Can Shell’s Panna Cotta HIW reignite MSGBC exploration?

After a four-year break, a new well will enrich the list of offshore drilling in Mauritania. It is Shell's Panna Cotta-1 wildcat, which is expected to spud in the second half of September 2023 using the Noble Voyager drillship. The well's location has not been published yet but it is assumed that it will drill one of the prospects of block C-10, operated by Shell (50% w.i) since October 2018 alongside partners Qatar Energy (40% w.i.) and Société Mauritanienne des Hydrocarbures (SMH).

Block C-10, located in 50-2,400 m water depths, already includes two discoveries, Woodside's Labeidna-1 oil discovery (Nov. 2005) and Merou-1 gas discovery (Dec. 2004), both in Miocene sandstones, and sixteen prospects, of which seven were identified by Tullow in 2017, all with reservoirs in carbonate rocks of Jurassic- Cretaceous age. Of these, the most attractive in terms of contained hydrocarbons and which could be the subject of Shell's Panna Cotta drilling would appear to be the Shafr al Khanjar (SAK) and Lamina (Lamina & Lamina Secondary) prospects located about 30 km off the Mauritanian coast in shallow to deep waters (100 - 1,000 m). All three prospects cumulate a volume of about 285 million barrels (MMbbls) recoverable in Upper Jurassic (Kimmeridjian) - Lower Cretaceous (Neocomian) carbonate shelf edge play, with Panna Cotta-1 targeting the Cretaceous paleo-shelf (SMH reports, June 2022).

To date, the only Upper Cretaceous reservoir discovered in the vicinity of the C-10 block is Woodside's Tevet-1 oil and gas discovery (October 2004), a three-way dip closure bounded by a turbidite channel edge (Sennonian) overlying the Cretaceous paleo-shelf targeted by Panna Cotta-1. Tevet-1, located approximately 50 km north of Panna Cotta-1, was estimated by SMH at about 200 billion cubic feet (Bcf) and 7 MMbbls recoverable.

The Mauritanian fiscal regime is a production sharing agreement (PSA) which includes a cost recovery for oil at 60% and for gas at 65%. It also applies a profit share component based on an R factor as well as a corporate income tax (CIT) rate of 27%. This is on average relatively low compared to peer countries in Africa. However, overall, the fiscal terms that are applied in Mauritania are not very conducive to attracting investment because the government take is 78.8% of divisible income.

If Shell was to be successful, analyses demonstrates that a Brent oil price scenario of $77/bbl would require Shell to discover recoverable resources of at least 100 MMbbls to break even, while at a Brent oil price scenario of $55/bbl, 180 MMbbls is estimated to be needed. A discovery of 200 MMbbls at $77/bbl Brent would generate a net present value (NPV) of USD 1 billion with the break-even price (BEP) estimated to be in the region of $54/bbl. A discovery in the region of 300 MMbbls recoverable has been estimated to have a BEP below $50/bbl and an estimated NPV of just over USD 2 billion at $77/bbl Brent with a rate of return (IRR) of 21%.

Mauritania currently has no hydrocarbon production following the abandonment of the Chinguetti field in late 2017 and the only upcoming project is the Greater Tortue FLNG development, expected to come on-stream in early 2024. In case of success, Panna Cotta could reignite further exploration in the Mauritania, Senegal, The Gambia, Guinea Bissau and Guinea Conakry (MSGBC) basin as it would be a play opener. All eyes will be on Shell as the well is expected to spud imminently.

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.