NIGERIA IS RESOURCE RICH and energy poor.
The country ranks sixth in the world in oil production, tenth in proven oil reserves, and eighth in proven natural gas reserves. Still, it has failed to use its potential energy to keep the lights on, get people moving, or power the economy.
Instead, oil is being exported, and gas is being wasted. Electricity is sporadic in many parts of Nigeria—at best, a dependable supply is available only about 40 percent of the day. What can you expect when you’re producing only 4 GW of functioning power capacity for a country of nearly 200 million? Will flipping a switch illuminate the darkness or start a motor whirring? There’s no guarantee.
The people—42 percent of them impoverished—remain gridlocked without adequate transportation fuel.
The industrial base is sedentary, not just because it lacks production feedstock but also because it’s impossible to grow reliable businesses on generators when the power goes out. How can the country hope to attract foreign investment without electricity? Imagine you’re a Silicon Valley chip producer, and you’re considering taking advantage of the nation’s human capital to operate a manufacturing facility here. When there’s no electricity for the better part of the day, what do you do? Buy fuel and pass the cost along to your customers? What sane consumer would buy an expensive product when there are cheaper alternatives from countries with 24/7 electricity supply?
The bigger question is: How can a smart nation have so much, but do so little with it?
One problem is that Nigeria is hardly harnessing its natural gas resources at all. Less than 17 percent of the country’s 193 tcf proved reserves are being put into service. About 184 tcf is considered “stranded,” meaning it cannot be delivered economically to market. But even worse, because the country lacks adequate infrastructure, such as pipelines and storage facilities, more than half of the natural gas associated with crude oil production—some 63 percent—is routinely flared, or burned off, every single day.
In a very real sense, wealth that could be trickling down to the pocketbooks of Nigeria’s people is going up in a veritable vapor cloud.
Although the practice has long been part and parcel of hydrocarbon production, flaring is wasteful, harmful to the environment, dangerous to people and animals nearby—and it’s been banned in Nigeria for more than 30 years. However, you’d never guess it by how much flaring goes on: about 700 mcf per day and climbing. That’s no petty amount, by the way. It is equivalent to roughly one-quarter of the current power consumption of the entire continent.1 Prefer a hard currency comparison? Nigeria loses $18 million daily from flaring. Though more than 65 percent of government revenue is from oil,2 it is estimated that about $2.5 billion is lost annually through gas flaring.
The federal government cracks down on flaring from time to time, but to little effect. The gas flare penalty of $.03 per mscf isn’t enough to discourage oil and gas companies that find flaring an inexpensive alternative to other disposal methods. As proof, consider that flared gas rose from 244.84 bscf in 2016 to 287.59 bscf in 2017, an increase of about 18 percent. Now there’s a new plan to end gas flaring in Nigeria by 2020, but experts are pessimistic it will succeed. The incentives aren’t there, they say, and neither is the infrastructure, regulatory framework, or legislative heft to support it.3
Unfortunately, this isn’t just a Nigerian story. Across the continent, gas is stranded or flared. Only ten percent of Africa’s gas reserves are monetized.
But what if, instead of leaving natural gas in the ground or burning it off, we could capture, store, transport, and use it? Just imagine: Africa could produce dry gas for local consumption or turn it into electricity, as discussed in Chapter 5. We could convert it into exportable LNG, a process that has made gas fungible in many other producing nations. We’d have a steady feedstock supply for manufacturing and an effective source of electricity for commercial and residential use. Create jobs and develop local expertise. Reduce pollution. And be able to leverage our on-the-ground global energy experience to benefit ourselves, not just add profits to a Western company’s financial statement.
As the world depends more and more on natural gas—demand is expected to grow by as much as 40 percent by 2030—the economic implications of monetizing our gas reserves are staggering.
To accelerate the pace of development and keep more money from going up in smoke, we have to learn from countries that were once in the same place Nigeria is now.
The lessons start now. And we don’t have far to go to find them.
