Key Drivers and Challenges of Oil and Gas Industry Development in Africa

Modesty Ekeh; Chartered Petroleum Engineer, USA.

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Key Drivers and Challenges of Oil and Gas Industry Development in Africa

1. Africa is home to some of the world’s fastest-growing economies, many of them buoyed by new
oil and gas finds, including Mozambique, Tanzania, Kenya, Uganda and Ghana. The region is
also home to what could be game-changer reserves for the industry. Even though global
petroleum commodity price is presently projected to moderate in 2014 from last year, is expected
to remain more than 75% higher than in 2013. As a result, Africa’s key oil producing countries
are expected to continue to list amongst the fastest expanding on the continent. Africa currently
supplies about 12% of the world’s oil and boasts significant untapped reserves estimated at 8%
of the world’s proven reserves. The region boasts with a long list of oil producing countries.
According to the World Bank, International Energy Agency (IEA) and Organization of the
Petroleum Exporting Countries (OPEC) from 2010, 16 of the 54 countries in Africa are
petroleum exporters, namely Nigeria, Angola, Libya, Algeria, Sudan, South Sudan, Equatorial
Guinea, Congo (Brazzaville), Gabon, Chad, Egypt, Tunisia, Cameroon, Ivory Coast, Democratic
Republic of Congo (DRC) and Mauritania. Africa’s oil history stretches over a period of several
decades. Presently, there are more than 500 oil companies participating in African hydrocarbons
exploration, production and development. According to Africa Development Bank (AfDB),
Africa’s proven oil reserves have grown by nearly 120% in the past 30 years, from 57 billion
barrels in 1980 to 132 billion barrels of proven oil reserves in 2013. This trend is anticipated to
continue largely due to additional finding and revisions in proven hydrocarbons reserves. Oil
reserves account for about 56% of the region’s total reserves, but gas reserves are growing far
faster. It is estimated that at least another 100 billion barrels are offshore, only waiting to be
discovered. In turn, Africa’s proven reserves of natural gas have grown from 210 trillion cubic
feet (tcf) in 1980 to 509 tcf in 2013, representing growth of over 140%. Furthermore, recent
additional discoveries of sizable natural gas reserves in Tanzania and Mozambique point to
significant upward potential for these figures. The sector is experiencing significant growth, with
Eastern Africa emerging as significant oil and gas frontier as a result of the large petroleum
finds. However, political unrest in North Africa, insecurity and oil bunkering in Nigeria, and
civil war in South Sudan have resulted in production loss of more than a million barrels per day
(bbl/d).
2. 3. SSCG | T: +44 (01865) 600580 | E: info@s-scg.com | W: www.s-scg.com SSCG Energy, Oil
& Gas We help energy, Oil and Gas sector stakeholders and clients navigate through the
changing business environment, manage risks and optimize performance in Africa. We provide
innovative and cutting-edge energy consultancy and enterprise solutions to petroleum, E&P,
 mining and energy organisations in developing markets. Our strategy ensures that we create
value in the energy industry, improve our clients distinctive capabilities and play to our strengths
while working across the value chains. We are committed to growth in the activities of finding
and managing minerals, energy, oil and gas resources in Africa. By aligning our market
experience, commercial, political and environmental insights, we provide energy industry
solutions ranging from :> Sustainability and environmental management> Economic planning>
Projects management> Operation and risks management> Corporate Social Responsibility
(CSR)> Managing local content laws and compliance> Managing Production Sharing
Agreement (PSA) and (PSCs)> Understanding local content laws and fiscal policies At SSCG,
we draw upon our global and local knowledge, market and industry insights to help organisations
enhance their operation capabilities, manage risks, strengthen controls, grasp opportunities and
achieve full potential particularly across multiple countries in Africa www.s-scg.com | info@s-
scg.com
3. 4. SSCG | T: +44 (01865) 600580 | E: info@s-scg.com | W: www.s-scg.com Growth and
Development
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____ Overall, the booming oil and gas industry is seeing greater investments and interest in all
regions, including new frontier states such as Namibia, Togo, Liberia and Ethiopia. Enhanced oil
recovery and technology advancement in areas where Exploration and Production (E&P) had
been diminishing over the last few years have improved output. This includes countries such as
Ghana, Congo, Gabon, Côte d’Ivoire and South Sudan. Africa is seeing continued growth, with
Eastern Africa emerging as a new source of oil and gas. Significant gas finds in excess of 127Tcf
in Mozambique have created the potential for another African super player. With further
exploration and development expected in Mozambique, the country could overtake Nigeria and
Algeria as the country with the largest gas reserves in Africa. Based on AfDB report,
Mozambique is expected to become the second-largest exporter of Liquefied Natural Gas (LNG)
by 2025, as the country steps up production from 10 million tonnes per annum (Mtpa) in 2017 to
an envisaged 50Mtpa. Access to the lucrative Asian LNG market has significant economic
benefits for the region and could act as a catalyst for meaningful economic development. Rapid
developments in Ghana and Uganda have demonstrated the possibilities and potential of African
oil and gas sector. The Jubilee field was hailed as the fastest ever deep-water development,
taking just 24 months from development to production. Africa is considered the last true
petroleum frontier with more than 4200 exploration blocks identified. Almost half of these
blocks are open, subject to force majeure or in the application phase. More than 80% of the 1300
blocks in North Africa are licensed. On the other hand, it is estimated that only about 30% of
2900 blocks in sub-Saharan Africa are licensed. It is evident that many new opportunities still
exist, especially for E&P companies that are willing to take greater risks. There are many key
opportunities within the oil and gas industry due to new exploration blocks being opened for
competitive bidding. Regional ports are being expanded to support future shipment. Construction
of pipelines (both subsea and onshore) are underway. Onshore and offshore E&P infrastructure
are being build. LNG facilities and other gas monetisation projects for local use (methanol,
fertilisers and urea) have been initiated. Refineries, crude oil storage facilities and plants
 upgrades mega projects are in process. In addition, development of industry professionals and
knowledge base, National Oil Companies (NOCs) and institutions have been made a priority.
Recent divestments in Nigeria represent the largest opportunity for indigenous firms with the
requisite expertise, supply chains and capital to ascend into the league of major upstream players.
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The challenges facing oil and gas companies operating in Africa are diverse and numerous. Oil
bunkering in Nigeria cost an estimated 150 000bbl/day. Politicisation of industry activities and
projects, uncertainty and delays in instituting new laws, energy policies and regulations into law
are stifling growth, development and investment in a number of countries around Africa.
Strategic and long-range planning is extremely important in today’s uncertain environment. High
operation costs in Africa have obliged companies to tighten budgets, while continuing to weigh
up the risks and benefits of new projects, new products and evaluating capital investments.
Behind such decisions lie a host of regulatory, safety, environmental and political stability
considerations. In many African countries oil and gas policies, local content laws, petroleum bills
and Production Sharing Agreements (PSAs) are being reviewed and attempts to increase
governments take and local content are being introduced. Governments are increasingly
requiring E&P companies to supply gas as an energy feedstock for local power generation,
industry and for general consumption, prior to exporting the products. Local beneficiation of
hydrocarbon resources is being prioritized to ensure development for the benefit of the local
communities. Infrastructure development can potentially take longer lead times before
production can commence, as has been demonstrated by the situation in Uganda, while poor
upgrade have led to production inefficiency IN Congo and Gabon. Undeniably, these significant
growth in Eastern Africa highlight a shortage of oil and gas professionals in the industry. While
E&P companies would like to see a relaxation of local content regulations, governments are
instead making localization regulations and policies more stringent. Reflecting operational
challenges, increase in risks and new laws in Nigeria resulted in revenue drop and asset
divestments by Chevron, Shell, Petrobras and Conoco Phillips. According to AfDB, African oil
and gas sector losses large volume of revenue due to transfer pricing and illicit trading of
petroleum products. Investments in talent development and skill training are therefore an on-
going requirement. In conclusion, the discovery of Shale oil in developed economies such as
United States could significantly change the export market and global energy landscape. US
target to become self-sufficient with locally- produced oil will disrupt the supply chain for
example 33% of Nigeria oil and gas exports go to the US. Thus African petroleum producers
need to diversify export to new growing markets such as China and India to mitigate market risk.

