Africa’s 10 to Watch in Oil and Gas
The age of African oil and gas is here, and we at Centurion see a lot to be positive about in 2016. The rise of powerful women and local content champions, numerous bidding rounds, greater opportunities for bold investors and more: Pay close attention to these 10 people, companies and trends in African oil and gas. These are the ones to watch in 2016.
African countries that have depended on hydrocarbon revenues to drive their economies can see the writing on the wall. If they don’t reverse systemic production declines, they will miss out on the next era of prosperity. Last year, Uganda and Mozambique concluded historic exploration rounds that will surely determine their continuing emergence as oil producing countries. In 2016, the Republic of Congo, Gabon and Equatorial Guinea are all hosting licensing rounds and accepting bids to explore their offshore blocks. The three share nations in common an enormous energy legacy and an understanding from their leadership that their future lies in “Drill Baby Drill.”
NNPC’s New Leader
Since Muhammadu Buhari was elected President of Nigeria last year, the investment community has been waiting to see him bring order to a country reeling from a security crisis in the north, a currency in disarray and an oil corruption scandal that went as high as the oil minister. The hopes of a turnaround have partly been pinned on the new Minister of State of Petroleum and Group Managing Director of the beleaguered Nigerian National Petroleum Corporation, Dr. Emmanuel Kachikwu (pictured). Nigeria’s economy has suffered more from the ongoing oil slump than most, losing 2 percentage points from its growth in 2015. Dr. Kachikwu, a former Executive Vice Chairman of Mobil Nigeria, must utilize his expertise in compliance regulation and anti-corruption law to get the industry back on track. This is the chance for Nigeria to demonstrate that it is still Africa’s reference point in the oil industry.
Since peaking at £426.5 last May, Tullow Oil’s share price has tumbled to a low of £118.2 (January 20). Tullow’s story is not unlike that of its upstream independent counterparts whose share value has been battered by a low oil price. But it has fared better than most in rationalizing its portfolio and managing its exploration program under budgetary constraints. Tullow Oil trades at a fraction of its book value of £360 per share. And this summer, its TEN field development will begin commercial production, its second producing asset in Ghana. All of this shows huge upside for a company that has bet practically its entire existence on Africa – nearly 50 licenses in 12 countries. The strong bet is that Tullow will reverse its fortunes in 2016.
Africa is crowded with accomplished women in the industry. This includes Mercedes Eworo Milam, the Director General of Hydrocarbons at Equatorial Guinea’s Ministry of Mines, Industry and Energy, whose reforms have been critical in her country’s resurgent oil and gas industry. It is a credit to Mrs. Milam that Equatorial Guinea has one of Africa’s most attractive production sharing contract regimes. In 2014, she won the Oil Person of the Year award, the first of many accolades to come. In the corporate finance world, Rolake Akinkugbe, the head of Energy and Natural Resources at FBN Capital, is a rising star and a mainstay of the media and conference speaking circuit. Ms. Akinkugbe (pictured) has emerged as an authoritative voice on African energy markets, helping the industry navigate the choppy waters of natural resource governance and policy. Specializing in oil and gas financing dynamics, infrastructure, downstream, gas and LNG, sustainable energy and power, her expertise will be more important than ever to guide us through a gloomy 2016.
Yes, it is true that many emerging African economies that depended less on oil revenues fared better in 2015 than those that do (we’re looking at you Ethiopia). But there were some frontier markets that were unfazed by the oil price decline and continued their unabated economic surge. The GDP growths of Gabon, Cameroon, the Republic of Congo and Chad in 2015 were all projected to outperform the previous year. Mozambique’s 7.6 percent growth in 2014 effectively held steady last year. This is a strong indication that petroleum economies can withstand oil prices and turn in a solid performance. 2016 should be no exception.
Strong African Captains
Steady prices between 2010 and 2014 enabled oil markets to take advantage of an unusual window of stability. This created ideal conditions for the ascent of the African independents. In Nigeria, these homegrown companies seized upon the disposal of marginal assets by oil majors to become players in their own right. Today, those African independents are being tested. It will take strong and resolute leaders like Wale Tinubu at Oando, Kola Karim at Shoreline Natural Resources and ABC Orjiako at Seplat Petroleum to show the African independents are here to stay. In the services sectors, game changers like DeltaAfrik continue to show strength in distressed times thanks to its Managing Director Akinwumi Odumakinde (pictured), who proves that locals can be an equal alternative to international counterparts. Pedro Godinho and his network of service companies, including Prodiam, continues to make waves in Angola. As President of the US-Angola Chamber of Commerce and its well-attended “First Friday” events, he has brought the industry together with leading political figures. Meanwhile, a lot of attention is being paid to Althea E. Sherman to see how she will charter a new path for Liberia’s NOCAL. A successful drilling campaign by ExxonMobil can definitely ease her troubles.
A new strategy, new business model and new management bode well for a new and stronger SacOil, the South African oil and gas independent. As its new CEO, Dr. Thabo Kgogo brings proven industry credentials to SacOil, most notably a stint as Chief Operating Officer of PetroSA. There is great evidence that the company has resolved its financial difficulties. In 2015, it brought its first producing asset online, the Lagia field in Egypt. And it balanced its diverse upstream portfolio by unloading unpromising assets in Nigeria and focusing on high-value exploration and appraisal work in the Democratic Republic of Congo, Malawi and Botswana. Going forward, SacOil is integrating across the value chain beginning with a gas pipeline project in Mozambique and an oil terminal project in Equatorial Guinea. With fully funded commitments and a strong cash position, SacOil is poised for high returns.
A sustained market downturn may have a negative impact on share value and force some companies to unload some assets. But a fixation on the low oil price will only distract the market from the deal-making potential out there. As the founder of the Carlyle Group, David Rubenstein, said in December, we are facing “maybe the greatest energy investing opportunities we’ve ever seen.” He was of course referring to distressed debt markets and the M&A potential that arises from commodity slumps. The investment prospects of $40 oil are good. Below $30, they are even better. In bull and bear markets alike, fortune favors bold risk takers.
Out of nearly 3,000 oil and gas blocks available in sub-Saharan African, only 30 percent are under license. And that does not even factor vast areas of land and water that are under dispute. Out of 100 boundaries covered under the Law of the Sea in Africa, only a third of them are agreed. Resolving those conflicts creates enormous opportunities for countries that are willing to overcome their differences. African governments must come to the negotiating table and find solutions to unlock a new wealth of natural resources, such as establishing joint development areas where all sides of a border can benefit. Only then can we be certain about the continent’s true resource potential. Africa is the final frontier of oil and gas exploration, but so far we have only scratched the surface.
Oscar Garcia Berniko (pictured), the young and astute Director of Local Content in Equatorial Guinea and a student of Nigeria’s erstwhile local content chief Ernest Nwapa, reminds us that a market slump is no time to cut corners or lose sight of proven principles. He understands that integration without preparation is frustration and he is equally training national companies and employees. Young leaders like Oscar show us that African nationals will no longer be the last hired or the first fired. In 2016, declines in oil revenues will test countries but they must be resolute about investing in capacity, technology and knowledge transfer and developing their national workforce. We have seen in the past how a shortage of skilled workforce at national oil companies and ministries affects the industry and slows down projects. Host countries must implement well-balanced, robust and effective local content and should hold their foreign partners accountable for the results. Francisco Simao was recently appointed Vice President, Legal, for BP Angola. That puts him in charge of the only completely nationalized legal department among big oil companies in Africa. Those are real results.