As I’ve noted, one of the main challenges for monetizing natural gas is that it requires extensive infrastructure—something that’s currently in short supply in many parts of Africa. But it doesn’t have to be that way. For one thing, the development of LNG has made it easier to bring stranded gas to market—LNG takes up less space, is more economical to transport across large distances, and can be stored in larger quantities.
On the continent, one country that is taking advantage of that fact is Equatorial Guinea.
Equatorial Guinea entered the energy sector when large crude oil reserves were discovered in 1996. By 2016, it was one of Africa’s largest oil producers. Like everyone else in the oil business, though, the country has been sorely affected by market volatility, especially as oil accounts for 90 percent of the government’s revenue.4
With 1.3 tcf of proven natural gas reserves—a mere fraction of Nigeria’s total—Equatorial Guinea is using the promise of LNG and condensates to diversify away from the volatility of its oil-heavy revenue base and bring prosperity to its people. The country has already made substantial progress toward those goals, and their work shows what can happen when government and major energy companies work together for the good of the populace.
In 2018, for example, Equatorial Guinea signed an agreement with Noble Energy—a Fortune 1000 company from Texas—that is expected to make the country the gas nexus of the eastern Gulf of Guinea. The contract set the framework for the development of natural gas from the offshore Alen field and outlined the high-level commercial terms for Alen natural gas to be supplied to the Punta Europa gas complex, AMPCO methanol plant, and Equatorial Guinea LNG plant.5 The agreement also includes the construction of a gas pipeline that will run 65 kilometers from the field to the processing plants.6
At the same time, the government announced it will build what it is calling a natural gas megahub at Punta Europa, helping the country become a significant player in the global LNG exports market. The project is expected to bring in $2 billion in revenues. But it’s not just big business—it’s an unprecedented opportunity for the country’s citizens. Minister of Mines and Hydrocarbons H.E Gabriel Mbaga Obiang Lima believes the project will create 3,000 direct and indirect jobs. He is determined, too, that local companies will be part of the value chain.
As if that weren’t enough, Equatorial Guinea also inked a deal with Togo to facilitate LNG trade between the two countries. The agreement is part of the LNG2Africa initiative, which is dedicated to linking African gas to Africa first. According to press reports, Togo will study the import and regasification of LNG and its use for power generation.7 A similar agreement between Equatorial Guinea and Burkina Faso may be in the works.
And, I must mention, if you look upward, you won’t see much gas flaring. Instead, the unused gas production is now reinjected to aid oil production.
That’s progress. But what about the other plans underway? Are they likely to lead to Equatorial Guinea achieving its goals? All signs point to success. The country has these critical factors in place:
Access to finance
Infrastructure
Intellectual capital
A sound legislative framework with government support for the industry to encourage investment
Cooperation
Not so coincidentally, those are the same elements at work in places like Qatar and Trinidad and Tobago—where monetizing natural gas has become somewhat of an art form.
Qatar is so tiny one writer said it was small enough to fit in your pocket.8 Yet the Arab nation has the world’s largest gas reserves—872 tcf, or about 4 times the total of Nigeria’s—and the planet’s highest GDP, thanks largely to oil production. It’s hardly content to rest upon these considerable laurels, however, declaring its intention to be the “Gas Capital of the World.”
It doesn’t appear to have far to go.
Since 1949, when what is now the industrial city of Umm Said was established as a tanker terminal, major oil and gas companies have put down roots there. The city has also been the incubator for homegrown businesses, including natural gas feedstock users Qatar Fertilizer Company—which is the world’s largest single-site producer of ammonia and urea—and Qatar Petrochemical Company. The world’s largest gas-to-liquid (GTL) plants are in Qatar, and with Qatargas operating 14 LNG plants, the country supplies more LNG than anyone else.9
As part of Qatar’s quest for world gas domination, it is expanding its LNG capacity by further developing the North Field natural gas, which already accounts for nearly all its gas production. With a target completion date of 2024, the project is expected to bring in $40 billion in additional export revenue, while income from LNG sales are projected to leave the government with a budget surplus of $44 billion.10 That extra cash will be earmarked for Qatar’s sovereign wealth fund.
