In questionable financial times, profits are still possible in Africa

African lion

African lion

29 May 2015 – As oil prices continue to fluctuate and leave industry players in limbo, many are looking for new investments that will still allow for profitable returns in an uncertain market. While many shale and some deep water plays have been put on hold until oil prices begin to rebound – a process some speculate will take one to two years – a new area on the globe is yielding promise.

A handful of shallow oil and gas fields in Africa could not only be profitable to international operators, but oil fields in particular could prove lucrative for many indigenous African companies looking to grow and provide wealth for their own countries.

“Now is the time to plan for investments in sub-Saharan Africa,” said Sunny Oputa, CEO of Energy & Corporate Africa, a Houston-based agency that provides consulting and training for energy companies investing in Africa, to Rigzone.

Energy & Corporate Africa was the organizer of the Eighth Annual Sub-Saharan Africa Oil & Gas Conference April 29 to 30 in Houston at which a host of speakers outlined avenues for investing in the continent. The conference gathered national and international oil companies, financial institutions, investors and stakeholders for knowledge sharing and business optimization.

“We need to help expose the African market and give investors the right to have good business dealings there,” Oputa said. “The conference is a good platform for investors to understand what foreign investment in Africa entails, and we work with countries there to help explain what foreign investors expect.”

A New Plan Of Attack
Recent layoffs and mergers have made for a “bumpy ride” in the industry, as operators have worked to stay afloat in the market’s choppy waters, said Andrew Hayman, director of E&P Africa for Drillinginfo, which provides comprehensive oil and gas data and predictive and prescriptive analytics.

However, Hayman said exploration costs are expected to decrease in the next couple of years, if not sooner. In the meantime, Eni SpA’s January kickoff for production of the Nene Marine Field off the small stretch of the Congo coast could serve as inspiration to operators in this interim period.

“This is a pre-salt play in shallow water. It’s cheap and easy to develop,” Hayman said.

Angola also has shallow oil fields ripe for development.

With many porous and permeable reservoirs on the continent, “there is a lot of money to be made on the shores, the shorelines and in deep water,” said Emma Woodward, a senior analyst for Drillinginfo.

While some operators prefer to keep their eyes on larger fields, smaller fields in Africa could prove lucrative, especially for indigenous companies, which lack the capital and technology for deep sea drilling.

“There is a huge inventory of already-developed small fields, but many of these small fields have been wrongly developed,” explained Keith Millheim, CEO of Atlantis Offshore Limited. “They’ve opened the valves and turned them loose. But production has not been well managed in the small fields. You can make these fields work.”

As a result, Millheim said this has created a “huge” market for indigenous oil and gas companies.

“Fifty or 60 dollars a barrel can still be profitable. The prize is pretty good.”

Investing in gas in Africa also could be an opportunity. Although the United States is a significant exporter of gas to the continent – a fact that can be credited to the shale gas boom – there is a need for African countries to produce their own gas and bring more power to their people.

With the recently completed gas pipeline that runs from the towns of Atuabo to Aboadze in Ghana – roughly 70 miles – gas discovered by Tullow Oil Ghana in the Jubilee Field now feeds into a gas fired power plant to generate electricity. It is reported that the introduction of gas to power will save the country more than $500 million a year – money that otherwise would be used to purchase crude oil and source natural gas from Nigeria.

More countries are looking to bring power to their citizens and are looking to the United States for help, said Carl Fleming, an associate at Akin Gump Strauss Hauer & Field.

By partnering with private investors to bring 20,000 megawatts of power to Africa, the United States is currently working with Ghana in addition to Liberia, Nigeria, Kenya, Tanzania and Ethiopia in a program called Power Africa.

The source of the power must come from responsibly developed new resources, Fleming explained.

“The U.S. government recognizes that Africa has the potential to achieve universal electricity access by 2030 – that’s the goal,” he said.

Gas fields discovered near Namibia more than 40 years ago are simply awaiting a pipeline to take the resource to shore, said Michael Brownfield, a geologist emeritus with the U.S. Geological Survey and who oversaw the agency’s 2012 Sub-Saharan Africa assessment, to Rigzone.

“Both Namibia and South Africa can use gas for power needs.”

While some operators might be skeptical investing in resource plays in African countries that have reputations for corruption and unfair dealings, Fleming said business relations are improving and noted several ways to make partnerships work. He suggested working with countries that have:

Rational policies in place with long-term benefits
Legal frameworks that are responsive
Credible regulatory bodies
Functional judicial systems that employ the due process of law
“Other governments’ goals don’t always align with your goals. A lack of clear, national policy with corresponding market incentives can be a challenge,” he said. “There is often a disconnect between the project developers and the financial community on how to make these deals bankable.”

Often times, helping a country with local content issues can be the key to a successful play, Fleming explained.

“How much human capacity is on the ground?” he asked.

Forming local partnerships and/or joint ventures, and bringing innovative technology to local markets can help make or break a deal.

“Some companies are afraid to invest in gas, but Senegal needs power,” said Joseph Medou, promotions director for Petrosen, the national oil company of Senegal.

Medou explained that few grids connect West African countries. As countries become connected via infrastructure, gas discoveries will be essential to providing power to many people, he said.

Noting the recent discoveries in the Sangomar offshore block in Senegal, Woodward said that many farm-ins are currently taking place. For other African nations wanting to lure international investors, her advice is straightforward: “Streamline the decision-making process and make sure that contracts are clear and transparent.”

Oputa said many countries, namely Nigeria, seeking to become competitive are coming around. At the top of his list of safe places to invest are Ghana, Equatorial Guinea and Senegal.

As oil prices start to rebound, Oputa said Africa will be a prime target for investment: “There is a bright light at the end of the tunnel.”

*Heather Saucier – Rigzone Contributor

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