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African Oil Producers Have Missed on Over $29bn of Oil Revenue Since January

View of Eni's Abo FPSO on OML 125 in Nigeria.

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By and large, 2021 has been a missed opportunity for African oil producers. While the continent’s hydrocarbons sector yielded several discoveries and Nigeria finally signed its landmark Petroleum Industry Bill into law, decreasing output across the board means that African producers have not maximised benefits from the strong rebound in commodity prices.

This is particularly the case with sub-Saharan Africa’s three biggest oil producers Nigeria, Angola and the Republic of Congo. Despite OPEC quotas increasing, and leaving room to ramp domestic production back up, the three countries have been unable to pump more barrels.

In fact, the difference between their allocated OPEC production quotas and their actual production reached as much as 548,000 barrels per day in August this year. From January to October 2021, the three countries have missed on over $29bn worth of oil production according to Hawilti’s research and estimates.

Volumes differentials between OPEC quotas and actual production increased to 30,000 bopd for Congo in August. They are even more significant for Nigeria and Angola, especially at a time when their oil prices reference is high: Nigerian and Angolan oil prices stood constantly above $70/bbl between July and September 2021. Both the Girassol Blend and Bonny Light were selling at an average of over $80/bbl in August.

Source: OPEC

Nigeria’s oil sector has been massively underperforming this year so far. Its oil GDP was down -12.65% in Q2 2021, its fifth consecutive negative quarter. Despite setting an oil price benchmark of $40/barrel in its 2021 budget, the country is also failing to meet its oil revenue target. Between January and May 2021, gross oil revenue stood at NGN 1,490.76 bn against a pro-rata target of over NGN 2,000 bn. Because of its inability to increase production, Nigeria is very likely to miss its yearly gross oil & gas revenue target of NGN 5,185.57 bn.

Reasons abound, but chief amongst them is the lack of investment, especially from international oil companies (IOCs) in the Niger Delta, where the focus for the past decade has primarily been on divesting. Meanwhile, new local operators who have taken over critical onshore assets have been left cash strapped by the double oil price crash of 2014-2016 and 2020. Coupled with aging infrastructure, continued insecurity and repeated vandalism on pipelines, Nigeria’s oil production is simply unable to meet the needs of the hour. The declaration of Force Majeure by Shell at the Forcados oil terminal in August only aggravated the situation, with the country loosing 2.6m barrels of production between July and August 2021.

Production and export figures from the country’s five IOCs-operated onshore oil terminals are the most representative of Nigeria’s current situation. While the Bonny, Brass, Qua Iboe, Forcados and Escravos terminals pumped about 165.5m barrels in H1 2020, volumes were down below 130m barrels in H1 this year according to data from the Department of Petroleum Resources (DPR).

Source: Department of Petroleum Resources

Hopes are that the newly signed Petroleum Industry Act will both lead to the development of undeveloped deep-water discoveries by IOCs while unlocking fresh capital into brownfield opportunities with local operators onshore and in shallow water. Hawilti’s research on M&A deals in the country’s hydrocarbons sector suggests investors are increasingly looking at brownfield investments in the region, at a time when several key local operators are looking at farm-in, technical and capital partners.

Meanwhile, Angola also continues to suffer from under-investment in the past decade even though the outlook for its oil & gas sector is positive. Recent fields put into production such as Zinia 2 in May and Cuica in July have done very little to reverse production decline and the country had to revise its yearly production target down to 1,193,420 bpd this year.

However, Angola had already met its oil revenue target for the year by the end of Q3, with Kz 4,200 bn already collected in the first nine months of the year against a yearly target of Kz 4,059.4 bn. The country’s short and medium-term outlook is also positive because IOCs have been extremely responsive to the bold policy moves of the Lourenço administration. Most majors operating in the country have already approved new projects, especially subsea tie-backs, infill drilling and marginal fields developments ventures. Those will be supporting production in the short-term, while three new FPSO-based production hubs are in the making by TotalEnergies, Eni and BP.

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Equatorial Guinea to remain world’s worst performing economy until at least 2026

