PwC’s Africa oil & gas review, 2015 analyses what has happened over the last 12 months in the oil and gas industry within the major and emerging African markets. As oil prices declined in 2014, the industry response has been far-reaching, with significant reduction in headcount and other cost- cutting measures. Capital budgets have also been cut, and frontier exploration activity has decreased.
Countries such as Kenya, South Africa and Tanzania have been taking a serious look at legislation currently in place with a view to making it more investor-friendly. 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 coming from Nigeria, Libya, Algeria and Egypt.
The main challenges identified by organisations in the oil and gas industry have remained largely unchanged, with the top three issues being uncertain regulatory framework, corruption and poor physical infrastructure.
Uncertain regulatory frameworks are a concern across the industry, with more than 80 per cent of Tanzanian respondents regarding regulatory uncertainty as the top challenge facing the business. Other countries where respondents cited concern about regulatory uncertainty include Nigeria, Kenya and Angola.
Areas in which infrastructure remains limited are likely to see the development of existing discoveries stalled unless there is a domestic need for the resource. 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 results of the report show that 90 per cent of respondents expect the oil price to increase gradually over the next three years. People skills and skills retention is another factor likely to impact on business over the next three years. Community/social activism, instability and unstoppable political events are also noteworthy concerns. Asset management and optimisation also remains a top strategic focus area for oil and gas companies over the next three years.
While it seems that the temporary meltdown is receding, African governments have shifted gear to promulgate and ratify oil and gas regulations that are intended to encourage the monetisation of assets, while doing away with policy uncertainties.
Although merger and acquisition (M&A) activity was low in 2014/15, around one-fifth of respondents have been targeted, and a third has targeted or intends targeting companies for acquisition. This suggests that an increase in M&A activity can be expected in the near future.
Just 41 percent of exploration and production companies said that they would be investing in the development of drilling or exploration programmes, which is significantly lower than in 2014 when 70 per cent reported this as a key strategic focus.
More than 98 per cent of organisations indicated that they have an anti-fraud and anti-corruption programme in place – of these, more than 60 per cent believe that the programme is very effective at preventing and/or detecting fraud. Only eight per cent of respondents indicated that they did not have a compliance programme.
Despite pervasive fraud, some governments around the continent have made significant efforts to increase transparency in the industry.