From promise to performance Africa oil & gas review Report on current developments in the oil and gas industry in Africa. June 2013 www.pwc.co.za Contents Foreword 2 Oil & gas in Africa 3 Country profile: Namibia 4 Executive summary 5 Country profile: Mozambique 8 Developing the business 9 Country profile: Uganda 12 Financing 13 Country profile: Kenya 18 Combatting fraud and corruption 19 Country profile: South Africa 20 Health, safety and environment 21 Country profile: Tanzania 24 Developing local skills and business 25 Country profile: Ghana 28 Sustaining growth 29 Country profile: Côte d’Ivoire 33 Country profile: Nigeria 34 National oil companies 35 Country profile: Morocco 36 Conclusion 37 Contacts 38 List of acronyms 39 PwC ForewordForeword About PwC’s This review of developments in the African oil and gas industry is the third energy industry in a series of reviews of the sector, which was initiated in 2010. group It draws upon the valuable experience and views of industry players in Africa, including international oil companies operating on the PwC is the world’s leading continent, national oil companies, service companies, independent oil advisor to the energy companies and industry commentators, to provide insight into the latest industry and has been developments impacting the industry. helping energy companies succeed for more than In this edition, we take a look at what has happened in the last 12 months 100 years. Working and in the major African markets. This year, we have also included a with every segment of selection of country profiles to highlight developments in a number of the business — from emerging markets. We trust that they will provide a useful snapshot of the upstream to midstream key features of these markets. and downstream — we provide business solutions The sector is experiencing significant growth, with East Africa emerging tailored to meet clients’ as a significant oil and gas province as a result of the large gas finds in needs. Because of our skills, Mozambique and Tanzania, and oil potential in Uganda and Kenya. experience and teams of industry specialists, we At PwC, we are watching developments in the industry, analysing changes excel in serving oil and gas from the perspective of how they will impact our clients and looking companies wherever they for ways in which we can best help companies anticipate and manage may operate. In Africa, these dynamics. Our professionals understand the issues that our clients PwC has a greater presence face, and have the knowledge and expertise to proactively address the than any other professional challenges they face and recommend the best solutions. services firm, with offices in 31 countries and more Uyi Akpata than 8 000 staff on the Africa Oil & Gas Industry Leader ground. Chris Bredenhann Africa Oil & Gas Advisory Leader Darcy White Africa Oil & Gas Tax Leader 2 Africa oil and gas review PwC 2 Oil & gas inOil Africa & gas Africa Oil reserves Numerous countries are 132.4 trillion barrels of oil planning bidding rounds in 8.0% 2013, including Kenya, of the world supply Mozambique, Nigeria, Uganda, Morocco and Angola. Gas reserves 513.2Tcf 7.0% Africa has national oil of the world supply 32 companies Shale gas potential New gas finds in 15.7% (7.3% South Mozambique Estimated gas reserves of Africa + 8.4% North Africa ) 127Tcf and unproven estimated reserves of 152Tcf Africa reserves as a % of global LNG Oil: 8.0% 62Mtpa Gas: 7.0% existing, 30Mtpa under construction and 100Mtpa planned/proposed Africa production as a % of global 10.4% LNG trains 21 proposed LNG trains Refining capacity as % of over the next decade global will make Nigeria and Mozambique the 2nd and 3.6% (actual 4th largest exporters in the world throughput 2.9%) Potential industry Flare gas Africa has 5 of the top 10 investment with foreign polluters by volume direct interest USD30 billion per Unexplored/unlicensed annum blocks ±2 217 (2011 PwC offices estimate) In 31 countries in Africa In 158 countries Deals worldwide A new deal every 4 days. Total deal value of USD19.4 billion over the PwC staff last two years More than 8 000 in 190 oil and gas Africa transactions 180 000 worldwide PwC 3 CountryNamibia profile: Namibia Tunisia Key players cco oro M Algeria Libya Egypt Western Sahara BP plc Petroleo Brasileiro SA (Petrobras) Mauritania Mali Niger Sudan Eritrea Cape Verde Chad Senegal Djibouti Arcadia Petroleum Galp Energia Gambia Benin Guinea Bissau Burkina Guinea Nigeria South Ethiopia Faso Sudan Sierra Leone Côte Central D’Ivoire Togo Repsol Eco Atlantic Oil & Gas Inc Liberia Ghana African Republic Somalia Cameroon Kenya Equatorial Guinea Uganda Gabon Democratic Republic Rwanda Maurel & Prom Chariot Oil & Gas Congo of Congo Burundi Seychelles Tanzania Malawi Tullow Oil plc HRT Participacoes em Petroleo SA Comores Angola Mayotte Zambia Tower Zimbabwe Namibia Mozambique Serica Energy plc Botswana MadagascarMauritius Swaziland South Lesotho Africa Recent