Regulatory uncertainty remains the top challenge facing oil and gas businesses in Africa, with 70% of organisations citing it as one of the five biggest issues they experience. This has been disclosed in PwC’s ‘Africa oil & Gas Review, 2016.’
However, the report has also identified low oil prices as a major challenge for operators in Africa’s oil and gas sector.
“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 FIDs (final investment decisions) on over US$300bn of projects.”
Organisations identified the price of oil and natural gas as the most significant factor that would affect their companies’ businesses over the next three years, with respondents expecting the price to reach US$52 by the end of 2016, US$60 by the end of 2017, and US$69 by the end of 2018. With little control over the price, businesses have focused on improving efficiency and driving down costs.
But the top challenges identified by organisations in the oil & gas industry have remained unchanged according to the report which is its third year. Uncertainty in regulatory frameworks, corruption/ethics, poor physical infrastructure and a lack of skill resources and the main challenges identified by players in the oil and gas sector.
The regulatory challenges cut across Africa. In South Africa, there have been commitments to address regulatory concerns since 2015 and the intention of Government to separate regulations for oil & gas from the mining industry was communicated.
However, the Minerals and Petroleum Resources Development Act (MPRDA) has not yet been changed and approved to reflect such modifications. In Tanzania, the regulatory environment remains uncertain despite the promulgation of the Petroleum Act in 2015. Furthermore, in Nigeria, the Government has failed to pass the Petroleum Industry Bill into law.
This year, there was also a significant rise in the challenge of meeting taxation requirements, as well as government relations. But the report also notes that despite the bleak landscape, the African continent still offers significant opportunities in the oil and gas sector.
“It is an opportune time for governments that want to attract oil and gas investors to reform their regulatory, fiscal and licensing systems,” says Chris Bredenhann, PwC Africa Oil & Gas Advisory Leader.
Bredenhann says it is also important for the industry to look beyond the challenges caused by depressed prices and consider other forces that are shaping the industry.
“Fortunately, the industry remains optimistic, and many upstream players are focusing on exploration and finding new resources over the next three years, most likely in anticipation for an upturn in the oil price,” adds Bredenhann.
PwC’s ‘Africa oil & Gas Review, 2016’ suggests that with the ongoing focus on cost reduction in the industry, the demand for innovation in technology will grow.
Furthermore, this can be the ideal time for the industry to consider introducing training programmes to upskill levels and company standards in order to give local players a chance to enter the sector when activity picks up again.
PwC’s ‘Africa oil & gas review, 2016’ analyses what has happened in the last 12 months in the oil & gas industry within the major and emerging African markets.
As at the end of 2015, Africa has a proven natural gas base of 496.7 trillion cubic feet (Tcf), down marginally from 2014, with 90% of the continent’s natural gas production still coming from Nigeria, Libya, Algeria and Egypt.
