Equatorial Guinea will approve a new hydrocarbon law on Monday. This action comes after the country's oil production fell to 20,000 barrels per day in September, down from about 140,000 barrels per day in 2020. The drop of 120,000 barrels has made the country one of the smallest producers in OPEC, and its economy is expected to shrink by 1.7% this year.
Changes in Contracts and Investment Conditions
Antonio Oburu Ondo, the Minister of Hydrocarbons of Equatorial Guinea, announced that the new law will make contract conditions more flexible and will offer oil companies a wider range of structures based on their willingness to take risks. The government of Equatorial Guinea is looking to encourage companies to re-drill in producing fields and explore areas that have attracted little investment in recent years.
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Challenges and New Opportunities
The country has not set a specific production target, and its immediate measure of success will be drilling campaigns. The government also wishes to negotiate directly on existing blocks and has created special economic zones to attract investment. These incentives will have to compete with mature fields, recent limited explorations, and the exit of ExxonMobil, which is leaving the country in 2024 after nearly three decades. Currently, Chevron is active in the gas sector of Equatorial Guinea, and the state-owned GEPetrol agreed earlier this year to increase its stake in the Aseng project from 5% to 32.55%.
Gas produced from the Aseng project is expected to be transferred to the Punta Europa processing and LNG complex and other planned developments. The war in Iran has increased the value of African supply routes that avoid the Strait of Hormuz and the Red Sea. Other producers on the African continent have attracted buyers looking for oil and gas outside the Middle East. Equatorial Guinea currently has little excess oil to sell to this market, and its production has decreased by more than 85% over the past six years.
The initial test of the new law will be whether more flexible conditions can create real drilling commitments in existing fields and unexplored blocks before another batch of mature production disappears.
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