‘Africa oil and gas industry will continue to grow’, PwC review reveals

oil-africa-nate2b-flickrForeign direct investment (FDI) in African countries tripled from US$15bn in 2002 to US$46bn in 2012, according to the UN Conference on Trade and Development. (Image source: Nate2b/Flickr)The oil and gas industry in Africa continues to show substantial growth with new hydrocarbon provinces developing at a significant pace, according to a review by PricewaterhouseCoopers (PwC)

The professional services firm has said that Africa is one of the seven fastest-growing economies and home to abundant natural resources and it will increase its investment in the continent due to its confidence in the future of Africa’s economies.

Chris Bredenhann, PwC Africa Oil & Gas advisory leader, said, “Large gas finds in Mozambique and Tanzania have caused the world to take note of East Africa as an emerging player in the global industry.”

Africa has proven natural gas reserves of 14.2 trillion cu m with 90 per cent of the continent’s annual natural gas production of 184bn cu m coming from Nigeria, Libya, Algeria and Egypt.

PwC’s recent Africa oil & gas review, however, said that the major challenges identified by organisations in the oil and 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 drawback in 2010 and 2012.

While uncertain regulatory frameworks remain a concern across the industry, Nigeria was one of the few countries where respondents to the survey did not consider it to be of the top-three challenges to developing the industry, the review noted.

In other countries where uncertainty exists concerning the development or revision of energy policies, such as South Africa, DR Congo and Tanzania, respondents indicated that the uncertain regulatory framework was a significant impediment to developing an African oil and gas business.

The review added that exploration and production E&P companies will largely be relying on their own cash flows to fund their own businesses over the next one year. The companies are funding their operations differently from the other industry players with less than 40 per cent of funding coming from cash flow. This can largely be attributed to blocks and regions yet to come into production. For E&P companies, farm-outs are the second-most common form of financing in Africa, with around 100 farm-out deals being made across the continent during 2013.

The oil and gas industry has become one of the biggest sectors for merger and acquisition activities in Africa. On average, transactions worth US$1bn occurred every 17 days in the oil and gas industry during 2013, with more activity expected as new licence rounds are opened up and regulatory uncertainty is removed.

The governments and national oil companies are now playing a significant role in sustaining growth and development in Africa’s oil and gas sector, according to the review. Many African countries have a host of stringent laws and regulations that create challenges for companies and international investors to overcome.

“Operational planning therefore needs to be carefully thought out, taking into account demand growth, infrastructure requirements, investment needs and potential, long-term strategies and the role of government if companies and countries want to sustain growth and development in Africa,” Bredenhann noted.

PwC now has plans to invest hundreds of millions of dollars in Africa across its network and wants to double headcount in the continent over the next five years, mainly through local hires. It employs 8,500 people in Africa, of which 4,500 are in South Africa.

The firm also aims to forge closer links between its UK and African operations as British companies look to tap into the rapidly expanding growth of the continent, reported the Financial Times.

Ian Powell, UK chairman and senior partner at PwC, said, “There is huge capacity for growth in Africa and demand for services from companies who want to invest in Africa or are already there and want to expand.”

Foreign direct investment (FDI) in African countries tripled from US$15bn in 2002 to US$46bn in 2012, according to the UN Conference on Trade and Development.

The review noted that the sub-Saharan Africa‘s economy is expected to grow six per cent a year over the next four years, with Nigeria, Kenya and Ghana among those expected to achieve growth rates of seven per cent or more this year, according to the International Monetary Fund.

Powell estimated that about 250 of PwC’s UK employees are first or second-generation African, and many want to relocate or take a secondment to the continent.

Suresh Kana, PwC Africa senior partner, said, “This investment will help us build more local capacity, and create teaming and secondment opportunities.”

Key industry sectors that PwC is targeting are capital projects and infrastructure, oil and gas, government and public sector, and financial services.

Powell said that the developed and mature economies have an ageing population and the single biggest concern from chief executives is access to a talented and educated workforce. Africa could provide a solution to that concern.

He added that a key area is helping companies to develop governance in Africa. “We work with local regulators, governments and companies to improve governance, rather than standing off and waiting until governance has improved.”

The Africa initiative is part of PwC’s strategy to develop high potential markets and follows investments in central and eastern Europe and the Middle East.

 

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