If Qatar’s abundant natural gas resources make replicating their example seem impossible, taking a look at Trinidad and Tobago may be more instructive.
The twin-island nation off the coast of Venezuela contains less than 1 percent of known global reserves of natural gas, about 16 tcf—or less than one-tenth of what Nigeria holds. Despite this, it has become the world’s leading exporter of two gas-based products—ammonia and methanol—and is among the top 5 exporting countries of LNG. This is particularly impressive considering its LNG business didn’t kick off until 1991, and its game-changing LNG Train 4, which has a capacity of 5.2 million metric tonnes per annum, has only been online since 2005.11
How did it achieve so much with so little in such a short amount of time?
Much of the credit belongs to the government, which jump-started the energy sector in the 1970s through equity investment—although it benefited from a bit of luck when those efforts came on the heels of the Arab oil embargo. The supply restrictions sent the price of oil soaring, at least by 70s standards, from $3 per barrel in 1972 to $12 per barrel 2 years later. With well-timed new discoveries off Trinidad’s east coast, the country had a sudden revenue windfall, money the government invested wisely in initiatives to improve the state’s social and economic well-being. That included the construction of the Point Lisas Industrial Estate, which was designed to accommodate industries that used islands’ natural gas as feedstock.12
Investment was just one part of the government’s strategy, however.
Through policy actions, it vigorously promoted E&P, attracting a variety of investors to develop its gas reserves. Other policies facilitated the development of a petrochemical industry, leading to the growth of its giant methanol and ammonia export business.
What’s more, the country has never been shy about riding herd over its hydrocarbon resources. After buying Shell’s operations in 1974, the government began to steward the nation’s reserves even more actively, nearly to the point of nationalizing the entire sector. While it initially stopped short of that step, it devised a plan to assert more control over both oil and gas production through its “Third Way” policies—a centrist agenda that subsequently led to the creation of the National Gas Company and the eventual monetization of the country’s abundant supplies of natural gas. The government later put a plan in place to further shift away from oil, promote competition to attract new business (and enhance the state’s share of the profits), and privatize local industry.
More recently, the government has segued from an investor role to a more regulatory position. Typically, it divests itself of interests when its involvement is no longer considered strategic—in other words, when its place can be filled by foreign investors. However, there’s no question that the government’s early equity position and hands-on involvement created the framework for how Trinidad and Tobago’s energy resources would create wealth for its people—a foundation that’s standing strong today.
With the government determined to see the islands achieve developed nation status by 2020, revenues from hydrocarbon development are being used to support five priorities: developing innovative people, nurturing a caring society, governing effectively, enabling competitive businesses, and investing in a sound infrastructure and environment. Much like Equatorial Guinea and Togo, Trinidad is looking to its neighbors for help achieving its ambitions. In 2018, Trinidad signed an agreement with Venezuela to import and process its natural gas, specifically that coming from the offshore Dragon Field. The deal will close any domestic supply gap that Trinidad might experience, and we only have to look back to the period from 2013 to 2016 to see why this is important: Low availability forced the Atlantic LNG plant to reduce its output, squeezing revenues. The pace will also ensure that Venezuela can process and monetize its currently stranded natural gas field. In short, it’s a win-win for both countries.
It’s not a pipe dream to think that Africa can benefit from its natural resources in the same way Qatar and Trinidad are—the experience of Equatorial Guinea shows it’s possible. Africa has been called the next frontier in the oil and gas industry, largely on the strength of our natural gas reserves, including an estimated 100 tcf discovered in Mozambique and Tanzania. As I told Forbes magazine late in 2018, Africa’s LNG export volumes are about to rise dramatically with involvement by Gazprom in Cameroon, Fortuna in Equatorial Guinea, Anadarko, and ExxonMobil in Mozambique, and Total in Tanzania. Even Nigeria is moving in the right direction: They are working harder to reduce flaring and have a new LNG train coming online.
