By: Roddy Barclay

Sub-Saharan Africa’s frontier exploration acreage is squarely back on the radar of international oil companies as a healthier outlook for oil and gas prices fuels a resurgence in risk appetite. While the past three years have seen a collapse in investment in exploration as most companies seek to cut costs, streamline operations and reduce risk, this has brought many positive changes to the industry, including more efficient operations and the introduction of new cost-saving technologies.

But, with analysts now predicting a chokepoint in global supply amid a continuing rise in demand come the mid-2020s, companies are now actively competing to secure prospective acreage, particularly in the underexplored regions of Africa’s transform margin in the Gulf of Guinea and new frontiers in the Indian Ocean.

In the latest of signs that African governments are looking at ways to attract greater investment, Gabon announced recently that it had revised its petroleum code, bringing in more favourable terms for investors – a decision that was widely welcomed at the Africa Oil Week conference, in Cape Town. Angola has already introduced more favourable fiscal terms to encourage investment in its marginal fields, while even Nigeria has placed plans for fiscal revisions on the back burner. Meanwhile, a host of countries, such as Liberia, Ghana, Madagascar and Sierra Leone, are planning new licensing rounds to attract new investment. There is growing interest in frontier markets like Guinea, Liberia, Madagascar and even the Comoros, Guinea-Bissau and Sao Tomé and Principe, which were previously beyond the bounds of most companies’ risk appetite.

We anticipate significant interest in upcoming licensing rounds and an increase in merger and acquisition (M&A) activity as Africa’s upstream market hots up again. Scanning across some of the regions of interest, the outlook is mixed in this regard.

MSGBC

Senegal is leading the charge in the development of the MSGBC basin – comprising Mauritania, Senegal, the Gambia, Guinea-Bissau and Guinea (Conakry) – which is showing huge potential. Despite controversies surrounding some of the initial licence awards, the Senegalese government is making notable progress towards strengthening its legal and institutional frameworks, and the advancement of the Cairn-Woodside and BP-Kosmos assets is set on a strong path, boding well for the industry’s development. Even negotiations with Mauritania around the co-development of infrastructure have proved largely constructive in a positive sign for this nascent industry. Off the back of the finds, there is also increasing interest in Guinea-Bissau’s offshore potential.

The Rest of West Africa

Abandoned during the downturn, frontier markets on the transform margin, such as Guinea (Conakry) and Liberia, are now back on the radar of interest, and even Sierra Leone, which has not seen as much activity in the past, is planning a licensing round in 2019. Both Ghana and Côte d’Ivoire are also seeing interest in remaining blocks that are up for sale, while there has also been some M&A activity, notably with BP coming into the mix in Côte d’Ivoire through its partnership with Kosmos. The resolution of the border dispute between the two countries has eased conditions for development but, while Ghana’s industry is developing robustly under the New Patriotic Party administration of President Nana Akufo-Addo, concerns are rising over how succession in Côte d’Ivoire will be managed as President Alassane Ouattara steps down in 2020.

Central Africa

As a region suffering from dwindling production, the recent oil price downturn has injected much-needed urgency into oil- sector reforms. These have seen Gabon revise its petroleum code, Angola introduce more favourable fiscal terms for its marginal fields and Cameroon concertedly support the development of its liquefied natural gas project. Licensing activity is also picking up in Gabon, the Republic of Congo and even São Tomé and Princípe, in a further sign of an industry uptick. However, this region remains characterised by some of the highest levels of political interference and mismanagement, which can cause unending headaches for the operators trying to advance projects, with the Democratic Republic of Congo under particular scrutiny in this regard.

East Africa and the Indian Ocean

Tanzania is taking steps backwards after the major gas find by the BG-Shell-ExxonMobil-Equinor consortium. As President John Pombe Magufuli seeks to push a strident nationalist agenda, he seems to be intent on introducing stringent terms into the host government negotiations around the development of the asset, which has unsettled existing investors and is deterring potential exploration interest.

Negotiations around the construction of the East Africa pipeline from Uganda have also been complicated by some of the demands being made by both the Tanzanian and Ugandan governments, though it is expected that, ultimately, these will be smoothed over. Interest in the frontier fields of the Indian Ocean, notably Madagascar and the Comoros, where they border on Mozambique’s geological finds, is picking up once again, even though political instability in both countries represents a real risk in the current climate.

Conclusion

As ever when operating at the frontier, understanding and managing above-ground risk will be critical to the success of projects and the mutual benefit that different actors can draw from the development of natural resources. The need for a stable and balanced fiscal framework and a conducive environment for advancing projects remains critical. The raft of legislative reform witnessed over the past decade in many countries provides a positive foundation from which this can happen, though the application of the law will be equally important if Africa is to seize the opportunity now presented.

• Barclay is director of intelligence and analysis at strategic risk advisory firm Africa Practice.