Africa is experiencing an oil-and-gas boom as the continent’s relatively unexplored prospects present a tantalizing draw for foreign oil companies eager to feed the world’s growing energy appetite.
The continent now represents one of the world’s last untapped oil-and-gas hot spots where foreign companies of all stripes are converging to explore promising basins, and taking advantage of lucrative production-sharing agreements that are unavailable in other oil-rich nations.
The oil business on the continent is a high-stakes and often risky venture for all involved, but strategically crucial for African countries and major oil-consuming nations. The world’s biggest importers, the United States and China, view Africa as key to their energy and, hence, economic security. African countries see investment in resource projects as a path to development, and companies from all over the globe are investing billions of dollars to secure new reserves and earn fat profits.
Many African countries have only begun to realize the potential bonanzas off their coasts, and investment is broadening beyond the continents’ oil powerhouses of Nigeria and Angola. That presents potentially rewarding opportunities for oil companies getting in on the ground floor of rising energy nations, but it also brings political risks. Some countries may eventually follow the lead of other oil-rich states in demanding a larger slice of the pie for themselves.
“It’s not easy to enter that area,” said Steve Laut, president of Canadian Natural Resources Ltd. CNQ-T in an interview. “You have to have the expertise and you have to build strong government relations. And now in West Africa, you are competing with national oil companies and that may scare some companies off.”
Steve Laut, president and chief operating officer of Canadian Natural Resources. — Todd Korol/Reuters
CNRL is spending $260-million to develop its stake in West Africa’s growing offshore oil production. And the Calgary company has property off South Africa where it intends to conduct what it calls a high-risk but potentially high-reward exploration.
Known more for its oil sands focus, CNRL has steadily ramped up production in West Africa as part of its strategy to leverage expertise gained in the North Sea, and to replace declining production in that aging field.
The Canadian company began pumping oil last year from its Olowi field, 20 kilometres off Gabon’s coast, and is adding additional production platforms this year. It will also do some drilling to replace expected declines on two fields, Baobab and Espoir, off Ivory Coast.
The African projects are among the company’s most profitable. Last year, CNRL boosted its West African crude output by 23 per cent to more than 32,000 barrels per day, though it expects production growth to flatten out in the coming years.
In Africa, energy companies are increasingly drawn to offshore oil projects, where they can avoid the civil wars and ethnic violence that have plagued the continent, often fuelled by unequal distribution of resource wealth, said Philippe de Pontet, analyst with New York-based Eurasia Group, a political risk firm.
Countries like Ivory Coast and Sierra Leone recently emerged from civil wars, and their growing oil revenues could help finance reconstruction. But they must be careful to avoid the “resource curse” that has often enriched elites and offered little to local populations.
Until recently, offshore plays have attracted smaller, independent energy firms, but now the majors and national oil companies are moving in.
“Every company I know of is active in West Africa,” said Fadel Gheit, New York-based analyst with Oppenheimer & Co.
And the West African offshore will attract even more attention – and exploration dollars – if the U.S. drives up the cost of drilling in the prolific Gulf of Mexico by imposing new regulations in response to the devastating April 20 blowout of BP PLC’s Deepwater Horizon well.