I’m happy to say that good policies are coming, and some heavy-handed regulations are being rolled back. That will help Africa better control her own future.
But that’s only part of the equation. To truly keep this frontier from becoming a wasteland, it will take effective and transparent leadership. The average man or woman has no idea if they are getting a fair deal from the exploration of their country’s natural resources. Do most Nigerians know one reason they don’t have electric power on demand is because the state-owned oil company is flaring the generating source? Can you imagine the outrage if they did? Their resources, their riches disappearing before their eyes.
Sadly, lack of transparency is just part of the problem. Mismanagement, corruption, abysmal rule of law, poor protection of investment, lack of human resources, and absent or crumbling infrastructure also plague Africa—preventing us from turning opportunity into prosperity. We are not doing all we can to enable exploration: As I explained in Forbes, there is no doubt that Nigeria’s much-delayed Petroleum Industry Bill has slowed exploration activity in onshore and offshore areas and, most important, gas monetization.13
As the examples I cited suggest, there are certain things in common among countries that have successfully monetized their natural gas resources. It’s not really possible to boil everything down to a simple list of dos and don’ts, but some of the more productive factors are:
Taking a market-led approach, focused on efficiency in the flows of capital, goods, and ideas.
Maximizing oil investor confidence in the rule of law, the enforcement of contracts, and the protection of labor rights.
Encouraging mutually beneficial partnerships between multinational and indigenous oil and gas companies.
State entities need to ensure that they have a participating share in all future gas projects.
Retaining production in kind for use in the domestic market or trading abroad.
Taking a greater role in decision making and more active participation in operations.
Devising a favorable legislative framework.
Developing a fair structure of taxation, royalties, levies, and bonuses.14
Linking markets, including domestic consumption.
Promoting security and stability to protect foreign and domestic investment.
We can put gas to work to create a more profitable environment for business, meet our energy needs, and capitalize on the potential it represents for our future. We can be both resource rich and energy rich—and I mean that in terms of human energy as well as keeping the lights on.
The past 20 years have been a rollercoaster for Africa’s oil and gas production. In 2000, the continent produced almost 8 million bbl/d; by 2010, it topped 10 million bbl/d. While many thought this upward trend could continue, 2017 saw yields drop back to the 8 million mark.
This 20-year up-and-down cycle coincided with oil prices. The high global oil prices, exceeding $100 per barrel on average between 2000 and 2014, created huge revenues for oil producers on the continent. The earnings also spurred some serious exploration activities in heretofore largely unexplored areas, making it all the more difficult for producers to adjust when average prices sank to $50 per barrel. Accustomed to higher earnings and the resulting freedom to try new things, they reacted by trimming their exploratory efforts and focusing instead on the known plays.
It’s understandable that industry players want to staunch the bleeding, but cutting down exploration is the exact opposite of what is needed to maintain and grow a robust sector.
We’ve always known that the oil and gas market is volatile. It’s a high-risk, high-reward field. But it seems that many of us forgot this (or chose not to plan for the ride) during the glut at the onset of this century. A lot of our colleagues decided to cut and run with whatever profits they had left, rather than dig in and pursue new yields.
I worry now that we are not seeing the warning signs of a greater fall to come because we are not looking at the fundamentals.
In 2018, the number of oil and gas rigs in Africa reached a three-year high, according to Baker Hughes.15 So clearly, E&P is still alive and well as I write this book, but I’d hate to see rates plummet the next time oil prices drop.
Case in point: The oil price crash we saw in 2014 became a deterrent to high-cost, high-risk oil and gas exploration. Across the continent, we need an enabling environment that encourages continued—and enhanced—E&P.
“Without major exploration and production, the oil-dependent economies of West Africa, in particular, are on a fast-track to terminal production decline,” Oxford Energy Forum analysts James McCullagh and Virendra Chauhan wrote, “The production profiles will be all the more disconcerting for future governments given the continued lack of economic diversification in many countries.”16
Currently, national oil companies are the “weakest link” when it comes to driving E&P forward.
