Nigeria, others need oil industry reforms – PwC

*An oil industry worker inspecting a flow line.

*An oil industry worker inspecting a flow line.

25 August 2016, Lagos –  Nigeria and other African countries should reform their regulatory, fiscal and licensing systems to attract oil and gas investors, a professional services firm, PwC, has said.

The PwC’s ‘Africa Oil and Gas Review 2016’ report noted that the decline in the global oil price had led to a reduced level of activity across the African continent and had an impact on countries that traditionally depend on oil and gas revenue.

It, however, said despite the bleak landscape, the African continent still offered significant opportunities in the oil and gas sector.

The report suggested that with the ongoing focus on cost reduction in the industry, the demand for innovation in technology would grow.

The PwC Africa Oil and Gas Advisory Leader, Chris Bredenhann, said, “It is an opportune time for local governments that want to attract oil and gas investors to reform their regulatory, fiscal and licensing systems.”

As of the end of 2015, Africa has a proven natural gas base of 496.7 trillion cubic feet, down marginally from 2014, with 90 per cent of the continent’s natural gas production still coming from Nigeria, Libya, Algeria and Egypt, according to the report.

It said the top challenges identified by organisations in the oil and gas industry had remained unchanged to those in previous years – uncertainty in regulatory frameworks, corruption/ethics, poor physical infrastructure and a lack of skill resources.

PwC said this year, there was also a significant rise in the challenge of meeting taxation requirements as well as government relations, adding that regulatory uncertainty had remained the top challenge facing oil and gas businesses in Africa for the third year in a row, with 70 per cent of organisations citing it as one of the five biggest issues they experienced.

The report said, “For the first time since PwC’s series of annual reviews began in 2010, ‘government relations’ have hit the top six challenges. Around the continent, many organisations have experienced difficulty obtaining government sanction for new projects. As a result, organisations are beginning to ally themselves with government in order to ensure that they are a strategic and supportive partner.”

It said 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, with respondents expecting the price to reach $52 by the end of 2016, $60 by the end of 2017, and $69 by the end of 2018.

According to the report, the low oil price has led operators to defer final investment decisions on over $300bn worth of projects. Globally, mergers and acquisitions activity has also dipped and it is expected that this trend will trend continue.

It said, “An uncertain regulatory framework is one of the main issues that organisations in the industry are grappling with. In Tanzania, the regulatory environment remains uncertain despite the promulgation of the Petroleum Act in 2015. Furthermore, in Nigeria, the Government has failed to pass the Petroleum Industry Bill into law.”

Bredenhann said the complexities and challenges facing Africa’s oil and gas industry had become daunting.

He said, “As uncertain regulatory frameworks, taxation requirements and corruption continue to rank at the top of industry’s challenges in Africa, it is also high time that governments made significant changes.”

“Furthermore, players must look at the current state of the industry as an opportunity to reinvent themselves. Given the state of the industry, we think that stakeholders must also consider making changes to their business models. Change is the way to survive in the ‘new energy future’. We need to see new business models, new products, new energy sources and new strategies to meet the new reality.”

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