The logo of French oil giant Total is seen at La Defense business and financial district in Courbevoie, near Paris, France. Picture: REUTERS
The logo of French oil giant Total is seen at La Defense business and financial district in Courbevoie, near Paris, France. Picture: REUTERS

Paris — Shortly after launching a new project in Angola, French oil major Total said it was searching for more resources in Africa, including in Senegal and Mauritania.

The company is historically strong in Africa and, buoyed by rising oil prices and improved terms for its multibillion dollar Kaombo contract in Angola, it is doubling down.

Guy Maurice, Total’s head of exploration and production in Africa, said the company had completed seismic surveys and planned to start drilling exploratory wells in Senegal and Mauritania in West Africa.

He did not give a specific timeframe, but a source familiar with the matter said the drilling would begin at the end of this year or in early 2019.

Total has broken ranks with some of its rivals in recent years and largely ignored the rush to US shale. It is looking to eke out conventional oil and gas resources, seeking projects in Sub-Saharan Africa and the Middle East.

The strategy carries risks. It has left the company exposed to political instability that has deterred some competitors. And although production costs in its Sub-Saharan Africa oil and gas operations have fallen from $2.1bn in 2014 to $1.3bn in 2017, they remain the highest among six geographic regions Total operates in, according to its 2017 annual report.

Total started production at the deep offshore Kaombo North project in Angola at the end of July. It has also announced it will launch another field in the Southern African country, Zinia 2, which is expected to pump oil in 2020.

The company has a bigger presence in Africa than its rivals, although several of them are also major producers there and have invested billions of dollars in recent projects.

Exxon Mobil, for example, bought a 25% stake in Eni’s Rovuma development in Mozambique in 2017 for $2.8bn.

Total has the largest proven reserves in Africa among the world’s top oil companies in 2017, according to a Reuters analysis of company statements.

With 1.7-billion of barrels of oil equivalent (boe) in reserves in Sub-Saharan Africa, it outstrips Eni’s 1.5-billion. For Africa as a whole, Chevron has 1.34-billion boe, Exxon Mobil 1.1-billion and Royal Dutch Shell 630-million.

No champagne

Investors and analysts are looking closely at whether Total can keep a lid on costs in Angola, where it has struggled to rein in spending in recent years and in 2014 needed oil prices at around $70 a barrel to break even.

Total’s Maurice said that a renegotiation with the Angolan government and suppliers had allowed Total to shave off $4bn from the initial $20bn budget for Kaombo.

On Zinia 2, capital expenditure was reduced by more than 50% to $1.2bn from $2.8bn, he added. While prices have rebounded since the 2014 market collapse, nothing can be taken for granted, said Maurice.

"Prices have gone from $26 per barrel to over $70, but we are not going to be bringing out the champagne, because volatility is still there. We could still fall back to $50 per barrel tomorrow," Maurice said.

"At higher oil prices at $120 per barrel, you don’t look too closely at what you spend," he said, referring to negotiating contracts with suppliers and the government. He said the company’s break-even oil price had come down as a result of its cost savings, but did not specify the price.

‘Last guys standing’

The $16bn Kaombo project — Kaombo North, plus Kaombo South, which is due to start up in 2019 — will produce an estimated 230,000 barrels of oil per day at peak, according to Total, and is expected to increase Angola’s output by 10%. Zinia will add another 40,000 barrels per day.

"A lot of the majors have had their heads turned by tight [shale] oil in the US, but Total has not really gone that route. They’re still focused on West Africa, and Angola’s a big part of that," said Adam Pollard, a senior research analyst on Africa oil and gas at Wood Mackenzie.

For Angola, an oil-dependent Opec member and Africa’s second-largest crude exporter, Total’s commitment was important because its output had been declining steadily due to the lack of investments in its ageing offshore fields.

In Nigeria, Total’s Egina field is expected to start production in December and it will make a final investment decision on its Ikike tie-back project in 2018, as well as its Lake Albert project in Uganda.

The company expects these projects to help it increase its African production by 7% to 750,000 barrels of oil equivalent per day in 2020 compared with 2014. It has also bought oil blocks in Guinea, Namibia, SA and Kenya.