Equatorial Guinea’s Gabriel Mbaga Obiang Lima put it bluntly: “Africa’s national oil companies are in a coma: No recommendations, no suggestions, no speaking up and trying to find solutions. They just produce less, have less revenue, and complain more.”
It’s time to wake up!
The African petroleum market continues to represent tremendous opportunities for foreign producers.
Just ask Nyonga Fofang, Managing Director of the private equity firm Bambili Group, which has pan-African investments and clients. An alumnus of Harvard University, Fofang’s career spans more than 20 years, including Wall Street, international capital markets, and service on the board of Standard Chartered Bank. He has spoken about significant growth potential in Africa’s petroleum market despite the likelihood of continued volatility.
“The frontier exploration areas in Africa are generating a lot of buzz, and for good reason,” Fofang told Africa Oil & Power in 2018. “Countries like Namibia and Uganda, which have seen recent discoveries of oil and gas, are ripe for investors. In addition to positive exploration potential, the countries offer stable regulatory frameworks for investors. On the east coast, Tanzania and Mozambique are still creating a lot of excitement from mega gas finds. The development of these fields and the implications for LNG exports and gas-to-power programs in southern Africa are game changing. These areas and others will provide significant opportunities.”17
Fofang has called upon African leaders and businesses to do more to encourage investors to capitalize on these opportunities.
“We would like to see more investment in infrastructure, energy, agriculture and health,” he said in 2017. “Given the strategic importance of some of these areas, this would require public-private partnership models.”18
I strongly agree with my friend: We should be charming investors with better incentives for exploration. Let’s consider a few pathways that help drive strong, consistent E&P activity.
Visionary leadership. We need leaders who will make it attractive for African producers to seek out new resource pockets. Their ability to resolve cross-border disputes is key. Our leadership must start being more pragmatic. And this means making some difficult decisions that might not be popular among the wealthy power players, as you’ll see below.
Removing regulatory bottlenecks. There is no reason to wait for many years just to get approvals to begin production from a field. This is horrible. Many companies would rather invest in commercially viable fields in the United States where they can get a good return on investment than wait for decades for regulatory approvals in Africa.
Smaller plays. We need to make the license maps smaller to attract small players. Breaking up the blocks into smaller sections will give the independents a competitive edge and ultimately benefit the entire industry. Encourage (or require) the large producers to relinquish some of the areas they are not exploring to small players.
Stronger fiscal framework. We need to change the fiscal framework to support the needs of marginal plays. We need better regulations, not more of them. And increasing taxes on oil companies and service companies at this time does not help. Instead, we need better fiscal terms like breaks on value-added taxes and import duties.
Local content. Oil and gas producers in Africa must unequivocally look to Africans for both labor and leadership. And African producers must continue to expand cross-border transactions that keep African resources on the continent.
Regional content. Speaking of cross-border transactions and keeping resources on the continent, we should think about expanding our definition of local content to take other African countries into account. Certainly, it makes sense for every African state to work towards the goal of making sure that home-grown entrepreneurs play a role in oil and gas development, either directly or indirectly. But no single country can do it all. When we have a need we can’t meet on our own, we should look close to home—to neighboring and nearby states—before we turn to foreign suppliers. (I’ll talk more about this in Chapter 9.)
Given its expansive energy industry, production discussions often focus on Nigeria. Its many successful legacy fields have consistently produced vast quantities of oil. But even here amid the tried-and-true, new frontiers await for exploration opportunities, with offshore discoveries at depths of 1,000–1,500m.19 In fact, recent exploration of Nigeria’s offshore Owowo field revealed 1 bbo, spurring the Nigerian National Petroleum Corporation (NNPC) to implore investors to amp up their exploration in this mostly untested yet clearly prolific play. The NNPC sees $48 billion in investment opportunities for capital projects within the country’s oil and gas industry.20
The prospects aren’t limited to this energy powerhouse. The entire continent is seeing a surge in capital expenditure in the sector: Some $194 billion has already been allocated for E&P at 93 upcoming oil and gas fields through 2025.
