PwC: Africa’s oil and gas industry needs to ‘learn to leapfrog’

Chris BredenhannPwC’s Africa oil and gas review, 2017 analyses what has happened in the last 12 months in the oil and gas industry within the major and emerging markets

The oil and gas industry in Africa continues to face market challenges arising from the low oil price, competition for revenue growth and local talent together with new expectations from investors and regulators.

“Africa’s oil and gas industry is experiencing significant change and upheaval. There are fundamental shifts in companies’ strategies, business models and ways of working,” says Chris Bredenhann, PwC Africa Oil and Gas Advisory Leader.

“The time is opportune for oil & gas companies to take up and utilise advances in technology as an enabler in meeting some of the challenges faced. Instead of playing catch up the rest of the world, we believe that the industry should be ‘learning to leapfrog’ so that they are not only ahead of disruption – they actually cause it,” Bredenhann says.

PwC’s Africa oil and gas review, 2017 analyses what has happened in the last 12 months in the oil & gas industry within the major and emerging markets.

As at the end of 2016, Africa is reported to have had proven natural gas reserves of 503.3 trillion cubic feet (TcF), up 1 per cent in total gas reserves on the continent. About 90 per cent of African gas production continues to come from Algeria, Nigeria, Egypt and Libya though the overall quantity produced in 2016 reduced by 1.1 per cent down to 208.3bcm.

Africa’ share of global oil production has continued its downward trend from the past four years, dropping sharply, moving it down from 9.1 per cent of global output last year to 8.6 per cent.

The top challenges in the oil and gas industry have remained similar to those in previous years with uncertain regulatory frameworks, corruption, and tax requirements remaining in the top six for the past four years. It is notable that financing costs and foreign currency volatility have both become more critical challenges since 2015 when they were ranked 11th and 10th respectively.

“It is disheartening that governments are not catching up to demands and calls from oil and gas companies to ensure regulatory certainty to players who are looking to invest in hydrocarbon plays in various African countries,” Bredenhann comments. Upstream regulation in South Africa remains uncertain, with the separation of oil and gas from mining still not achieved in the Mineral and Petroleum Resources Development Act (MPRDA). Other key markets in Africa, such as Nigeria and Tanzania, are also experiencing significant regulatory issues.

Corruption has remained among the top three challenges over the last four years, with numerous instances occurring across the continent. Despite the existence of anti-corruption programmes at government and corporate levels, the effectiveness of such programmes is questionable. In the context of corruption issues, it is not surprising that the costs of finance have risen to third among major challenges for African players. It is likely that the regional issues and uncertainties combined with a constrained wider industry, have led banks and other institutions to be wary of offering favourable financing terms.

The lack of skills development continues to be a problem in Africa, and it is becoming a global challenge in the oil & gas industry overall.

Chris Bredenhann's full report can be viewed here

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