Is Africa at a “turning point” in its oil and gas game, for which up to now has broadly been one of strong upward movement in acreage opening, drilling exploration success, oil and gas discoveries, net reserve additions, corporate and capital inflows with rising oil and gas production and growing net exports ?
In the last year or so, few independents have been able to raise easy capital for African upstream ventures while impending global monetary realignments soon to be expected, along with worldwide game-changers in energy (shale gas/oil, Mexico’s oil reform, potential Iranian re-opening) could make this predicament more constrained.
Winter of discontent
The downside in North Africa has had significant negative impact. Libya’s oil industry is in deep trouble. Militias control many oil fields and facilities, while production and exports have tumbled, now posted at below 50% of pre-regime change parity. Major right-holders (Marathon, ConocoPhillips) have signalled intent to exit the prolific Libyan play, with Marathon’s “exit” put on hold by NOC, as a likely precursor to lower-valued asset transfer (a situation that bedevilled Verenex in quieter times). In essence, Libya has acquired the characteristics of a failing state, and the border to the south is almost non-existent and porous, awash with arms and irredentism, plagued by Al-Qaeda’s affiliate notably.
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 and transactions (recently Petroceltic).
Egypt is in aggravated political turmoil and key gas players have seen their LNG dreams fade while LNG imports or gas from East Mediterranean suppliers are now contemplated.
Tunisia’s oil fields are still unsettled; some encountering strikes and a range of difficulties in the post-Arab “Spring” milieu. A winter of discontent looks more likely than the flowering of investor-friendly stability across much of the Mediterranean shoreline.
Meanwhile exploration across the Sahel is taking strain from this imposed dilemma, as the Mali/Azawad quasi-balkanisation demonstrated: this a state fragmentation only saved with foreign intervention. Risks for holders of acreage and assets in the north of Mali, and across Niger too, have risen and Mauritania is still in the down-cycle that followed on from the Chinguetti failure.
Chad looks less promising than it once appeared and faces downside still in its oil production profile, for now, while it is awaiting new field developments from Caracal and CNPC with which Ndjamena remains in dispute.
The Central African Republic has descended into chaos under the command of insurgent Seleka rebels, instability is widespread, and acreage holders could be at risk.
Sudan is on a sharp economic slide with no ready exit, and Sudapet struggles to find a viable upstream strategy to compensate for the loss of two-thirds of its oil reserves and production to Juba.
Meanwhile 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 where a recent referendum has not yet the force of law.
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. Somalia is yet to run its mooted bid round and Al-Shabaab is yet to be defeated. Mogadishu has tenuous command of even Mogadishu.
And then there is Eritrea, a state that has calculatedly excluded exploration players for the last couple of years on Presidential whim, for obscure reasons, and which appears to prefer to go without upstream ventures for the foreseeable future.
Resource nationalism
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 intent to replicate tough contract regimes applied elsewhere but wholly unsuited to frontier plays.
Uganda will not produce crude at any significant quantum until well beyond 2018 despite sequential oil discoveries with vintage from 2006 onwards. New leasing is still awaited, pipelines remain on the drawing board, and refinery investments to process in-ground crude are yet to be accomplished.
Kenya wants to raise the bar for control over ventures including to acquire production interests, and terms will likely further tighten, while acreage holders have been placed under tougher obligations. Offshore success is awaited and one player, Apache, has pulled the plug. In Turkana there have been local protests and halted drilling at Tullow sites, while the foreseen pipeline to Lamu, embracing South Sudan too, awaits financing and FID commitments.
Tanzania is reshaping the template for gas, and laws, even before it produces from large offshore finds destined for LNG to Asia where market prices might soften on the medium-term trend.
For Mocambique, with its infrastructure challenges (let alone Renamo threats), it will be unlikely that FID for LNG will easily meet early ambitious schedules. Hefty capital gains tax on farmout deals, already applied ad hoc, is slated for Mocambique by law within months.
