PwC: Oil price drop a wake-up call for Africa

While the oil price drop has caused activity in Africa's oil and gas industry to decline, it has also served as a wake-up call to many African governments, according to a report released by PwC.

This wake-up call has spurred many African governments to start passing favourable oil and gas legislation designed to attract investment into the sector, according to PwC Africa oil and gas advisory leader Chris Bredenhann.

The PwC report analyses what has happened in the last 12 months in the oil and gas industry in Africa's major and emerging markets.
As oil prices declined in 2014, the industry’s response was far-reaching with a significant reduction in headcount and other cost-cutting measures. Capital budgets have also been cut, and frontier exploration activity had decreased.

An example of this is Mozambique, which has passed a law in this regard, while other countries such as Kenya, South Africa and Tanzania have been taking a serious look at current legislation with a view to making it more investor friendly.

“While response to such a drastic decline is necessary, we have seen that the most successful organisations are taking time to re-set, re-strategise and plan for the upturn in prices which will inevitably come. Africa should be no exception as many of the frontier exploration plays lie on the continent,” said Bredenhann.

As at the end of 2014, Africa has proven natural gas reserves of just under 500 trillion cubic feet with 90 per cent of the continent’s annual natural gas production still coming from Nigeria, Libya, Algeria and Egypt.
Main challenges

The oil and gas industry's main challenges remain the uncertain regulatory framework, corruption and poor physical infrastructure, according to the report.

South Africa’s uncertain regulatory framework for the oil and gas industry is mainly due to unclear and overlapping mandates between the government and state-owned enterprises.

Furthermore, the enforcement of the Minerals and Petroleum Resources Development Act has raised a number of compliance challenges in the industry, primarily resulting from new requirements directly introduced by the act.

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, the report states.

Industry players are, however, planning for the longer term as 90 per cent of respondents expect the oil price to rise gradually over the next three years.

The report rates people skills and skills retention as the second most likely factor to impact business over the next three years.
Community and social activism, instability and unstoppable political events also concern the oil and gas industry in Africa. Organisations from South Africa, Mozambique, Nigeria and Kenya, in particular, expect these kinds of events to have a significant impact on their business.

"After a rush of bidding rounds in 2014, 2015 and 2016 appear to be comparatively quiet with only a handful of bidding rounds expected. This is partly due to the flurry of bidding rounds in the previous couple of years and a consolidation of these agreements together with the lower oil price and lower interest to invest," said Bredenhann.

Additional Info

  • Origin: Graphic Online