Equatorial Guinea to delay oil, gas projects over price collapse

Equatorial Guinea will have to put the bulk of its upcoming upstream projects on hold due to the oil price collapse from the COVID-19 pandemic, the country's minister of mines and hydrocarbons said Monday.

"Exploration and drilling work will take a big hit because of this pandemic," Gabriel Obiang Lima said on a press webinar. "We need to go back to the drawing room with some of the oil companies, and rethink a new strategy as we will have to put some projects on hold."

Oil prices have fallen to their lowest in over 21 years with ICE Brent dipping below $20/b and this is causing considerable instability for African oil producers in the Gulf of Guinea.

The spread of the virus has exacerbated the situation, obliterating oil demand, but it has also impeded several upstream and exploration projects in the oil and gas sector.

OPEC's smallest producer is desperate to reinvigorate upstream activity and stem a decline in oil output from its maturing fields.

Obiang said the ministry and international oil companies need to be "realistic and flexible" and treat 2020 and 2021 as the "lost years for the oil market" and get ready for a "comeback" in 2022.

The minister said one of the projects that will be affected and postponed due to the current crisis was the upstream work in Block S in Equatorial Guinea's offshore Rio Muni basin.

Dallas-based Kosmos Energy discovered 9 meters of net oil play at the S-5 well in May last year. The well is located within tieback range of the Cobia floating production, storage and offloading vessel, which produces around 30,000 b/d of crude.

He said that some of these projects need to put on hold as no one really wants to start production when prices are below $20/b.

A final decision of some of the key upstream projects is likely to be taken in the next few weeks, he said adding that research and development will be more important this year compared to exploration and drilling.

RISK TO ZAFIRO FACILITY

The ministers also confirmed that thirty workers at the Serpentina floating production storage and offloading platform tested positive for COVID-19.

Serpentina is the main offloading facility for its premier export grade Zafiro.

Obiang said the platform is being decontaminated and there should be minimal impact to production as it is a storage platform and not a production platform.

But trading sources said there could be a delay to some exports or loadings if the whole facility will be shut for some time.

Production at Zafiro has recently ranged 50,000 – 60,000 b/d but the Serpentina FPSO has a capacity of over 120,000 b/d.

The workers at this site have been safely evacuated and are in quarantine, he added.

Equatorial Guinea began producing oil in 1995, and its production peaked at 425,000 b/d in 2004. The country has been struggling to halt decline rates averaging 10% a year from its existing fields. Production has been averaging around 120,000-130,000 b/d so far this year, according to S&P Global Platts estimates.

Under the latest OPEC+ deal, the central African country has committed to keeping its crude output at 98,000 b/d in May and June, a decrease of 29,000 b/d from its baseline of 127,000 b/d. From July through December it will pump 104,000 b/d, while from January 2021 through April 2022, it will cap production at 110,000 b/d, under the agreement.

ALEN GAS ON TRACK

However, the minister said the gas condensate project from the Alen field is still on track and should still be complete by the end of the year. First gas from the Alen field is expected as early as November 2020, which will be delivered to Punta Europa to help backfill the LNG plant.

The Punta Europa facility, home to LNG and LPG plants and the Malabo power station, is key for the country to develop several offshore gas hubs and monetize neighboring gas reserves.

Last year, the ministry signed a partnership with trading house Vitol to develop its key Punta Europa gas complex and emerge as a key regional gas hub.

The country has been hoping to use feedstock from the Alen gas condensate field for the country's existing LNG export project in Punta Europa.

DOWNSTREAM AMBITIONS

The minister also said he is working on new regulations and legislation for the oil sector focusing on the downstream sector along with a new emphasis on local content laws.

Another priority of the ministry is to build a downstream industry in the country with a key focus on refining and petrochemicals

Last week, the ministry said Houston-based VFuels Oil & Gas Engineering will undertake a feasibility study for the launch of 5,000 b/d modular oil refinery in the country.

The feasibility study, which will include the engineering and design, will be delivered within 12 weeks of the contract's signature, the ministry said.

The OPEC member is seeking investments for a modular refinery in the continental region, storage tanks and the promotion of other projects derived from methanol, among others.

Obiang was hoping to build two modular refineries in the country, one at the Punta Europa complex located on Bioko Island, and the other at Cogo in the mainland.

The main objective of this plant would be to provide refined products for domestic consumption. The country currently has no oil refineries and imports of all its fuel needs.