· 93% of respondents expect a Brent crude price range of US$50 – 80 in 2015;
· 90% of respondents expect a price range of US$60 – 90 in 2016; and
· 87% of the respondents expect a price range of US$60 – 90 in 2017.
Overall, activity in the oil & gas industry across the African continent has slowed in the wake of the declining oil price in late 2014. “While the oil price has caused activity to drop, it has also served as a wake-up call to many African governments, which are working hard to pass favourable oil & gas legislation in order to attract investment into the sector,” says Chris Bredenhann, PwC Africa Oil & Gas Advisory Leader.
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.
PwC’s ‘Africa oil & gas review, 2015’ analyses what has happened in the last 12 months in the oil & 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.
“While response to such a drastic decline is necessary, we have seen the most successful organisations are taking time to re-set, re-strategise and plan for the upturn in prices, which will inevitably come. Africa should be no exception as many of the frontier exploration plays lie on the continent,” adds Bredenhann.
As at the end of 2014, Africa has proven natural gas reserves of just under 500 trillion cubic feet (Tcf) with 90% of the continent’s annual natural gas production still coming from Nigeria, Libya, Algeria and Egypt.
Growth and development
The main challenges identified by organisations in the oil & gas industry have remained largely unchanged with the top three issues of uncertain regulatory framework, corruption and poor physical infrastructure also identified as the biggest challenges in 2014. Uncertain regulatory frameworks remain a concern across the industry, with more than 80% 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.
The inadequacy of basic infrastructure ranked much higher in the current review than in 2013. 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.
Financing and investing
After a rush of bidding rounds in 2014, 2015 and 2016 appear to be comparatively quiet with only a handful of bidding rounds expected. This is partly due to the flurry of bidding rounds in the previous couple of years and a consolidation of these agreements together with the lower oil price and lower interest to invest.
While it seems that the temporary meltdown is receding, African governments have shifted into gear to promulgate and ratify oil & gas regulations that are intended to encourage the monetisation of assets, while doing away with policy uncertainties.
Combatting fraud and corruption
Over 98% of organisations indicated that they have an anti-fraud and anti-corruption programme in place – of these, more than 60% believe that the programme is very effective at preventing and/or detecting fraud. Only 8% of respondents indicated that they did not have a compliance programme.
Over 43% of respondents indicated that fraud and corruption would have a severe effect on their businesses. Government officials continue to be implicated in a number of fraudulent activities across the continent. Recent research conducted by PwC shows that bribery and procurement fraud remain some of the top types of economic crimes in the broader energy, mining and utilities sectors. Despite pervasive fraud, some governments around the continent have made significant efforts to increase transparency in the industry.
Regulatory framework
The presence of an uncertain regulatory framework is one of the biggest issues in developing the oil & gas business in Africa. South Africa’s uncertain regulatory framework for the oil & gas industry is mainly due to unclear and overlapping mandates between the Government and state-owned companies. Furthermore, the enforcement of the Minerals and Petroleum Resources Development Act (MPRDA) has raised a number of compliance challenges in the industry, primarily resulting from new requirements directly introduced by the Act.
Download the report 'Oil and Gas Review 2015': http://www.apo-mail.org/PWC-
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