A recent survey conducted by PricewaterhouseCoopers (PwC) ‘African oil & gas review, 2015’, analyses the effects in the oil & gas industry since the decline of the oil price in late 2014, which has had a significant effect on major and emerging African markets.
According to Chris Bredenhann, PwC Africa Oil & Gas Advisory Leader, the survey, which analyses the last 12-months, has seen a shift in government strategy:
“While the oil price has caused activity to drop, it has also served as a wake-up call to many African governments, which are working hard to pass favourable oil & gas legislation in order to attract investment into the sector.”
Southern African countries such as Kenya, South Africa and Tanzania have been working on current legislation to make it more investor-friendly.
Bredenhann added: “While response to such a drastic decline is necessary, we have seen the most successful organisations are taking time to re-set, re-strategise and plan for the upturn in prices, which will inevitably come.
“Africa should be no exception as many of the frontier exploration plays lie on the continent.”
According to PwC, at the end of 2014, Africa had proven natural gas reserves estimated just under 500 trillion cubic feet (Tcf) with 90% of the continent’s annual natural gas production still coming from Nigeria, Libya, Algeria and Egypt.
Oil & Gas Industry Challenges
The three main challenges in the oil & gas industry, which continue to emerge are:
- Uncertain regulatory framework
- Poor physical infrastructure
According to PwC, uncertain regulatory frameworks remain a concern across the industry, with more than 80% of Tanzanian respondents putting regulatory uncertainty as the number one issue— Nigeria, Kenya and Angola are reported to have the same concerns.
South Africa’s uncertain regulatory framework for the oil & gas industry is mainly due to unclear and overlapping mandates between the Government and state-owned companies.
In addition, the implementation of the Minerals and Petroleum Resources Development Act (MPRDA) has raised a number of compliance challenges in the industry, primarily resulting from new requirements directly introduced by the Act, PwC added in a statement.
Organisations identified the price of oil and natural gas as the most significant factor that would affect their companies’ businesses over the next three years.
Bredenhann said: “This is not surprising given the current uncertainty around the market.
“Fortunately industry players are looking beyond current prices when planning for the longer term.”
Oil & Gas industry Investment
The results showed that only 41% of E&P firms would be investing in the development of drilling or exploration programmes, 29% lower than in 2014 when they reported this as an imperative strategic focus.
The industry, according to PwC’s survey results, expect the Brent crude price spread to increase over the three-year period, although, if it remains within a $30 band, it will be reasonably consistent.
The results indicated that 93% of respondents expect a price range of $50 to $80 in 2015 while 90% of the respondents expect a price range of $60 to $90 in 2016 and 87% of the respondents expect a price range of $60 to $90 in 2017.
PwC said in a statement that the low oil price has been highlighted as one of the most important factors affecting the industry, with more than 50% of E&P and non E&P companies expecting price hikes to have a significant impact on their businesses.
Bredenhann explained: “The oil price decline, skills shortages and uncertain regulatory frameworks have put the oil & gas industry on the African continent in dire straits.
“The combined effect of these challenges places an increased burden on exploration activity and economies heavily reliant on oil & gas revenue, which may have far-reaching socio-economic impacts as a result.”
He concluded: “With activity reduced, this is an ideal time for companies to address the challenges related to doing business in Africa.
Strategic planning is required for continued, profitable presence on the continent. The players that emerge when the oil price rebounds are going to be agile engines that are ready to take on the market.”