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Reinventing the Well
Several oil-producing nations are undergoing a transformative shift, moving from a market dominated by the oil majors to one where large segments of the industry are led by local companies. This trend is creating substantial growth opportunities for local independent oil companies and helping boost the domestic economies of these nations.
The Trade-Off: New Projects vs. Legacy Fields:
In Nigeria and Brazil, major oil companies have divested from legacy fields to reallocate capital and operational resources towards new large-scale projects. For example, companies such as Equinor and TotalEnergies are increasingly concentrating on large-scale ventures that can deliver greater returns in the long-run. These projects often involve deepwater exploration and the use of cutting-edge technology, but they come with substantial risks and require hefty investments. The high complexity and upfront costs make them attractive to big players who are betting on substantial payoffs in the future.
At the same time, local junior companies, such as Seplat Energy and Chappal Energies, are stepping up in Nigeria to fill the gap left by these multinationals by purchasing legacy fields. Most of the legacy assets the local companies are acquiring are onshore or shallow-water fields that have been producing oil for well over a decade. These fields are less complex to manage day-to-day, but they still require significant attention to maximize output and operate efficiently. Additionally, these local companies will be responsible for the safe decommissioning of these fields once reserves have been depleted. A similar trend is unfolding in Brazil, where junior companies like Petro Rio, Brava Energia and Petrorecôncavo are redeveloping mature assets.
The Opportunity for Local Players
As major oil companies gradually scale back their presence in mature wells, local junior players have a unique opportunity to take the lead in shaping their nations' energy futures. Although legacy fields may not offer the same high returns as deepwater exploration, they can provide a stable and consistent production base. At a minimum, local players can benefit from the steady operations. Many fields can be optimized for greater efficiency and profitability, presenting opportunities for local players to expand their own production capabilities. Furthermore, some fields hold untapped potential, particularly in gas production, which has often been overlooked.
A Case Study: Chappal Energies
In Nigeria, Chappal Energies is in the process of expanding its production capabilities and growth trajectory through two recent acquisitions. The first involves acquiring Equinor’s Nigerian portfolio, which includes approximately 570 million barrels of net recoverable oil equivalent (boe) resources, along with a stake in key gas assets. The second acquisition is of TotalEnergies' stake in the Niger Delta, adding 670 million boe of recoverable resources to Chappal’s portfolio and increasing the company’s net production by around 20,000 boe per day. Together, these projects could potentially double Chappal’s output by the early 2030s, driven by the development of untapped discoveries, which hold an estimated 200 million boe in net recoverable resources, with gas making up a significant portion.
By taking over these mature fields, Chappal and other local companies can drive local economic growth by keeping profits and production within national borders, while simultaneously expanding their own portfolios and capabilities—without having to reinvent the well.
The EMsights Capital Group manages portfolios that hold debt securities issued by Seplat Energy as of 31 Dec 2024. Portfolio securities are subject to change.
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