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State firms flex muscle in Africa oil boom

Africa’s state-owned oil firms are taking a bigger role in the rush to tap the continent’s energy resources and threatening to upstage the Western majors who have dominated exploration and drilling for decades.

Governments from Luanda to Lagos are pushing for greater control and laying down increasingly stringent rules for the international firms vying to take part in Africa’s latest commodity boom.

While oil majors still find a welcome mat, their entry is often conditional on a willingness to take a back seat to state-run enterprises and pay larger royalties on future production.

Africa’s resource nationalism is part of a strategically driven global trend, said Duncan Clarke, chairperson and chief executive of Global Pacific & Partners, an international energy consulting firm.

”It’s a phenomenon you see worldwide and now you see it in Africa,” Clarke told Reuters at the Africa Upstream 2007 oil conference in Cape Town, where hundreds of oil executives and African officials gathered this week.

He predicted that state oil firms will become stronger, faster and more international in the coming years in the drive to discover and produce more oil, as it edges toward $100 a barrel.

One-sided agreements

African governments’ determination to have more say in oil and gas exploitation reflects the continent’s growing importance as an energy source around the world.

China, India and Russia have joined the United States, Britain, France and other Western powers in a scramble to stake a claim to Africa’s untapped oil and gas.

But state firms are now more sophisticated and better funded than in the past, with Algeria’s Sonatrach and South Africa’s PetroSA being the prime examples.

They are keen to avoid a repeat of the one-sided agreements that African governments signed with foreign companies and sovereign powers shortly after the end of the colonial era in the 1960s and 1970s.

Western oil and mining companies at the time were able to use their financial and technological superiority to wrest weighty concessions.

Russia also exploited its political and economic muscle to force Cold War client states, such as Angola and Mozambique, to divert trade to Moscow and accept economic assistance that burdened African treasuries with large debts.

”The game is changing in Africa and [Western] companies will have to adapt,” a US oil executive at the Cape Town conference said on condition of anonymity.

Western majors on the backfoot

Angola’s Sonangol highlighted the changing mindset when it hinted recently that only domestic companies would be allowed to apply for a new round of licenses to explore the prized Kwanza Basin.

Authorities there and in Nigeria — sub-Saharan Africa’s two largest oil producers — have expressed frustration over the dominance of large multinationals.

Royal Dutch Shell and ExxonMobil are among those seen by critics to enjoy too large a role in Africa’s oil patch, and governments are demanding that big as well as small firms partner with state enterprises to even the playing field.

”This is the new reality we live in,” John Doran, chief executive of Australia’s Roc Oil, said at the conference. Roc Oil is drilling in Angola in partnership with Sonangol.

Africa’s state oil firms, however, remain at a disadvantage in terms of the technology and expertise they offer, limiting the leverage they can apply.

A perception that Africa’s public oil sector is more prone to corruption also hampers the drive toward greater national control of exploration and drilling activities. – Reuters

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Paul Simao
Guest Author

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