Financial services group PwC this week published a review of oil and gas in Africa, entitled ‘From promise to performance’. ZA Confidential caught up with PwC’s Africa Oil and Gas Advisory Leader Chris Bredenhann to discover the latest trends:
ZAC: You suggest oil and gas in Africa is moving from promise to performance. What does this mean?
CB: I believe that the promise lies in the resource riches that the African continent has been endowed with. The performance part refers to the need for the African continent to grab the opportunity presented, and ensure that the resources are developed and produced for the benefit of Africa. We should avoid exporting all of the raw resources and importing back the refined products.
ZAC: There seems to be more appetite for risk. How is this transforming the industry?
CB: The oil and gas industry has always been risky, not only from a health and safety point of view, but also from a success point of view. Generally a success rate of 1 in 10 wells is considered good. If you take that a well could cost anything from $100,000 to $100 million, the risk to the industry is enormous. The fact that the easy oil has been found, means that companies are willing to take more risk, be it in the form of moving to more difficult deepwater offshore areas, or politically unstable environments. The developments in Mozambique are an example of this – the basins where the current gas finds are being made are in very deep water, making the development technically difficult and expensive. However, oil companies are willing to take these risks because they are confident that they will pay off. PetroSA’s drilling campaign is another example of taking on risk, this time in the interest of survival. They need to replace their gas feedstock, and their current drilling program is a result of this.
ZAC: Which countries will benefit from the new risk appetite?
CB: I would suggest that the emerging countries listed in our report stand to benefit – Namibia, Mozambique, Uganda, Kenya, South Africa, Tanzania, Ghana, Cote d’Ivoire, Nigeria and Morocco. Having said this, I believe any country where there is appetite to invest may benefit.
ZAC: How important is certainty over tax rules, the regulatory environment and so on?
CB: Investments are made based on risk, and most of the large oil and gas companies take a portfolio view of their investments. If they can get a better return for less risk from another location, they will allocate their funds accordingly. There are many examples of resource nationalisation, and I would think that companies would think twice about investments in these countries (Venezuela, Bolivia, Algeria, etc.). The estimated lost investment in Nigeria is an example of how investors are voting with their money. It should also be said that investments are normally made in the context of some form of legal framework, and the option of arbitration is always available to investors. In the short term I would, however, argue that frontier states need to attract investors to get access to the funding and technical expertise to develop their industries. They will therefore carefully consider their policies to ensure that (their country) is attractive.
ZAC: Flaring of gas is wasteful, but I believe Angola has turned the corner on this?
CB: Yes, the new LNG (liquefied natural gas) export terminal at Soyo exports liquefied gas that would otherwise have been flared or re-injected into oil field for enhanced oil recovery.
ZAC: You spoke of environmental opposition to LNG terminals. Why and where?
CB: PetroSA is planning a floating LNG terminal in Vleesbaai at Mossel Bay. The residents have raised concerns as part of the EIA process.
ZAC: The Asians are playing a new investment role. How significant are they now in African oil and gas?
CB: I do not have comprehensive data to support a full response to this question. However, it has been stated that two thirds of China’s oil imports originate from Africa. Through CNOOC, CNPC and Sinopec they have significant investments in Sudan, Nigeria, Uganda, Gabon, Equatorial Guinea, Republic of Congo, Algeria, Mauritania, Tunisia, Libya, Niger, Cameroon, Angola etc. We are also seeing investments from India and Thailand in the high-profile Mozambique play.
ZAC: Describe how the piracy problem is shifting from the East Coast of Africa to the West.
CB: It seems to me that there is a lot of effort going into addressing the piracy problem in Somalia (e.g. military interventions from various foreign nations like the US, China, Europe, etc.) while there is less visibility of this in the Gulf Of Guinea. Combine this with an increase in exploration and production activity, and the stage is set for a shift.
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