African oil and gas developing well and changing perceptions

Record numbers thronged the Cape Town International Convention Centre this month for the annual Africa Oil Week demonstrating the growing momentum of the industry on the continent.

The busiest ever oil event – a record number of ministers and almost 2,000 delegates attended from 75 countries – confirmed its status as Africa’s largest oil and gas conference, a global destination for government officials, executives, investors, geologists and Hudson Sandler.

Although it is the poorest continent, Africa is actually home to five of the fastest growing countries in the world. These are bucking the trend of a generally gloomy global economy with high single digit growth forecast by the IMF. While Africa’s population is expected to increase to 2.4 billion – 54% of the world, by 2050, according to the UN – most of the current population is below the age of 25 and the middle-class category is swelling. With this population increase, along with rising living standards and urbanization, demand for energy on the continent continues to grow. What was clear at the Africa Oil Week conference was that African governments are actively looking to produce oil & gas to ensure they meet this demand.

During the conference several geologists talked about the enormous hydrocarbon potential across Africa. We heard from Karyna Rodriguez at TGS, the world’s leading provider of subsurface data, who highlighted offshore Somalia as the standout opportunity. The security issues of offshore exploration are now firmly in the past. TGS confirmed that the data suggests this frontier opportunity could be the largest of them all. Alongside this, the government is putting in place a highly attractive fiscal and regulatory framework to attract investment.

Naturally Africa faces many economic and political challenges but progress has often been under reported or ignored.

What was clearly evident at the conference was that African governments are raising their game to change historic negative perceptions of Africa and acknowledging that progress in regulatory and fiscal legislation is vital to attract international investors.

Speaking to fellow attendees, we expected security to be the main topic of concern but the conversation was actually more focused on legislation and investment returns, and what governments are doing in this regard. All over Africa, important legislation and agreements are being implemented that will allow International Oil Companies (‘IOCs’) to invest in oil blocks. For example, in April, Cameroon approved a reformed petroleum code which sweetened the attraction for IOCs to explore potential hydrocarbons through production sharing agreements. Many other countries are using this type of agreement to increase the interest of IOCs.

Chatting to one oil executive, she said that if the geology across Africa was the same, it was up to governments to create the most attractive and transparent fiscal and regulatory environment for investment. Ghana’s Deputy Minister for Petroleum stated: “Because of increased competition for investment in Africa, we are changing our strategy.” Governments are acknowledging change needs to happen to attract investors.

The other main topic of conversation was around ESG, unsurprisingly. IOCs are focused on excellent governance, safe working environments and minimising impact on the environment. Disclosure around these areas is critical to ensure that investment funds are comfortable with the actions any company is taking.

Therefore, we took two key takeaways from the conference. For governments, communication is key and changing historic perceptions is vital. Many Africa governments are seeking to exploit the energy sources beneath their feet, but to attract IOCs they need to create best in class transparency.

For IOCs, they need to provide the highest level of disclosure on the environments they work in, in order to attract investors to fund exploration.

While these are challenges, the mood at the conclusion of the conference was optimistic about the huge potential of the continent and the progress to date.