Exxon's exit represents a reversal in the fortunes of Equatorial Guinea

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

The annual gathering of the biggest names in the oil and gas industry kicked off Monday with ExxonMobil and Saudi Aramco offering upbeat forecasts for fossil fuel demand and casting doubt on the pace of the energy transition.

Amin Nasser of Aramco took aim at the International Energy Agency's forecast that oil demand will peak by 2030, saying there is little chance of that happening due to high demand in the developing world.

“We must abandon the fantasy of phasing out oil and gas, and invest in them sufficiently, to reflect realistic demand assumptions, as long as it is necessary,” he told the audience, who applauded enthusiastically.

EnergySource sat down with Exxon CEO Darren Woods, who discussed how oil demand has reached record levels despite a tepid global economy. “[It] It is amazing to me,” he said, predicting higher oil prices in the future if global growth rebounds due to imbalances between supply and demand.

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 valuable oil field in Guyana. “Business is business,” he said when asked if the clash might affect its relationship with Chevron, a close partner in projects in Kazakhstan and Australia.

But for our main story this morning, we travel to Africa, where Exxon's remarkable success in Guyana has led it to reconsider its investments on the continent.

Our West Africa correspondent Ano Adeoye reports.

Thanks for reading – Jamie

When the oil stops flowing freely

Equatorial Guinea is separated from Guyana by the Atlantic Ocean by about 8,000 km. However, the latter has begun to eat the former's lunch in a way that could have far-reaching economic and political repercussions for the small central African nation.

ExxonMobil's announcement last month that it was leaving the country of 1.7 million had been telegraphed for some time, but it 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 safety incident in 2022 destroyed its production. That year, a production vessel at the Zafiro field, Exxon's main asset in the country, leaked water, forcing the platform to be retired two months later.

Before the incident, Exxon was pumping 45,000 barrels per day outside the country; After that, it decreased to 15,000 barrels per day. These are small numbers by OPEC standards, but Exxon's production represented a large proportion of Equatorial Guinea's total production of 52,000 barrels per day. The company's assets will be transferred to the national oil company GEPetrol.

This is where Guyana comes into play. Exxon is leaving Equatorial Guinea to focus on fast-growing markets that are not capital-intensive, such as the South American country.

This almost represents a reversal in the fortunes of Equatorial Guinea, which was once a promising stronghold when Mobil discovered oil there and Exxon increased production after its acquisition in 1999. But oil production has been declining steadily in recent years, falling by more than 80 percent. . From the boom years.

Equatorial Guinea has struggled to attract foreign investment into its oil industry in recent years. A combination of global divestment from fossil fuels and local complexities such as ownership requirements and a high political risk climate have deterred potential investors.

The situation at Exxon is a clear example of this. Equatorial Guinea wanted a foreign company to take over the assets from Exxon, and is trying to attract international oil companies including Italy's Eni and several Nigerian companies, according to a former senior U.S. official familiar with the matter. None of them have shown any interest yet.

Over the years, the country's oil wealth has been used mainly at the expense of ordinary citizens. Under President Teodoro Obiang, who has ruled the country since 1979, it has been used to buy the loyalty of the military and other elites. As questions of succession loom, his son and Vice President Teodoro Nguema Obiang Mango (known as Teodorin) has become the country's de facto leader. Teodorin, known for his flamboyance and who has been the subject of corruption investigations in countries including the United States and France, faces a formidable challenge to attract investors and keep the gravy train moving.

There is also a geopolitical balancing act to navigate. US officials said China, the country's largest development partner, has plans to build a naval base in the port city of Bata where it has already built a commercial port. Washington warned Equatorial Guinea not to respond to this desire. It is possible that Teodorin, who has shown an antipathy toward Western interests partly because of the investigations, may seek investment from non-Western sources for the oil industry.

“This is a very volatile year in politics in Equatorial Guinea, and I think they have to be very careful not to alienate major Western companies,” says the former senior US official.

Please, let's go

The last time I was on the pages of Energy Source, I wrote about international oil companies exiting all or parts of their Nigerian operations as the business environment in Africa's largest producer becomes more challenging.

These asset divestitures are subject to regulatory approval, and IOCs and their potential successors in Nigeria are sounding the alarm that the authorities are being slow to let them head for the exit. It's a departure from the sentiment of nine months ago, when oil executives privately said they hoped new President Bola Tinubu would back business-friendly moves on their behalf. This was not the case.

The government body responsible for approving these deals, the National Petroleum Regulatory Commission, denied that the exit process was slowing down, saying instead that these deals must follow “due legal procedures.”

But given that one deal — 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 needs. (Anu Adeoye)

strength point

Power Source is written and edited by Jamie Smith, Miles McCormick, Amanda Chu and Tom Wilson, with support from the FT's global team of reporters. Contact us at power.source@ft.com and follow us on X at FTEnergy. Catch up on previous editions of the newsletter here.