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How Global Energy Dynamics Are Shaping the Outlook for African Exploration

By Boris Ivanov

Africa is a continent rich in energy resources, but poor in supply. For most Africans energy is either unaffordable, unreliable or inaccessible. Despite having 15% of the world’s population, the continent still only consumes 3% of the world’s energy, and population growth is likely to outpace even large investment into that economic area. Given that the primary purpose of energy is to promote a better quality of life and improve economic opportunities, the energy sector has so far failed to meet the needs and aspirations of African citizens.

Global energy markets are however undergoing a period of extraordinary change. While the changed supply picture is surely defined by the recent rise of American shale production, the gradual recovery of the oil price and the rise of exploration for the first time since the 2008 recession could both shape a positive outlook for Africa’s oil ambitions and its future energy landscape.

The recent dynamics of the global energy market is one of several years of oversupply and increasing demand amidst a weakening global economy. Against the backdrop of these long-term factors, there is also the reduction in investment in major new projects during the economic downturn to consider and the recent events developing in Saudi Arabia, which are still yet to be felt. It’s what many experts and consultants now think may lead the market into a long-awaited supply crunch. This will require oil companies to either increase production or rely on dwindling reserves. As the FT notes,  some companies would need to raise investment into new production by as much as 20% to avoid a supply crunch. A challenge that is further exasperated by the necessary transition many companies are keen to make towards a cleaner energy portfolio.

The historical volatility of the market should therefore be considered as growth continues to move away from developed countries. There is often an overconfidence in the supply side of global energy, because the general public and even writers who cover the industry underestimate how much time is needed to address an under-supplied market. People outside the industry itself frequently overlook the reality that upstream development can take years even in areas with vast potential.

In the meantime, a host of new finds on the continent continues to stimulate debate about Africa’s emergence as a big oil and gas player. The scale of the discoveries in Kenya and Uganda had left Total, Tullow, and CNOOC considering investment in a multibillion-dollar pipeline on the east coast, although talks have recently been suspended over a tax dispute. Kenya did sell its first ever shipment of oil last month for $12 million, but full oil production isn’t expected to start until 2022, with a new oil pipeline planned to be built next year. After work stalled in Uganda, Wood Mackenzie’s Jon Lawrence told the FT that he believed there is “an over-optimism in the market both about the ease and time needed to develop east Africa’s big discoveries.”

Investing in local infrastructure and creating an appealing fiscal and regulatory regime that align with the long-term interests of private companies are not overnight ventures. This ability to execute across the entire value chain requires good governance and will remain the biggest challenge to the development of Africa’s energy market. Yet hosts of new finds across Ghana, Senegal, and South Africa to name a few, as well as the major energy producers Angola and Nigeria continue to eagerly present the case. Huge Chinese investment has now found its way into Niger and Chad.

The case is further strengthened by the abundant renewable energy that African countries have the potential to harness. An International Energy report has even suggested that by 2040 renewables could provide more than 40% of Africa’s power. Foreign investment into the continent and subsequent economic growth could provide a model that allows the region to remain a committed exporter to global markets without neglecting the energy requirements of the region itself.

As well as this, the new emission standards to be announced by International Maritime Organization in 2020 are likely to spark a demand for IMO-compliant products, curb the use of ships and disproportionately affect Middle Eastern crude oil which is high in sulphur. Comparatively, the high quality of Africa’s resources and its strategic location between all the major energy import markets of Europe, America, and Asia make it prime for exploration and production.

This has already attracted the supermajors to the African shores. BP has begun exploration off the coast of Cote d’Ivoire where Tullow has also been granted a licence, while ExxonMobil has entered Ghana, Namibia and set up an offshore site in Mauritania. After 9 years of presence in Africa, we have already visited 48 of the 54 countries. In our personal experience from operating across the continent we’ve found reliable and strong partners who have the knowledge, strategic vision, and appetite for foreign investment that can develop growth. If a supply crunch does emerge and keeps prices high, the rationale to invest in exploration and production will continue to shape the outlook for Africa’s energy market.