Equatorial Guinea’s economy will be in recession over the 2022 – 2026 period according to the International Monetary Fund (IMF)’s latest forecast. Not only will it be amongst the very few economies whose GDP does not grow and recover from the Covid-19 pandemic, it will be the world’s worst performing economy for the next five years and the only one in Africa with a negative GDP growth. 2021 will provide some respite for the country, with GDP growth expected at +4% by the IMF and +2.6% by the African Development Bank (AfDB). It will notably be supported by the rebound in oil prices and the completion of the Alen Gas Monetisation project in February 2021. The project has notably established a link between the Chevron-operated Alen Unit and Punta Europa, ensuring new and reliable supply of gas feedstock to Equatorial Guinea’s methanol, LPG and LNG facilities. But progress stops here because Equatorial Guinea should enter a 5-year recession in 2022. Source: IMF How did the country get here? Equatorial Guinea is one of Africa’s least diversified economy and while other oil producers can often rely on their non-oil GDP to support growth during times of market volatility, Equatorial Guinea cannot. In 2020 for instance, non-oil sectors experienced a decline of -4.7% while investment contracted by 35%, according to the AfDB. Equatorial Guinea does not have a strong agriculture sector, has not developed tourism and is yet to exploit its mining and minerals potential in the Rio Muni. While those represent all tremendous investment opportunities, the country’s risk and corruption perception has deterred investors. In the last World Bank’s Ease of Doing Business Index, Equatorial Guinea ranked 178th out of 190th, preceding only the two Congo’s, Chad, the Central African Republic, South Sudan, Libya, Eritrea and Somalia. More importantly, it performed the least in the “starting up a business category”, demonstrating how challenging its business climate remains for entrepreneurs and new investors. Overall, the country’s main risk factor, beyond the persistence of the pandemic, remains the lack of diversification of its oil-based economy. To this, one must add the structural weakness of inadequate human capital due to under-investment in education and the overall skilling of the population. But the real unexploited potential remains that of its natural resources sector. Equatorial Guinea reached its peak production of oil & gas back in 2005 and all its producing fields are maturing and have been onstream for decades. They include Alba (1991), Zafiro (1996), Ceiba (2000), Okume (2006), Aseng (2011) and Alen (2013). Put simply, Equatorial Guinea has not developed a new major oil & gas project in a decade. As a result, output keeps declining and currently stands at just over 150,000 barrels per day (bpd) including 100,000 barrels of oil and the rest of gas and condensate. This makes the country sub-Saharan Africa’s 7th producer only, after Nigeria, Angola, Congo, Gabon, Ghana, and South Sudan. Equatorial Guinea’s under-performance in developing its hydrocarbons sector is not for lack of potential, far from it. It is rather the result of missed opportunities throughout the past decade. In 2007, the country became sub-Saharan Africa’s second LNG exporter with the opening of the 3.7 mtpa EG LNG export terminal. The one-train facility was supposed to be immediately expanded with a second train: portions of the front-end engineering and design had been completed by the time train 1 was commissioned and a final investment decision (FID) was expected as early as 2008. It never happened. Another major opportunity to develop the country’s rich gas reserves came with the development of the Fortuna, Tonel and Vsicata fields on former Block-R via a 2.2 million tonnes per annum (mtpa) floating LNG unit. Ophir Energy and Golar LNG were expected to commission the project in 2019 but failed to secure financing, leading the government to strip Ophir of its license over Block R (now renamed Block EG-27). While LUKOIL won the acreage in the 2019 bidding round, a formal license is yet to be awarded. Meanwhile, several other FLNG projects have made progress around the continent, including in Mozambique, Senegal, Mauritania, and Nigeria. But the oil sector too has had its bunch of missed opportunities. EG Ronda 2019 did manage to attract the interest of some regional and global players, but delays in awarding licenses and signing PSCs have left bidders discouraged. Meanwhile, ExxonMobil has sought to divest from the giant Zafiro oilfield for a few years, but any potential transaction has been stuck in political considerations or blocked by a government that has become too picky, according to industry sources. Trident Energy, the independent that successfully took over the operatorship of the Okume and Ceiba complex from Hess in 2017, has repeatedly expressed its interest in buying ExxonMobil’s 71% stake in Zafiro. The company has demonstrated its ability to successfully operate brownfield assets but was constantly blocked in its bid to take over the asset. As a result, the field that once produced over 200,000 bpd is now producing well under 100,000 bpd. Last year, ExxonMobil’s net production from Zafiro stood at 31,000 bopd against 53,000 bopd a decade ago. Unless significant strides are made on projects like the Fortuna FLNG, the expansion of downstream gas infrastructure and the redevelopment of producing assets, the IMF’s negative growth forecast is very likely to materialize. Equatorial Guinea has the resource base, geographical location and experience to turn into a significant downstream oil and gas hub in the Gulf of Guinea. But while the ongoing development of the offshore gas megahub is promising, it would need to happen a lot faster and reach the extent where the pooling of stranded offshore gas does more than just maintain nameplate output at Punta Europa. The Alba Plant already exports significant amount of LPG to West and Central Africa, where most markets are hungry for LPG and experiencing LPG demand growth rates or 20% of more. But a new LNG train could also be constructed at EG LNG while additional downstream industries such as

Kenya is positioning itself as Africa’s next big financial hub

Kenya’s capital, Nairobi, has successfully established itself as a regional hub for trade, commerce, innovation and technology. Now, it wants to compete with Mauritius or even Dubai to be Africa’s new financial hub, positioning itself as a global gateway for capital flowing into Africa’s rapidly growing economies. The country launched this year the Nairobi International Financial Center (NIFC) to deepen Africa’s financial sector, with a target of raising $2bn in investments by 2030. The project has been in the making since 2014 and joins a series of ambitious Kenyan ventures supporting the country’s competitiveness, including the Konza Technopolis. The project received a major boost last July during Kenyan President Uhuru Kenyatta’s visit to the United Kingdom. The visit resulted in the announcement of GBP 132m of UK investment into Kenya and marked the official launch of the NIFC in formal partnership with the City of London. British insurer Prudential notably submitted its application to be the first company to set up in the NIFC while Kenyan mining company Mayflower Gold announced plans to dual list its shares on both the London and Nairobi Stock Exchanges in a deal worth £14 million. The deal ALSO includes closer links between the London and Nairobi stock exchanges, as well as moves to ease incorporation and registration of companies in Kenya. While Kenya’s capital markets are relatively developed, the country’s businesses and economy at large still relies massively on commercial debt from banks. The launch of the NIFC is seen as an additional mechanism to promote the Nairobi Stock Exchange while contributing to the deepening of the region’s capital markets.