As others in the neighbourhood follow suit, this wider state-driven tax “strategy” – unwise as it is unwelcomed - will crimp the primary acreage and secondary transactions markets in a prospective frontier zone.
Indeed, several bid rounds across Africa’s landscape, earlier promised, have been delayed and in a few cases abandoned – Gabon some while ago, Angola now, Seychelles earlier promised but since put back to direct negotiation.
Madagascar’s election is yet to fully resolve its paralysing political crisis that has held back investments and drilling for several years although force majeure has been lifted on ExxonMobil’s assets. Some companies will however retain a degree of scepticism about the political turnaround given that contenders for the throne have been primarily proxies for the ancien regimes.
In South Africa the Mineral and Petroleum Resources Development Amendment Bill is slated soon to go through Parliament, probably in the new year, and when law or whether mandated by regulation this will halt future upstream venture interest given the explicit state grab mooted therein, designed for high levels of free-carried interest in exploration, production and enhanced state control in critical related spheres. Already moratorium on Karoo shale gas exploration has delayed domestic resource development and while since lifted the new law promises to unsettle investors once more.
Namibia has yet to break its unhappy recent drought of dry holes in the offshore, notwithstanding new drilling prognosticated for 2014, and better hopes for the future. Some key exploration companies have taken strain, Chariot emigrating to new pastures in Morocco, HRT still licking its wounds.
Gabon has taken initiatives to remove producing assets from even foreign state oil players (such as Sinopec), and tough 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. Block awards to several players in very recent times have lightened the burden of “closure” that followed from the aborted bid round in 2011 - but this experience illustrates once more Africa’s repetitive practice of increasingly inefficient acreage marketing and flawed bid round strategies.
Angola remains a costly and challenging environment and not one yet displaying open arms to all minnows or interested new entrants. The Kwanza onshore and Lower Congo bid round for 2013 has been postponed until next year. This follows similar experience with an earlier round for which many companies qualified as operators and/or investors, only to be disappointed. Onshore basins at large remain untouched and off limits.
In the Democratic Republic of Congo the history of license allocation, withdrawal and re-issue under opaque rules continues although a few blocks have been picked up on the shores of Lake Tanganyika. Many blocks in the Cuvette Centrale remain in limbo while around the Great Lakes the demise of M23 appears promising but long-run stability will be seen as an uncertain outcome.
The Gulf of Guinea is not without its own self-manufactured dilemmas: Nigeria still lacks a Petroleum Industry Law (the Bill has engaged lawyers and politicians for over five years now, and is yet to see the light at the end of a very long tunnel). Several Majors have already exited via asset disposals (Shell going in for a second offload), and more and more properties onshore have been put to market, with one large player selling all, “lock, stock and barrels”, to leave the country forever. While indigenous players claim to have benefited (Oando a buyer for ConocoPhilipps assets), the net “gain” to Nigeria is in question. Meanwhile, LNG ventures confront the shale gas revolution elsewhere, and several once-touted projects have either been delayed or in cases fallen off the wagon. In this climate, future net reserve additions promise to be considerably weakened, and seasoned senior executives count the opportunity cost in FDI-capital “loss” in excess of one hundred billion dollars of foregone investment, mostly for the deepwater, gas and LNG.
Commerciality on earlier drilling is yet to be confirmed in Liberia and Sierra Leone (despite Lukoil’s recent well), while Sao Tome & Principe’s star has long faded, for now. Others such as Benin and Togo struggle to secure lift-off, as does Senegal and the AGC.
In Equatorial Guinea the industry might struggle to repeat the exploration and production results of the last decade, and the focus is on gas for a second LNG plant although the country has recorded success for oil offshore Bioko towards Cameroon.
There are too a multitude of old and new border and boundary disputes remaining in Africa (some of EEZ-making), a wave of oil and gas tax issues, several large project delays, state/partner conflicts, and numerous matters of evident if often-undisclosed corporate concern, as found in several countries – including even in “all-star” Ghana, but also in several fragile states in the regional environs.