NEWEST OIL-PRODUCING COUNTRIES IN AFRICA

1. Ghana

Ghana's discovered oil beneath the Jubilee field, 60 kilometers off its Atlantic Coast. The total oil reserves are
estimated at 1.8 billion barrels. Commercial production at the Jubilee field began in 2010. The Ghanaian
government had a budget shortfall in 2011 and 2012 after overspending with the expectation of high income
from the sale of the oil from the Jubilee oil field, but the returns have been disappointing. Its production has
increased from 55,000 barrels per day in 2010 to an average of 120,000 barrels per day over the first quarter of
2013.

2. Ethiopia

Africa Oil Corp has been conducting tests in South Omo Block, which is believed to have the same bedrock as
that of Kenya's block 10BB. Drilling at the Sabisa-1 well has been challenging due to hole instability, but
hydrocarbon tests indicate a possibility of exploitable oil.

3. Kenya

Tullow Oil, which is actively expanding its activities in Africa, announced an oil discovery in Kenya's Block 10BB in
March, 2012. According to Tullow's latest Interim Management Statement, testing is still being done on wells in
the Etuko, Twiga South and Ngamia blocks to check on their commercial viability.

Kenya stands to benefit should the oil finds be viable because it has the only operating refinery in the region.

4. Uganda

Commercially exploitable oil was discovered in Western Uganda in 2006. Located near the Albertine valley, the
oil reserves are estimated at 2 billion barrels. In contrast to Ghana's relatively prompt discovery-to-production
period (3 years), Uganda has yet to exploit the resource because the Museveni government has been laying out
plans to prevent misappropriation of oil revenues.

5. Tanzania

The BG group and Ophir Energy, which have been drilling the coast of Tanzania have been releasing regular
reports over the last two years indicating discovery of gas reserves. The Tanzania Daily News reports that "about
42 trillion cubic feet (tcf)" of natural gas has been discovered in Tanzania, and that the natural gas "generates
half the power for the country's national grid."

6. Mozambique

Political unrest inhibited the exploration of Mozambican gas for more than thirty years after its discovery in the
1960s. Mozambique has been experiencing a gas exploration boom recently, evidenced by Maputo's rising
skyline. Anadarko Petroleum and Eni SpA found more than 100 trillion cubic feet of gas off Mozambique's coast,
enought o build the world's second largest gas plant. In addition, Tullow Oil and Statoil have been exploring for
oil. Early predictions suggest a potential reserve of about 200 million barrels.

Global Oil Reserves- 2015 Facts and Figures

This study will look at crude oil reserves in six geographical regions highlighting the reserves potential of countries and
trends over the years.
NORTH AMERICA

While the United States is the highest consumer of crude oil in the world, Canada dominates the whole of North
America with the highest oil reserves. This is helped by thousands of barrels held in the newly discovered
unconventional energy source- tar sands.

SOUTH AND CENTRAL AMERICA

There is a popular belief that oil is cheaper in Venezuela than water. The socialist country holds the world’s largest
crude oil reserves, even more than Saudi Arabia with a 17.5% share of global reserves. There is more oil in reserves in
Venezuela than the whole of Europe and Eurasia combined. Another South American energy giant, Brazil is far away is
far away in second place with 15.6 billion barrels in reserves. Venezuela is a member of OPEC as well as its South
American counterpart Ecuador.
There is a popular belief that oil is cheaper in Venezuela than water. The socialist country holds the world’s largest
crude oil reserves, even more than Saudi Arabia with a 17.5% share of global reserves. There is more oil in reserves in
Venezuela than the whole of Europe and Eurasia combined. Another South American energy giant, Brazil is far away is
far away in second place with 15.6 billion barrels in reserves. Venezuela is a member of OPEC as well as its South
American counterpart Ecuador.

EUROPE AND EURASIA

Russia dominates Europe and Eurasia in the oil and gas reserves as well as production and exports. Kazakhstan, also
part of the former USSR has the second biggest oil reserves in the region.
MIDDLE EAST

The Middle East has more OPEC members than any other region and is home to the OPEC’s swing producer- Saudi
Arabia.
AFRICA

ASIA PACIFIC
Africa’s Biggest Crude Oil Reserves
Considering the ever present peak oil debate, valid concerns have been raised on the future of oil and the lack of an
ideal alternative to the fossil fuel both in the short and long term. According to the International Energy Agency (IEA),
global production of crude oil looks to have passed its peak and inevitably, souring oil prices are leading to new
discoveries in sometimes the most obscure places. For example, the discovery of oil sands in commercial quantities and
offshore deep water drilling in the Caspian Sea, Gulf of Mexico and Brazil are a testament to this notion.

This brings us to Africa, a continent described by British Petroleum as having 10% of global proved oil reserves. For
clarity, proved reserves as explained in a study carried out by the Sussex Energy Group are quantities of oil in known
fields which are considered to have a 90% chance of being technically possible and economically feasible to extract
under defined conditions. This study will combine current data from diverse sources to produce a snapshot of top ten
African countries holding the biggest oil reserves.

