Investors in the oil and gas sector are a fickle bunch. Last year the ‘trendy’ play was the Falklands, though it was something of a rollercoaster ride for followers of Rockhopper (LON:RKH) and Desire Petroleum (LON:DES).
But after some hit and miss drilling in the South Atlantic, the focus turned to the North Sea, and specifically heavy oil plays such as Xcite Energy (LON:XEL), EnCore (LON:EO.), Nautical Petroleum (LON:NPE).
Of course Chancellor George Osborne’s windfall tax promises to put the kibosh on UK plays, meaning the fashionistas are looking for new opportunities.
For us one of 2011’s trendiest oil and gas destinations will be Africa, notably on the flanks of sub-Saharan Africa.
The continent’s enormity and its volatile recent past are two reasons why Africa is comparatively under-explored. While oil firms have spent the last few decades scouring North America, the Gulf of Mexico, Eastern Europe and the North Sea, much of Africa’s hydrocarbon potential has largely gone un-tapped.
As many of these reserves have matured and dwindled the major oil firms have turned their attentions to Africa – as well as other regions like South America and South East Asia - to refresh their portfolios.
The fallout from BP’s (LON:BP) environmental disaster with the Macondo well in the Gulf of Mexico also exacerbated this quest to replenish large, offshore deep-water reserves.
Against this backdrop both flanks of the continent are quickly becoming oil and gas exploration hot-spots.
Anadarko (NYSE:APC), BG Group (LON:BG) and Cove Energy (LON:COV) have had success off the east coast and Tullow Oil (LON:TLW), Aminex (LON:AEX) and Dominion Petroleum (LON:DPL) have high-impact projects up their sleeves. Meanwhile, on the continent's western coastline Tullow Oil’s (LON:TLW) success in bringing the Jubilee field into production has been the highlight so far.
There are many other London-listed operators with big plans for the emerging oil and gas destination.
On the West Coast Tullow Oil has been the early trend setter - alongside Anadarko - with the Jubilee field in Ghana standing out as the major achievement in the region.
Jubilee gave Ghana its first oil production last year, and since then Tullow has re-focused its attention on exploration with notable success. In February 2011 Tullow hit another oil discovery offshore Ghana in the Teak-1 well on the West Cape Three Points licence, and just last week it struck another discovery on the licence between Jubilee and Teak.
Afren (LON:AFR) is another notable west coast focused, London-listed oil firm – although it also has assets in Kenya, Ethiopia and Madagascar. Other junior explorers include Tower Resources (LON:TRP) and Chariot Oil & Gas (LON:CHAR), who are both exploring offshore Namibia.
Most of the emphasis has been on oil on the west coast, but on the east coast it is all about gas, which is something that’s becoming increasingly important as the use of liquefied natural gas (LNG) technology spreads.
This is particularly significant given the east coast’s strategic location, which opens up a direct potential supply route into Asian markets.
“(While the gas potential) has been best avoided in the past, the growing importance and scale of the global LNG market has changed this dynamic,” Westhouse Securities analyst David Hart said in a note to clients. “Vast gas resources can now be developed and shipped to markets where strong and growing demand exists.”
He adds: “we expect this trend to continue as the environmental benefits of operating gas-fired power plants enhances its credentials as a bridge energy to even more environmentally-friendly technologies still being developed.
“This aspect of the gas market has received an unexpected boost following the devastating earthquake in Japan and tsunami, and the ensuing nuclear power crisis.”
One of the striking things about the east Africa play is the number of oil firms that are active there, in a relatively small area.
At the moment the prime hot-spot runs along the coast from Mozambique, up through the Mozambique Channel and including Madagascar, offshore Tanzania and now up into Kenyan waters.
Anadarko (NYSE:APC) and Cove Energy (LON:COV) have made four straight discoveries – Windjammer, Barquentine, Lagosta and Tubarao - offshore Mozambique. Meanwhile BG Group (LON:BG) and Ophir have unearthed new discoveries in Tanzanian waters.
Also Tullow Oil (LON:TLW), Aminex (LON:AEX), Solo Oil (LON:SOLO), ExxonMobil (NYSE:XON), Statoil and Petrobras are all preparing high-impact drilling this year in Tanzania alone. Elsewhere Total (NYSE:TOT) and Madagascar Oil & Gas (LON:MOIL) have a joint venture on the east African Island, and Anadarko et al plan to keep drilling in Mozambique.
Dominion Petroleum (LON:DPL) is hoping to bring in a major partner via a farm-in deal for its wholly-owned Block 7 licence in Tanzania, as well as the newly awarded deep-water exploration block offshore Kenya.
With so much going on along both flanks of the continent, there will be plenty of opportunities for eager oil investors. However whether or not the fashionable exploration hot-spot can establish itself as a mainstay in investors’ portfolios is yet to be seen.