Mines and Hydrocarbons were unsuccessful.

It demonstrates the challenge Equatorial Guinea has faced in attracting investment due to the regional IOC exodus, insufficient exploration activity and a heightened risk climate. Foreign investors say privately that while doing business in Equatorial Guinea can be smooth as long they are transparent with the government, political risks loom large.

The country is among Africa's richest per capita but its oil wealth has mainly been used to enrich the ruling Obiang family, while 70% of the population lives in poverty, according to the UN. Teodoro Obiang Nguema Mbasogo has been in power since 1979, but his son Teodorin Obiang Nguema, known as Teodorin, who is the subject of corruption probes in the US and France, is the country's de facto leader.

Investors say Teodorin's brother, former oil minister Gabriel Mbaga Obiang Lima, was seen as a friend of the oil industry and a steady hand, as well as a potential future leader, but he was moved to the finance ministry as Teodorin consolidated power.

Undeveloped discoveries

There are some reasons to be cheerful, with Chevron still involved offshore and juniors and independents eager to squeeze extra barrels from mature Equatoguinean assets.

Chevron first entered Equatorial Guinea in the 1990s and today holds stakes in the Aseng oil field and the Yolanda gas field in Block I and the Alen gas and condensate field in Block O, none of which are currently producing, according to S&P Global data.

In April, Oslo-listed junior Panoro Energy signed an agreement on the "highly prospective" offshore block EG-23, setting the stage for PSC negotiations, just a fortnight after Houston-based Vaalco Energy signed a deal on its shallow water Venus oil project in Block P. S&P Global analysts expect Venus to come onstream in 2026 at 15,000 b/d.

Late last year, the UK's Europa Oil & Gas picked up the "drill ready" EG-08 block, while Trident Energy is drilling three wells on Block G with partners Panoro and Kosmos. That campaign has been paused after the partners terminated the rig contract over safety concerns, which the rig owner denies.

According to S&P Global forecasts, undeveloped discoveries, including Venus and Europa, could add 70,960 b/d to Equatorial Guinea's production by 2034, assuming all of them go into development.

Keen to woo investors, Teodorin met Eni CEO Claudio Descalzi in January, while London-listed Tullow Oil and Panoro visited the vice president in Malabo this month, getting the "green light" to begin exploration talks with GEPetrol, the vice president said on social media.

Equatorial Guinea produces medium sweet crude, which is sold into China, Spain, Italy and elsewhere. Zafiro was last assessed by Platts at a $2.87/b premium to Dated Brent on April 15, showed S&P Global data.

Chinese base

The country also faces a geopolitical juggling act that could influence oil sector investment.

China is eager to build a naval base at Bata on the country's mainland, but the US, Beijing's key rival in resource-rich Africa, is resisting the move, according to reports.

The world's largest crude importer has invested in energy projects in Africa in recent years in a bid to secure future supply and boost its diplomatic clout on the fast-growing continent.

In a sign that Teodorin could be looking beyond the West for upstream investment, the vice president met investors from Jiangsu Haibin Investment Group on April 10 to discuss hydrocarbon investments.

"The Equatoguinean government is playing the US off of China off of Russia," said one Western investor. "There is a game being played there."