Africa’s hydrocarbon risks – present and future

North Africa: attacks, strikes and militia control

In the last year or so few independents have been able to raise easy capital for upstream ventures while impending global monetary realignments soon to be expected could make this predicament more constrained. The downside in North Africa has been with significant negative impact. Libya’s oil industry is in deep trouble, militias control many oilfields and facilities, while production and exports have tumbled, now posted at 50% of pre-regime change parity. Major right-holders have signalled intent to exit the prolific Libyan play. The border to the south is almost non-existent and porous, awash with arms and irredentism. Algeria is yet to fully recover from the In Amenas terrorist attack, while Sonatrach’s gas industry position has come under pressure, even while exercising pre-emptive rights on deals/transactions. Egypt is in aggravated turmoil and key gas players have seen their LNG dreams fade. Tunisia’s oilfields encounter strikes and a range of difficulties in the post-Arab “Spring” milieu, and a winter of discontent looks more likely across much of the Meditterannean shoreline.

Sahel: Sudan needs to compensate for oil reserve losses to Juba

Meanwhile the Sahel is taking strain from this imposed dilemma, as the Mali/Azawad quasi-balkanisation demonstrated, a state fragmentation only saved with foreign intervention, so that risks for holders of acreage and assets in the north, and across Niger too, have risen. Chad faces downside still in its production profile, for now, and the Central African Republic has descended into chaos under the command of Seleka rebels. Sudan is on an sharp economic slide with no ready exit, Sudapet struggling to find a viable strategy to compensate for the loss of two-thirds of its oil reserves and production to Juba, while the South Sudan authorities battle to cope with the establishment of new leasing arrangements for investors in to-be re-demarcated acreage, and even to restore production and exports to levels achieved before the acrimonious split engineered under agreements that rapidly turned to civil conflict around oil-rich Abyei.

Horn of Africa: still volatile with some breakthroughs, hope for offshore

The Horn of Africa remains volatile in several locales, Somalia mostly, with risk profiles rising in and around this fragile cockpit of concern even while piracy offshore has partially diminished, only to rear its head in more prolific fashion in West Africa.

In East Africa the spectre of resource nationalism has emerged under the promotion of politicians, some ambitious states, national oil companies, lobbies for regulated local content, and ubiquitous foreign advisors. Uganda will not produce crude at any significant quantum until well beyond 2018 despite discoveries with vintage from 2006 onwards. Kenya wants to raise the bar for control of ventures including to acquire production interests, and terms will tighten, while acreage holders have been placed under tougher obligations. Tanzania is reshaping the templates for gas even before it produces from offshore finds. Capital gains tax is slated for Mozambique within months, and as others follow suit this wider state-driven strategy will crimp the primary acreage and secondary transactions markets in Africa. Several bid rounds across Africa’s landscape, earlier promised, have been delayed and in a few cases abandoned. Madagascar is yet to resolve its paralysing political crisis that has held back investments and drilling for some years.

In South Africa the Mineral and Petroleum Resources Development Amendment Bill is about to go through Parliament, and when law or mandated by regulation will halt future upstream venture interest given the explicit state grab therein designed for high levels of free-carried interest in exploration, production and etatist control in critical related spheres. Namibia has yet to break the recent drought of dry holes in the offshore, notwithstanding new drilling prognosticated, and better hopes for the future. Gabon has taken initiatives to remove assets from even foreign state oil players (such as Sinopec), and union demands for indigenisation and local content, including in management, have upset what was once the stability of many an apple cart – a trend witnessed elsewhere too. Angola remains a costly and challenging environment and not one yet displaying open arms to all minnows. In the Democratic Republic of Congo the history of license allocation, withdrawal and re-issue under opaque rules continues.

Gulf of Guinea: delayed laws and unconfirmed drilling

The Gulf of Guinea is not without its own dilemmas: Nigeria still lacks a Petroleum Industry Law (the Bill has engaged lawyers and politicians for five years now, and is yet to see the light at the end of a very long tunnel). Majors have already exited via asset disposals, and more and more properties onshore have been put to market, with one large player to sell “lock, stock and barrels” and to leave the country forever. In this climate, future reserve additions promise to be considerably weakened, and some senior executives count the opportunity cost in excess of one hundred billion dollars of foregone investment, most for the deepwater. Commerciality on earlier drilling is yet to be confirmed in Liberia and Sierra Leone, while Sao Tome & Principe’s star has long faded, for now. There are too a multitude of border and boundary disputes, oil and gas tax issues, project delays, and matters of corporate concern, found in several countries – including Equatorial Guinea and Ghana, but also in several fragile states in the regional environs, that now add to Africa’s tilt towards more uncertainty and a shifting, riskier investment profile.

Written by Dr. Duncan Clarke, Global Pacific & Partners

Read the article online at: https://www.hydrocarbonengineering.com/special-reports/08112013/taking_a_look_at_africa%E2%80%99s_oil_and_gas_investment_risks/