10. Chad and Sudan

Both Chad and Sudan tie in 10th position with 1.5 billion barrels of oil in proved reserves. According to the World
Bank, prior to 2003 when they became an oil producing nation, Chad’s GDP per capita was $220 and had risen to $674
by 2010 which indicates the impact of oil revenues on the economy as a whole. It’s proved reserves also rose by 66%
between 2002 and 2011. Prior to the secession of South Sudan in July 2011, Sudan had the 5th largest oil reserves in
the continent at 5.0 billion barrels. Despite this setback for the Sudanese economy, it still maintains leverage over its
landlocked neighbors in the south through its strategic transport channels and infrastructure for oil processing and
exportation.

9. Republic of Congo

Similar to most resource rich countries in the third world, Congo relies heavily on petroleum earnings as it accounts for
approximately 80% of government revenues. A 128% increase in oil reserves in a period of 20 years can only be good
news for the Congolese economy where most of the oil exploration is carried out offshore. The US Energy Information
Administration (EIA) also expects Congo to be one of the pioneer producers of oil sands in commercial quantities in
Africa as there are potential large deposits available in the country.

8. Equatorial Guinea

According to the World Bank, Equatorial Guinea is the highest ranked African country in GDP purchasing power
parity per capita. This is largely as a result of its low population (736,296, 2012 estimate) and revenue accruable from
oil. This also helped the country achieve an impressive 26.2% annual growth rate between 2001 and 2005. The central
African country’s crude reserves grew by approximately 466% between 1992 and 2012 despite reports of declining oil
production due to maturing oil fields.

7. Gabon

African Economic Outlook 2012 describes crude oil as the backbone of the Gabonese economy since it gained
independence in 1960. Between 1992 and 2012, proved oil reserves in Gabon have more than doubled from 0.8 to 2.0
billion barrels. On the other hand, According to the IMF, the government of Gabon has already set policies in motion
to achieve a fully diversified economy by 2025; impressive results have already been recorded in the non-oil sector
with mining and construction in particular contributing to 7% real GDP growth in 2011.

6. South Sudan

Officially the youngest country in the world, South Sudan is a land locked country heavily dependent on Sudan for
processing and exporting its crude oil. It now has 3.5 billion barrels of proved oil reserves with Asian energy
companies dominating the market share of its fledgling energy sector.

5. Egypt
 The EIA describes Egypt as the biggest non-OPEC oil producer in Africa with 4.3 billion barrels of oil in proved
reserves and the largest refinery capacity in Africa. New oil discoveries have helped increase Egypt’s proved reserves
in recent years through the increased exploratory activities of American energy company, Apache Corporation. Since
2002, Egypt’s proved oil reserves have risen by 22.8%.

4. Algeria

According to the Organization of Petroleum Exporting Countries (OPEC), Algeria’s oil and gas sector is the mainstay
of the economy as it accounts for 35% of its gross domestic product. State owned oil company Sonatrach has the
market share in the Algerian energy industry. It is the largest country in Africa and the biggest member of OPEC by
area. In January this year, the Algerian government introduced a new national hydrocarbon law creating an enabling
environment for further investment in the sector. Majority of the reserves in Algeria are held onshore due to limited
offshore oil exploration thus a 32.6% increase in oil reserves since 1992 till date is promising.

3. Angola

Angola is the second largest oil producer in Africa after Nigeria. In recent years, Angola’s oil and gas sector has
contributed significantly in the impressive economic turnaround witnessed after years of civil unrest. The state owned
Oil Company, Sonangol has recently announced plans to embark on a large scale oil exploration offshore under salt
layers deep in the sea bed which will be similar to the successful offshore drilling recorded in Brazil a few years ago.
From 1.3 billion barrels in 1992, Angola’s proved oil reserves have risen to 12.7 billion barrels in 2012.

2. Nigeria

Second spot goes to Africa’s biggest oil producer. In 1992, Nigeria’s crude oil reserves were 21.0 billion barrels but
they have since risen to 37.2 billion barrels, a 77% increase. The West African country’s oil reserves make up 2.2% of
the global share and 28.5% of Africa’s total. Projected rise in oil find by the Nigerian government has been held back
by reduced investment in exploration by the oil majors due to insecurity and uncertainty surrounding the effect of the
petroleum industry bill which is waiting to be passed into law by the legislature.

1. Libya

Global oil output took a minor hit during the Libyan crisis in 2011 when General Muammar Gaddafi was ousted from
power, both oil exploration and production were adversely affected. However, Libya still retains number one spot as
the holders of Africa’s largest crude oil reserves. According to the Oil and Gas Journal, the North African country has a
potential of increasing its reserves considerably based on the amount of possible reserves available as oil exploration
has not taken place in majority of the country.

Sources*

 British Petroleum: Statistical Review of World Energy 2013

 British Petroleum: “Making Sense of the oil market 2011”
 Energy Information Administration- Country Profiles
 International Monetary Fund
 OPEC Annual Statistical Bulletin 2013
 African Economic Outlook
Project Maps
Strategy for development;
Creating shared Prosperity: Community Development Highlights

Africa Oil is committed to creating shared prosperity with host communities located near to our operations
through our local sourcing and community development activities. Community development initiatives reflect
the local development context and operational stage of activities and typically fall into four priority themes:

 Community health care;

 Improved education and skills;

 Access to energy; and

 Strengthening local livelihoods and economic development.

Approach: Africa Oil works closely with local and national stakeholders to identify key needs. At the community
level, Africa Oil engages local communities to propose relevant projects. All projects are vetted against the
following criteria:

 Type and Scale of Impact - What impact will the project have on local communities and how does it fit
within the priority themes? How many people will the project benefit?
  Sustainability - Is there demonstrated local ownership over the project and and a clear pathway to long
term sustainability?

 Timeline - Given the uncertainty of exploration activities, do project timelines align with operational
timelines to ensure adequate oversight on project delivery and results?

 Capacity to execute - Do local development partners have a demonstrated track record to ensure
results and to secure support from local communities?

 Cost effectiveness - how effective are the proposed activities in generating the target results?

To date Africa Oil has, either directly or through joint venture operations, supported over 54 community and
economic development projects in Kenya, Ethiopia and Somalia. Since commencing exploration activities in 2009,
the company has contributed over $3.7million towards community development projects.

Africa Oil is also a contributing partner to the Lundin Foundation. The Foundation leverages capital from its
contributing partners to make impact investments into high potential small and medium enterprises in the areas
of agriculture, access to energy and financial services. The Foundation also provides strategic grants that support
education and skills development. To date, the Foundation has invested over $13M into SMEs across Sub-
Saharan Africa. You can learn more about the Foundation's work here (link to www.lundinfoundation.org).

