Is Africa Back on Track in the Oil Business?

Earlier this month, Exxon Mobil Corp signed a deal with Ghana which gives the giant company the rights to explore in the Deepwater Cape Three Point offshore oilfield. Last week, Tullow Oil Plc was awarded two more oil and gas blocks by Ivory Coast to add to its existing holdings. Is Africa about to turn the corner and re-enter the oil race?     

There's no doubt that Africa is a vibrant, diverse and rapidly growing economy. You only have to look at the economic growth figures for individual countries to see that Africa is on the rise; Ivory Coast, Ethiopia and Senegal are all expected to post full-year growth rates above seven per cent for 2017. But as you would expect in a continent full of extremes, not every country is booming, and those that are experiencing rapid growth are doing so from a very low base.

The patchy nature of economic growth in Africa is not stopping investors from eyeing the opportunities in the oil and gas sector. U.S private equity group, Carlyle, one of the world's largest, has recently turned its attention outwards, and according to the Financial Times, it is preparing to raise more than $2.5bn to buy oil and gas assets. Though there is no confirmation, much of the smart money is on Africa being high on their list.

Historically, Africa has relied on specific exports, including oil, gold, and coffee, all of which fell between 2014 and 2016. But dragged upwards by a growing global economy, metals and oil prices recovered significantly in 2016 and 2017. According to PwC, "the oil & gas industry in Africa continues to show substantial growth, with new hydrocarbon provinces developing at a significant pace."

Nigeria has long been the African-oil powerhouse. A member of OPEC, though originally exempt from the current round of production cuts, Nigeria is Africa's oil top producer. Just last month, crude production in the country rose by 88,700 barrels per day, the second largest OPEC-country rise. But Nigeria has suffered decades of severe oil-theft problems, with thieves taking up to an estimated 33% of the oil that flows along the pipelines in the Niger Delta, and workers are regularly held for ransom.

But last week, there was a breakthrough of historic proportions; a change which could signal the start of a huge comeback for Nigeria and African oil production. For more than 17 years, the Nigerian government has been deadlocked over plans to increase oil security and transparency, and stimulate growth in the sector. On 18 January, the Nigerian House of Representatives finally passed the Petroleum Industry Governance Bill (PIGB), which will reform Nigeria's state-owned Nigerian National Petroleum Corporation (NNPC) and the country's oil and gas regulatory bodies.

The Senate President, Bukola Saraki, said: “The PIGB will also promote openness and transparency in the industry — by clarifying the rules, processes, and procedures that govern the oil and gas sector. This should eliminate, or at worse, reduce corruption significantly and make the sector more efficient and more productive. Most important, with the ongoing fuel scarcity in many parts of the country, Nigerians should know that the PIGB, once it becomes law, will help alleviate those issues that lead to scarcity.”

If Mr Saraki is right, and the Bill solves even half of Nigeria's challenges, we could be looking at a huge increase not only in production but in exploration too. But nothing ever runs smoothly, and hot on the heels of the passing of the Bill, Nigerian lawmakers ordered an investigation as to the feasibility of recovering $21 billion in revenues from international oil companies including Shell Chevron, Total and ExxonMobil, believing the country failed to enforce a law saying it was owed a greater share of crude sales over $20 a barrel. It could be taking a cue from entrepreneurs globally, who have focused on growing their national exports.

With or without the complex and often bewildering politics that dog many African nations, it would be wise to keep an eye on exploration awards over the coming year. Low exploration costs and high production potential are a heady mix. Many would say Africa is well worth the risk.

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