Unlocking the potential of Africa’s NOCs
Major oil and gas discoveries have opened new exploration plays in East Africa and offshore West Africa. Equally, ever-expanding energy requirements from domestic markets support the commercialization of these discoveries in Africa. Against this background, African governments want to ensure greater national participation in their upstream petroleum sector. As a result, many are creating national oil companies (NOCs) or restructuring their current NOC to take on greater operational roles and responsibilities.
However, many NOCs in these emerging producer countries are struggling to establish themselves. A key issue they face relates to the lack of clarity around the cost of fulfilling their mandate. Too often they are given an ambitious mandate – in particular, to become an upstream operator, which is not in line in with existing geological, financial and human resources. The result is that the NOC’s stewardship of oil and gas reserves may be sub-optimal and risks the vision of creating national champions that drive a broader development agenda not being met.
KPMG International conducted a study to investigate the growth strategies and growing-pains of NOCs. The following study focuses on how well NOCs in emerging producer countries in Africa, those which are in pre-exploration, exploration and early development phases, are dealing with the development of technical skills and know-how. The report sheds light on a few key aspects of what governments and NOCs need to know when mandating various new roles to an NOC.
Becoming an upstream operator is particularly demanding in terms of financial commitments and involves organizational changes to the form and functions that NOCs have traditionally had in Africa. Prior to these discoveries many have been limited to supporting pre-exploration work, data management, licensing, overseeing regulations, fiscal systems and running downstream operations.
Managing recruitment and skills development was also consistently identified as a major challenge in emerging producer countries. Because the petroleum sector is so new to the country there are often not enough qualified and experienced potential employees. Equally, NOCs are frequently constrained by civil service rules, making it difficult to compete with other industries and companies for national talent.
The study outlines five key recommendations for government. These include: governments understanding what different NOC roles cost; governments and the NOCs reviewing the state of the resource base; governments approving finance model; governments introducing strong accounting and reporting standards; and government and NOC investing strategically. Clarity on these core issues will allow governments to do a better job of assigning roles to the NOC and planning for future resource needs.
In conducting this study, Valérie Marcel interviewed a selection of african NOCs about the challenges related to fulfilling their mandate. Discussions tackled issues around the various revenue streams available to them and staffing challenges in the new sector. The insights gained from discussions with executives are invaluable, providing important information not found in the public domain about how emerging producers are financed and where they are headed. The direction for the study was guided by the unique discussions and research that emerged from Chatham House’s New Petroleum Producers Discussion Group, in which 20 emerging producers reviewed what policy options were most appropriate in the first stages of resource development. The study also draws heavily on the extensive knowledge and analysis of KPMG’s Global Oil & Gas Team. Based in 12 strategic locations around the world, the Global Oil & Gas Team advises national governments, NOCs and international oil companies on a wide range of petroleum sector issues.
Click here to read the full report.