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Time for Africa oil & gas industry to consider change

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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 and 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 (www.PwC.com).

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
The top challenges identified by organisations in the oil & gas industry have remained unchanged to those in previous years – uncertainty in regulatory frameworks, corruption/ethics, poor physical infrastructure and a lack of skill resources. This year, there was also a significant rise in the challenge of 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 per cent 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 $52 by the end of 2016, $60 by the end of 2017, and $69 by the end of 2018. With little control over the price, businesses have focused on improving efficiency and driving down costs.

Regulatory compliance, at number two, remains a significant challenge for organisations this year. Foreign currency volatility is also rated a likely factor (number three) to impact business over the next three years. This year there have been large currency fluctuations – with the fallout from the Brexit vote precipitating some of the largest so far.

Asset management and optimisation remains a key strategic focus area for companies. “Fortunately, the industry remains optimistic, and many upstream players are focusing on exploration and finding new resources over the next three years, most likely in anticipation for an upturn in the oil price,” adds Bredenhann.
Financing & Investing

Although there has been some recovery in the pricing environment, investor confidence remains low as a significant recovery does not seem to be on the horizon, and oil market fundamentals are still down. The low oil price has led operators to defer FIDs (final investment decisions) on over $300bn of projects. Globally, mergers & acquisitions (M&A) activity has also dipped and it is expected that this trend will trend continue.

Courtesy of APO on behalf of PricewaterhouseCoopers LLP (PwC).

The rest of story will be uploaded on wwwguardian.ng for further reading.


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