Corporate Social Responsibility Commitment

Africa Oil views our commitment to corporate social responsibility as a strategic advantage that enables us both
to access and effectively manage new business opportunities in complex environments.

Africa Oil is committed to addressing the challenge of sustainability - delivering value to our shareholders, while
providing economic and social benefits to impacted communities and minimizing our environmental footprint.

Our vision of Corporate Social Responsibility is premised upon a set of policies, which guide our relationships
with shareholders, employees, partners, governments, and the communities affected by our operations:

 To create a working environment such that we cause no harm to people, and where we minimize our
impact on the environment.

 To create a secure and safe working environment for our people and assets;

 To conduct our business in an honest and ethical manner.

 To enter into dialogue and engagement with key stakeholders, conducted in the spirit of transparency
and good faith.

 To deliver tangible and sustainable benefits that contribute to the social and economic well being of
citizens in our host countries.

 To support the development of financial transparency and good governance mechanisms.

  To support and protect internationally recognized human rights.

Financial Transparency & Good Governance Policy

Financial Transparency & Good Governance Policy

Africa Oil commits to working closely with national and international governments and organizations, aid
agencies, wider civil society and the media to advocate for financial transparency and good governance to
ensure the benefits of our industry are accessible to all within our countries of operation.

Africa Oil believes that natural resources are inherently a positive contribution to any country because of the
opportunities they present for foreign direct investment, revenue creation, economic growth and infrastructure
development. However we recognize that many examples exist where lack of transparency, corruption, poor
governance and vested interests have thwarted these efforts.

We therefore commit to support the development of:

 International best practice (i.e. Extractive Industries Transparency Initiative).

 National legislation and regulations (i.e. fit-for-purpose energy policies and bills)

 International legislation (i.e. US, Canadian and EU financial transparency).

 Efforts to better manage revenues for the long-term (i.e. sovereign wealth funds).

Security Policy

Africa Oil's Security Policy assists the company in creating a secure and safe work environment for our people
and assets, and assists us in promoting respect for human rights and advancing best practices with governments
and other stakeholders.

Africa Oil manages security in our business in accordance with the following principles:

 We will regularly assess security threats to our operations and manage the associated risks:

 We will ensure that appropriate security measures are in place such that we do not expose employees
and contractors to significant risk;

 We will ensure that appropriate response plans are in place to minimize the impact of any security
incident;

 We will endeavor to ensure that security operations are conducted in compliance with national and
international legal requirements and our Ethics and Human Rights policies;
  We will endeavor to make contractors conducting activities for the Company aware of this policy and
ensure they comply with it;

 The type and number of security forces deployed shall be competent, appropriate and proportional to
the threat;

 We will investigate and learn from security incidents;

Africa Drowns in a Pool of Oil

Bush can help by leaning on international companies to stop paying off corrupt officials

By Gal Luft
LA Times, July 1, 2003.

President Bush's Africa trip next week provides a rare opportunity to put the continent's pressing problems at
the top of the international agenda.

Scarred by disease, ethnic violence and economic stagnation, Africa needs more help than the United States can
or is willing to offer. And this visit, like other presidents' trips to the region, is not likely to dramatically change
the situation for the impoverished continent.

But there is at least one gesture Bush can make that would have a positive effect on Africans, and it wouldn't
cost U.S. taxpayers a penny. He can lean on Big Oil to clean up its role in the region's corrosive corruption.

Determined to reduce America's dependence on oil imported from the Middle East, the Bush administration has
been keen on developing oil fields in many African countries.

A task force headed by Vice President Dick Cheney predicted two years ago that Africa would become the
fastest-growing source of oil for the American market. But Africa's oil bonanza seems to affect its people in an
adverse way.

A recent report by Catholic Relief Services showed that countries like Gabon, Angola and Nigeria, which
discovered oil several decades ago, had fared worse when it came to economic growth and poverty reduction
than many African countries without oil.

Nigeria, one of the stops on Bush's itinerary, has received more than $300 billion in oil revenues over the last 25
years, yet it has a per capita income of less than $1 a day. Ethnic rivalries over the distribution of oil revenue
there have cost the lives of thousands.

In Angola, the International Monetary Fund has found that $1 billion of up to $5 billion in state revenue — most
of it generated by oil contracts — goes missing every year. In the late 1990s, according to the London human
rights organization Global Witness, millions of dollars handed to President José Eduardo dos Santos by Exxon
Mobil, among others, helped him prolong Angola's civil war.

No one doubts that the primary villains are Africa's corrupt dictators, whose moral compass the U.S. cannot alter.
But it doesn't help that Western companies, citing confidentiality agreements and competitive concerns,
generally refuse to disclose the fees, royalties and other payments they make in African oil countries.

There is plenty of evidence that companies are hiding what amounts to payoffs and bribes.

In dealings with Equatorial Guinea, the Los Angeles Times reported, U.S. oil companies deposited more than
$300 million into bank accounts in Washington solely controlled by the country's president.

In Gabon and other countries in the 1990s, the then-state-owned French oil giant ELF Aquitaine had such a huge
slush fund for buying African influence that, according to testimony in an ongoing embezzlement trial in Paris, its
executives enriched themselves by dipping into it at the same time millions went to the leaders of oil states.

A British initiative to increase transparency in African oil deals, promoted by Prime Minister Tony Blair, is now at
the center of a transatlantic tug of war. The program calls on oil companies to voluntarily disclose their
payments for oil leases and development rights in Africa, which would allow for accountability on both sides of
the transactions.

The initiative is supported by six countries, including France, India and South Africa. Two major European oil
companies, British Petroleum and Royal Dutch/Shell, also support the initiative, on the condition that all other
major companies abide by the proposed norms.

But America's Big Oil interests, spearheaded by Exxon Mobil and ChevronTexaco, resist the voluntary initiative,
fearing in part that such a move is a slippery slope likely to make disclosure of payments mandatory in the future.
(In fact, a separate international proposal, backed by financier George Soros, calls for mandatory reporting as a
prerequisite for listing oil companies on the world's stock exchanges.)
Without all the oil giants complying, the British initiative has no chance of taking off. After all, companies that
report where all their money goes are likely to lose lucrative contracts to those who can shield payments and
avoid accountability.

This is where Bush's authority comes into play. If anything can push American companies to support the
initiative, it is a president calling upon his friends in the oil industry to be socially responsible.