Ivanov is Founder and Managing Director of GPB Global Resources B.V.


Nigeria Cuts Output To Obey Quota Instructions

Nigeria is currently taking action, under OPEC guidelines to curtail its monthly national production.

It is happening for the first time in a long while.

The country’s regulatory authorities have instructed some companies to dial down production from their largest producing fields.

One clear case is the TOTAL operated Egina, which averaged 203,000BOPD in August 2019. It would be expected to produce 180,000BOPD in October 2019 and 159,000BOPD has generally been exempted from OPEC quota.

There are likely to be implications for Nigerian budget expectations, which is deficit planning.

 

 


Uganda’s Ruling Party Wins Election in Oil Rich Town

By Toyin Akinosho, Publisher

Uganda’s ruling party, The National Resistance Movement (NRM), emerged victorious in the by-elections in Hoima district for a seat specifically designated for a female member of parliament.

NRM’s Harriet Businge beat Forum for Democratic Change (FDC)’s Asinansi Nyakato by over 4,000 votes.

In what is considered by the country’s media as a close race, Businge received 33,301 votes against Nyakato’s 28,789 votes.

Douglas Matsiko, the Hoima Electoral District returning officer, declared Businge the newly-elected district Woman representative to Parliament.

Uganda’s Hoima district came to prominence on the global hydrocarbon map between 2006 and 2009, when a considerable amount of crude oil deposits, estimated now at between 2.5Billion to 3.5 Billion barrels (of stock tank oil in place STOIP), were discovered in Lake Albert and on the shores of the lake in Hoima District and the neighbouring Buliisa District.

An oil refinery, the 60,000BSPD capacity Uganda Oil Refinery, is planned in Kabaale Village, Buseruka Sub-county, Hoima District, approximately 35 kilometres west of Hoima town. The East Africa Crude Oil Pipeline (EACOP), is also planned to evacuate crude oil from Hoimato Tanga, the Tanzanian port town on the coast of the Indian Ocean, with the result that Hoimawill become a hub of economic activity.

In January 2018, SBC Uganda Limited, a joint venture company between the UK based Colas Limited and SBI International Holdings of Uganda,started construction of Hoima International Airport, at Kabaale Village, Buseruka sub-county, Hoima District,approximately 35 kilometres , by road, to the west-northwest of the city of Hoima. The first phase of construction, including the runway and cargo-handling facilities, is expected to be ready in 2020.

The Hoima seat fell vacant after MP Tophace Kaahwa Byagira opted to represent the newly-created Kikuube district.

Hoima has two counties, one municipality, 17 sub-counties and 69 parishes. The election was conducted at 266 polling stations.

 

 


TOTAL Takes Over Moza LNG

The French supermajor will lead the largest greenfield LNG development project in Africa

TOTAL has closed the acquisition of Anadarko’s 26.5% operated interest in the Mozambique LNG project and will now be leading the development of the proposed 12.8Million Ton Per Annum (12.8MMTPA) facility.

The Mozambique LNG will valourise some 2Billion standard cubic feet of natural gas per day (2Bscf/d), making it the continent’s largest gas project currently in development.

The French major closed the takeover deal, which includes acquisition of Anadarko’s assets in Algeria, Ghana and South Africa, for a purchase price of $3.9Billion.

TOTAL says it has now received all requisite approvals by the relevant authorities and partners, for the transactions.

The purchase, which now makes TOTAL the largest E&P operator in Africa, commenced on  May 3, 2019, when the Paris based firm reached a binding agreement with Occidental, which was about to buy up Anadarko, to take over all of Anadarko’s interests in Africa. On August 3, 2019, TOTAL signed the subsequent Purchase and Sale Agreement.

TOTAL is taking over the Mozambique LNG project after financial sanction.

The Final Investment Decision for the project was taken in June 2019. The announcement, by Anadarko and the co-venturers in Mozambique’s Offshore Area 1, “confirmed the Area 1 Plan of Development was now effective, with notice provided to the Government of Mozambique that all conditions precedent have been fulfilled, and the project can now advance to the construction phase”, Anadarko said at the time. It would monetise over 75Trillion cubic feet of natural gas in the Golf-Atinho fields in the deep-waters of the Indian Ocean.