A number of other countries have also been taking steps to show their commitment to the fundamentals of E&P—and I hope that many more will follow their lead.
Angola: This petroleum powerhouse is a seasoned industry giant. Commercial production began as far back as the mid-1950s, and oil overtook coffee as the country’s leading export in 1973. But since reaching an all-time high production level of almost 2 million bbl/d in March 2010—almost vying with Nigeria for the top spot—Angola’s industry has been sagging.21 In 2018, production levels averaged 1.55 million bbl/d; in March 2019, the figure was even lower, at 1.37 million bbl/d22—although this is still impressive enough to garner the second-highest spot in sub-Saharan Africa.
The production decline resulted from aging fields and shy investors; neither of those factors is surprising. But given that the country sits atop 9 bbo of proven oil resources and 11 tcf of proven natural gas reserves, the government is attuned to the potential for significant economic growth a booming petroleum sector could bring—with good governance.
Since taking office in 2017, Angolan President João Lourenço has been making major changes to the country’s oil sector. In May 2018, he introduced reform measures to renew interest in development areas that have been suspended due to low yields, with specific targets to boost production by opening marginal fields to African independents. By December 2018, several new laws to encourage E&P were on the books.
This included a Natural Gas Regulatory Framework, the country’s first law regulating natural gas exploration, production, monetization, and commercialization, providing guidance and offering more attractive tax rates to encourage investors. The reform measures also streamline the regulations to better facilitate foreign investors’ entry into the nation’s oil sector. One of the most important regulatory changes was the creation of an independent regulator, the National Agency for Petroleum, Gas, and Biofuels, which took over the management of Angola’s oil and gas concessions. Previously, state oil company Sonangol had that responsibility. Now Sonangol will function solely as an E&P company. The change was a smart move: Foreign companies most likely will appreciate the opportunity to work with a neutral entity and the improved business environment they can now experience in Angola.23
In 2019, Angola continued its efforts to bring foreign E&P companies back to the country by announcing plans to auction nine blocks in the Namibe basin and selling parts of Sonangol.24
Republic of Congo: In the face of the global oil and gas slowdown, Minister of Hydrocarbons Jean-Marc Thystère Tchicaya affirmed his country’s determination in late 2018 to “develop our mining sector to ensure the renewal of our reserves of liquid and gaseous hydrocarbons.”25
As sub-Saharan Africa’s third-largest oil producer, with an output of 333,000 bbl/d in 2018, the Republic of Congo has spent the past several years on a crusade to promote its energy investment opportunities. Most notably, in 2016, the nation reformed its hydrocarbon regulations to encourage operators to expand their E&P efforts. The government also decreased royalties for natural gas operations in frontier zones from 15 percent to 12 percent. The new regulations also removed cost transfers between permits and allowed international exploration companies to import certain goods and equipment tax-free.
Another method of promoting the development of the industry is to encourage exploration of shallow-water offshore plays. Licensing for ten offshore blocks in the shallow Coastal Basin were expected to be evaluated in September 2019. Companies that pledge their support of the national oil company SNPC’s regional 3D seismic project, covering 5,000 square kilometers of the Peu Profond area of the Congo Shelf, will receive early consideration.
The government also wisely introduced a new policy to ensure stability. Even if lawmakers later amend the country’s fiscal regime, any signed production-sharing contracts will be upheld. This stability policy ensures that the overall economic equilibrium of the contract will be maintained.
Equatorial Guinea: Fields in Equatorial Guinea are facing the natural decline in production that comes with age. But although investment will likely decrease every year, E&P activity should show a slight increase. This is expected, in part, because of the late-2018 introduction of 11 new oil and gas wells to be drilled over the next year, at a total planned investment of $2.4 billion.
Low investment in exploration could be the new norm; gone are the days of one dollar in six or seven going to exploration. Despite this trend, we’re seeing a modest uptick in Equatoguinean drilling activity. Lima said that the country has taken advantage of the slowdown by using the time to review and improve its policies.
