Africa: Good Time to Consider Change, Oil and Gas Sector

The decline in the global oil price has led to a reduced level of activity across the African continent and had an impact on countries that traditionally depend on oil & gas revenue. Despite the bleak landscape, the African continent still offers significant opportunities in the oil & gas sector. “It is an opportune time for local governments that want to attract oil & gas investors to reform their regulatory, fiscal and licensing systems,” says Chris Bredenhann, PwC Africa Oil & Gas Advisory Leader.

Bredenhann says it is also important for the industry to look beyond the challenges caused by depressed prices and consider other forces that are shaping the industry. PwC’s ‘Africa oil & Gas Review, 2016’ suggests that with the ongoing focus on cost reduction in the industry, the demand for innovation in technology will grow. Furthermore, this can be the ideal time for the industry to consider introducing training programmes to upskill levels and company standards in order to give local players a chance to enter the sector when activity picks up again.

PwC’s ‘Africa oil & gas review, 2016’ analyses what has happened in the last 12 months in the oil & gas industry within the major and emerging African markets. As at the end of 2015, Africa has a proven natural gas base of 496.7 trillion cubic feet (Tcf), down marginally from 2014, with 90% of the continent’s natural gas production still coming from Nigeria, Libya, Algeria and Egypt. Dealing with the decline, top challenges identified by organisations in the oil & gas industry this year was meeting taxation requirements, as well as government relations. Regulatory uncertainty has remained the top challenge facing oil & gas businesses in Africa for the third year in a row, with 70% of organisations citing it as one of the five biggest issues they experience.

For the first time since PwC’s series of annual reviews began in 2010, ‘government relations’ has hit the top 6 challenges. Around the continent, many organisations have experienced difficulty obtaining government sanction for new projects. This is proving to be extremely difficult in new hydrocarbon provinces, such as Mozambique, because governments do not fully comprehend the intricacies and scale of oil & gas projects. As a result, organisations are beginning to ally themselves with government in order to ensure that they are a strategic and supportive partner.

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, with respondents expecting the price to reach US$52 by the end of 2016, US$60 by the end of 2017, and US$69 by the end of 2018. Regulatory compliance, at number two, remains a significant challenge for organisations this year.

The sustainability of the industry will also be affected by a number of drivers. These include the price of oil, impact of renewable and alternative energy sources, emergence of new competitors, environmental consequences of the industry, legislative frameworks and government takes.

Basic as well as technological infrastructure is essential for the oil & gas industry to thrive. Twenty percent of organisations think that inadequacy of basic infrastructure will have a significant impact on their business over the next three years – with 73% expecting it to have an unchanged impact or no impact. Similarly, 20% of respondents expect technology to have a significant impact on their business over the next three years, but only 3.43% rated technology infrastructure as a top strategic focus area over the same period. It is positive to note that over half of respondents expect acreage and license costs to either decrease or decrease substantially. Adds Bredenhann: “This is likely due to the decreased oil price, ultimately devaluing acreage/licences.”

An uncertain regulatory framework is one of the main issues that organisations in the oil & gas industry are grappling with. However, the Minerals and Petroleum Resources Development Act (MPRDA) has not yet been changed and approved to reflect such modifications. In Tanzania, the regulatory environment remains uncertain despite the promulgation of the Petroleum Act in 2015. Furthermore, in Nigeria, the Government has failed to pass the Petroleum Industry Bill into law.

The digital revolution and technological breakthroughs are disrupting businesses. PwC’s global research shows that oil & gas companies are slower than other industries to respond to using new technologies, particularly digital. We believe that there are a number of trends that will ultimately transform the oil & gas industry. These include: the Internet of things, building alliances, simplification and standardisation, solution-based buying, and knowledge transfer from international oil companies to oilfield services companies.

This entry was posted in African News, Main. Bookmark the permalink.

Leave a Reply