The project had successfully secured in aggregate 11.1 MMTPA of long-term LNG sales (representing 86% of the plant’s nameplate capacity) with key LNG buyers in Asia and in Europe. Additionally, the project is expected to have a significant domestic gas component for in-country consumption to help fuel future economic development.

As the new operator take over Africa’s largest greenfield LNG project, Patrick Pouyanné, Chairman & CEO of TOTAL, says the company “will bring the best of our human, technical, marketing and financial capacities to further strengthen its execution. He says that TOTAL “will of course work on the strong foundations established by the previous operator and its partners, in order to implement the project in the best interest of all those involved, including the government and the people of Mozambique.”

 


Chamber Opens Applications for 2020 Africa Energy Fellowship Programme

Selected fellows will be provided with critical support to local content development programmes across the continent.

The African Energy Chamber is launching its first Fellowship Programme in 2020.

The aim is to provide young energy professionals with the tools and experience to become future leaders across the industry.

Applications are open throughout October 2019, for a one-year programme that will start in January 2020.

In line with its growing international cooperation, the Chamber will be welcoming young professionals from across Africa, North and South America, Asia and the Middle East to join its office in Johannesburg for 12 months. The Fellows will be provided with an opportunity to apply analytical skills on concrete challenges and problems across the energy sector, and an opportunity to specialize in upstream oil & gas and local content development. They will be working in collaboration with the Chamber’s dedicated oil and gas sector advisors and experts located around sub-Saharan Africa, and help deliver research and consulting projects that address on-the-ground challenges faced by Africa’s oil & gas sector.

“Our range of partners from across government agencies, national and international oil companies, Oil service companies, investment banks and institutional investors offer the perfect network and ecosystem for a young professional to develop herself or himself and grow as a leader,” declared NJ Ayuk, Executive Chairman at the African Energy Chamber and CEO at the Centurion Law Group. “We are truly excited to get this fellowship programme started and see it grow over the coming years. Ultimately, our goal is to contribute to training and nurturing the next generation of energy leaders by bringing on board any young people willing to grow and contribute to the development of Africa’s energy industry”

Selected fellows will be joining the African Energy Chamber for 12 to 16 months and join a team that provides comprehensive and thought-provoking research on the African oil & gas industry and energy sector at large, along with critical support to local content development programs across the continent. A large part of the roles will focus on sharing and presenting data and informed views to the Chamber’s partners and the industry, and developing the right capacity building programs to institutional and private parties across the continent.

The 2020 Fellowship Programme will be focusing on the following key aspects of the value-chain: upstream oil & gas, midstream, downstream and local content. Interested applicants should send their resume at the soonest to mickael@energychamber.org and highlight the contribution they wish to bring to the work of the African Energy Chamber.


Between extortion and the sanctity of Petroleum contracts in Nigeria, DRC and Senegal

By NJ Ayuk, CEO of Centurion Law Group

In mid-August 2019, a commercial court in the United Kingdom gave reason to a claim by engineering company Process and Industrial Developments Ltd (P&ID), which demands over $9Billion from the Nigerian government over a failed gas deal. The decision follows a 2017 arbitration award and turns it into a legal judgement, which could allow P&ID to seize Nigeria’s international commercial assets.

P&ID’s claim is based on a 2010 contract signed with the government of Nigeria for the construction and operation of a “gas processing plant to refine natural gas (“wet gas”) into lean gas that Nigeria would receive free of charge to power its national electric grid,” the company’s website states. Under the deal, the Nigerian government should have provided the necessary infrastructure and pipelines needed to supply gas to the plant. P&ID would build the plant for free and then operate it and commercialize the output for a period of 20 years.

The company claims that over this period it would have earned $6.6Billion in profit, an incredible figure that becomes ever more fantastic as the company claims that the yearly 7% interest it is supposedly charging on this capital has now accrued to $2.4Billion, at the rate of $1.2Million a day, which closes the full amount at a perfectly round $9Billion.