“We have been busy in the downturn, working to improve our regulatory environment and attract new investment to the sector,” he said. “Now that the oil price is at a sustainable level, activity in the oil and gas sector is set to take off at an unprecedented pace.”26
Lima explained that his country’s oil industry didn’t simply stand passively by during the price crash; rather, they went straight to the global power players to begin dialogue, create alliances, and learn as much as possible about pricing and market strategies. They even became a full member of OPEC in May 2017.
Lima believes that a key difference with Equatorial Guinea’s energy sector—and the secret of its success—is that they take the best practices of other African producers and adapt them to fit the local environment. The Ministry of Mines and Hydrocarbons has embraced the notion that the oil and gas industry is lightning-fast to transform, which means they understand the need for flexibility with regulations and planning.
In fact, the Ministry is so committed to improving the sector that it named 2019 “The Year of Energy.” This campaign emphasizes the country’s dedication to its energy industry, from strengthening regional oil and gas partnerships to investing in sustainable in-country growth.
And the country remains dedicated to home-grown efforts. In July 2018, the Ministry ordered operators to cancel all contracts with Canada’s CHC Helicopters because of the company’s noncompliance with local content regulations. As Lima explained, “These laws are in place to protect and promote local industry, create jobs for citizens, promote the sustainable development of our country, and we are aggressively monitoring and enforcing the compliance of these requirements.”27
Later in the year, Lima issued a mandate to operators to suspend operations with some multinational oil service companies for their failure “to work within the confines of our very flexible and pragmatic local content regulations that are market driven and ensure that both investors and our citizens benefit.” The Ministry made it clear that it will continue to actively monitor the compliance of all service companies and issue further suspensions as found.
Gabon: Gabon has been producing oil for more than 50 years. Its peak production in the early 2000s reached 370,000 bbl/d, and it remains one of the top 5 producers in sub-Saharan Africa. To counter the natural decline of its mature fields, the government has looked to offshore resources, where some 70 percent of the country’s reserves are expected to be found.
The country has also reworked its hydrocarbon code. A significant change eliminates the corporate income tax for producing oil companies. Royalties are now set at 5 percent for oil and 2 percent for gas, and the state’s share of profits dropped from 55 percent to 50 percent in conventional zones and from 50 percent to 45 percent in deepwater areas.28 In addition, cost recovery limits increased from 65 percent to 70 percent for conventional oil zones and from 75 percent to 80 percent for deepwater oil; limits for natural gas rose from 65 percent to 75 percent for conventional and from 75 percent to 90 percent for deepwater.
The Ministry of Petroleum and Hydrocarbons hopes these initiatives will revitalize operators’ interest in its 12th offshore licensing round of 11 shallow and 23 deepwater blocks, which opened in November 2018.
At the same time, Gabon has also been focusing on supporting smaller local independents while increasing employment opportunities and training for nationals. The revised code established a special economic zone to make sure the infrastructure promotes in-country efforts.
“The existence of this special economic zone is very important to support the industries that will build up around oil and gas exploration . . . A strong economic base will arise from these areas,” Minister of Petroleum and Hydrocarbons Pascal Houangni Ambouroue said in March 2018. “A part of that is ensuring that there are enough skilled workers, and so training is now playing a key role in Gabon. We are putting in every effort to make sure we have the process in place to ensure that our workers are up to date with the modern trends in the oil and gas industry.”29
Kenya: Exploration in Kenya can be traced back as far as the 1950s, but there were no commercially viable discoveries until 2012. That’s when the South Lokichar Basin revealed 750 million barrels of recoverable oil. These days, Kenya appears to be making further strides toward boosting E&P.
Taking a huge leap forward, President Uhuru Kenyatta signed the Kenyan Petroleum Exploration Development and Production Bill in March 2019.30 The passage marks a significant milestone. In addition to strengthening the country’s comprehensive contracting, exploration, development, and production framework, one of the bill’s main provisions is to earmark 25 percent of the revenue from all oil and gas produced in the country for county and local governments. This is being accomplished through a trust fund managed by a board of trustees established by the local leadership.
