Exploration, Production and Africa’s Frontier Markets
The African Energy Chamber spoke with Tim O’Hanlon, Senior Advisor for the Oslo-listed energy and power company, Panoro Energy, about the continent’s production challenges, the role exploration will play, and Africa’s significance as a frontier gas market.
With production declines presenting newfound challenges for Africa, stakeholders are pushing for enhanced exploration to help mitigate this trend. Despite global calls to transition to renewable energy sources, Africa still needs its oil and gas reserves if it is to meet its development goals and make energy poverty history by 2030. In an exclusive interview with the African Energy Chamber (AEC) (www.EnergyChamber.org), Tim O’Hanlon, Senior Advisor for the Oslo-listed energy and power company, Panoro Energy, provides critical insight into Africa’s changing energy sector.What will this production underperformance in Nigeria, Libya, Angola, Congo, Equatorial Guinea and African countries mean for the continent as a whole? For the individual countries involved it is definitely a significant setback and a direct blow to their economies since they have probably been too slow at diversifying away from oil and gas and investing the windfall resource revenues of the last decades into more sustainable sectors like agriculture, industry and services. But for the majority of Africa’s 54 countries with little or no production, I honestly don’t see much impact, one way or the other. What do you feel are the primary reasons influencing production decline in Africa? Oil production is falling across the Continent for a number of reasons but mainly due to lack of exploration for new reserves to maintain production profiles, a lack of investment in existing fields and civil strife. The last point is easiest to understand. The required investment – which normally flows in from outside the Continent – quickly dries up when Governments are unable to provide a secure and safe working environment. Thereafter, frontier exploration spending is always discretionary for IOCs and is the first to be cut when oil prices collapse as they did in 2014. Even today, with the oil price still below 2014 levels, IOCs are facing an overnight and extreme (I would say often hysterical) pressure, mainly from “sorted” Western society, to halt all future exploration, particularly for oil. For the same reason, even some mature producing African projects are being starved by their IOC operators of the capital required to maintain or improve production – normal good housekeeping if you like. Tranches of mature producing assets are becoming available as the industry consolidates and as certain IOCs even recede from the Continent altogether. This exodus is sadly accelerated by certain African Governments being a bit slow to react to these market forces by easing fiscal terms as they should in response to the deteriorating investment climate for IOCs. What can be done to turn this around? All is not lost. Firstly, it is very encouraging to see some of the Majors – notably TotalEnergies and ENI – holding their nerve and sticking with the Mother Continent notwithstanding the background noise. While they are understandably shedding certain non-core mature producing African fields, they are also still drilling the occasional frontier wildcats and it is paying off. ENI has just had a whopper of an oil discovery in Ivory Coast, TE a major gas discovery in SA and both continue to invest in the massive projects up the East African coast from Mozambique to Uganda to Egypt. And good luck to them I say. Secondly, the existing crop of experienced Africa-focused E&P players (Perenco, Trident, Panoro, Tullow, Assala…) together with their African brothers (Seplat, Oando, XXXXX, YYYYY…) are being joined by an emerging group of impressive start-ups (Baobab Energy Africa, Boru Energy, Afentra and others) ready and able to replace any exiting Majors and inject new life into mature assets. With the right fiscal incentives, these NewCos will extend into exploration and add the desperately needed new barrels to the African pot. What would you recommend as an industry approach to low carbon gas monetization and financing in Africa? It would probably be futile to try craft an industry-wide approach here. Our African E&P industry is adept at dealing with challenges, whether from Mother Nature or the societies they serve. Ever pragmatic, commercially driven and science-based, both large and small IOCs are already quietly embracing the Energy Transition imposed upon them by Climate Change. Gas is fast becoming the new oil for explorers and its monetization less of a headache than it was before. When we started Tullow back in 1986 our first project was, by chance, gas for power generation in Senegal. But this was the exception back then when a gas discovery could get a geologist fired being akin to a dry hole in the pursuit of oil. It is all change now with many of Africa’s then “stranded gas reserves” on production today serving domestic power needs or the international LNG market. Once nearly impossible to finance, gas developments are now much more bankable and even dedicated gas exploration is being given the green light by shareholders. The morally bankrupt notion that tiny-carbon-footprint Africa should leave its enormous gas reserves undeveloped and “stay poor” while Europe remains plugged right in to existing African gas production has been given short shrift by Africans. What should new independents consider while entering a changing African energy sector? While on the one hand it seems like all change these days, on the other hand nothing much has changed for any independent entering the African energy sector. This is because presumably, as savvy actors, they will already know that change is just about the only constant in our game. The new paradigms of “less oil please” or “more gas please” or “your project must be carbon-neutral” are just the latest set of problems to solve for what are at the end of the day professional problem solvers. They will already by technically top-drawer, risk-tolerant and alert to the sometimes extreme above and below-ground challenges but still excited by the immense rewards available in Africa for the tenacious. And I don’t just mean shareholder returns here but the type of satisfaction derived from being able to add sometimes billions of dollars to the economies of developing African nations by just doing you day job to the best of your abilities – just as we did at Tullow back in the day… Is it time for Model Gas/LNG Production Sharing Agreement? I am not aware of any gas projects lying idle and undeveloped across Africa due to the absence of standardized Gas PSAs or similar. Gas monetization has always been more complex than oil. Even small quantities of gas can be worth a fortune if you find some close to a hungry gas grid or near worthless if found in a remote area even in large quantities. On the other hand, oil fetches much the same price in Chad, Chile or China! But this additional complexity in financing gas development projects is an equal burden for both the host Government and the gas-finder IOC. It is always just about finding the equitable balance of risk and reward for these actors who are well-used to thrashing out such agreements. If it is not happening it often simply means the host Government has an inflated opinion of the value of their gas project and the lazy capital has simply flowed elsewhere.
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*Source African Energy Chamber