Home Commodities Exxon's departure marks a change of fortune for Equatorial Guinea

Exxon's departure marks a change of fortune for Equatorial Guinea

by SuperiorInvest

This article is a local version of our Energy Source newsletter. Sign up here to receive the newsletter directly to your inbox every Tuesday and Thursday.

Good morning and welcome to Energy Source, coming to you this morning from a lively CERAWeek conference in Houston.

The annual meeting of the oil and gas industry's biggest names began on Monday with ExxonMobil and Saudi Aramco delivering bullish forecasts for fossil fuel demand and questioning the pace of the energy transition.

Aramco's Amin Nasser took aim at the International Energy Agency's forecasts that oil demand would peak in 2030, saying there was little chance of this happening due to rising demand in the developing world.

“We should abandon the fantasy of phasing out oil and gas and instead invest in them appropriately, reflecting realistic demand assumptions, as long as they are essential,” he told the audience, who applauded enthusiastically.

Energy Source sat down with Exxon CEO Darren Woods, who discussed how oil demand is at record levels despite a tepid global economy. “[It] “It's surprising to me,” he said, predicting higher oil prices in the future if global growth picks up due to supply-demand imbalances.

Woods also defended Exxon's decision to seek arbitration against Chevron over its $53 billion deal to buy Hess, an unusual move centered on control of a prized oil field in Guyana. “Business is business,” he said when asked if the crash could affect his relationship with Chevron, a close partner in projects in Kazakhstan and Australia.

But for our feature story this morning we travel to Africa, where the remarkable success Exxon has enjoyed in Guyana has caused it to reconsider its investments on the continent.

Our West Africa correspondent, Aanu Adeoye, reports.

Thanks for reading – Jamie

When the oil stops flowing freely

Equatorial Guinea is separated from Guyana by the Atlantic Ocean and almost 8,000 kilometers. However, the latter is beginning to eat the former's lunch in a way that could have far-reaching economic and political repercussions for the small Central African country.

ExxonMobil's announcement last month that it would leave the country of 1.7 million people had been telegraphed for some time, but was significant when the oil giant confirmed the speculation.

Despite Exxon's history of doing business in Equatorial Guinea for nearly three decades, the company decided to cut its losses completely after a security incident in 2022 decimated its production. That year, a water leak in a production vessel in the Zafiro field, Exxon's main asset in the country, forced the platform to be withdrawn two months later.

Before the incident, Exxon was extracting 45,000 barrels a day outside the country; later it fell to 15,000 b/d. These are small figures by OPEC standards, but Exxon's production was a significant proportion of Equatorial Guinea's total production of 52,000 b/d. The company's assets will be transferred to GEPetrol, the national oil company.

This is where Guyana comes in. Exxon is leaving Equatorial Guinea to focus on fast-growing markets that don't require much capital, such as the South American nation.

It almost marks a reversal of fortunes for Equatorial Guinea, once a hotbed of promise when Mobil discovered oil there and Exxon ramped up production after its acquisition in 1999. But oil production has been steadily declining in recent years, falling more than 80 percent. of the boom years.

Equatorial Guinea has had difficulty attracting foreign investment to its oil industry in recent years. A combination of global disinvestment in fossil fuels and local complications, such as ownership requirements and a high political risk climate, have deterred potential investors.

The Exxon situation is a good example. Equatorial Guinea wanted a foreign company to take over Exxon's assets and has been courting international oil companies, including Eni, the Italian producer, and several Nigerian companies, according to a former senior US official familiar with the matter. No one has shown interest so far.

Over the years, the country's oil wealth has been used primarily to the detriment of ordinary citizens. Under President Teodoro Obiang, who has ruled since 1979, it has been used to buy the loyalty of the military and other elites. As questions arise over the succession, his son and vice president Teodoro Nguema Obiang Mangue (known as Teodorín) has become the country's de facto leader. Teodorín, known for his flamboyance and has been the subject of corruption investigations in countries such as the United States and France, faces a monumental challenge to attract investors and keep the gravy train moving.

There is also a geopolitical balancing act to navigate. U.S. officials have said that China, the country's largest development partner, plans to build a naval base in the coastal city of Bata, where it has already built a commercial port; Washington has warned Equatorial Guinea not to grant that wish. Teodorín, who has reflexively shown antipathy toward Western interests, in part because of his research, could seek investment from non-Western sources for the oil industry.

“This is a very volatile year in Equatoguinean politics and I think they must be very careful not to distance themselves from the great Western powers,” says the former senior US official.

Please let's go

The last time I was in the pages of Energy Source, I wrote about international oil companies that have fully or partially abandoned their operations in Nigeria as the business environment in Africa's largest producer has become more difficult.

Such asset divestments are subject to regulatory approval and international oil majors and their potential Nigerian successors are now sounding the alarm that authorities are dragging their feet in letting them head for the exit. It's a departure from sentiment nine months ago, when oil executives said privately they were hopeful that new President Bola Tinubu would champion pro-business measures in his favor. That has not been the case.

The government agency charged with approving these agreements, the National Upstream Petroleum Regulatory Commission, has denied slowing down the exit process and has instead said that these agreements must follow “due process.”

But considering that one of the deals – Exxon's $1.3 billion sale of four blocks to Seplat Energy – has been awaiting approval for more than two years, there are questions about how much time the agency requires. (Aanu Adeoye)

Power suppliers

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu and Tom Wilson, with support from the Financial Times' global team of reporters. Contact us at energy.source@ft.com and follow us on @FTEnergy. Catch up on previous editions of the newsletter here.

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