The purpose of Bush's trip is to promote African democracy and prosperity. But the U.S. cannot preach to
African countries about good governance when its own corporations take advantage of, and therefore sustain, a
morally corrupt business climate that would never be tolerated here at home.

By conservative estimates, the oil rush is likely to bring African governments some $200 billion over the next
decade. But unless the U.S. acts to achieve transparency and accountability in the continent's oil dealings, that
money will only sow more of what Bush says he wants to roll back: conflict, corruption and economic
degradation.
Gal Luft is co-director of the Institute for the Analysis of Global Security in Washington and publisher of the online
publication Energy Security Biweekly.

COUNTRY COMPARISON: CRUDE OIL - PROVED RESERVES

Crude oil - proved reserves is the stock of proved reserves of crude oil, in barrels (bbl). Proved reserves are those
quantities of petroleum which, by analysis of geological and engineering data, can be estimated with a high
degree of confidence to be commercially recoverable from a given date forward, from known reservoirs and
under current economic conditions.

Rank Country (BBL) Date of Information

1 Venezuela 298,400,000,000 1 January 2015 est.

2 Saudi Arabia 268,300,000,000 1 January 2015 est.

3 Canada 171,000,000,000 1 January 2015 est.

4 Iran 157,800,000,000 1 January 2015 est.

5 Iraq 144,200,000,000 1 January 2015 est.

6 Kuwait 104,000,000,000 1 January 2015 est.

7 Russia 103,200,000,000 1 January 2015 est.

8 United Arab Emirates 97,800,000,000 1 January 2015 est.

9 Libya 48,360,000,000 1 January 2015 est.

10 Nigeria 37,070,000,000 1 January 2015 est.

11 United States 36,520,000,000 1 January 2015 est.

12 Kazakhstan 30,000,000,000 1 January 2015 est.

13 Qatar 25,240,000,000 1 January 2015 est.

14 China 24,650,000,000 1 January 2015 est.

15 Brazil 15,310,000,000 1 January 2015 est.

16 Algeria 12,200,000,000 1 January 2015 est.

17 Mexico 9,812,000,000 1 January 2015 est.

18 Angola 9,011,000,000 1 January 2015 est.

19 Ecuador 8,832,000,000 1 January 2015 est.

20 Azerbaijan 7,000,000,000 1 January 2015 est.

21 Norway 6,435,000,000 1 January 2010 est.

22 European Union 5,789,000,000 1 January 2015 est.

23 India 5,675,000,000 1 January 2015 est.

24 Oman 5,151,000,000 1 January 2015 est.

25 Vietnam 4,400,000,000 1 January 2015 est.

26 Egypt 4,400,000,000 1 January 2015 est.

27 Malaysia 4,000,000,000 1 January 2015 est.

28 South Sudan 3,750,000,000 1 January 2015 est.

29 Indonesia 3,693,000,000 1 January 2015 est.

30 Yemen 3,000,000,000 1 January 2015 est.

31 United Kingdom 2,982,000,000 1 January 2015 est.

32 Syria 2,500,000,000 1 January 2015 est.

33 Uganda 2,500,000,000 July 6, 1905

34 Colombia 2,445,000,000 1 January 2015 est.

35 Argentina 2,354,000,000 1 January 2015 est.

36 Gabon 2,000,000,000 1 January 2015 est.

37 Congo, Republic of the 1,600,000,000 1 January 2015 est.

38 Chad 1,500,000,000 1 January 2015 est.

39 Sudan 1,250,000,000 1 January 2015 est.

40 Australia 1,193,000,000 1 January 2015 est.

41 Equatorial Guinea 1,100,000,000 1 January 2015 est.

42 Brunei 1,100,000,000 1 January 2015 est.

43 Peru 741,200,000 1 January 2015 est.

44 Trinidad and Tobago 728,300,000 1 January 2015 est.

45 Ghana 660,000,000 1 January 2015 est.

46 Denmark 611,000,000 1 January 2015 est.

47 Romania 600,000,000 1 January 2015 est.

48 Turkmenistan 600,000,000 1 January 2015 est.

49 Uzbekistan 594,000,000 1 January 2015 est.

50 Italy 544,500,000 1 January 2015 est.

51 Japan 541,600,000 March, 2015 est.

52 Thailand 461,000,000 1 January 2015 est.

53 Tunisia 425,000,000 1 January 2015 est.

54 Ukraine 395,000,000 1 January 2015 est.

55 Pakistan 371,000,000 1 January 2015 est.

56 Turkey 296,000,000 1 January 2015 est.

57 Germany 226,800,000 1 January 2015 est.

58 Bolivia 209,800,000 1 January 2015 est.

59 Cameroon 200,000,000 1 January 2015 est.

60 Belarus 198,000,000 1 January 2015 est.

61 Congo, Democratic Republic of the 180,000,000 1 January 2015 est.

62 Papua New Guinea 175,200,000 1 January 2015 est.

63 Albania 168,300,000 1 January 2015 est.

64 Niger 150,000,000 July 7, 1905 est.

65 Spain 150,000,000 1 January 2015 est.

66 Chile 150,000,000 1 January 2015 est.

67 Netherlands 144,700,000 1 January 2015 est.

68 Poland 142,400,000 1 January 2010 est.

69 Philippines 138,500,000 1 January 2015 est.

70 Bahrain 124,600,000 1 January 2015 est.

71 Cuba 124,000,000 1 January 2015 est.

72 Cote d'Ivoire 100,000,000 1 January 2015 est.

73 Suriname 88,970,000 1 January 2015 est.

74 France 84,080,000 1 January 2015 est.

75 Guatemala 83,070,000 1 January 2015 est.

76 Serbia 77,500,000 1 January 2015 est.

77 Croatia 71,000,000 1 January 2015 est.

78 New Zealand 67,200,000 1 January 2015 est.

79 Austria 61,690,000 1 January 2015 est.

80 Burma 50,000,000 1 January 2015 est.

81 Kyrgyzstan 40,000,000 1 January 2015 est.

82 Georgia 35,000,000 1 January 2015 est.

83 Bangladesh 28,000,000 1 January 2015 est.

84 Hungary 27,190,000 1 January 2015 est.

85 Mauritania 20,000,000 1 January 2015 est.

86 Bulgaria 15,000,000 1 January 2015 est.

87 South Africa 15,000,000 1 January 2015 est.

88 Czech Republic 15,000,000 1 January 2015 est.

