The current shock in the hydrocarbon industry “is so profound and so deep”, in the view of Tim O’Hanlon, Tullow Oil’s former Vice President for Africa, that “companies will find Governments across Africa in “listening mode” now than before”.
That comment references the perception, by International Oil Companies, that African Governments, as a rule, are never in a hurry to follow the pointers to fiscal terms dictated by the market.
African Governments, O’ Hanlon says “have sometimes been more than a bit “late-to-the-party” when it comes to adjusting the work programme or fiscal arrangements, necessary when the oil price dies and capital dries up”.
O’Hanlon should know, or should he not?.
For most of the last twenty years he was the face of Tullow Oil in Africa. Known to governments and stakeholders around the continent as ‘Monsieur Afrique’, he negotiated the entries for the company, represented the partner countries’ feelings in Tullow’s executive management meetings and promoted the Tullow brand at the C-Suite level type conferences.
In those years, the company earned the sobriquet: ‘Africa’s Leading Independent’. Now as it leaves Uganda, winds down in Kenya and sees its Ghanaian production declining, Tullow Oil calls itself ‘An independent oil and gas company focused on Africa and South America’.
‘Monsieur Afrique’, retired last April after 34 years with the company, and four months after Tullow’s historic headlong stock price crash.
“To have African governments listen, he says is “all it will take to re-ignite the flame and get the ball rolling whereby exploration permits are extended, stay alive and stay in the right hands (like Tullow’s) until the inevitable turn-around comes”.
The inevitable turnaround?
Mr. O’Hanlon is unapologetically clear sighted about the continued relevance of fossil fuels.
In a rare, extended conversation, his first interview with any publication since his exit, he fielded questions ranging from the future of oil, the alleged retreat of Independent companies from Africa, to the ‘hysteria’ about climate change.
Excerpts from the interview, published a month ago, in the August 2020 issue of Africa Oil+Gas Report.
Having spent several decades, right in the jungles of the oil patch, negotiating deals and seeing them implemented, as actual crude flow to export, how does it feel to sit back and watch things from a distance?
For the moment, I am relaxed to sit back and watch from a distance……….but my feet are still a bit itchy to be honest! While poor Tullow is not what it once was, our legacy is secured. Through the efforts of the brilliant technical people we always surrounded ourselves with and the cool leadership at the top, Tullow added many tens of billions of dollars to the economies of some lucky African nations. It’s uplifting to think that ordinary people just doing their day-jobs like that have had such a positive impact on a Continent with wall-to-wall problems to solve. This achievement can never be undone.
Does any of the things happening now: lockdowns everywhere, crude oil prices going negative at some point, Massive write downs by oil majors, does any of them feel surreal?
Surreal is a bit strong. We chose to work in this oil-patch which is, after all, a boom/bust game. Oil explorers always seem to end up looking either like visionaries or idiots – rarely in between. Extreme outcomes are the norm. What we do for a living is so different from all the mainstream careers out there, that after 35 years of it – all spent in Africa – little ends up being truly surreal. Surprises, shocks, failure and setbacks are what to expect and so it becomes only a question of degree…
How do you see the future of Tullow in Africa? Is there life after death?
They say “debt is death” but that is just a corny cliché. At the right level, debt is an indispensable financial tool which is perfectly suited to our E&P business. Unfortunately, some recent mis-steps by Tullow management put our debt level in the spotlight – unnecessarily centre-stage in our story – whereas our banks had been actually quite relaxed about matters. Optics and story-telling matter in the fickle marketplace and this contributed to a spiral in equity value which of course did indeed highlight the then relatively high debt level. Discretionary spending like exploration is always the first to go in tough times and yet that’s what attracted so many fans (both shareholders and African Governments) to Tullow down the years. If the new leadership is wise, it will re-establish a credible African growth narrative for Tullow – however modest for now – in order to attract again the savvy shareholders as well as the key African stake-holders before the fabulous, hard-won, Tullow brand withers further………….
With the prevailing conditions likely to linger a while longer, is there any likelihood that those many acreages in Cote D’Ivoire and other frontier acreages in Africa are likely to be worked on by the company at all?
I am on the outside now and can only speculate. While African Governments have sometimes been more than a bit “late-to-the-party” when it comes to adjusting the work programme or fiscal arrangements, necessary when the oil price dies and capital dries up, Ivory Coast has proven to be very responsive and pragmatic with us in the recent past. The current industry shock is so profound and so deep that I predict companies will find Governments across Africa in “listening mode” now than before. That’s all it will take to re-ignite the flame and get the ball rolling whereby exploration permits are extended, stay alive and stay in the right hands (like Tullow’s) until the inevitable turn-around comes.
For the past three years, the International Independent, whose exploration exploits since the late 90s led to massive discoveries of gas in Mozambique and Senegal, and oil in Mauritania, Ghana and Senegal, has been on the retreat. Anadarko is gone. Noble Energy is about to be wrapped in Chevron’s voluminous folds, Tullow has left Uganda. Do you still see a role for International Independents finding new hydrocarbons and developing them?
No doubt about it. As long as oil and gas dominate the energy mix and Africa’s energy needs accelerate like no other Continent’s, investment in exploration will have a role, albeit modest for the moment. With no criticism of the MAJORS intended, the industry niche of frontier exploration has not, with a few exceptions, been theirs in Africa for the last few decades. The risk profile of true wildcatting across Africa – often onshore – doesn’t particularly suit them whereas the independents’ shareholders are prepared to face high risk in return for access to possible bonanza outcomes. A new crop of independents will emerge to fill these needs when the time is right. They may even start with developing already discovered resources which abound in Africa, moving out into exploration again as the oxygen returns into the room.
Is this ongoing retreat only a blip?
