SHAPING THE FUTURE
The use of renewables has made a steady progress and will
continue to do so. However, we believe that oil will continue
to play a significant role in the world economy for years to
come, and it will continue to be a key contributor to the
GDP of oil-dependent African economies. The prolonged
low oil prices have had a negative impact on investments
which is a driving factor for companies to maintain their
reserves replacement ratio above 100%. Therefore, investments into new production will ultimately resume. Nevertheless, investors will likely stay away from high-cost projects with a long payback period.
For oil-dependent African economies, it will no longer
be enough to react to unanticipated events as it did in the
past. The upcoming battle will be a battle for attracting
investments, and it will be between two groups of producers:
high cost versus low cost. To win this battle, countries will
need to move from wait and react to shape their future.
We believe the energy sector is facing the type of disruption never seen before. We are undergoing disruptions in
several spheres at the same time. To name a few, we are
seeing a technological disruption with the breakthrough
in shale oil production, data analytics, artificial intelligence
and the Internet of Things; an environmental disruption
with a renewed awareness for climate change and an efficient use of energy; a demographic disruption with changes
in consumer behavior; a geopolitical disruption with tectonic changes in the political landscape and the birth of
new alliances from North America to Europe, from the
Middle East to Asia and from Africa to South America.
Faced with these unprecedented disruptive forces the oil
dependent African economies have no choice but to actively
participate in the fundamental reinvention of the energy
For African oil producers to win the investment battle,
there are three areas requiring continuous attention,
• HUMAN CAPITAL – Most companies understand that
finding, developing, and retaining talented employees is
very difficult. Talented and committed people in a coun-
try are one of the key enablers for attracting investments.
No credible investors would be willing to put money into
an environment where recurring industrial actions are
the norm. Take an example of five companies with the
same type of assets to operate, it will always be the case
that there will be a difference in performance across the
board that is likely to be driven by the people they employ.
People are the key contributors to the success of a busi-
ness. We therefore believe that by continuously producing
world class engineers, geologists (and many other dis-
ciplines) with the proper work ethics, the cost of doing
business will also be positively impacted.
• PETROLEUM CONTRACTS – Petroleum contracts cannot
be a zero-sum game. What is positive for the State should
also be in the best interest of the investor. New innovative
petroleum contracts are needed to stimulate investments.
Great flexibility should be built into the contracts such
that the signing parties are able to adapt them based on
the prevailing economic context. These contracts should
be underpinned by a good legal system which is inde-
pendent and protect wealth and investment.
The petroleum laws or hydrocarbon codes passed by
parliament should be designed to attract investments
and protect the public interests. Therefore, the competing
needs must be adequately balanced. With flexibility
being key in a dynamic and changing investment environment, petroleum laws should not be written as if they
were a Production Sharing Contract. Likewise, countries
should refrain from incorporating detailed fiscal terms
into petroleum laws as any amendment will require the
approval of parliament.
• LOCAL CON TENT – A diverse and competitive presence
of local companies in the entire chain to support the
production of oil will contribute to bringing the cost of
doing business down. This is where the State can greatly
shape its future by creating the necessary conditions to
enable the development of capabilities for local companies according to international standards. Sourcing
companies outside the country to carry out basic field
operations jobs can add up to the cost of doing business.
In the battle for attracting investments, the ideal situation
would be for the local service companies to provide the
same quality of services as international contractors at
a lower cost.
US shale oil producers have captured the highlights since
2014 and are one of the disruptive forces in the industry
today by forcing conventional oil producers to re-examine
their business model. What their breakthrough indicates
is that investors will return if they are presented with projects that have a short payback period and a break-even
price that can be driven down.
The lesson for oil-dependent African economies is to fundamentally reshape their business environment by creating an
environment that lowers the payback period and break-even
price of projects.
ABOUT THE AUTHOR
Serge Toulekima is an energy consultant with
25 years of experience. He is based in Perth,
Australia, and is a member of the Australian
Institute of Company Directors. He has working
experience in Africa, Europe, Asia, and Australia, and is a graduate of Texas A&M