89 Israel 13,950,000 1 January 2015 est.

90 Lithuania 12,000,000 1 January 2015 est.

91 Tajikistan 12,000,000 29 February 2016 est.

92 Taiwan 10,060,000 1 January 2015 est.

93 Greece 10,000,000 1 January 2015 est.

94 Slovakia 9,000,000 1 January 2015 est.

95 Benin 8,000,000 1 January 2015 est.

96 Belize 6,700,000 1 January 2015 est.

97 Barbados 2,530,000 1 January 2015 est.

98 Jordan 1,000,000 1 January 2015 est.

99 Morocco 680,000 1 January 2015 est.

100 Portugal 538,100 1 January 2015 est.

101 Ethiopia 430,000 1 January 2015 est.

102 Aruba 0 1 January 2015 est.

103 Antigua and Barbuda 0 1 January 2015 est.

104 Armenia 0 1 January 2015 est.

105 American Samoa 0 1 January 2015 est.

106 Botswana 0 1 January 2015 est.

107 Bermuda 0 1 January 2015 est.

108 Belgium 0 1 January 2015 est.

109 Bahamas, The 0 1 January 2015 est.

110 Bosnia and Herzegovina 0 1 January 2015 est.

111 Solomon Islands 0 1 January 2015 est.

112 Bhutan 0 1 January 2015 est.

113 Burundi 0 1 January 2015 est.

114 Cambodia 0 1 January 2015 est.

115 Curacao 0 1 January 2011 est.

116 Sri Lanka 0 1 January 2015 est.

117 Cayman Islands 0 1 January 2015 est.

118 Comoros 0 1 January 2015 est.

119 Costa Rica 0 1 January 2015 est.

120 Central African Republic 0 1 January 2015 est.

121 Cabo Verde 0 1 January 2015 est.

122 Cook Islands 0 1 January 2015 est.

123 Cyprus 0 1 January 2015 est.

124 Djibouti 0 1 January 2015 est.

125 Dominica 0 1 January 2015 est.

126 Dominican Republic 0 1 January 2015 est.

127 Ireland 0 1 January 2015 est.

128 Estonia 0 1 January 2015 est.

129 Eritrea 0 1 January 2015 est.

130 El Salvador 0 1 January 2015 est.

131 Finland 0 1 January 2015 est.

132 Fiji 0 1 January 2015 est.

133 Falkland Islands (Islas Malvinas) 0 1 January 2015 est.

134 Micronesia, Federated States of 0 1 January 2014

135 Faroe Islands 0 1 January 2015 est.

136 French Polynesia 0 1 January 2015 est.

137 Gambia, The 0 1 January 2015 est.

138 Gibraltar 0 1 January 2015 est.

139 Grenada 0 1 January 2015 est.

140 Greenland 0 1 January 2015 est.

141 Guam 0 1 January 2015 est.

142 Guinea 0 1 January 2015 est.

143 Guyana 0 1 January 2015 est.

144 Gaza Strip 0 1 January 2010 est.

145 Haiti 0 1 January 2015 est.

146 Hong Kong 0 1 January 2015 est.

147 Honduras 0 1 January 2015 est.

148 Iceland 0 1 January 2015 est.

149 Jamaica 0 1 January 2015 est.

150 Kenya 0 1 January 2015 est.

151 Korea, North 0 1 January 2015 est.

152 Kiribati 0 1 January 2015 est.

153 Korea, South 0

154 Laos 0 1 January 2015 est.

155 Lebanon 0 1 January 2015 est.

156 Latvia 0 1 January 2015 est.

157 Liberia 0 1 January 2015 est.

158 Lesotho 0 1 January 2015 est.

159 Luxembourg 0 1 January 2015 est.

160 Madagascar 0 1 January 2015 est.

161 Macau 0 1 January 2015 est.

162 Moldova 0 1 January 2015 est.

163 Mongolia 0

164 Montserrat 0 1 January 2015 est.

165 Malawi 0 1 January 2015 est.

166 Montenegro 0 1 January 2012 est.

167 Macedonia 0 1 January 2015 est.

168 Mali 0 1 January 2015 est.

169 Mauritius 0 1 January 2015 est.

170 Malta 0 July 6, 1905 est.

171 Maldives 0 1 January 2015 est.

172 Mozambique 0 1 January 2015 est.

173 New Caledonia 0 1 January 2015 est.

174 Niue 0 1 January 2015 est.

175 Vanuatu 0 1 January 2015 est.

176 Nepal 0 1 January 2015 est.

177 Nauru 0 1 January 2015 est.

178 Nicaragua 0 1 January 2015 est.

179 Paraguay 0 1 January 2015 est.

180 Panama 0 1 January 2010 est.

181 Guinea-Bissau 0 1 January 2015 est.

182 Puerto Rico 0 1 January 2014 est.

183 Rwanda 0 1 January 2015 est.

184 Saint Pierre and Miquelon 0 1 January 2015 est.

185 Saint Kitts and Nevis 0 1 January 2015 est.

186 Seychelles 0 1 January 2010 est.

187 Senegal 0 1 January 2015 est.

188 Saint Helena, Ascension, and Tristan da Cunha 0 1 January 2015 est.

189 Slovenia 0 1 January 2015 est.

190 Sierra Leone 0 1 January 2015 est.

191 Singapore 0 1 January 2015 est.

192 Somalia 0 1 January 2015 est.

193 Saint Lucia 0 1 January 2015 est.

194 Sweden 0 1 January 2015 est.

195 Switzerland 0 1 January 2015 est.

196 Turks and Caicos Islands 0 1 January 2015 est.

197 Tokelau 0 1 January 2015 est.

198 Tonga 0 1 January 2010 est.

199 Togo 0 1 January 2015 est.

200 Sao Tome and Principe 0 1 January 2010 est.

201 Timor-Leste 0 1 January 2015 est.

202 Tuvalu 0 1 January 2015 est.

203 Tanzania 0 1 January 2015 est.

204 Burkina Faso 0 1 January 2015 est.

205 Uruguay 0 1 January 2014 est.

206 Saint Vincent and the Grenadines 0 1 January 2015 est.

207 British Virgin Islands 0 1 January 2015 est.

208 Virgin Islands 0 1 January 2015 est.

209 Namibia 0 1 January 2015 est.

210 West Bank 0 1 January 2009 est.

211 Western Sahara 0 1 January 2015 est.

212 Samoa 0 1 January 2015 est.

213 Swaziland 0 1 January 2010 est.

214 Zambia 0 1 January 2015 est.

215 Zimbabwe 0 1 January 2015 est.

Beliefonomics & Shale

Beliefonomics is the most dismal element of the dismal science. Practitioners advance outlooks based
upon conjecture, fantasy and hope, qualifying themselves on the basis of whom they know, not what
they know; exhibit an abundance of attitude, false modesty, and condescension, but a dearth of facts;
commonly support their assertions with a discussion ending “because”; and do not respond well to
challenges.

