Africa’s new oil producers

Africa’s new oil producers

Africa has a long list of oil producing countries. In 2010 there were 15 countries exporting oil, namely Nigeria, Angola, Libya, Algeria, Sudan (note that this was before the secession of South Sudan), Equatorial Guinea, Congo (Brazzaville), Gabon, Chad, Egypt, Tunisia, Cameroon, Côte d’Ivoire, Democratic Republic of Congo (DRC), and Mauritania, according to data from the EIA.

The continent as a whole produces significantly more oil than it consumes. Therefore, the region is a net exporter of oil. The vast majority of these exports are in the form of crude oil. In fact, according to the BP Statistical Review, Africa’s gross exports of crude oil were 6.55 million barrels per day (bpd) in 2012, while its fuel product exports equalled 0.71 million bpd. Almost two-thirds of crude exports came from West Africa, while almost one third came from North Africa. In contrast, 65% of product exports came from North Africa, while 33% of product exports came from West Africa.

Sub-Saharan Africa (SSA) grows in oil production

With North Africa’s loss of face and business since the Arab Spring Uprisings and consequent political instability, West and Central Africa have had the chance to claim more of the limelight in the oil sector in recent years, and oil exploration and production in these countries is moving forward apace. Nigeria continues as the key player, ranking as the world’s 13th biggest oil producer, and SSA’s top producer. Following Nigeria is Angola, followed by Equatorial Guinea, then Republic of the Congo, then Gabon.

A number of other countries are however emerging, with some of the most exciting prospects being Kenya, Uganda and Ghana.

Kenya fertile ground

As of the start of 2013, Kenya had no proven oil reserves, and hydrocarbon exploration dating back to the 1950s had had limited success. However, interest in the country’s hydrocarbon industry has been stirred since March 2012, when Tullow Oil announced that it had discovered some oil in the Turkana region.

In mid-2013, Tullow stated that oil resources in Kenya were in the region of 300 million barrels of oil equivalent, which was higher than “the threshold for development studies to commence”. COO Paul McDade said in a telephonic interview with Bloomberg that the company has now “certainly reached the threshold for development”. Combined, oil output from Kenya and Uganda could be in the region of 500,000 bpd, with a pipeline possibly being in place by 2018. “When you start to take into account the potential of Kenya, and Lokichar is just the first component of what Kenya could be, it could be much more material than 250,000 barrels a day. It could easily be 500,000 barrels a day or even beyond depending on the exploration success we continue to have in Kenya”, according to Mr McDade.

In January 2014, Tullow announced that it had made two further oil discoveries in northern Kenya. These two discoveries, along with other recent discoveries, raise the company’s estimate for discovered resources to 600 million barrels of oil. Tullow believes that the basin has an overall potential of more than one billion barrels of oil, and said that further exploration activities will be undertaken over the next two years. The company currently has a 100% success rate in the basin with all seven wells drilled discovering oil. Tullow has agreed with the Kenyan Government to commence with development studies. Oil production is projected to start by 2015-16, while there are also plans for an export pipeline. Initially, though, oil could be exported via rail and road.

Uganda holds promise for future production

The discovery of substantive oil reserves in Uganda since 2006 has sparked hopes among investors and large oil companies that the country could become a lucrative new player on the global oil stage. It is now believed that Uganda could be sitting on one of the biggest onshore oil reserves in SSA. Estimates of the country’s petroleum reserves have grown from 300 million barrels in 2006 to 3.5 billion barrels of commercially viable oil by late-2012. There is significant scope for further exploration in Uganda’s oil region, as only 40% of it has been explored so far.

Although exploration has been successful, progress towards commercial oil production has been slow, with political wrangling holding up the development of the sector. One problem has been that the Government put a moratorium on the awarding of new licences until new legislation, specifically a revised Oil Bill, was passed. Tullow Oil, which is the biggest player in Uganda’s oil sector, has also been involved in a tax dispute with the Government. In August 2010, the Government went as far as to repossess one of Tullow’s oil fields for not applying for a production licence in time. As a result of the tax dispute, the Government also blocked the company from bringing in two partners – China’s National Offshore Oil Corporation (CNOOC) and France’s Total – to share the cost of further exploration and development.

A landmark development in the oil sector was the Government’s approval of the $2.9bn farmdown partnership deal with the three oil companies in February 2012. The partnership was an important step towards unlocking $10bn worth of investment in vital infrastructure by the three oil companies. This infrastructure is set to include a 30,000 bpd oil refinery, as well as pipelines, both for transporting petroleum to Kampala, and for exportation.

Another important step was to approve the Oil Bill, which was finally approved by Parliament in December 2012, and then by the President in April 2013. This new legislation will regulate oil licensing, exploration and development, and revokes the moratorium placed on the issuing of new licences by Kampala in 2007. It also opens up the door for at least six blocks and 10,000 km² of acreage to be made available for licensing.

The development of the oil sector made further progress in 2013 H1. By early June, the Government concluded drawing upplans for a national energy company to steer the industry. The energy ministry stated that production-sharing agreements provide for state participation of between 20% and 50% during production, and that the national oil company will forward state participation. The company will start operations after the president names the board and the directors are approved by Parliament.

A further positive development came in February 2014 when the government signed a memorandum of understanding with the three oil companies. The memorandum sets out a framework for planned production, as well as details for the amount of crude oil that will be sent to the planned refinery and pipelines. By formally stating the details, the memorandum reduces some uncertainty that investors might have. It therefore seems that progress is now being made in terms of policy to allow oil companies to develop the oil sector. As things stand, the country is still a few years away from commercial oil production.

David Okwara

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