The tides are changing in many countries, which are ramping up their political policies to provide international operators the consistency and transparency needed to invest in the region. Heather Saucier reports.
Noble Energy has distributed approx. 135,000 bed nets to help protect people from malaria.
The greater the risk, the greater the reward.
That mindset might hold true when it comes to investing in some offshore oil and gas plays in West Africa. However, the tides are changing and many countries in the region are ramping up their political policies to provide international operators the consistency and transparency needed to explore for and develop some of the world’s largest undiscovered resources.
Furthermore, as more operators realize the benefits of thoughtful and well-planned humanitarian projects – known in the business as corporate social responsibility (CSR) – in their host countries, they are finding that they are being greeted by more open and fair arms.
Having won an award for excellence in CSR activities in Africa at the Eighth Annual Sub-Saharan Africa Oil & Gas Conference in Houston in April, executives at Noble Energy see the continent as an attractive investment – not only for its hydrocarbons, but for opportunities to improve lives.
“There’s something really compelling about Africa and the oil and natural gas industry. It’s a wonderful combination of the right geology and places where companies can make a noticeable difference almost right away,” said Susan Cunningham, executive vice president of Exploration, New Ventures, Frontier, EHSR and Business Innovation, Noble Energy. “I believe Africa will continue to be a big part of what we do in years to come.”
When it comes to secure investment strategies in Africa, one can argue about which must be present first: the right geology, consistent government policies, or philanthropy. Yet at the end of the day, it is evident that the right combination of all three has created a symbiotic relationship between operator and host country – making offshore West Africa the place to be.
Community water pump in Tigray. Photo by Rod Waddington.
Offshore geological haven
The bulk of West Africa’s resources are offshore, many of which are in large reservoirs that have collected hydrocarbons from lacustrine source rocks – similar to those off the coast of Brazil – that are very rich and oil prone.
USGS-Brownfield,M. E., Charpentier,R.R., Cook,T.A., Klett,T.R., Pitman,J.K., Pollastro,R.M., Schenk,C.J., and Tennyson,M.E., 2010, Assessment of Undiscovered Resources of Four West Africa Geologic Provinces.
The US Geological Survey (USGS) estimates mean volumes of 71.7 billion bo and 187.2 Tcf of undiscovered conventional resources in four geologic provinces of West Africa:
“Offshore Africa is still really underexplored,” says Michael Brownfield, a geologist emeritus with the USGS who oversaw the 2012 Sub-Saharan Africa assessment.
While some areas – such as the shallow waters of the Niger Delta and Angola – are mature in terms of exploration, the deeper waters remain ripe for the picking. “All of the new technology out there is opening up offshore areas to exploration. With better seismic data, people are finding turbidites and big fan bodies offshore.”
As a senior analyst for Drilling info, which provides comprehensive oil and gas data and predictive and prescriptive analytics, Emma Woodward says that despite its heterogeneous geological makeup, much of Africa’s west coast has the potential to be lucrative in terms of oil and gas finds.
Working her way from the south of the continent up, Woodward noted that:
Oil family distribution map for the South Atlantic margin oils, showing families of oils, source rock depositional environments, and major basins. Modified from Schiefelbein et al., 1999, 2000. Images from USGS.
While the geology of West Africa is enticing, investing in a play can be tricky, especially when some governments have reputations for corruption and the threat of insurgent violence is pervasive.
While some operators rely heavily on “gates, guards and guns,” security is often found in the right relationships with a country’s people, explains Jim Sisco, president and founder of ENODO Global, a consulting firm specializing in risk analysis and population-centric engagement.
“If you earn the favor of the community in which you operate, you can pretty much safeguard your operations against community conflicts,” he says. “Local communities have the ability to impact every risk, including political, regulatory and environmental risks. Real security exists within communities – people who congregate with like-minded individuals. You need to know what makes people act as they do. Know their identity and motivators so you can properly align your goals with theirs.”
Education is one of Noble Energy’s four community engagement and social investment pillars.
Cookie-cutter CSR projects that do not meet a community’s needs and that are not sustainable can actually do more harm than good. “Too many times companies build clinics or schools where people are never treated or never attend classes. People start to protest,” Sisco says. “You must talk to the right people to identify their true needs and develop sustainable CSR projects. This reduces disruptions and stoppages to your operations.”
Noting the 2013 attacks on the Statoil facility in In Amenas, Algeria, Sisco says the company lost employees and nearly $56 million in market capital as a result. A post-attack analysis recommended increased security – including building an airport closer to the company’s operating facility. “Building an airport is a multi-million dollar operation, but for a fraction of that cost they could have invested in the community and mitigated potential threats.”
Part of Statoil’s vulnerability came from relying on government and private sector firms for security instead of reaching out to the community and breaking physical and psychological barriers, Sisco says. “The community would have been less likely to allow militants to use them as a launching pad for the attacks,” he said.
Sisco urges operators to build a link with local governments and communities and ensure that the needs expressed by both are consistent.
Changes on the horizon
Some operators are pulling out of Africa’s deepwaters and heading for the Gulf of Mexico for reasons that revolve around risk perception. But, the exploration and production climate in Africa is changing as countries begin to understand that to be competitive, they must conduct business above board, says Sunny Oputa, CEO of Energy & Corporate Africa, a Houston-based agency that provides consulting and training for energy companies investing in Africa.
The March election in Nigeria successfully ousted a president believed to support government corruption, leading many to hope that exploration and production policies in the country will err on the side of third party investors.
“Nigeria is changing gradually,” Oputa says. “It has become one of the biggest economies in Africa.” Countries such as Equatorial Guinea and Senegal have created political climates enticing to outside investors as well. Gabon has a new hydrocarbons policy in place, and Ghana is also an attractive place to invest, he adds.
“I can see the changes taking place,” Oputa says. “The bottlenecks are opening up.”
Oputa credits the 2012 American Anti-Corruption Act for many changes taking place in Africa as well as the continent’s need for outside assistance in tapping its resources. “African countries don’t have the technology to exploit their resources. They need our technology. They do not have enough capital,” he says.
For countries in which investing remains a risk, Oputa stresses that lucrative partnerships can still be made if operators understand a country’s economic regime, its political system and legal framework. For example, it can be easy to fall into traps in which local workers are not paid in full or at all because of a corrupt middleman.
“If you don’t understand what is going on, people can always blindfold you,” he says. “Some people want to protect their own interests and at the end of the day don’t care about you.”
Echoing the words of Sisco and Cunningham, Oputa stresses the need for solid partnerships that create win-win situations for operators and host countries.
For him, it all boils down to one thing: “You must understand the people, the people, the people,” he says. “If you don’t understand the people and you don’t hire the right people, your capacity will be low and your performance will be low. You will be pumping in money and not getting results.”