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In July 2020 reports in the press indicated that ENI plans to
divest operated assets in Congo. ENI is not the only company to
have announced an asset divestment plan following significant oil
price reductions, reduced global oil and gas demand due to COVID-19
and rising stakeholder pressure to decarbonize portfolios. This
announcement coincides with ENI's 2020 CAPEX reduction of ~35%
(relative to the initial budget), the July 2020 downward revision
of the company's post-2023 Brent oil price assumption (from $70/bbl
to $60/bbl) and ENI's continued commitment to the energy
transition. In order to achieve more agile, lower carbon, advantage
barrels the company will need to increase the efficiency of their
oil production operations and minimise gas flaring, whilst
re-focusing on lower carbon energy sources, including gas
monetisation. The presence of large volumes of gas with limited
commercialisations options is a challenge to ENI's operated
Congolese portfolio, potentially increasing the carbon intensity of
the portfolio if increased gas flaring is required. Divesting from
potentially higher carbon assets, such as those in Congo, will
allow ENI to achieve a more sustainable and lower carbon portfolio,
and also lower future CAPEX and OPEX costs. Any company that takes
on this potential farm-in opportunity will have access to
relatively robust existing and future oil production but must be
willing to solve the gas commercialisation conundrum, or if not be
willing to accept a higher carbon portfolio.
Figure 1: Major ENI fields in Congo
Robust existing production could support an easy farm in
opportunity
ENI is currently active both onshore and offshore Congo and
recently acquired further exploration acreage. ENI operates more
than 50% of Congolese reserves, which include the large Nene Marine
and Litchendjili fields. Currently, 80% of their operated
production comes from offshore assets with break-even prices
estimated within Vantage in the range of $25/barrel. With mature
production in decline the development of the multi-phase and low
cost Litchendjili and Nene Marine fields are key to maintain
production levels in the near term. Looking further out the
timeline for the development of other ENI operated discoveries is
uncertain creating a real risk of production decline beginning in
the late-2020s.
Figure 2: ENI operated assets in Congo
The Nene Marine field, in which ENI holds a 65% operated working
interest, is a multi-phase development with Phase 1, Phase 2a and
Phase 2b already online. The field is expected to be the largest
source of production in Congo over 2020. Phase 2b came on stream in
2020 and is expected to boost gross production to over 25 thousand
barrels of oil equivalent per day (boe/d). This third stage in the
field's development is also due to include gas commercialisation,
but the final volumes to be developed are currently unclear. A
final fourth stage, Nene Marine Phase 3, is planned with an
expected start date in the early to mid-2020's, which will further
boost production to over 50,000 barrels of oil per day (bo/d).
Results from Vantage indicate that Nene Marine Phase 3 is expected
to require a capital investment of USD 655 million to develop the
remaining 240 million barrels of oil equivalent (MMboe) of oil and
gas reserves. This phase is likely to have a healthy break-even
price (BEP) of around $30/barrels but has significant gas reserves.
Gas commercialisation from Phase 3 is currently unclear given the
limited domestic Congolese market and there is significant risk of
gas flaring unless further gas offtake contracts are secured. This
may prove a challenge for any farm in partner.
The Litchendjili Marine field, in which Eni has a 65% operated
interest, is one of the largest fields in ENI's portfolio in Congo.
A phased approach has also been adopted for the development of the
field. Phase 1 focused on the production of the gas reserves and
was brough on stream in 2015 underpinned by gas offtake agreements
with both the Central Electrique due Congo (CEC) and the Centrale
Électrique du Djéno (CED). Gas and condensate are transported
onshore to the Djeno gas processing plant and from there the gas is
used as feedstock to the various gas to power plants. Phase 2 will
focus at producing a small part of the remaining oil reserves of
the field. A final investment decision (FID) has yet to be made and
a start date in the early 2020s is currently unlikely. Oil will be
produced through the existing unmanned platform and from there it
will be sent onshore to the Djeno Oil Terminal.
Phase 3 of the Litchendjili Marine field is estimated to hold
approximately 800 MMboe of 2P reserves and will tie into the
existing field infrastructure. This phase is expected to have a
production capacity of more than 60,000 bo/d and a BEP less than
$20/barrel. The project is aiming at primarily developing the
remaining oil reserves of the field, with the associated gas
reserves providing substantial potential additional value to this
last phase in the development of the Litchendjili asset. This is a
low risk investment from a subsurface and technical perspective,
but the large volumes of associated gas may be a challenge to
develop, given the limited domestic Congolese gas market. This may
delay out any development of this final development phase of the
field.
Future resource development is even more challenging due
to a lack of gas commercialization options
Excluding the future planned development of the Nene Marine and
Litchendjili fields there is approximately 2 billion barrels of oil
equivalent (Bboe) of gross undeveloped operated resources, of which
more than 800 MMboe are gas resources. Given the large gas resource
present commercialising any associated and non-associated gas
production will be key to lower the overall carbon intensity of the
future portfolio. This will be a challenge given the small existing
domestic gas market and the limited increase expected in domestic
gas utilization Developing the remaining gas reserves from Marine
XII could possibly be undertaken via a liquified natural gas (LNG)
plant or a floating LNG (FLNG) facility, but given the current
oversupplied gas market this is unlikely to take place in the near
term.
Figure 3: ENI operated new projects in Congo (excl. Nene Marine
& Litchendjili Marine)
The largest undeveloped project in the ENI portfolio is the
Minsala/Louvessi Marine oil asset (Eni 65% interest). Limited
appraisal drilling has taken place to date and commercialising the
associated gas production will be a challenge and could limit any
near-term development. A fact reinforced by ENI in 2020 which has
indicated that an FID timeline is likely anywhere between 2023 and
2030. Should the field be developed in the late 2020's, and include
gas commercialisation, results from Vantage indicate that this
would provide a strong net present value (NPV) of 650 million USD
at a $60/barrel oil price due to a break-even of under $20/barrel.
Farming into this asset would provide a company with advantage
barrels if they are willing to accept a higher carbon emission
level due to potential gas flaring.
The challenge of gas commercialisation could potentially be
solved with the development of an FLNG facility which will use as
feedstock gas from the fields within the Marine XII block. The
fields are located in close proximity and it is estimated that they
hold a total of over 2.5 trillion cubic feet per day (Tcf) of
associated and non-associated gas reserves not including the
undeveloped Litchendjili gas reserves. Should a combined
development be agreed, asset value could be fully realised with the
development of both oil and gas reserves within the block while the
minimisation of gas flaring will lead to low-carbon operations.
Ismini Katsimpardi is a senior technical research
analyst at IHS Markit. Rebekah Bostan is a technical research associate director
at IHS Markit.
