Hydrocarbons: Found in Africa

Africa continues to attract more foreign investment with lucrative offers of abundant hydrocarbons
By Lionel Mok
Wed 21 Aug 2013 09:42 AM

Africa, the world’s second largest, and second most populated continent, is often overshadowed by the Middle East when it comes to the production of oil and gas, but the continent is showing signs of change as exploration activity begins to take off.

Africa currently supplies about 12 per cent of the world’s oil, boasting significant untapped reserves estimated at 132.4 trillion barrels of oil, or eight per cent of the world’s proven reserves. According to a report published by PricewaterhouseCoopers (PWC), the continent holds natural gas reserves of 513.2 trillion cubic feet (tcf), roughly seven per cent of the world’s supply. 91 per cent of the continent’s yearly gas production capacity of 7.1 tcf is found in Nigeria, Libya, Algeria and Egypt.

North Africa has traditionally dominated the oil and gas scene, but political uncertainty, sabotage, and terrorism, such as the attack on In Amenas  gas facility earlier this year, have led to a loss of production (of over a million barrels per day) and has shaken investors’ confidence. It is expected that production will rebound, particularly in Libya, where more facilities are being brought back on stream and amendments to EPSA bidding rounds are taking place, but in the meantime, the African oil and gas industry has begun to look elsewhere.

The continent has identified over 4200 oil and gas blocks, more than half of which are still open, subject to force majeure or in the application process, says the PWC report.

The opportunities in sub-Saharan Africa appear to be particularly bountiful, especially for those companies willing to take higher risks. Only about 30 per cent of the region’s 2900 blocks have already been licensed.

In addition to looking at sub-Saharan Africa, an increasing number of companies have begun to consider East-Africa as fresh grounds in their hunt for hydrocarbons.

“Large gas finds in Mozambique and Tanzania, and oil potential in Uganda and Kenya, have sparked a flurry of exploration activity across Africa,” said Chris Bredenhann, Africa oil and gas advisory leader for PWC in an article recently published by Engineering News. “Governments around Africa are reviewing or developing their energy policies. Many countries are investigating changes in the government take, taxation regulations and State participation,” he added.

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Countries such as Kenya, Mozambique, Nigeria, Uganda, Morocco and Angola have all planned bidding rounds in 2013, and even Somaliland has opened its unrecognised, self-declared-state borders to companies such as Genel Energy for exploration.

“Africa is becoming a major player in the world’s oil and gas play,” said HE Hussein Abdel Dualeh, Somaliland’s Minister of Energy and Water resources, at the 4th Gulf Intelligence Energy Forum in Abu Dhabi, earlier this year. “These discoveries are just the tip of the iceberg because huge swathes of East African basins are still considered frontier areas that are just starting to open and have seen little or no exploration.”

In 2012, Genel Energy won an exploration licence for two onshore blocks in Somaliland, with a 75 per cent working interest in both. The two blocks are targeted to have resources of over 1,000 million barrels of oil.

“The next decades will see major foreign investment inflows to develop the region’s hydrocarbon resources, this investment is necessary if East Africa is to realize the full commercial and economic advantages of its new found hydrocarbon wealth,” added the minister.

East Africa presents some favourable geological conditions for hydrocarbon production. With large tilted fault blocks and sub-basins that were once contiguous with Yemen’s geological formations before the opening of the Gulf of Aden in the Oligocene-Miocene era, the region is believed to present some favourable exploration and production opportunities.

The promise of black gold has even drawn some of the Middle East’s national oil companies into the fray alongside the international super-majors. In May, 2013, Qatar Petroleum International (QPI), and Total SE entered into an agreement which would see QPI participate in Total E&P Congo through its subscription to a 15 per cent share capital increase in the company. The agreement is just a part of QPI’s strategy to develop its presence in Africa and also an opportunity to develop connections with both the Congo and Total.

A continent whose history has been plagued by imperialism, tribalism, terrorism and war, Africa is perhaps one of the final frontiers for the oil and gas industry. How it responds to a black-gold rush, only time will tell.

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