There has been a ray of hope: a landmark production-cut agreement among
OPEC, OPEC+ and G20 stakeholders on April 12 put an end to the oil price
war
Stunning drops in crude oil prices—the result of COVID-19-related
declines in demand and an oil price war between Saudi Arabia and
Russia—have been taking their toll around the globe this spring. For
Africa’s oil-producing countries, where crude oil exports make up a
large portion of their revenue, the situation is especially dire.
In Nigeria, for example, Finance Minister Zainab Ahmed recently warned
of an imminent recession and requested billions of dollars in
international emergency funding. As of the second week of April,
national oil production in Angola was expected to fall from 1.8 million
to 1.36 million barrels per day as the government prepared to freeze 30%
of its goods and services budget. And Ghana, according to the Africa
Centre for Energy Policy, stands to see a 53% shortfall this year in
projected revenue from crude oil sales. There are similar difficulties
across the continent.
There has been a ray of hope: a landmark production-cut agreement among
OPEC, OPEC+ and G20 stakeholders on April 12 put an end to the oil price
war. Shortly after that historical agreement, the African Petroleum
Producers Organization (APPO) committed to significant crude production
cuts of its own, effective May 1. While demand remains a concern, the
production cuts will help lower oil inventories and should bring some
stability to the oil market.
I am not saying we can expect smooth sailing from this point on. There’s
no denying that the COVID-19 pandemic will continue to test African
countries on multiple fronts, from the health and safety dangers it
poses to our people to the economic devastation and low demand for
crude. The situation is painful, but it’s not permanent. And when this
chapter is over, African countries will recover.
This is the time to lay the framework for that recovery. When demand for
crude oil increases again, and it will, Africa will need exploration and
production activities to resume. That means oil and gas ministries
should be working now on regulations that foster a more enabling
environment for investors and businesses. We should be fine-tuning our
local content policies and exploring technologies that can contribute to
a leaner, more profitable petroleum sector. Last October, I released a
book that explains how we can accomplish these things, along with other
measures that will help Africa better capitalize on its oil and gas
resources. The ideas and examples it provides remain on point. We can
still do this.
Exploring Solutions
With demand for oil at a historic low, it may seem odd to talk about E&P
activity. But, as I have said, the situation we find ourselves in now is
temporary. After we get through the current crisis, production will play
a critical role in our economic recovery. We need indigenous companies
involved so employees, business partners, and suppliers can benefit from
these activities. We also need foreign companies that are willing to
share knowledge and technology—and to create economic opportunities in
the communities where they operate. That’s why it’s vital that
government leaders take steps now to remove obstacles to launching
production, from red tape and lengthy delays to excessive taxes.
Governments also need to support smaller independent companies by
breaking exploration maps into smaller sections. And we need better
fiscal terms for companies like breaks on import duties.
This isn’t my first time to call for these things, I cover them in-depth
in my book, Billions at Play: The Future of African Energy and Doing
Deals. But in the COVID-19 era, they’ve become more important than ever.
Local Content: Striking a Balance
African countries need to develop fair, balanced local content policies
that create economic and educational opportunities for Africans without
overly burdening foreign investors and discouraging them from operating
here. A shining example of this kind of balance can be found in
Equatorial Guinea, which I wrote about in Billions at Play. “The
government enacted requirements for international companies to hire
Equatoguineans, contribute to training programs, and work with local
subcontractors. They were careful to balance the need to boost local
industry, however, with the limitations of the current local industry.
They understood how unrealistic it was to require 100 percent local
content until more training, education, and local capacity in that field
is created.”
I’d like to see more African countries consider the example of
Equatorial Guinea, along with successful local content policies in
Nigeria and Angola, also covered in my book. Effective local content is
key to helping everyday Africans realize the benefits of Africa’s oil
and gas resources. This is a good time for leaders to look at what works
and what doesn’t in their own policies and make the necessary
adjustments.
It’s Time for More Tech
COVID-19 has forced companies around the globe to rely on technology to
function, whether they’re using it to hold virtual meetings or monitor
vital assets. I’m confident that technological solutions will play an
important role in the comeback of Africa’s oil & gas industry, too. In
my book, I described technology’s potential to help indigenous African
oil & gas companies operate more efficiently and boost profits, which in
turn, benefits their communities and promotes economic growth.
“Innovations such as the development of new ways to drill wells and
handle equipment, the design of new seismic data collection programs,
the management of petroleum data systems, and the monitoring and
protection of internet-connected equipment have the potential to
redefine how business is done in this sector.”
Now, with economic difficulties and low oil prices, benefits like these
could be more valuable than ever. I encourage African oil and gas
companies to work with one another, and with local tech firms, to
augment their technological capacities. African companies also should be
pursuing partnerships with foreign investors that are open to technical
knowledge and skills transfers. Billions at Play describes the successes
that Angola-based Friburge Oil & Gas has had partnering with
international technology providers to drive efficiency and
environmentally friendly production methods. We need to see more
companies doing the same. Governments can support these efforts through
local content policies that call for knowledge sharing, along with the
creation of educational initiatives and public-private partnerships.
Long before the unthinkable happened, and COVID-19 changed our world, I
made a case for strategically harnessing Africa’s oil and gas resources
to create stability and economic growth. Now, because of the pandemic,
we find ourselves in a difficult place with extremely low oil prices and
faltering economies. As a result, some of those strategies I’ve
recommended may have to go on hold. Nevertheless, the steps I’ve put
forth to help us reap the full benefits of our petroleum resources will
still have merit when we emerge from this trial. If we start preparing
now to set them in place, they’re even more likely to be successful.
Distributed by APO Group on behalf of African Energy Chamber.
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NJ Ayuk is Executive Chairman of the African Energy Chamber, CEO of
pan-African corporate law conglomerate Centurion Law Group, and the
author of several books about the oil and gas industry in Africa,
including Billions at Play: The Future of African Energy and Doing
Deals.