Without the appropriate investment incentives, foreign firms will not dash to develop Africa’s oil resources, reports Lynda Loxton
Top oil industry representatives at this week’s Africa Upstream conference in Cape Town warned that Africa should not expect an “oil rush” unless African countries did a lot more to provide the kind of investment incentives and stability the oil majors needed to move into the as yet untapped vast reservoirs of gas and oil on the continent.
Big multinationals are always looking for new resources to tap into, especially when sporadic Middle Eastern political tensions send shivers through the oil markets.
But even Nigeria, Africa’s oil giant, has seen investment and therefore reserves decline in recent years because of unfriendly attitudes towards foreign investors, never mind political turmoil.
Energy Africa managing director John Bentley told the conference that African production now accounted for some seven million barrels a day, or 10% of world production, despite the fact that it had about 6% of total world reserves, making it the third most important region after the Middle East and Latin America.
Of those oil reserves, Libya and Nigeria took up about two- thirds, and while countries such as Gabon and Egypt were increasing output, “others are producing at levels well below the capacity of their reserve base”.
Bentley said: “It is not surprising that countries that have been the most successful in exploiting their reserves tend to be those that are the most open to investment.”
There had been a marked increase in exploration activity, mainly because of a “string of recent drilling successes, particularly in deeper waters” off West Africa. These included the Nkossa field off Congo, the Moho discovery and the Zafiro field off Equatorial Guinea.
These successes had been made possible by several new technological developments, which reduced risks.
But there were other risks as well, said Mobile North Sea Limited president and chairman John Cousins.
Doing a regional “SWOT” analysis, Cousins said that although exploration costs in Africa were generally competitive, many countries lacked adequate infrastructure and the kind of domestic markets that would encourage the development of gas fields. Good examples here were Mozambique’s Pande gas field and Namibia’s Kudu field, which were awaiting “anchor” industrial projects in South Africa before they could be exploited.
Political instability was also a problem in some areas.
Several speakers said, however, that without “fiscal certainty”, attractive incentives, and stable policies, investment was unlikely, especially by the newer independent oil exploration companies coming on to the oil market.
Particularly vulnerable were countries with smaller energy deposits which would not attract the oil majors no matter what the local risks and problems were.
In contrast, Cousins said that a good example was Cameroon.
“Here, through enlightened and creative thinking, new marginal field legislation has been implemented. This has successfully attracted investment for a new oil field in the Kribi Basin, the first for many years,” he said.