The US Environmental Protection Agency sets the high bar among practitioners, promulgating
regulation upon regulation in the quest of saving the planet from humankind.

Close behind, however, are a large number of shale market commentators advancing the notion of a vast
conspiracy – a Ponzi scheme - among hundreds of US and Canadian shale producers, resulting in the
defrauding and bankrupting of investors. This, of course, ignores the reality of shale and more likely
reflects the angst of greedy investors who bet on $100/b oil over a vast time horizon. Tsk, Tsk!
As an aside, if you count yourself among these folks who believe shale is a sham, you should be
particularly concerned that shale producers continue to promote the viability of shale and the value it
offers, even at today’s super “low” prices. Just visit any producer website and read their investor
presentations.

As to the producing community, there is no doubt they pursued shale with an irrational exuberance,
particularly in 2008, when oil prices traded at $147/b and natural gas was over $13/MMBtu. In that year,
producers in the Barnett and Haynesville paid up to $40,000 per acre for drilling rights with attendant
royalties up to 30%. They rang up debt that resides on and hampers their balance sheets to this day. But
this is the not the first time, nor will it be the last time producers get a little over-excited and over-
extended.

In late 1985, I sat in a boardroom in Calgary and watched a senior vice-president of a major oil company
literally throw darts at a map, identifying drilling locations... because oil was $30/b.

That aside, there is one particular “belief” I need to address. Many oil market pundits, citing producer
debt and/or OPEC member societal obligations, argue that oil needs to trade above $70/b because that is
what producers need and OPEC wants. Well, that is just dumb.

What has the profligacy of producers got to do with the marginal cost of developing the next shale barrel
or MMBtu? What does the Qataris wanting $65/b got to do with the market price of oil? The answer to
both questions is “nothing”.

The cost to develop and produce the marginal barrel and marginal MMBtu has NOTHING to do with
Chesapeake’s balance sheet, or the Qataris societal obligations, but everything to do with things like
drilling and completion costs, initial production rates, decline rates, recovery factors, operating costs,
taxes and royalties, gathering and processing fees, market access, ability to hedge prices, and prevailing
commodity prices… to name but a few. With that, what say we indulge in some shale reality?

Shale is the source rock for conventional resources… the lagoon, relative to the beach and reef, on
Gilligan’s Island. Shales are orders of magnitude larger than any conventional resource. In California’s
Monterey basin, there is an estimated 500 billion barrels of oil in place which, with a presumed 3%
recovery factor, equates to 15 billion barrels of recoverable oil. In the Permian, recoverable oil estimates
top 75 billion barrels. In the northeast, the Marcellus shale has an estimated areal extent exceeding
102,000 square miles. That is massive. The stuff is there; it’s just difficult to extract.

At the beginning of 2007, US shale production was 4.2 Bcfd for natural gas and 0.4 MMb/d for oil. At
the end of April 2016, per EIA, US shales produced 42.7 Bcfd of natural gas, representing 56.7% of
total US production, and 4.3 MMb/d of crude oil, or 48.6% of US supply.

Today, US production of both oil and natural gas are in decline, not because shale resources are
exhausted, but because prices fell below the marginal cost of production, taking rig activity with them.
And it is worth asking, if the marginal cost of shale oil and natural gas are north of $60/b and
$4/MMBtu, respectively, as many market pundits claim, why did oil prices fall to $26.05/b and natural
gas prices to $1.61/MMBtu? We know markets overshoot, but these low, low prices speak volumes
about the marginal cost of production - it’s lower than claimed.

And what are producers saying in their most recent Investor Presentations…?

•Chesapeake states its Haynesville shale drilling and completion costs have decline 23% since 2015, and
that longer laterals have resulted a 63% increase in 160-day cumulative well production

•In the Eagle Ford, Chesapeake projects a 25% to 50% rate of return from its 2016 development
program and states, “current returns… at $45/bbl oil out compete 2014 at $80/bb oil”

•Comstock, also a Haynesville producer, indicates that “new wells have 24% to 48% rates of return at
natural gas prices of $2.00 to $2.50/mcf”

•Whiting Petroleum claims a “55% IRR at $50/bbl NYMEX” on its Bakken production

•Pioneer Resources, a large Permian producer, is realizing 10% to 35% improvements in well
productivity due to innovations in completion technologies

•EOG Resources reports a 29% year-on-year decline in overall lease operating expenses. It also states
that well completion costs, since 2014, have declined 42% in the Permian, 15% in the Eagle Ford, and
30% in the Bakken. Finally and regarding drilling, spud to TD times have declined 43% to 19 days in
the Permian since 2014, 45% to 8 days since 2012 in the Eagle Ford, and 59% to 9 days in the Bakken,
also since 2012.

•EOG also reports its after-tax rate of return at $40/bbl oil is between 15% and 30% in the Bakken core,
Permian-Delaware, and Eagle Ford.

•EOG states it has an inventory of more than 12,000 drilling locations

•Anadarko Petroleum indicates that DJ-Niobrara and Permian well costs have been halved since 2013
and 2014, respectively.

•Devon indicates: its drilling and completion costs fell 40%, and its lease operating expenses have
declined 25% since 2014; that, at $50/bbl oil and $2.50/MMBtu natural gas, it generates internal rates of
returns exceeding 20% in the Rockies, Eagle Ford, Oklahoma Stack and Permian; and that it has more
than 13,000 remaining drilling locations

•Cabot Oil & Gas says its drill times, since 2014, declined from 16.9 days 9.4 days in the Marcellus, and
from 15 to 8 days in the Eagle Ford, supporting a halving of its drilling costs.

•Range Resources indicates that at current natural gas strip prices, it can drill and realize rates of returns
across the Marcellus ranging from 20% to 40%.

If you want to “believe” in something; believe in that.

Africa Oil and Gas - Sustaining Growth and Development

Oct 17, 2014.

Africa’s oil and natural gas sector has in recent years played a crucial role in the economic growth and
development of the continent, particularly in those developing countries where recent onshore and
offshore discoveries and developments, especially in West and East Africa, has significantly contributed
towards making the continent more commercially attractive to a wide range of investors around the
globe.

Africa certainly still holds the promise of exciting opportunities for growth and investment. Some
discoveries in the region are so recent that adequate appraisal of proven reserves has yet to be completed,
an indication that we will soon see a surge in proven reserves figures for many emerging players,
making Africa an ideal destination for growth through investment.