The whole situation is in itself extremely puzzling.

Afterall P&ID, a company created specifically for this project, is claiming it is entitled to the full amount of what it would have gained over a period of 20 years of work, even though that period would not be over for another decade and some. Further, it is already charging interests on capital it would, if the project went forward, it would still be a decade away from generating. On top of that, it has chosen to pursue the matter in a British court, and has a separate law suit in an American court, when the contract was signed in Nigeria, under Nigerian law, and should be pursued in a Nigerian court, as the Nigerian legal team has repeatedly stated.

Nigeria is seeking an appeal to the decision, but P&ID is not wasting any time in trying to seize Nigerian assets abroad, and it might well manage to do so, at least in part.

Further, P&ID has never even broken ground on the construction of this power plant, which it claims would have benefitted so many thousands of Nigerians. The company has reportedly spent $40Million on preparatory work, although it is impossible to attest what that work has been.

Even just looking to the amount spent, work done and compensation sought, the figures seem simply absurd. $9Billion corresponds to 20% of Nigeria’s foreign exchange reserves, it would be unthinkable that a nation state would pay that much capital to a small unknown enterprise that invested not but a small fraction of that amount in the country and done none of the contracted work. Further, it is perplexing that a British court would even consider such a decision.

However, this issue represents an important cautionary tale for African governments everywhere. Very few things matter more in the struggle to attract investment and build a favourable business environment that will push the economy forward than the absolute sanctity of the contracts signed.

Investors need to know that their investments are safe and that they will be protected by the law in case the other parties falter on their obligations, as it seems to have happened with the Nigerian government. It is by no means the first time a situation like this happens. Just in March, an international court ordered the Democratic Republic of Congo to pay South African DIG Oil Ltd $617Million for failing to honour two oil contracts. This is an unacceptable and unjustifiable loss of capital for the people of the DRC. Particularly taking into account that the loss is incurred because the country’s leaders failed to comply with a contract that could have brought a considerable amount of wealth for the country for many years to come, in both royalties and taxes, as well as help develop its oil industry.

Senegal’s government under President Macky Sall was very smart to avoid this kind of litigation when it was confronted with the issue of the Timis Corporation and its ownership of acreage that included the Tortue field, which is estimated to contain more than 15Tcf of discovered gas resources. If President Macky Sall would have proceeded with terminating a valid contract for the acreage, the Timis Corporation would have engaged in arbitration and would have probably gotten a favorable judgment against Senegal. In the process, the gas fields would have sat dormant and produced no returns for Senegal and its citizens. Sometimes leaders are confronted with tough choices and it takes a profile in courage to find solutions and still respect the sanctity of contracts.

Even with criticism from civil society groups, Equatorial Guinea has honored contracts with U.S. oil companies that many oil analysts believe are unfavorable to the state. This principle has kept Equatorial Guinea’s oil industry stable and US firms continue to invest in new projects like the EGLNG backfilling project with Noble, Atlas Oranto, Glencore Marathon and the state.

African leaders and African nations cannot afford this sort of mistakes anymore. If on the one hand, contracts must be respected, protected and followed through, the people in charge of evaluating and signing those contracts must have the project’s feasibility as the dominant reasoning behind any decision. What is the purpose of signing contracts for fantastic projects where there is neither the capital nor the conditions to pull it through? Our economies live out of their reputation too. No investor wants to work in a system where contracts are not honoured and where their investments are not protected.

While P&ID’s request for $9Billion in compensations seems absurd, companies that see the contracts they sign with African governments, or any governments, disrespected, must have the right to claim compensation, just in the same way that African leaders must be responsible for the contracts they sign and must make sure that situations like this do not repeat themselves. Enough money has been wasted on lawsuits that could be used to benefit the lives of Africans. This is true for the oil and gas industry and in any other industries.

NJ Ayuk is the CEO of Centurion Law Group, Executive Chairman of the Africa Energy Chamber, author of the new book, Billions at Play: The Future of African Energy and Doing Deals.