In addition, the Kenyan government entered into an agreement with the Kenya Joint Venture, whose constituents are Tullow Oil Kenya BV, Africa Oil Kenya BV, and Total Oil, to develop a pipeline to link Kenyan oil fields with the international market. The 820-kilometer Lamu-Lokichar Crude Oil Pipeline is set to come online in 2022. An environmental study concluded at the end of 2018, and feasibility studies are currently underway.
Unfortunately, early 2019 ushered in some disappointing news about multiple multinationals, including Hunting Alpha, Africa Oil, and Royal Dutch Shell limiting Kenyan operations (or pulling out of Kenya entirely) due to perceived “subdued” levels of productivity and “modest activity forecast for East Africa in the medium-term.”31
Here’s hoping that the March 2019 bill will help turn that around. Perhaps a glimmer of hope is that while Royal Dutch Shell relinquished two blocks where it had been exploring, it actually acquired new exploration licenses in other markets.
Cameroon: Cameroon’s outlook in early 2018 was discouraging: Only one company responded to Cameroon’s latest licensing round. Eight blocks were up for grabs in the Rio del Rey and Douala/Kribi-Campo (DKC) basins,32 and Perenco was the only company to respond. But even here, we’ve seen some promising developments on the E&P front.
Cameroon’s NOC, Société Nationale des Hydrocarbures (SNH), and the local subsidiary of Perenco signed a Production Sharing Agreement for oil exploration in the Bomana block in February 2019. The field covers 22.75 square kilometers in the Rio del Rey basin, an eastern extension of the prolific Niger Delta Basin.33
Victoria Oil & Gas announced in June 2018 that there is more natural gas in its Logbaba gas and condensate field than originally thought. The company now says the proven and probable reserves there total 309 billion standard cubic feet, which is up 52 percent from its previous estimate34 and should support a production rate of 90 mscf/d for 10 years.
In addition, an appraisal campaign in the offshore Etinde Field was deemed a success in October 2018.35 Another offshore project is moving forward, too: as of this writing, Tower Resources was preparing to begin drilling at the Thali project.36
Cameroon lawmakers also are reviewing a new petroleum code with the possibility of it becoming law in 2019.
The exploration success rate in African has dropped from some 40 percent to 35 percent over the past decade. The decline has highlighted the importance of acquisitions as an alternative, albeit generally more expensive, way to build resources. Oil and gas players on the continent should consider mergers with service companies to better enable them to tie profitable acquisitions to an exploration component.
Something I find particularly promising is that, from 2017 to 2018, intraregional cross-border deals from all sectors tripled (in terms of aggregate value) from $418 million to $1,292 million.37
This is a great sign of African cooperation—the teamwork we surely need but still sorely lack across the board.
We need to continue with efforts like that, and anything else we can realistically do, to continue driving E&P.
As Minister Lima said, complacency is our enemy.
“For many years, we have been enjoying having a ‘wagon in the train’ and just looking at the world from our comfortable seats built upon good prices and production levels,” he said. “The crisis (of 2014) made us realize that geopolitics and interacting with our environment matter. From this moment, we can choose to be the victims of changing currents, or we can decide to change and do something about it.”
Lima goes so far as to encourage the concept of an “African oil basket” where all producers on the continent would bundle their crude to boost its overall value and give Africa’s producers more leverage on the world stage. Similar to the OPEC Reference Basket (ORB), this bundle would set a benchmark oil price based on the average of prices for all the blends produced on African soil.
Lima says all energy ministers must participate in industry events and learn from each other.
“The more the interrelationship, the better. We have got to know each other much better, and we are nowadays definitely talking more than before,” he said. “We need to move away from our worry that we can’t do it. We need to lose the fear that we cannot operate. There is a learning curve, and we need to start learning.”