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Africa: The new crude frontier Add to ...

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. 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.

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.

<iframe width="600" height="400" frameborder="0" scrolling="no" marginheight="0" marginwidth="0" src="http://maps.google.ca/maps/ms?hl=en&ie=UTF8&msa=0&msid=103335406819895550235.00048631d75b87204909d&ll=-10.314919,13.535156&spn=65.423273,105.292969&z=3&output=embed"></iframe><br /><small>View <a href="http://maps.google.ca/maps/ms?hl=en&ie=UTF8&msa=0&msid=103335406819895550235.00048631d75b87204909d&ll=-10.314919,13.535156&spn=65.423273,105.292969&z=3&source=embed" style="color:#0000FF;text-align:left">Some Canadian and international oil and gas projects in Africa</a> in a larger map</small>

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.

<iframe src="http://www.coveritlive.com/index2.php/option=com_altcaster/task=viewaltcast/altcast_code=81e90f2495/height=650/width=600" scrolling="no" height="650px" width="600px" frameBorder ="0" allowTransparency="true" ><a href="http://www.coveritlive.com/mobile.php/option=com_mobile/task=viewaltcast/altcast_code=81e90f2495" >Investing in Africa</a></iframe>

"With more stringent environmental rules [expected]in the U.S. after this Gulf of Mexico disaster, that will help West Africa," Mr. Gheit said.

Houston-based Anadarko Petroleum Corp. and the U.K.'s Tullow Oil PLC reported significant finds in Uganda, and off the coasts of Ghana, Ivory Coast, Liberia and Sierra Leone, where companies hope that offshore developments could rival some existing fields further south.

Anadarko has also struck natural gas off Mozambique, in East Africa, while exploration companies are touting Kenya and even Somalia as prospective oil and gas producers.

Off the coast of Ghana, Anadarko has made two discoveries - Jubilee and Tweneboa - that have led the industry to conclude the deep water north of the Gulf of Guinea holds major crude oil fields. Some geologists believe West Africa was once part of the same geological formation that includes the oil-rich Gulf of Mexico and offshore Brazil, and that there may be vast deposits in the ultra-deep offshore.

While there have been many promising discoveries, Africa remains a relatively modest player in terms of actual energy reserves, accounting for less than 10 per cent of the global total. In the sub-Saharan region, only Nigeria and Angola have world-class reserves.

Super-major Exxon Mobil Corp. spent a quarter of its capital and exploration budget in Africa last year, or $6.2-billion (U.S.), just slightly behind spending in Asia and the Middle East as the company's largest regional commitment.

The lion's share of Exxon Mobil's efforts is going to Angola and Nigeria. The two members of the Organization of Petroleum Exporting Countries both produce about 2 million barrels per day and represent major sources of imported oil to the U.S. and China. Exxon expects to add 127,000 barrels per day in production in Angola over the next three years, and 82,000 barrels in Nigeria. After 2012, it is planning four more projects for a net addition of 117,000 barrels per day in Angola, and 328,000 in Nigeria.

However, Nigeria has seen its production fall by 16 per cent - or more than 400,000 barrels per day - since 2005 as violence and civil conflict in the Niger Delta has impaired operations. And the country is now reviewing its royalty structure, raising concerns for foreign companies that their return on investment may suffer.

<iframe src="http://www.coveritlive.com/index2.php/option=com_altcaster/task=viewaltcast/altcast_code=de1490f51a/height=650/width=600" scrolling="no" height="650px" width="600px" frameBorder ="0" allowTransparency="true" ><a href="http://www.coveritlive.com/mobile.php/option=com_mobile/task=viewaltcast/altcast_code=de1490f51a" >Ethical investing</a></iframe>

Angola, over that same time span, boosted its output by more than 600,000 barrels a day, and has become the second-largest source of imported oil to China and a significant source for the U.S. The country has adroitly managed the competition between China and the West, securing Chinese capital in exchange for oil to build up its infrastructure, while attracting international oil companies such as Exxon and BP.

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