AFRICAN LICENSING ROUND AND GLOBAL OIL & GAS CHALLENGES.
Oil prices are now at their lowest since the last eighteen years due to the significant slump in global demand accentuated by the coronavirus pandemic ravaging the entire world. The collapse of the oil and gas market is pushing the global economy into recession and creating new economic challenges for producing African countries. Unfortunately, due to years of overdependence on the oil and gas industry for over 80% of export revenues, the economies of the producing countries have become vulnerable to the vagaries of prices in the oil and gas industry. Africa’s annual growth is predicted to drop to 1.8% from a previous estimate of 3.2%. The continent’s oil dependent economies could lose significant income as falling prices are already affecting exports of oil and gas by the producing countries, thereby precipitating the compromising of the recent growth and sustainable development achievements recorded by the countries. In this paper, we have attempted to review the experience of some countries with bidding rounds to show that African producing countries are undeterred by recent developments in the global oil and gas industry, particularly since the outbreak of the coronavirus pandemic. The paper is divided into three parts with the introduction as the first part. Parts two and three are respectively, the licensing rounds in some producing countries and concluding remarks.
In spite of the challenges in the global oil and gas industry, African producing countries remain undaunted about the prospects of the industry, which has become the economic sustenance and engine of growth for their countries. This optimism is captured by their continued commitment to put substantial acres up for bidding rounds so as to exploit the opportunities for sustaining investment in the sector. Across Africa, most of the producing countries have, over the past two years either launched, or are planning to launch or recently concluded bidding rounds despite the current uncertainties and low-price regimes that have dampened investments in the international oil and gas market.
Nigeria, the largest oil and gas producer in the continent, launched the first marginal field award bidding round in nearly 20 years on 1st June 2020. The first marginal field bid process started in 2001 and resulted in the award of 24 marginal fields to 32 companies. A bid round was scheduled in 2013 but was initially significantly delayed and ultimately abandoned. Nigeria’s marginal fields’ accounts for less than five percent of total output. An investor’s guide to Marginal Oil field acquisition prepared by the government stated that Nigeria has an estimated 2.3 billion barrels of crude oil reserves in over 183 fields classified as marginal. However, despite this enormous potential, marginal field still contribute poorly to Nigeria’s total production. Since marginal fields are oil fields that International Oil Companies (IOCs) abandon because of limited commercial viability. It provides opportunities for indigenous players to invest in them and gain oil exploration experience and expertise in line with the local content policy of the country.
But in a low oil price environment and with huge exposure to Nigerian banks by local oil and gas companies, few local operators would have the financial muscle to participate in a bid round. Nonetheless, in the 2020 bidding round announcement, a mixture of onshore, swamp and shallow fifty-seven (57) marginal fields were made available. The Department of Petroleum Resources DPR) who is in charge of the bidding rounds also released new guidelines covering the bid process, the award and farm-out of marginal fields and their operation. Marginal fields are awarded to indigenous companies but often involve farm-in and joint venture arrangements with international oil companies (within mandatory maximum participation allowances). Historically, these arrangements have involved the provision of technical and financial services to the indigenous oil company, who must be the designated operator of the field. The award of the marginal fields triggers a farm-out agreement to be made with the original Oil Mining License (OML) holders, which allocates responsibilities and liabilities as between the area holders, as well as the royalty payable and terms for accessing infrastructure.
Angola, the second African oil and gas producer, announced the next phase of its licensing round in late February 2019, after several new exploration and production laws were passed in 2017 to make the legislative and fiscal terms conducive to investment. These reforms have been largely well-received by the international oil companies operating in the country as some of them (Total, British Petroleum, and ExxonMobil) have taken new Final Investment Decisions (FIDs) on field developments, commencing new exploration drilling, and signing new agreements for exploration acreage.
In 2020, acreage in the onshore Lower Congo and Kwanza Basins is to be made available via a Public Tender. The majority of these blocks were also previously offered in 2014, with bids received from predominately local companies, many of which did not have exploration and production backgrounds. No licenses were awarded due to the unsuitable fiscal terms on offer and lack of capacity of the companies involved. Offshore acreage will be made available in 2021, mostly in the shallow Kwanza and deepwater Lower Congo Basin, via Limited Public Tender. Another Tender will take place in 2025 with blocks to be offered in the deepwater Kwanza Basin. Further onshore acreage is to be made available in another Public Tender in 2023. Due to the strategic importance of the oil and gas sector in the country’s economy, Angola is determined to encourage investment in the sector to palliate the adverse effects of the current developments in the global oil and gas industry.
The Republic of Congo, the emerging third largest Sub-Saharan African oil and gas producer announced inlate 2019 an open-door policy for onshore and offshore exploration and production opportunities. According to a press release by the Minister of hydrocarbons, Jean-Marc THYSTERE TCHICAYA, despite the current difficulties in the oil and gas sector, the country would continue to renew its reserves and provide the economic foundation for using the hydrocarbons resources to achieve the industrial development of the country. The Minister used the fourth edition of the International Conference and Exhibition on Hydrocarbons in Congo (CIEHC4), organized in partnership with AMETRADE and held in Brazzaville in early February 2020, to lay out the strategies of the country in promoting investment into the sector. He used the occasion to appeal to investors to participate in the Congo license round 2019-2020 launched in late October 2019. The licensing rounds concern the five (5) open blocks in the interior Cuvette Basin and the ten (10) open blocks in the Coastal Basin. He reminded the investors about the enormous exploration potential of this unexplored area of the Congo hydrocarbons domain, itself a part of the vast Congo Basin.
