banner

oil plant
663 Views

African oil & gas organisations plan for an upturn in the oil price


Overall activity in the oil & gas industry across the African continent has slowed in the wake of the declining oil price in late 2014.

“While the oil price has caused activity to drop, it has also served as a wake-up call to many African governments, which are working hard to pass favourable oil & gas legislation in order to attract investment into the sector,” says Chris Bredenhann, PwC Africa Oil & Gas Advisory Leader. Countries such as Kenya, South Africa and Tanzania have been taking a serious look at legislation currently in place with a view to making it more investor-friendly.

PwC’s ‘Africa oil & gas review, 2015’ analyses what has happened in the last 12 months in the oil & gas industry within the major and emerging African markets. As oil prices declined in 2014, the industry response has been far-reaching with significant reduction in headcount and other cost cutting measures. Capital budgets have also been cut, and frontier exploration activity has decreased. “While response to such a drastic decline is necessary, we have seen the most successful organisations are taking time to re-set, re-strategise and plan for the upturn in prices, which will inevitably come. Africa should be no exception as many of the frontier exploration plays lie on the continent,” adds Bredenhann.

As at the end of 2014, Africa has proven natural gas reserves of just under 500 trillion cubic feet (Tcf) with 90% of the continent’s annual natural gas production still coming from Nigeria, Libya, Algeria and Egypt.

The main challenges identified by organisations in the oil & gas industry have remained largely unchanged with the top three issues of uncertain regulatory framework, corruption and poor physical infrastructure also identified as the biggest challenges in 2014. Uncertain regulatory frameworks remain a concern across the industry, with more than 80% of Tanzanian respondents regarding regulatory uncertainty as the top challenge facing the business. Other countries where respondents cited concern about regulatory uncertainty include Nigeria, Kenya and Angola.

The inadequacy of basic infrastructure ranked much higher in the current review than in 2013. Areas in which infrastructure remains limited are likely to see the development of existing discoveries stalled unless there is a domestic need for the resource.

Organisations identified the price of oil and natural gas as the most significant factor that would affect their companies’ businesses over the next three years. “This is not surprising given the current uncertainty around the market,” says Brendenhann. “Fortunately industry players are looking beyond current prices when planning for the longer term.” The results of the report show that a high 90% of respondents expect the oil price to increase gradually over the next three years.

People skills and skills retention is rated the second most likely factor to impact business over the next three years. Community/social activism, instability and unstoppable political events, ranked fourth, are a noteworthy concern in the oil & gas industry. Organisations from South Africa, Mozambique, Nigeria and Kenya, in particular, expected community/social activism/instability and unstoppable political events to have a significant impact on their business.

Asset management and optimisation also remains a top strategic focus area for oil & gas companies over the next three years.

Financing and investing

After a rush of bidding rounds in 2014, 2015 and 2016 appear to be comparatively quiet with only a handful of bidding rounds expected. This is partly due to the flurry of bidding rounds in the previous couple of years and a consolidation of these agreements together with the lower oil price and lower interest to invest.

While it seems that the temporary meltdown is receding, African governments have shifted into gear to promulgate and ratify oil & gas regulations that are intended to encourage the monetisation of assets, while doing away with policy uncertainties.

Although merger and acquisition (M&A) activity was low in 2014/15, around one-fifth of respondents have been targeted, and a third of respondents has targeted or intends targeting companies for acquisition. This suggests that an increase in M&A activity can be expected in the near future.

Forty-one percent of E&P companies said that they would be investing in the development of drilling or exploration programmes, which is significantly lower than in 2014 when 70% reported this as a key strategic focus.

Combatting fraud and corruption

Over 98% of organisations indicated that they have an anti-fraud and anti-corruption programme in place – of these, more than 60% believe that the programme is very effective at preventing and/or detecting fraud. Only 8% of respondents indicated that they did not have a compliance programme.

Over 43% of respondents indicated that fraud and corruption would have a severe effect on their businesses. Government officials continue to be implicated in a number of fraudulent activities across the continent.

Recent research conducted by PwC shows that bribery and procurement fraud remain some of the top types of economic crimes in the broader energy, mining and utilities sectors. Despite pervasive fraud, some governments around the continent have made significant efforts to increase transparency in the industry.

Sustainability

Under the current economic climate, oil & gas companies are looking to increasing production potential through improving efficiencies and operational excellence. In addition, they are also looking towards exploration and finding new resources as an alternative for sustainability. A vast majority of respondents (71%) reported that they will be looking at formal cost reduction measures in the next three years. In as much as businesses are considering other measures to ensure their sustainability over and above monetising natural resources, they are also expecting the commodity price to increase in the future. And despite development in renewable and alternative sources of energy across Africa, respondents do not expect demand for these to have a significant impact on oil & gas businesses over the next three years.

Regulatory framework

The presence of an uncertain regulatory framework is one of the biggest issues in developing the oil & gas business in Africa. South Africa’s uncertain regulatory framework for the oil & gas industry is mainly due to unclear and overlapping mandates between the Government and state-owned companies. Furthermore, the enforcement of the Minerals and Petroleum Resources Development Act (MPRDA) has raised a number of compliance challenges in the industry, primarily resulting from new requirements directly introduced by the Act.

Source: cbn


Follow Alive2Green on Social Media
TwitterFacebookLinkedInGoogle +

Recently Published

Screen Shot 2017-08-17 at 8.56.14 AM
»

Cape Town Tourism will continue to build on the city’s tourism success

Cape Town Tourism’s service level agreement (SLA) has been ...

Screen Shot 2017-08-16 at 3.00.37 PM
»

Mining can be green and “sustainable”

Miners, First Nations feed fodder to government policy ...

Water and Mining - [https://www.miningreview.com/magazine_articles/water-and-power-efficiency/]
»

Water and power efficiency walk hand in hand

South African mining companies can manage water usage as part of a ...

Airport Craft Brewers barman Oscar Sentane prepares to serve one of Marali's blonde lagers at the O.R. Tambo airport in Johannesburg, South Africa.
»

Lift Off for Africa’s First Airport Brewery

There is a new addition to Africa’s busiest air transport hub, O.R. ...

agri
»

African Agri Investment Indaba

600+ GLOBAL LEADERS, 40+ EXPERT SPEAKERS 100+ KEY INVESTORS, 50+ ...

saeec1
»

12th Southern African Energy Efficiency Conference (2017SAEEC)

12th Southern African Energy Efficiency Conference (2017SAEEC) 14 ...

Screen Shot 2017-08-16 at 9.55.19 AM
»

Africa feeding Africa

While North America’s farmers pin their career hopes on the need to ...

Screen Shot 2017-08-16 at 9.40.05 AM
»

Get ready for climate impacts beyond your imagination

It’s time to start imagining the worst weather scenarios possible, ...

Screen Shot 2017-08-16 at 9.30.01 AM
»

15 African youth finalists in entrepreneurship prize

Fifteen emerging young African entrepreneurs will put their talent to ...