The oil majors: Trickier times ahead for big fish

Over the past 15 years, Africa has featured prominently on the global exploration map of international oil majors looking to open up new frontiers and book new reserves. Soft fiscal terms in oil rich countries and high oil prices more recently have driven exploration programmes of some of the bigger companies into the deepwater areas of the Gulf of Guinea, which has a prolific oil bearing geology.

But despite the relative exuberance of the last few years, there are increasing signs that the big companies could be in for a much trickier time in the years ahead. Some companies, such as Devon, Occidental and Woodside, have recently drawn down their African portfolios, sensing that margins in Africa could be topping out. Even Shell has begun a restructuring plan in Nigeria, in response to some of its woes there.
“In the past the risks that affected companies in Africa were technical, but the above-ground risks are counterbalancing this scenario,” says Bob Frylund, vice president of industry relations at IHS, the energy consultants. Over the past two years, the continent’s main producing countries have signalled or even demonstrated their willingness to use high prices to push for tighter fiscal terms and conditions and actively court state-owned companies from Asia and elsewhere.

In Nigeria, the climate for independent multinationals is particularly nervy after they turned their back on the country’s last three new oil and gas licensing auctions, with many executives privately complaining the terms were too tight. That, along with funding disputes between majors and the government over joint ventures, partly prompted Tony Chukwueke, Nigeria’s industry regulator to publicly chide the majors. In a speech in November, he said Nigeria was ”looking for new players” and was “getting tired of the Shells and Exxons”.

Africa’s largest oil producer has also rattled nerves by announcing plans to revisit the terms on some of the multibillion dollar offshore developments, which are on a cost recovery basis.

Similarly in Algeria, the continent’s largest gas producer, the government has intensified its bid for control of the hydrocarbons industry, passing an amendment to give it the right to control 51 per cent of any hydrocarbons project.

Financial Times