Africa’s oil and gas industry will survive Covid – with some changes

What will it take for Africa’s beleaguered oil and gas industry to survive in the post-Covid era? NJ Ayuk, Executive Chairman, African Energy Chamber, offers some solutions

At a time when Africa’s oil and gas industry is experiencing many difficulties, we’ve actually seen many positive developments across the continent. Mozambique and Uganda are showing much promise with huge investment commitments in oil and natural gas projects that could transform the lives of many.

In Mauritania and Senegal, the multi-billiondollar Greater Tortue Ahmeyim project is expected to be a big win for both countries. The offshore floating liquefied natural gas (FLNG) facility, a joint project by BP and Kosmos Energy, is projected to generate revenue, jobs, and affordable energy for the whole region.

What is in question today is when these projects will deliver on their hopes and expectations. The industry downturn and dramatic drop in demand, triggered by Covid-19, forced BP and Kosmos to defer 2020 Phase 1 capital spending, delaying the project by a year – it’s due to come on-stream in 2023 instead of 2022. Like everywhere else in the world, there will be delays. We’ve seen it with Shell’s Bonga South West and ExxonMobil’s Bosi, Owowo West and Uge-Orso. Licensing rounds are being postponed as well.

Members of the African Energy Chamber and leaders in the industry have been rocked by the devastating damage caused to the industry. It’s a painful time, but not a hopeless one. Oil and gas can still play a vital role in driving development and if we start making changes now, Africa’s oil and gas industry can survive in the era that follows Covid-19.

What will it take? Governments will have to take bold steps to make investment in Africa viable for international oil companies (IOCs). We’ll need improved models for local content too. As for companies, they’ll need to rely on digital solutions more than ever to streamline their exploration and production operations and enhance efficiency.

Making local content a priority

The chamber has been shouting about the importance of local content long before Covid hit, but policies that contribute to African people, communities, and businesses so that they benefit from the IOCs’ oil and gas operations will be even more crucial going forward.

The pandemic has made it practically impossible for IOCs to bring people from their countries to African worksites. That means they’ll be looking to local solutions: local workers and local companies to meet their needs. We need programmes that incentivise foreign companies to train Africans and knowledge transfer programmes. It’s in our mutual interest.

Policy changes can help with that. We’ve long called for tax incentives for companies that train and develop skills of a local force, within a certain critical mass. It’s a tough call right now, especially as governments are looking to shore up their own balance sheets, but they stand to gain in the long term. It will increase their tax intake over the long term and will help create a virtuous circle with projects and services being rendered locally.

No time to wait

As well as local content governments need to address red tape, which is excessive in the industry, and they must create fiscal terms aligned with the market realities of today. We should be incentivising exploration, which goes hand-in-hand with job opportunities for Africans and investments in African communities.

Alongside the chamber’s leadership, we developed a “Call to Action” to help navigate the current crisis. Governments need to implement a 24-month extension on exploration and production-sharing contracts (PSCs) so companies can reschedule drilling projects that have been put on hold or cancelled. Governments should also revise fiscal terms and look at tax deferrals. This will allow operators to meet their commitments and continue to raise capital. Failure to do so will cause much more damage as all investment will dry up.

Going digital

The industry is being transformed by technology. Companies are using big data and AI to make exploration and production more efficient and better maintain their assets. Anything that can reduce costs and enhance efficiency is worth the investment. Delaying this will make us uncompetitive. Again, IOCs need to support local companies and share technology, best practices, and the benefits of their experiences. We need to collaborate to overcome this crisis.

I’m confident that the industry will survive Covid-19 and that Africa will continue playing an important role. And I’m confident some of the changes we make today to “just get us through” will actually help the industry thrive – and consequently, help more Africans thrive – in the years ahead. ■