Now is an opportune time for governments in Africa wanting to attract oil and gas investors to reform their regulatory, fiscal and licensing systems, says PwC Africa oil & gas advisory leader Chris Bredenhann.
Speaking at the launch of PwC’s ‘Africa Oil & Gas Review 2016’ in Rosebank, on Monday, he pointed out that the continent still offered significant opportunities in the oil and gas sector, despite the current low oil price.
Bredenhann added that it was important for the industry to look beyond the challenges caused by depressed prices and consider other forces that were shaping the industry.
He highlighted that there was a significant rise in the challenge of meeting taxation requirements, as well as conducting government relations.
“Regulatory uncertainty has remained the top challenge facing oil and gas businesses in Africa for the third year in a row, with 70% of organisations citing it as one of the five biggest issues they experience,” Bredenhann said.
Around the continent, many organisations have experienced difficulty obtaining government sanction for new projects. The report noted that this was proving to be extremely difficult in new hydrocarbon provinces, such as Mozambique, as governments did not fully comprehend the intricacies and scale of oil and gas projects.
“As a result, organisations are beginning to ally themselves with government in order to ensure that they are a strategic and supportive partner,” Bredenhann stated.
He added that organisations identified the price of oil and natural gas as the most significant factor that would affect their businesses over the next three years, with respondents expecting the price to reach $52/bl by the end of 2016, $60/bl by the end of 2017 and $69/bl by the end of 2018.
With little control over the price, businesses have focused on improving efficiencies and driving down costs.
Bredenhann noted that regulatory compliance also remained a significant challenge for organisations this year and that foreign currency volatility was rated as likely to impact business over the next three years.
“This year, there have been large currency fluctuations – with the fallout from the Brexit vote precipitating some of the largest so far,” he said.
Asset management and improvement remained a key strategic focus area for companies; fortunately, the industry remained optimistic and many upstream players were focusing on exploration and finding new resources over the next three years, most likely in anticipation of an upturn in the oil price, Bredenhann added.
“Although there has been some recovery in the pricing environment, investor confidence remains low as a significant recovery does not seem to be on the horizon and oil market fundamentals are still down.”
The low oil price has led operators to defer final investment decisions on over $300-billion of projects. Globally, merger and acquisition activity has also dipped, with this trend likely to continue.
SUSTAINABILITY
Bredenhann said that in the current economic climate, oil and gas companies were looking to invest in a number of key areas to boost growth over the next three to five years.
Improved efficiencies ranked highest, followed by local content and skills development and infrastructure improvements.
“The oil and gas industry is faced with a higher entry barrier because technology and jobs tend to be more complex, highly specialised and costly,” he explained.
The sustainability of the industry will also be affected by drivers including the price of oil, the impact of renewable- and alternative energy sources, the emergence of new competitors, the environmental consequences of the industry, legislative frameworks and government takes.
DIGITAL REVOLUTION
PwC’s global research shows that oil and gas companies are slower than other industries to respond to using new technologies.
The company believes there are a number of trends that will ultimately transform the oil and gas industry including the Internet of things, building alliances, simplification and standardisation, solution-based buying, and knowledge transfer from international oil companies to oilfield services companies.
“The complexities and challenges facing Africa’s oil and gas industry have become daunting. As uncertain regulatory frameworks, taxation requirements and corruption continue to rank at the top of industry’s challenges in Africa, it is high time that governments make significant changes.”
Bredenhann added that players must look at the current state of the industry as an opportunity to reinvent themselves.
“Change is the way to survive in the ‘new energy future’. We need to see new business models, new products, new energy sources and new strategies to meet the new reality,” he said.