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The PwC Africa Oil & Gas Advisory Leader, Chris Bredenhann has asked African oil producing countries to see the drop in oil prices as a wake-up call to pass favourable legislation in order to attract investment into the sector.
According to him, countries such as Kenya, South Africa and Tanzania have been taking a serious look at legislation currently in place with a view to making it more investor-friendly. As oil prices declined in 2014, the industry response has been far-reaching with significant reduction in headcount and other cost cutting measures. Capital budgets have also been cut, and frontier exploration activity has decreased.
“While response to such a drastic decline is necessary, we have seen the most successful organizations are taking time to re-set, re-strategize and plan for the upturn in prices, which will inevitably come. Africa should be no exception as many of the frontier exploration plays lie on the continent,” Mr. Bredenhann added.
As at the end of 2014, Africa has proven natural gas reserves of just under 500 trillion cubic feet (Tcf) with 90% of the continent’s annual natural gas production still coming from Nigeria, Libya, Algeria and Egypt.
Also, the PwC’s ‘Africa oil & gas review, 2015’ which analyses what has happened in the last 12 months in the oil & gas industry within the major and emerging African markets noted that the main challenges identified by organizations in the oil & gas industry had remained largely unchanged with the top three issues of uncertain regulatory framework, corruption and poor physical infrastructure.
Uncertain regulatory frameworks remain a concern across the industry, with more than 80% of Tanzanian respondents regarding regulatory uncertainty as the top challenge facing the business. Other countries where respondents cited concern about regulatory uncertainty include Nigeria, Kenya and Angola, it stated.
The inadequacy of basic infrastructure ranked much higher in the current review than in 2013. Areas in which infrastructure remains limited are likely to see the development of existing discoveries stalled unless there is a domestic need for the resource.
Organizations identified the price of oil and natural gas as the most significant factor that would affect their companies’ businesses over the next three years.
“This is not surprising given the current uncertainty around the market,” Brendenhann stressed. He added: “Fortunately industry players are looking beyond current prices when planning for the longer term.” The results of the report show that a high 90% of respondents expect the oil price to increase gradually over the next three years.
People skills and skills retention is rated the second most likely factor to impact business over the next three years. Community/social activism, instability and unstoppable political events, ranked fourth, are a noteworthy concern in the oil & gas industry.
Organizations from South Africa, Mozambique, Nigeria and Kenya, in particular, expected community/social activism/instability and unstoppable political events to have a significant impact on their business. Asset management and optimization also remains a top strategic focus area for oil & gas companies over the next three years.