African Producers Mull Survival Options Amid Low Oil Prices

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The 18 member countries of African Petroleum Producers Association are considering strategies that will keep them afloat in the wake of the challenging crude oil price environment, writes Chineme Okafor

Since the prices of crude oil in the international market took an uncertain path, the economies of some key African oil producing countries have received some significant battering, especially those that rely heavily on crude oil export to meet their respective economic and social responsibilities.

Over the periods that oil prices have slipped and revenues from sales by producers dipped, the budgets of a number of Africa’s top oil pro¬ducers like Nigeria have either impaired significantly with challenging revenue benchmarks or looked quite unconvincing since more than 70 per cent of their revenues come from oil production.

While Nigeria with its low oil revenue though has increased its budgetary expenditure for2016 by 20 per cent, analysts have however observed that most of these countries have either dropped their expenditure profiles because they would not have sufficient fiscal buffers to cope with the slump in oil prices.

On the other hand, some oil companies operating in the countries in Africa have also not escaped the impacts of the price uncertainty. They have either trimmed their workforce or cut down on planned projects and their costs just to stay up until the situation becomes quite favourable to continue.

The impacts of the low oil prices have also been felt in host communities where inflated hopes and expectations from both the government and operating companies are either dashed, calmed or renegotiated.

Reports indicate that unrealistic expectations by local stakeholders which are often said to be a key road block to progressing projects have now either given way for realistic negotiations or nothing at all because everyone that matters in the oil production cycle appear to be feeling the hurtful pinch that the low prices has brought on the industry.

Notwithstanding, 18 African oil producing countries under the aegis the African Petroleum Producers Association (APPA) have from their meeting at the last African Petroleum Congress and Exhibition (CAPE-VI) in Abuja, agreed to follow through 25 strategic goals they consider good enough to keep them up while the uncertainty in oil prices lasts.

They made these decisions from the 11 sessions of the meeting. The choices they adopted were all extracted from deliberations that assessed the impact of the price volatility vis-à-vis future price predictions; processes needed to enhance attractiveness, good governance and transparency in operating within Africa; partnerships in Africa’s oil and gas sector; funding sources for oil and gas operations and projects; expansion of the business focuses of indigenous African operators, as well as value addition in production through local content laws, amongst others.

APPA’s survival strategies

According to the communique which contained the 25 goals that these countries have agreed to pursue, APPA members have indicated that in trying to make its hydrocarbon resources work for its people and economy, they would now be focusing their efforts on value addition rather than production volumes as it is often the case.
They also said that in seeking to achieve this, they would task their respective governments to work harder for more investments to flow into the continent’s oil and gas industry especially with the current competitive conditions in the global oil industry, by deliberately setting up conducive climates for investments.

Apart from opening up more favourable conditions for investments, APPA members would also build credible partnerships across board which they said would enable them focus on flexibility rather than contractual commitments in the industry. They equally want their regulatory frameworks to be fit for purpose, while extant controls and limit to ineffective bureaucratic procedures including permits and consents should be pursued to increase the sanity quotient of the industry in Africa.

Also, implementing anti-corruption initiatives to ensure transparency of businesses in the industry, implementing better management of production cost elements, co-integrating upstream anddownstream activities, and establishing necessary linkages between the oil industry and other aspects of the continent’s economy to make it more resilient to shocks such as the current one are parts of the choices APPA members have considered.

Furthermore, African oil producers have also indicated their desire to build shared collaboration with infrastructure developers perhaps to help upgrade the upstream, midstream and downstream infrastructure base of the industry in their member countries; promote private sector investment incentives; work towards a more balanced economy rather than the prevalent emphasis on export of crude oil; as well as entrench sincerity of purpose and projects’ consistency to attract and retain participation of partners.

With regards to knowledge sharing and capacity upgrade, APPA members also said that they will establish a robust information databank on challenges and opportunities for existing and potential investors in the continent’s oil industry; invest in human capital development to foster security of operations by members; promote local content management and pursue community development as a share responsibility between stakeholders.

APPA members have also turned their attention to the enormous gas resources of the continent and what they can achieve with it, they said in the communique that they will implement gas monitisation and flare out programmes, which will also protect the environment and mitigate climate change President MuhammaduBuharihad while opening the CAPE VI, asked APPA members to adopt a realistic timeline to end gas flare from gas fields in the continent, saying that Nigeria was on the path to ending the practice in 2030.