Nov. 2001 Vol. 222 No. 11  What's New in Production

Perry A. Fischer,  Engineering Editor

Africa spending study

According to analysts Douglas-Westwood, Angola and Nigeria will attract 76% of West Africa’s oil-company dollars over the next five years. Excluding Angola and Nigeria, the company examined prospects in the region’s "second-tier" offshore nations, based on Infield Systems’ database. The conclusion was that eight countries could attract a combined $7.3 billion in Capex through 2005. The tiny island nation of Equatorial Guinea is forecast to attract the most investment. It currently boasts the region’s first deepwater production with ExxonMobil’s Topacio and Triton’s Ceiba fields; and six other fields are slated for development through 2005. Triton’s Okume field on Block G is being planned as an FPU.

Of the eight nations studied, offshore Congo-Brazzaville holds the largest reserves slated for development during 2001 – 2005, 70% of which are in the deepwater fields Moho and Bilondo. Cameroon is next in reserve size, with 18 fields holding 433 MMboe, 80% of which is gas. Gabon has 21 offshore fields identified for development over the period, targeting reserves of 296 MMboe. The largest of these fields is Pioneer’s Bigorneau South / Olowi Marin, where production of 50,000 bopd is expected.

Eight West African "second-tier" nations share $7.3 billion in offshore plays. A forecast (in $billions) of capex is shown. Source: Douglas-Westwood.

Northwest from Nigeria, relatively few offshore developments are currently planned; among these are Ranger’s Espoir and Baobab fields off the Ivory Coast. São Tomé and Príncipe has its first licensing round scheduled for March 2002. Independent companies are acquiring marginal prospects on the shelf and are taking speculative positions in deepwater frontier areas. Exploration activity is continuing, with the hope of replicating the huge Angolan and Nigerian deepwater discoveries.

The analysts note that the economic situation in many of these countries is precarious, with much of their extensive deepwater acreage in virgin territory. "These factors generate a heady mixture of high hopes and hype, laced with some bitter disappointments. In this environment, a critical issue for both operators and host nations will be how the risks and the rewards of future offshore E&P activity will be distributed."

Oil price predicts recession? It’s good that this is relatively old "news." It makes it a bit easier to determine earlier predictions. From the Center for Transportation Research, in the summer 2001 edition of Logos, the U.S. Argonne National Laboratory newsletter, transportation economist Dan Santini says he can predict recessions by watching the price of oil. It is interesting. Herein is a synopsis of his theory, with the usual caveat from management that, like all prediction theories, his could be – completely wrong.

"It is fundamental supply and demand – with a twist," Santini explains. He studies the reaction of the transportation sector – primarily changes in vehicle sales in response to gasoline prices – as a key cause of recession. Based on historical trends from the late 19th century to the present, he developed a model to predict recessions.

"My model shows that recessions tend to follow sharp oil-price increases by one year," he said, "and if there is going to be a recession this time, it should be in late 2001." Santini’s studies of the 20th century show an inverse statistical link between oil-price shocks and fluctuations in the money-supply growth rate. When oil prices rise, money becomes tighter. "The money supply usually gets the exclusive blame for recessions," Santini said, but the transportation sector, which is 10% of the economy, plays a big role. "I looked for other causes for recessions, using all available major consumer and producer-price series, and for relationships with trade flows and government expenditures, and found none," Santini said.

Santini studied the rapid oil-price changes that occurred in 1973 – 1974 and 1978 – 1981. These price shocks contributed to far sharper drops in motor vehicle sales than for other products, and recessions followed. The first oil-price shock where the gap was clear – and was accompanied by a noticeably sharp increase in Mexican imports – peaked in 1920 and was followed by a recession in 1921. A reference list of publications on Santini’s 19th and 20th century investigations is available at www.transportation.anl.gov/ttrdc/assessments.

As his primary indicator of a likely oil price shock, Santini computes the rate of change of U.S. petroleum products supplied and averages them over a three-year period. He then subtracts the average rate of change of U.S. crude produced for the same period. A 5 % gap points toward a sharp change in oil price, with a positive or negative sign predicting the direction of change. The three-year average allows for fluctuations such as unseasonable weather or short-term infrastructure problems. The indicator alerts Santini to track national and global trends to decide whether to issue a prediction.

He has accurately predicted two other sharp oil price shocks – in 1985 (a sharp price drop) and in 1989. Given the 1989 – 1990 oil price shock, there was a 19% decline in annual motor vehicle production from 1989 – 1991 and a recession in the winter of 1990 – 1991.

The full six-page article with accompanying graphs can be downloaded at: www.anl.gov/OPA/logos19-1/econ01.htm

Comments? Write: fischerp@gulfpub.com