Instability Drags On Prospective Investment

BMI View: Petroci's decision to target western Blocks CI-506 and CI-507 for 3D seismic surveying may be understood as part of a wider move to draw investment into the country's virgin western deepwater territory. However, although interest in the area is on an upward trend, we caution that ongoing political instability will continue to weigh on Côte d'Ivoire 's below-ground potential.

Petroleum Geo-Services (PGS) has announced that it has begun acquisition of 2,300sq km of 3D seismic data, covering Blocks CI-506 and CI-507, offshore Côte d'Ivoire. PGS, working in conjunction with state-owned Petroci , expects to complete seismic surveying in Q214, with first datasets to be made available in the following quarter. Both blocks, which include significant deepwater acreage, fall to the west of the country's maritime territory, bordering neighbouring Liberia. The targeting of these two blocks seems to underline mounting interest in the country's deepwater prospects and a gradual expansion of exploration and production (E&P) projects to from the eastern hotspots.

Lying on the West Africa Transform Margin, which has supported some prolific discoveries in neighbouring Ghana, Côte d'Ivoire's resource potential could be vast. However, the country boasts only limited proved reserves, which stood at just 100mn barrels (bbl) for oil and 23 billion cubic metres (bcm) for natural gas in 2013. Gas output saw a small increase in 2012, reaching 1.62bcm up from 1.5bcm in 2011, but oil production has been in steady decline; from a peak in 2008 of 59,900 barrels per day (b/d), it fell to just 38,600b/d in 2012, according to data from the EIA.

Weakening Outlook
Cote d'Ivoire Crude Oil Production & Total Oil Consumption, '000b/d

As we have highlighted previously, this is less a reflection of Côte d'Ivoire's perceived below-ground potential, and more a function of continuing above-ground risks to investment ( see 'Political Risks Key Danger To Upstream Emergence', January 2 2014). Côte d'Ivoire's current government, led by President Alassane Ouattara, climbed to power amidst the country's second civil war, 2010-2011; it has yet to test its democratic mandate, with the next election slated for 2015. Political instability remains high, and our Country Risk team note that with the country's deep socio-political divisions as yet unhealed, the upcoming elections threaten to destabilise the Côte d'Ivoire's fragile post-war peace ( see 'Ouattara's 2015 Re-election Bid Keeps Outlook Unaltered', December 6 2013'. On a scale of 0-100, with 0 being the worst and 100 being the best, Côte d'Ivoire earns a score of 56.5 for its short-term political risk rating, falling to 49.5 in the long-term; as a point of comparison, Ghana was awarded a 72.1 and 68.6 in its short- and long-term political risk ratings, respectively, in 2013.

In addition to this, E&P activity has typically concentrated in the east, where all of the country's currently producing offshore oil and gas fields lie. However, Côte d'Ivoire has become embroiled in a maritime dispute with neighbouring Ghana over the highly prospective Tano Basin, estimated to hold up to 2bn bbl of oil and 33.6bcm of natural gas. Both countries are currently working towards resolution of the dispute and have expressed hopes to reach a clear demarcation of the shared maritime border by June 2014. However, given the high stakes resources involved, these hopes may be somewhat unrealistic. Until a compromise can be reached, few companies are likely to risk high-level investments there.

In this context, the targeting of Blocks CI-506 and CI-507 may be a further indication of the country's desire to boost exploration to the west, with hopes of uncovering an extension of the Tano Basin's vast petroleum system. Interest in the area has been growing; in November 2013, French supermajor Total announced its intention to spud three exploration wells in western Blocks CI-514, CI-515 and CI-516, in 2014. Should exploration return a discovery, an uptick in exploration activities can be anticipated ( see 'Offshore Wells To Determine Potential Of Western Waters', November 8 2013). Seismic surveying may also identify other highly prospective exploration targets with which to tempt investors.

However, in our view, given the high-cost nature of deepwater developments, we believe that political uncertainty will continue to weigh heavily on offshore exploration in the western Côte d'Ivoire. With exploration hotspots opening up from Angola to Morocco, the plethora of other investment opportunities may limit interest in the region, at least pending the outcome of the 2015 elections.

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Related sectors of this article: Oil & Gas, Upstream, Exploration, Deepwater, Seismic Surveys
Geography: Cote d`Ivoire

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