Significant gas finds in Mozambique and Tanzania have caused the world to take note of East Africa as
an emerging player in the global industry. The growth of natural gas is changing the landscape of the
world’s energy mix, with new technologies providing many developing countries increasing capabilities
to capitalize on the economic opportunities associated with developing this natural resource, including
shale gas, further. The development of natural gas therefore holds tremendous growth potential for
Africa, as the industry is actively looking at ways to utilize natural gas and now has the technology to do
so.

Sustaining growth and development in Africa hinges on the ability of developing countries to monetize
their natural resource reserves. For companies operating in developing countries, establishing and
maintaining a robust business model and long-term strategy for capitalizing on the economic
opportunities associated with developing oil & gas resources is vital for sustaining growth and
development and creating a sense of lucrative investment potential within each country.

To maximize growth potential, strategic long-term planning is important. Oil & gas companies will need
to cater for adequate investment in exploration and production activities, technology and infrastructure,
while at the same time implementing measures for streamlining operations and controlling operating
costs. Operating in a lean and efficient manner gives companies a competitive edge, and operational
excellence has become an increasingly important factor contributing to growth and development.

Governments and national oil companies play a significant role in sustaining growth and development in
Africa’s oil & gas sector. Regulatory uncertainty and delays in passing laws are severely hampering
growth and development in the sector. Many African countries have a host of stringent laws, regulations
and local content requirements that create challenges for companies and international investors to
overcome – do these laws and regulations stimulate or inhibit Africa’s growth and development?

Operational planning therefore needs to be carefully thought out, taking into account demand growth,
infrastructure requirements, investment needs and potential, long-term strategies and the role of
government if companies and countries want to sustain growth and development in Africa.

Area to receive most capital budget over the next three years
Oil & gas companies need to closely evaluate risks and benefits when deciding how much capital to
invest in new projects or expansion of existing exploration and production activities, infrastructure and
technology. The outcome of such evaluations normally guides companies in selecting which areas
receive the most capital investment in the hope of a achieving a balance between sustainable growth and
maximum returns.

Figure 1: Area to receive most capital budget over the next three years

Offshore exploration ranks highest in terms of areas that will receive the most capital budget over the
next three years, especially in the Southern and Western African countries, with 24% of respondents
highlighting this as an area of focus. Onshore exploration is the next highest area of focus, followed
closely by expansion of the retail network with 18% and 16% of respondents sharing this view
respectively.

Higher focus on offshore rather than onshore exploration makes sense, given that traditional land-based
reserves are slowly diminishing while the demand for oil & gas keeps rising. Among the West African
countries, recent offshore discoveries by key players in the industry have sparked an interest in
developing oil & gas fields further, and we expect this to attract new entrants and investment into those
countries.

Responses indicated that capital expenditure for onshore exploration is favored in East Africa, especially
in Madagascar and Kenya. A number of companies are conducting exploration activities in the
sedimentary basins of Madagascar, including Vanco Energy Co, Sterling Energy, Exxon Mobil, Tullow
Oil, Total and Madagascar Oil.

Recent discoveries of oil deposits in Kenya have also sparked an increase in petroleum exploration. First
commercial oil was found in 2013, and initial production is expected in 2016. International oil
companies are also turning to Kenya as a country for investment in acreage.

Several respondents from South Africa and Nigeria indicated that their capital budget for the next three
years focuses less on exploration initiatives and more on expansion of retail and distribution networks.

Expected changes in production levels

Figure 2: E&P companies’ expected production trends

Just over half (56%) of E&P companies responding to the survey expect production levels to increase
over the next year, which is similar to expectations in the 2013 Review. A fifth (21%) expect production
levels to decrease or remain the same as current levels. The remaining respondents told us that their
projects are not expected to be in production stages within the next year.

Increasing operating costs

The expected increase in production levels is naturally matched by the expected increase in operating
costs over the next year.

According to a study of global gas trends in oil & gas markets by Lukoil, the rapid growth in exploration
and production costs in recent years can to some extent be attributed to the depletion of the conventional
oil resource base. The study suggests that the growing demand for hydrocarbons is a key driver for
companies needing to develop unconventional and very costly reserves.

In Africa, however, the global trend is unlikely to filter through in the near future since the majority of
exploration and production opportunities lie in conventional reserves, with the exception of South Africa.

Producing oil & gas from deepwater shelves, tight reservoirs, mature fields and shale carries high cost
implications due to the complex nature of the operational activities, infrastructure and advanced
technology required. Many African countries do not have the financial or technical resources to venture
into monetising less conventional reserves.

Figure 3: Anticipated change in overall operating costs over the next year

Respondents did indicate that SHEQ and the inadequacy of basic infrastructure are among the top five
significant factors that would affect their businesses over the next three years. Both are likely to
contribute significantly towards increasing operating costs. Many companies are reviewing their
mechanisms for improving health and safety standards in the work environment, given the significant
regulatory requirements within the oil & gas sector as well as seeking ways to limit environmental
impact as well as on-the-job accidents.

Acreage/licence acquisition costs

Most respondents expect acreage/licence acquisition costs to remain the same over the next year while
only 33% believed acreage costs would increase. We had a similar response in our previous Review,
which highlighted the fact that the price of acreage has already increased substantially over the last few
years and has already been factored into
recent bidding rounds and farm-ins.

Figure 4: E&P companies’ expected movement in acreage/licence costs

Changes in the competitive environment

Africa’s growing commercial attractiveness is fast becoming the focus for international oil companies
wanting to do business on the continent. The results of the survey clearly show that there is an
expectation that the competitive landscape is going to change, with 67% of respondents sharing this
view. The threat of new entrants into the oil & gas market is imminent, and companies currently
operating in Africa need to take appropriate steps to defend their market share in their efforts to
achieving sustainable growth and development.

Figure 5: Expected change in the competitive landscape

Attaining and/or maintaining a competitive edge depends on a combination of factors that all need to
work hand-in-hand. Some noteworthy elements include:

1. The size of the company;

2. Its economic footprint on the continent;

3. Robustness of strategy;

4. Agility of business model;

5. Access to financial resources;

6. Well-maintained infrastructure and equipment;

7. Leadership and people skills;

8. Utilisation of advanced technology;

9. Research and development capability;

10. Innovation; and

11. Operational excellence.

Smaller oil & gas players in Africa generally find it hard to compete with larger players engaged in E&P
activities because they lack strength in one or more of the above factors. Depending where in the value
chain they operate, entry into the industry may or may not be difficult.

For example, smaller E&P companies may find it hard to compete with large multinationals whose
activities are usually geographically and vertically integrated, whilst oilfield service companies and
companies engaged in ancillary activities along the value chain could more easily move into Africa and
establish a competitive business.