In my opinion, it’s a wee bit more than a blip – maybe more like an abrupt and violent speed-bump! But the fundamentals are still there for the E&P business to thrive again. Africa needs development and nations develop faster with cheap energy. Resources abound on the Mother Continent and the technology and skills are there to exploit them safely and profitably. Each side – Govts and oil explorers – needs the other and this “need” is the eternal driver of good business.
What is your take on the imminent end of the fossil fuel era -especially in the context of the timeline that is now so readily bandied around?
”Bandied around” is a perfect phrase for what’s going on here. Nobody ever seems to police these wild claims and you get a hearing these days once you have a wifi connection. But words matter and the IOC’s speak in a much more measured tone. Nothing will happen overnight and indeed the energy transition is quietly underway. And so it should be. Fossil fuels are already being replaced in the mix by cleaner energy sources but (pre-Covid) the total energy demand was increasing worldwide. So, common sense and sound economics will prevail because, as ever, the private sector will have to do all the heavy-lifting here. The transition will happen faster in some regions than others but oil and particularly gas will have a major albeit decreasing role to play for decades to come.
You keep saying Africa needs development and nations develop faster with cheap energy. That’s quite contrary to the growing narrative that solar PV prices keep going down and power generated from them is ultimately cheaper?
Solar power technology improves daily and seems to have a huge role to play in Africa’s future energy needs. However, the connected electric grid leaves a lot to be desired in Africa and so, a bit like the connected landline phone system of old, sunny Africa could maybe skip a technology chapter here with solar power being generated much closer to where it is consumed. That would indeed be great. But again, it will be in the context of an overall energy mix. Oil products are relatively safe, flexible, cheap, widely-distributed and dense bundles of energy. Transport is the principal user of fossil fuels worldwide and Africa is on-the-move! Just like high-Capex / low-Opex hydro-power, large-scale solar can produce impressive generating costs on a given day and that will be a very welcome addition to the minestrone of Africa’s future energy needs.
What, in your view, is the future of the oilfield service companies…Halliburton/Schlumberger/Baker Hughes? What, in your view, is the short- and long-term future of the drilling companies?
Like the IOCs, the service companies including drillers are having a grim time at the moment. But the industry is uniquely experienced in dealing with appalling risks every day which Main St. businesses can’t even comprehend. How can you set out to drill a well which will cost you M$50+ and which has an 85% chance of failing? While that risk is the IOC’s risk, we pay the service companies bills and therefore their salaries. So it is also their risk really in a way. But the service companies are habitual innovators, forever adjusting to the twists and turns and challenges of the business. This will stand to them and they will be fine. There will be mergers, they may have to learn new skills but change and challenges have been their constant companions in our crazy industry and thus ensured their survival to date…
Which of the majors will be left standing?
If Africa………….it will be TOTAL.
Can we anticipate a revival of the industry any time soon?
Yes….but one man’s soon is another man’s eternity. This COVID-19 issue needs urgent solving and then there needs to be less hysterical shouting and more listening / thoughtful discussion around the climate change debate. The huge technical, creative and financial firepower of the oil industry can then be harnessed to make a sensible and properly-paced transition towards a cleaner future energy mix. This should be done without forfeiting the right of the developing world to catch-up with our living standards here in the West which benefited from cheap energy.
Will there be a merger of activities with renewables or are these two separate worlds?
There is space and need for both entities in the energy mix for the foreseeable future. That said, the MAJORs – who have a vulnerable presence at street level and MUST therefore think big picture – will be more able and more likely to try to cover both sectors and hedge their bets through acquisition of renewable energy targets. But under the entire energy supply umbrella, there will always be a need for niche players with their expertise – be they frontier oil and gas explorers or renewable energy technology innovators. You need these pioneers and risk-takers in ours and every other industry as well as the heavy-lifters to see the job through. It’s not an either/or.
There is not a lot in the media about how you showed up. How did it all start? An engineering education in the UK? Then what?
Do you remember the cartoon guy, Mister Magoo? Well I’m his Irish cousin and I’ve been safely walking under ladders all my life! I scraped through Engineering in UCD, Ireland’s best Engineering school, then worked with Schlumberger for a few years, then scraped through Imperial College London, the UK’s best Engineering school, then bumped into dodgy-Accountant (his words) Aidan Heavy in Dublin on the very week his start-up Tullow Oil signed an onshore exploration permit just outside Dakar, Senegal. It was like the blind hiring the blind although to be honest, Aidan is a superb entrepreneur. Ignorance of the scale of our undertakings was our best friend for the first 15 years but the work ethic was amazing. Surrounded by hungry, talented people – back then, mostly fellow Irish – survival was the objective and it remains the miracle of Tullow to this day. Success inevitably follows in our game if you can just remain focussed and simply stay in the game! Our turn eventually came and we surfed those waves, one after another – SNS gas fields, Energy Africa acquisition, huge oil discoveries in Uganda, then Ghana and finally Kenya. Aidan’s laser focus on Africa was our big differentiator. I have been blessed to be at the heart of this story from my twenties to my sixties and for much of that time I was Tullow’s Monsieur Afrique. What a ride………
The same month I retired from Tullow (April 2020) was the month Europe and Africa went into COVID-19 lockdown and the worldwide E&P sector hit the rocks. Mr Magoo again just walked under that ladder! But I am flattered to report that my phone has rung a few times with requests for advice from people with African E&P projects needing to navigate through the maze. But the maze is new every time and the same routes that Tullow took aren’t available. But that’s ok. There are other routes and there are similarities that I am recognising in their stories! I can probably help much more than I even realise but time will tell. A new start-up to go back and “discover” all that oil we left behind, well that’s possible too maybe some day.