 


Sasol’s Delay in Report Is a Pointer to Governance Risk

Africa’s largest publicly listed hydrocarbon company is pointing fingers at itself, indicating higher governance risk, in the opinion of S&P, the global ratings firm.

“A further delay in the release of South Africa-based integrated chemicals and energy group Sasol Ltd.’s year-end results indicates higher management and governance risk, and suggests potential disclosure restatements in last year’s financial statements”, S&P says in a statement.. “We rate Sasol (BBB-/Stable/A-3) two notches above South Africa (BB/Stable/B)”, S&P declares.

The release of results for fiscal 2019 (ended June 30, 2019) was initially delayed from Aug. 19, 2019 to Sept. 19, 2019. However, this has been extended to no later than Oct. 31, 2019, which is within the respective equity and bond listing authorities’ regulatory deadlines.

“The further delay follows the Board’s decision to commission additional work and to give time for further investigation into particular points raised in the original board-commissioned independent review of recent cost and schedule changes in the Lake Charles Chemicals Project (LCCP)”, S&P says in a note to investors.

The investigation began after Sasol announced further increases to the capital cost estimate in May 2019. A preliminary report was provided to the Board on Aug. 14, 2019. The additional investigation includes assessing if any potential control weakness identified in the preliminary report, as well as the root cause for the changes in the cost and schedule estimate, were present in the previous fiscal year.

The review and subsequent additional work followed Sasol’s announcements in February and May 2019 of cost overruns, with LCCP’s capital expenditure exceeding the $11.1 billion it had communicated in September 2018 by $1.5Billion-$1.8Billion. In its Aug. 16, 2019 and Sept. 6, 2019 announcements, Sasol’s Board indicated that it expects no change to the earnings guidance in the company’s trading statement of July 25, 2019, and has also confirmed its previous LCCP capital cost guidance of $12.6Billion-$12.9Billion. The LCCP ethane cracker unit achieved beneficial operation at the end of August 2019.

S&P says it expects “that the financial results for fiscal 2019 will include information on the qualitative aspects of LCCP cost estimation/projection controls, specifically reporting and oversight, further informing our view on Sasol’s management and governance risk”.

 


BW Tops Up the Volume at Dussafu

Proved and probable oil reserves in BW Energy operated Dussafu Permit has increased by 89%, compared to those reported at year-end 2018.

A mid-year update of the reserves report from Netherland, Sewell & Associates Inc. (NSAI) the independent reserves auditor on certain fields located within Dussafu Production Sharing Contract (offshore Gabon, indicates that the 2P gross reserves have increased by 31.2 MMbbls, in the eight months since the last audited report by the same company.

“This mid-year reserves report from NSAI shows a 89% growth of our net 2P reserves at Dussafu and confirms the value of our Gabonese asset. We are very encouraged by the continued upward revision of reserve estimates and will continue to progress the development potential at Dussafu”, according to John Hamilton, Chief Executive Officer of Panoro, a minority partner (with 8%) in the asset.

Companies like NSAI are commissioned to generate Competent Person’s Reports (CPR), which are independent technical reports on the oil and gas assets (or mineral assets) of a company.

NSAI has revised estimates for Tortue reserves based on production to date and provided new estimates for reserves at the Ruche and Ruche NE fields. NSAI has calculated the following estimates for the total gross economically recoverable oil reserves as at June 30, 2019, derived from the assumed production from six oil wells at the Tortue field and six oil wells at the Ruche and Ruche NE fields:

  • Proved (1P) reserves of 43.5 MMbbls
  • Proved + Probable (2P) reserves of 66.3 MMbbls
  • Proved + Probable + Possible (3P) reserves of 86.4 MMbbls

The increase in reserves is firstly due to an increase in the 2P gross remaining reserves at Tortue by 5.8Million barrels, approximately 16% higher compared to year end 2018 and secondly the addition of new 2P gross reserves at Ruche and Ruche NE amounting to 25.4Million barrels.