Equatorial Guinea launched its offshore licensing round in April 2019 and out of the twenty-seven blocks initially put on offer, nine have so far been awarded on the basis of joint venture with the National Oil Company. This is to ensure the promotion of local content and the transfer of technology and skills to the citizens of Equatorial Guinea as well as to regional experts and professionals in African countries as a way of encouraging regional content.
Gabon recently extended its 12th Offshore License Round from January 2020 to April 30th, 2020. The acreages on offer include 12 shallow water and 23 deepwater blocks. Together, the blocks span over 17,000 square kilometers of offshore area and it includes unexplored areas with good potential for hydrocarbon reserves.
In Ivory Coast, the National Oil Company, Petroci, launched a mini-licensing round in November 2019 and put on offer 13 offshore blocks. Two of the blocks on offer are located in shallow waters off the coast of Abidjan, the commercial capital of the country. The remaining three are found close to the maritime border with Ghana.
South Sudan invited investors to participate in the 14 blocks on offer in a licensing round scheduled for the first quarter of 2020, however this has now been postponed due to COVID-19. The country obtains virtually all its revenues from the sale of its oil and gas resources and it is determined to use the sector to rehabilitate and rebuild the economy that have been devastated by the civil war. The country’s production is currently estimated at 180,000 barrels per day and it hopes to boost output through the licensing rounds. The blocks that have been slated for offer are blocks A1 to A6 on which data are being currently gathered and the bidding rounds will be on a competitive basis to ensure the verification of investors.
The National Oil Company of Senegal, PETROSEN, launched its first offshore round in January 2020 with 10 offshore exploration blocks in the MSGBC basin. The basin is relatively unexplored, despite being the site of some of the most significant discoveries in recent times. In 2017, the Yakaar-1 gas well yielded the largest global discovery and in, the Gratet Tortue Ahmeyim project was the largest global gas discovery in 2015. These huge discoveries have put Senegal in a good position to become a major gas country in the foreseeable future. In launching the rounds, the government assured prospective investors of a favorable investment environment and a stable regulatory framework. It called on investors to take advantage of the vast opportunities in the Senegalese emerging oil and gas industry.
The 2020 Somali licensing round – launched virtually due to Covid-19 – features up to 7 blocks up for bidding which are estimated to be among the most prospective areas for hydrocarbon explorations and production in Somalia. This licensing round will open on 4 August 2020 and will be closing on 12 March 2021.
Egypt announced in December 2019 that it had awarded three out of a possible ten concessions in its premier Read Sea licensing round. The winners were Chevron and Shell Petroleum which have committed $326 million to exploring blocks with a combined area of 10,000 kilometers. Shell and its partner, Mubadala Petroleum, from the United Arab Emirates were jointly awarded block 4, with Chevron taking up blocks 1 and 2. All the blocks are located in northern Red Sea waters. Egypt is also considering launching more licensing rounds on the Western Mediterranean, with as many as 11 blocks on offer. The interest generated by the international oil companies in the licensing rounds is an indication of the expansion of investment in the petroleum sector and its contributions to the economic aspirations of the country.
In Uganda, a bidding round was launched in September 2019 with five blocks in the Albertine Graben area on offer to a mixture of international oil companies, local companies and those that were willing to enter into a joint venture. The deadline for submitting the application for qualification on the five blocks on offer in the Albertine Graben is September 30th, 2020. The attractiveness of the Albertine Graben is that only 40% of its total area have been explored so far with astounding 90% success rate.
We have only highlighted the licensing rounds in some of the major and emerging oil and gas producing countries in Africa, despite the current uncertainties and discouraging price regime in the global oil and gas market. The interesting developments in the continent is that in many countries, simultaneously with legislative changes being made, significant volumes of new seismic data have been acquired. This has taken place as service companies seek to utilize vessels which were not being awarded contract work through the downturn. This meant that almost all bid rounds now are accompanied by modern, and in many cases expensive, technical data packages. Most licensing rounds are also receiving some degree of support from one or more service companies, who are under pressure to sell data packages to recoup money invested. This will mean that exploration work can take place at a much faster pace on any awarded blocks but has probably contributed to the fact that companies are struggling to assess all the data that is available to them. Thus, creating the opportunities to explore vast unexplored areas and thereby increase the level of oil and gas production and reserves of the continent.
Overall, despite the difficulties in the global oil and gas industry, it is a very exciting time for exploration in Africa. It is anticipated that most, if not all, of the opportunities on offer will generate interest from investors in the industry. Hopefully, African oil and gas producing countries will learn lessons from the economic challenges of largely depending on oil and gas revenues. This is an opportunity for them to diversify their economies by using the resources generated by the sector to cushion their countries against the cyclic uncertainties in the global oil and gas market.