Page 1 of 2Low oil prices have led to a drop in activity in the oil and gas industry but African nations are planning for an upturn in oil prices, said a PwC report
The Africa oil & gas review, 2015 report from PwC said that the declining price of oil in late 2014 has caused significant reduction in headcount and other cost cutting measures. Capital budgets have also been cut, and frontier exploration activity has decreased.
While the price factor “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 and gas legislation in order to attract investment into the sector,” said Chris Bredenhann, PwC Africa oil and 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.
Bredenhann added that “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.”
At the end of 2014, Africa had 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.
Main challenges for the industry
The top three challenges for the oil and gas industry in Africa are uncertain regulatory framework, corruption and poor physical infrastructure, according to organisations who were questioned for the report.
South Africa’s uncertain regulatory framework for the oil and 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 has raised a number of compliance challenges in the industry.
In Tanzania, more than 80 per cent of respondents cited regulatory uncertainty as the top challenge facing the business. Other countries where respondents showed heightened concern about regulatory uncertainty were Nigeria, Kenya and Angola.
More than 43 per cent of respondents indicated that fraud and corruption will have a severe effect on their businesses. Recent research conducted by PwC shows that bribery and procurement fraud are among the top 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. About 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 effective at preventing or detecting fraud.
Limitation in infrastructure is likely to see the development of existing discoveries stalled unless there is a domestic need for the resource, said the report.
The report mentions people skills and skills retention as another factor that will impact business over the next three years. Community and social activism, political instability and unstoppable political events ranked next in the list of the industry’s concerns. Organisations from South Africa, Mozambique, Nigeria and Kenya, in particular, expected activism and political events to have a significant impact on their business.