developments • Namibia is seen as Africa’s newsouth western frontier, but the Kudu gas field, with 1.3Tcf of gas discovered in the early 1970s, remains stranded. • Only 15 wells have been drilled to date. • 18 new wells are planned to be spudded over the next four years. • The new south western frontier • All offshore blocks are in deep and ultra-deep water, requiring semi- • Small companies first off the submersible rigs or drill ships for exploration. mark, international oil companies • Geology shows similarities to the pre-salt Santos basin in Brazil, leading to are following positive speculation on the hydrocarbon potential. • High hopes, but lacking a • Despite recent well abandonments by Chariot, there is significant interest in successful track record Namibia from companies like BP, Repsol, Petrobras and HRT. • Next few months will be critical • HRT recently farmed out part of its stake to Galp Energia. • HRT-owned prospects in Namibia are estimated at 7.4bboe, although recent results from the first well drilled indicate that the source rocks would not be Size: 824 000km2 commercially viable. Population: 2.1 million Regulatory environment GDP: USD13 billion • The Ministry of Mines and Energy (MME) adopted an open licensing system (126th in the world) in 1999 for reconnaissance, exploration and production licences issuing on average two a year between 2005 and 2010. Proven Gas 2.2Tcf • The Petroleum Act and Income Tax Act govern VAT, taxation issues, reserves: Oil 0 million bbls royalties, administrative and provision requirements. • Namcor is the national oil company. 4 Africa oil and gas review Executive Executive summarysummary Reserves and production Africa currently supplies about 12% of the world’s oil and boasts significant untapped reserves estimated at 8% of the world’s proven reserves. These reserves have increased in the last two decades from 5.8% in 1991 and 7.6% in 2001 and this trend is anticipated to continue. From proven oil reserves of 132 billion barrels, Africa produced nine million barrels of crude oil per day (bbl/d) in 2011. Eighty-one percent of this oil production came from Nigeria, Libya, Algeria, Egypt and Angola in 2011. The political unrest in North Africa in 2011 resulted in a loss of production of more than a million bbl/d. It is expected that 2012 production figures will reflect a rebound with production up to pre-2011 volumes of 10 million bbl/d, as Libya has brought production back on stream. Africa has proven natural gas reserves of 513 trillion cubic feet (Tcf) with 91% of the annual natural gas production of 7.1Tcf coming from Nigeria, Libya, Algeria and Egypt. Growth and development Overall, the booming oil and gas industry is seeing greater interest in all regions, including frontier states such as Namibia, Togo, Liberia and areas where exploration and production had been diminishing over the last few years. This includes countries such as Ghana, Côte d’Ivoire and South Sudan. The crown jewels are, however, the new players on the east coast, particularly Mozambique and Tanzania. Africa is seeing continued growth, with East Africa emerging as a new source of gas and oil. Significant gas finds in excess of 127Tcf in Mozambique have created the potential for another African super player. With further exploration and development it is expected that Mozambique could overtake Nigeria and Algeria as the African country with the largest gas reserves. 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 East African region and could act as a catalyst for meaningful economic development. Developments in Ghana have demonstrated the possibilities within Africa to the world. The Jubilee field was hailed as the fastest ever deepwater development, taking just 24 months from development to production. PwC 5 Africa is the last true oil and gas frontier with more than 4 200 oil and gas blocks identified. Almost half of these blocks are open, subject to force majeure or in the application phase. More than 80% of the 1 300 blocks in North Africa are licensed, while in sub-Saharan Africa it is estimated that only about 30% of 2 900 blocks are licensed. In the sub-Saharan regions it is evident that many new opportunities still exist, especially for exploration and production (E&P) companies that are willing to take risks. There are many key opportunities within Africa due to: • New exploration blocks being opened for competitive bidding; • Port development and management; • Pipeline engineering and construction (both subsea and onshore); • Onshore and offshore maintenance; • LNG plant engineering and construction; • CO2 reduction and gas-powered electricity generation; • Other gas monetisation projects for local use (methanol, fertilisers, urea); • Stability of supply and security of supply with a reduction in exports; • Foreign exchange inflows; • Distribution of wealth – a benefit for all citizens; • Infrastructure development mega projects; and • New refinery development or upgrades.