This year may not match that same statistic but discoveries by the majors and independents should still impress. Statoil discovered an additional 2 to 3 trillion cubic feet (tcf) of natural gas in the Piri-1 well which brings the total in-place volumes up to 20 tcf. Eni discovered 500 million barrel of oil equivalent (BOE) of gas in Gabon which should breathe life into the country’s oil and gas sector, suffering under a credibility problem. Furthermore Eni’s recent shallow water find in the Congo, with an estimated 1 billion BOE in place, of which 80 percent is oil, is not something to ignore.
Production: Looking back on 2013
Africa holds approximately 7 percent and 8 percent of the world’s respective gas and oil reserves. How those reserves turn into actual production is another discussion. Some countries face serious infrastructure concerns going forward.
A further 15.3 tcf of gas was discovered in Mozambique in 2013. The LNG plant is scheduled to come online in 2020 but most analyses indicate a possible delay in construction. It is not too surprising as LNG construction and production can be a challenge for the most-developed country, let alone a country where GDP is approximately $16 billion and the sponsor Anadarko recently estimated the construction cost for the LNG plant to be around $25 billion.
In 2013, 11 tcf of gas reserves was reclassified from technical to commercial. The LNG plant is scheduled to come online in 2021. But it is a similar story as Mozambique where the estimated cost recently released for the LNG export plan t is expected to approach the $30 billion mark for a country with a GDP around $35 billion.
Gas production dropped 7 percent in 2013 due to issues with the Trans Niger Pipeline (TNP) and the Nigeria LNG (NLNG) complex. The latest estimates for 2014 suggest possible improvement but definitely not a true recovery seen in the growth projections for the country.
Liquids in Central Africa
Liquid production slipped 8 percent in Equatorial Guinea but results-to-date suggest a recovery for the country and its continued claim as third largest liquids producer and second largest gas producer. Liquid production in Gabon and Cameroon remained flat between 2012 and 2013. And early numbers from industry and country experts suggest little improvement.
Elections: Ensuring continuity (and peace)
Some countries are also pushing through political times that will greatly impact their oil and gas sectors. Below are only a subset of the countries finding their way in the recent year.
President Yoweri Museveni dismissed Prime Minister Amama Mbabazi in September. Prime Minister Mbabazi played a key role in growing the oil sector. Investors surely raised an eyebrow at the announcement of the dismissal but the reality of Uganda’s election in 2016 suggests President Museveni will do everything to ensure continuity in the sector. Tendering for the 60,000 barrels per day refinery at Hoima continued as normal after the announcement of the political shakeup.
Former defense minister Filip Nyusi and leader of the incumbent FRELIMO party won the October 15 elections with 57 percent of the vote at the polls. It was a strong showing in an election where many spectators (including yours truly) expected a closer election. Nyusi will continued to be labeled as an implant of the former Mozambique President Armando Guebuza. Yet this label may only relieve investor concern as there is clear indication that the oil and gas sector in Mozambique will continue as planned under President Guebuza.
Most investors read President Kiir’s agreement to power sharing and federalism as a clothed stalling tactic. Both the government and rebel militias will likely re-arm as rainy season concludes, especially with the Sudanese (openly) supporting the rebels with weapons and intelligence. The rebels are likely to continue with their strategy of attacking producing oil fields. The country’s independence plans have thrived and struggled over the potential of the oil fields as oil remains central to the independence and-post independence storylines. The arrival of Chinese peacekeepers will not automatically change that outlook.
It is hard to predict the direction of Madagascar. One thing is clear…President Henry Rajaonarimampianina will have to do something to boost a struggling oil and gas exploration sector. The country coffers are running bare and investors are pushing for kind terms and open arms from the government in order to enter the country.
Continued fighting within the government and among militias has hurt the country. Two competing governments – each with its oil minister – struggles to find a balance internally yet the country uncomfortably holds the rotating presidency of OPEC. All the troubling issues however did not stop a fall surprise from Libya where production rose above 800,000 barrels per day from a low of 215,000 barrels per day in April earlier this year. The bump in production and OPEC’s, particularly Saudi Arabia’s, continued insistence on same production levels created an oversupply and helped to drive down oil prices.
Fiscal terms: Getting tougher on the bottom line
The exploration success in the region has encouraged many countries to strengthen the terms on royalties and taxes with the hopes of taking a larger stake of the oil and gas profit upside. On the surface, mature, oil-producing countries generally achieve a greater government take of the commercial oil assets – with Nigeria, Angola, Gabon, Equatorial Guinea, Cameroon averaging about 85% with royalty – compared to emerging oil-producing countries – with Ghana, Uganda, Kenya, Tanzania, Mozambique having upfront royalties less than 10%. What is the appropriate number is a growing discussion that will continue to play out differently in each country. The boom in East Africa exploration arguably is, in part, driven by lower royalties. But the boom obviously is not equally benefiting each country.
It is important to remember that fiscal terms are not standalone factors. The cost of royalties are intrinsically tied to the economics of exploration in the minds of investors. The cost of exploration as a percentage of average discovery size has skyrocketed in Angola while remaining more constant or even lowering in some cases for Nigeria. On that same metric, Ghana is expensive and Mozambique is quite cheap. Altogether, the growing discussion around fiscal terms may be overstated as it is the relative exploration cost and success rates that will drive the investment decisions of majors and independents in the near term.
Where to next
Africa is clearly positioned to ride an oil and gas explosion over the next two decades. Prices are a concern as government budgets bet on high oil prices. Algeria, Libya and Nigeria are estimated to have break-even prices north of $110 per barrel when oil prices remain under $80 per barrel at the moment. Angola is betting on a $94 per barrel price. These numbers spell trouble in the near term as governments will have to borrow more if prices do not increase.
Officials must confront political instability and subdue it before some investors run in the short term. Libya, Sudan and Nigeria remain embroiled in civil unrest and disruption throughout the country. Officials also must better manage construction budgets and infrastructure projects. Numbers coming out of ministries and corporate boardrooms suggest increasing costs for construction, especially LNG, which may be too exorbitant for local governments.
It would be easy to say a rise in prices could ease all concerns. But, as one official described it, higher prices implies a greater pie to fight over, not necessarily an easier pie to share.
This article is re-published with permission from our content partner, Ventures Africa.
Ventures Africa is a pan-African online and print business magazine that chronicles the success stories of African entrepreneurs and business leaders.