BW Energy holds a 81.67% working interest in the Dussafu Marin Permit, while Panoro Energy holds 8.33%  and Gabon Oil Company holds 10% working interest.


Libya’s Crude Output in a Sharp Drop

By Ahmed Gafar, Editorial Assistant
Libya’s state hydrocarbon company has reported a steep decrease in revenue by 25%, month on month.
The National Oil Corporation says it received $1.7Billion in June 2019, down from $2.28Billion in May, from sales of crude oil and derived products as well as taxes and royalties from concession contracts.

The $10.3Billion received as total revenue for the first half of the year, itself is lower than the amount made in 1H 2018 by 11.25%.
NOC says it could add up to 400,000 barrels to production through critical infrastructure upgrades, advancing outstanding deals, and attracting new investment.

“But to do this we need sufficient budget and to not operate against a backdrop of ongoing conflict”, the company explains.
“Attempts to undermine our work through disinformation, attacks on facilities, or efforts to illegally export have been near-constant, including by the parallel institution. The indivisibility of the oil sector is crucial for the preservation of national unity – there is but one NOC”, says Mustafa Sanalla, the company’s chairman.

Sanalla informs that the revenues for June 2019 were adversely affected by a two-week power outage, with NOC subsidiary Arabian Gulf Oil Company (AGOCO) in the east of the country losing 70,000 barrels per day from total production.

The chairman urges the Ministry of Planning to “fast-track budget approval for key infrastructure and the development of both discovered and undeveloped projects”, as this will “allow NOC to continue to grow national oil and gas revenues and meet the critical energy supply needs of the country.”

“Despite a promising tripling of petrochemical revenues, financing remains an issue to ensure stable and sustainable production”, Sanalla explains.


Oilfield Employment Has Shifted Offshore

You are more likely, than anyone else, to find a job in the oil industry today if your skills are offshore.

A Rystad Energy report says that offshore oilfield services now have more job offerings than any other sector.

“Employment is shifting from shale to offshore”, the report headlines.

 “This is a clear effect of the increase in offshore sanctioning. We expect offshore commitments to nearly double from 2018 to 2020, and sustain high levels of spending over the next five years,” says Matthew Fitzsimmons, vice president on Rystad Energy’s oilfield services team.

Rystad, a Norwegian firm of oil industry consultants, says that increased activity in onshore shale basins such as the Permian in the US held employment in the oilfield service industry steady from 2016 to 2017. “However, the offshore industry has now taken the lead, gradually increasing the overall headcount of the top 50 oilfield service companies from 2017 to 2018”.

The company forecasts that the demand for offshore services will reach $442Billion in 2025, a 45% increase from 2018.

Companies greatly exposed to the offshore industry struggled with the financial realities of reduced activity in 2015-2017, resulting in a cumulative workforce decrease of 31%, Rystad notes in its report.

“The tides are now turning as the offshore market gains momentum. Four out of the top five oilfield service companies with the largest workforce change from 2017 to 2018 were primarily exposed to the offshore industry.

“Among the smaller players with a strong focus on offshore segments, the Norwegian shipping company Solstad has nearly doubled its workforce from 2017 to 2018 – a significant staff ramp-up which bet on the long-term improvement of market conditions.

“Similarly, the drilling contractor Seadrill saw employment grow by 15%. The company has seen some recent contract award success with Saudi Aramco and Equinor. However, their 2018 year-end headcount is only 100 people more than after massive layoffs in 2016, and remains just over half of what is was as in 2014.

 Bring Back the Experience 

“Our informal interviews with OFS company leaders across the offshore industry all echoed a common challenge: how to bring experienced personnel back into the industry amidst current growth, and how to attract new talent. History would show that to bring back experienced professionals into an industry, higher wages will be required,” Fitzsimmons remarked.

However, not all hiring trends look sunny for oilfield service companies. Bristow cut its labour force from 2017 to 2018 in an effort to decrease operational costs and address its financial insecurity. The move proved to be insufficient, and the company filed for Chapter 11 in May 2019.

 

 

 

 

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