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2014 - CEED Report: New oil frontiers: Investors’ guide to the oil sector in Sub-Saharan Africa

2014 - CEED Report: New oil frontiers: Investors’ guide to the oil sector in Sub-Saharan Africa

Executive summary

New oil frontiers: Investors’ guide to the oil sector in Sub-Saharan Africa

Africa is on the move, and so is the flow of oil unearthed on the continent. In recent years, the region has become a hot spot on the global map of oil discoveries, with dozens of investors rushing to tap into the crude wealth which is now estimated at 130 billion barrels. This is still not very much compared to the Middle East, but the recent frenzy clearly shows that Africa has certain virtues that investors worldwide cannot resist. The region is called an oil frontier for a reason, and, like a classic frontier, it remains relatively unexplored and unexploited, with opportunities abounding. The oil industry believes that at least another 100 billion barrels are only waiting to be discovered; to some experts this is only a conservative estimate. In recent years, license-awarding rounds have been announced more frequently, with more acreage to take than anywhere in the world.

Oil has been flowing in Africa for decades, but recent events have shifted the petroleum sector’s development trajectory in many ways. Firstly, whereas West African oil used to be the region’s hallmark, now the tables have turned, and with recent oil discoveries in Uganda and Kenya, an oil bonanza is increasingly felt in the East. Having said that, as this report demonstrates, nearly half of Sub-Saharan Africa is now either producing oil or about to start production soon. Secondly, in historical terms it was oil supermajors, such as Shell or ExxonMobil, which set the rules of the game and regarded the region as their own exclusive playground. Today the majors are stepping back – both from upstream and downstream – and numerous “independents” such as Tullow Oil and Anadarko have joined the race, with plenty of projects to go around. Also, indigenous host National Oil Companies (NOC) are lining up to secure a larger share of the pie, and some, such as Sonangol, have become true heavy-weights. The industry itself has become increasingly more diverse in terms of nationality. Chinese, Indian, Malaysian, Brazilian and Russian companies are making inroads into the region in ways which make some Western companies’ efforts look rather pale. Things have changed dramatically on a technological front, as well. Whereas onshore and shallow water production were dominant modes of extraction in the past, now the industry has been constantly pushing frontiers further, with offshore deep and ultra-deep water, tarsands and heavy oil.

This report seeks to show these and other symptomatic trends which have become part and parcel of the African oil industry reality today. To this end, the report is structured as follows. The first part presents a comprehensive overview of the recent oil boom in Africa, pinpointing the most important highlights and structural changes that the continent has been going through in recent years. Most importantly, it proposes three categories of oil-producing countries: old-school countries, where the production has been going on for decades, rookies, which are relatively new to the oil industry, but have some, yet limited experience, and greenhorns, where oil development is in nascent – planned or exploratory – phases and/or has so far failed to build the critical mass needed to become a full-scale oil-producer. For the sake of better focus and clarity, the analysis includes Sub-Saharan Africa, leaving out the countries of North Africa and South Africa.

Other chapters discuss topics which, in the authors’ opinion, are critical to understanding the current oil frenzy in Africa. The second chapter deals with the problem of poor numbers in the oil industry – the statistical dimension of the boom. The way oil is sometimes measured and discoveries presented in media reports may be confusing and often lead to errors, which hopefully this report does not repeat. The third chapter is devoted to the hard infrastructure – refineries and pipelines – further development of which is urgently needed in order to meet the growing demand for oil and increasing ambitions of many new oil-producers to become a part of the global petroleum chain. In the fourth chapter, new trends and highlights of the African oil industry are discussed. These include the expansion of BRICS and Asian companies on the oil market, the entrance of independents onto the scene, majors’ declining presence, and, lastly, a section on how persistently high prices, combined with state of the art technology, has transformed the oil industry and the profile of African oil production. The fifth chapter presents the vigorous development of the gas industry in Africa, which firmly places the continent on the map of global gas production.

Last but not least, this report discusses a number of negative aspects which have long been associated with discoveries and extraction of crude oil. Awareness of the adverse consequences of oil activity in Africa is absolutely critical to better understanding challenges the oil companies, and the entire sector, are facing today. Ethical issues should not be ignored, since the industry’s fortunes eventually depend on good relations with the local people and local governments.

Recognizing the huge diversity of Sub-Saharan Africa, and at times the very different features of oil sectors in particular countries, this report seeks to paint a more detailed picture of the oil activity on the continent by presenting 25 individual country profiles. These case studies are organized according to the three above-mentioned categories – old-school countries, rookies and greenhorns – and structured around several features such as basic facts and figures, oil location, major players, political and business risk, regulatory framework, tax regime, national operators and licensing.