INTERVIEW: Africa Oil to shift away from exploration, towards offshore producing assets

Africa Oil Corp will concentrate on acquiring producing oil assets exceeding 10,000 b/d, preferably offshore West Africa, that no longer "make sense for majors," the company's CEO told S&P Global Commodity Insights as he prepares to step down after 14 years at the helm.

In a wide-ranging interview, Keith Hill outlined the Canadian independent's strategy, commented on recent company moves and said he was bullish on oil prices in the coming decade, despite the rallying cry for a shift towards clean energy.

The company has just two producing oil blocks, OML 130 and OML 127 offshore Nigeria, from which it produced approximately 21,500 b/d in Q1 2023, as well as exploration plays in Equatorial Guinea, South Africa and Namibia.

However, Hill, who will be succeeded in September by Roger Tucker, said the company would seek to increase its output in the near-term by buying producing assets in mature fields and spending just a fifth of its budget on exploration.

"Our sweet spot is offshore West Africa producing assets... that don't have a huge amount of development capex going in and are cashflow positive in the short term," Hill said. "There's a lot of assets that may not make sense for majors but for guys like us would be perfect. We are kind of looking no less than 10,000 b/d production assets."

He added: "80% of our effort is going to be on buying an asset like that. Or merging with another oil company. However we get exposure to those type of producing cash flowing assets."

Huge companies like ExxonMobil, Chevron and Shell have been withdrawing from mature fields in Africa, particularly in established producers Nigeria, Angola and Equatorial Guinea, paving the way for smaller, nimbler players like Africa Oil to take their place.

While much of the company's budget will go towards producing assets, 20% will be reserved for advantaged exploration, Hill said, mostly in areas with pipeline or platform access.

Turkana project

Hill said Africa Oil had "learned a little lesson in Kenya... [about] how difficult it is these days under the current ESG environment to build and finance big onshore assets."

The company recently pulled out of two blocks in the South Lokichar Basin alongside TotalEnergies, leaving majority stakeholder Tullow as the sole operator. Tullow is currently searching for a strategic partner.

"The biggest thing was our pipeline -- the Ugandans and Total decided to go through Tanzania [with the East Africa Crude Oil Pipeline]. When they made that decision that really challenged our project economically," said Hill. The second issue was Tullow's search for a strategic partner, Hill said. "We got very down the road, but the process is taking too long," he said. Tullow is in advanced discussions with Indian state-owned companies to farm into the project, which Hill still expects to go ahead.

"We thought we could get financing through conventional banks, African banks," Hill added. "Even that is getting more challenging for banks to do major pipelines in environmentally sensitive areas."

Mid-term outlook

Despite issues in financing African projects, Hill said he was optimistic about future oil demand. The company uses a $60/b buying case, Hill said, adding that an oil price of $80-100/b in the next decade "is not unreasonable."

"I'm still a very big bull on the medium-term oil market. I think the transition is going to take a lot longer than everybody expects. I think we are going to be supply limited through the next decade," he said. "We actually do need exploration. We need to go out and find some more barrels. And there are only really two places that have been successful lately -- Africa and Guyana."

Although the company's OML 130 projects offshore Nigeria -- for which the production sharing agreement was recently renewed -- are its only producing assets, Hill said he was most excited about its Venus project in Namibia's Orange Basin, perhaps the world's hottest exploration play since vast discoveries were made by Shell and TotalEnergies last year. "Venus is going to be the biggest," he said.

Africa Oil is looking to farm out Block 3B/4B offshore South Africa, where it is embarking on a two-well drilling campaign, as well as Blocks 31 and 18 in Equatorial Guinea, Hill said, adding that there is "a lot of interest" in the West African assets. The company also has exposure to recent discoveries in Blocks 11B and 12B in South Africa alongside operating partner TotalEnergies.

Energy transition

Echoing comments made recently by TotalEnergies' CEO, Patrick Pouyanne, Hill said the energy transition must be "just and orderly." Africa Oil has committed to being carbon neutral by 2050 and net zero by 2030. "If you are going to be investible you have to be a good player," Hill said.

However, he added that it was unfair for Western governments and activists to criticize resource extraction in Africa, where 600 million people lack access to electricity.

"It's 2.5-3% of the world's CO2 emissions and has 19% of the world's population," Hill said. "It's totally hypocritical."

Hill will step down on Sept. 5 but will remain as a director of Africa Oil.

"Under Mr Hill's leadership, Africa Oil has grown from a junior explorer to a full-cycle upstream company, and he leaves it in a very strong position, poised for continued future growth," the company said in a statement.