Summit Day 2 Digest: Balancing challenges and opportunities at Africa E&P Summit 2019 London
Africa has an abundance of resources, but companies must balance a range of challenges beyond geology. Local stakeholders, politics, commercial needs and investors must all be juggled in order for plans to move ahead.
ExxonMobil’s Pam Darwin made a compelling case for investment in the three “e’s”: energy, education and empowerment for women. Giving work and contracts to women allows communities to retain cash, improving prosperity. “It’s good for business, it’s good for communities – and our employees are from those communities.”
Picking up on Darwin’s first “e”, BP’s Jasper Peijs declared: “Life improves as energy is consumed.” Companies must help provide power to people, but do this in responsible ways.
Good relations with communities will go some way to aiding production plans, although these must be backed up by responsive governments. Production in the continent is around 8 million bpd of oil, down from 10 million bpd a decade ago, Peijs said. “Half of this is related to civil unrest in Libya, while the other half has come as a lack of investment. In Angola, we’ve got 2 billion barrels of discovered resource that have not progressed yet … [but] the new president has transformed the country’s approach, putting a new petroleum code in play.”
BP is taking an active stance in the exploration game. “There are plenty of opportunities available at the right terms, and there is a desire to work together,” he continued. “Four years ago we were only in four countries in Africa: Angola, Egypt, Libya and Algeria. In the past three or four years we’ve added six countries to that.”
Another country that has responded to the need to provide greater incentives for companies has been Egypt. The North African state had been compelled to contract LNG imports in 2015 in order to meet domestic needs. That same year, Eni made the Zohr discovery, bringing it online at the end of 2017. It now accounts for around one third of the country’s production.
The Egyptian opportunity was flagged up by Dana Gas’ Patrick Allman-Ward who expressed optimism about exports. “The Egypt LNG facilities are located close to the Suez Canal, exports can effectively play into Europe or Asia depending on price arbitrage,” he said.
Egypt and Angola are mature producers that have accepted the need to reinvigorate exploration and production. Some of the countries that are newer to the hydrocarbon scene have taken more time. Nairobi, for instance, is still working on contractual terms with the explorers in the Lokichar Basin.
“Kenya's never produced oil and gas before so this is all brand new for them. So they're having to start at square one on a lot of this,” said Africa Oil’s Keith Hill. “I think we're very close, but if you asked me six months ago I would have said we're very close as well. I’m 100% convinced Kenya will get developed. It's still feasible to [reach FID] by the end of this year, but everything would have to fall into place essentially tomorrow.”
There was a degree of disagreement over whether exploration companies should seek production to balance out their risk profiles. While this is a fairly widely cited view, it is not without its detractors. RWT Energy Advisory’s Rob Tims described it as a parachute for company management. “It changes the risk profile of the business, but I’m not sure that’s necessarily a good thing for investors, who can diversify their own portfolios.”