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PwC calls for regulatory reform in Africa's oil and gas industry

22 Aug 2016, 05:55 pm
Financial Nigeria
PwC calls for regulatory reform in Africa's oil and gas industry

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- PwC says with the right strategies, Africa’s oil and gas industry can witness significant investment and growth in technology. 

A pumpjack on an oilfield

PricewaterhouseCoopers, the global professional services provider, has released a new report stating that despite the bleak outlook in oil prices, Africa's oil producing countries still have an opportunity to attract investment in the oil and gas sector. PwC said with the right strategies, the continent’s oil and gas industry can witness improvement in infrastructure and significant growth in technology.  

According to PwC’s latest report, ‘Africa Oil & Gas Review, 2016,’ it is important for the industry to look beyond the challenges caused by the decline in oil prices and consider other factors that are shaping the industry. The report highlights preconditions for tapping into the significant opportunities that remain in the sector. These include the need to reform the industry's regulatory, fiscal and licensing frameworks.  

“It is an opportune time for local governments that want to attract oil and gas investors to reform their regulatory, fiscal and licensing systems,” said Chris Bredenhann, PwC’s Africa Oil and Gas Advisory Leader, in a statement released on Monday.

The PwC report states five biggest challenges being faced by oil companies in Africa. Among them are low prices of oil and gas, regulatory uncertainty, low investor confidence, and foreign currency volatility.  

“The complexities and challenges facing Africa’s oil and gas industry have become daunting. As uncertain regulatory frameworks, taxation requirements and corruption continue to rank at the top of industry’s challenges in Africa, it also high time that governments make significant changes,” said Bredenhann.

In Nigeria, the continent’s largest producer of natural gas, the government has failed to pass the Petroleum Industry Bill (PIB) into law. Despite commitments in South Africa to address regulatory concerns since 2015, and the intention of the government to separate regulations for oil and gas from the mining industry, the Minerals and Petroleum Resources Development Act (MPRDA) has not yet been changed and approved to reflect such modifications. In Tanzania, the PwC report said regulatory environment remains uncertain despite the promulgation of the Petroleum Act in 2015.

Oil companies identified the price of oil and natural gas as the most significant factor that would affect their businesses over the next three years. Respondents to the PwC survey expect oil prices to reach $52 by the end of 2016, $60 by the end of 2017, and $69 by the end of 2018.

As a result of these developments, investor confidence remains low, although there has been some recovery in oil prices in the international market. PwC said oil market fundamentals are still down and a significant recovery does not seem to be on the horizon. This has led operators to defer FIDs (final investment decisions) on over $300 billion of projects. Globally, mergers & acquisitions (M&A) activity has also dipped and it is expected that this trend will continue.

However, the report also highlights optimism by oil companies. With little control over the price, businesses have focused on improving efficiency and driving down costs.

“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,” said PwC’s Africa Oil and Gas Advisory Leader.

Asset management and optimisation remains a key focus area for companies. PwC said oil and gas companies are looking to invest in a number of key areas in order to boost growth over the next three to five years. The potential areas of investment are improved efficiencies, local content and skills development, and infrastructure improvements.
 
To miximise efficiency and transform the industry, PwC believes that oil and gas companies need to implement new business models. These entail the use of digital technology, building alliances, simplification and standardisation, solution-based buying, and knowledge transfer from international oil companies to oilfield services companies.

“Furthermore, players must look at the current state of the industry as an opportunity to reinvent themselves. Given the state of the industry, we think that stakeholders must also consider making changes to their business models. Change is the way to survive in the ‘new energy future’. We need to see new business models, new products, new energy sources and new strategies to meet the new reality,” added Bredenhann.

As at the end of 2015, PwC said 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.


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