Africa, had over the years, emerged as the worst victim of the volatile global crude oil and gas market. The continent has failed to utilize the resource to hasten its growth and development.
This, according to analysts, was as a result of different factors, ranging from the use of outdated technology and bad policies among others.
This article tends to explore the losses and setbacks the continent had recorded over the years as a result of the volatility and efforts it is making, through technology to weather the storms of the industry, either in periods of boom or bust.
Africa, and by extension, oil and gas companies in the continent, have always been at the receiving end of the volatile global crude oil and gas market. Every time there is a sharp drop in the prices of crude oil over a sustained period, the biggest casualties are African oil and gas companies and the economies of the continent.
On a number of occasions, many of oil firms were either forced to shut down or acquired by other companies with foreign affiliations, while most African economies, especially oil-producing countries, were plunged into crisis.
In times of a sharp drop in prices, many exploration and production projects were either suspended or discontinued, workers were laid off, oil assets were sold and bought; government revenue decline sharply, while the value of currencies drop.
Oil producers, including BP, Shell and Total, had already made moves to reduce capital expenditure through a range of measures such as instituting pay freezes, reducing headcounts, deferring or abandoning investment and even changing business models.
In its Africa oil & gas review, titled, ‘The choice to change,’ Analysts at PriceWaterHouse Coopers (PWC) said period of low oil price had consistently led to reduced level of activity among industry players, and also have a crippling effect on countries that historically depended heavily on oil and gas revenues.
According to the report, Nigeria, for example, relied on crude oil sales to make up 70 per cent of its government revenue, adding that the sharp decline in price has, therefore, led to a prolonged economic crisis.
Angola, it said, had also been hard hit, as it is highly dependent on oil revenue. The country collected $468 billion in oil revenue from 2002 to 2014 and as was the case in Nigeria, the government has taken measures to restructure the national oil company in an effort to turn things around.
For Mozambique, the report stated that though the country has impressive projects outlook, timing for the onshore Afungi terminal was still uncertain, and low oil and Liquefied Natural Gas (LNG) prices, as well as infrastructure challenges, would most likely delay Final Investment Decision (FID).
It also projected that exploration and development would proceed slowly due to the low oil price environment, while license holder are waiting for the export projects to come online before proceeding.
In general, the report said industry activity throughout Africa and the world has slowed greatly due to cost cutbacks across the board, noting that exploration and production (E&P) activities had suffered the most, irrespective of a few discoveries in countries like Angola and Mozambique, as well as some sizeable gas discoveries in Egypt.
It said, “There no longer seems to be as much focus on East Africa as there has been in recent years, and companies seem to be scrambling to spend their limited capital budgets in countries with proven resources and decent (if not favourable) fiscal terms.
“Despite the trend to avoid frontier areas, Kosmos Energy made a considerable gas discovery in Mauritania during the course of 2015.”
PWC further explained that investment in the oil and gas sector is likely to become a more critical issue in coming years, especially as the low oil price has led operators to defer FIDs (final investment decisions) on over US$300 billion of projects.
The report added that with a persistently low oil price predicted for the immediate future, this raises the question of when producers will begin investing again in sources of new production to meet forecast demand.
It argued that foreign investment continues to wane, and oil company stock prices continue to experience declines, despite heavy effort by oil majors to maintain dividends.
The report said service companies have been the hardest hit with some having cut distributions by a whopping 82 per cent lower than the peak rate.
Continuing, it added that the low oil price had afforded some gain to crude oil importers like South Africa, Kenya and Ethiopia and end consumers, but African exporters have been hit hard.
“A number of Africa’s top oil producers, including Nigeria and Angola are being significantly impacted since the majority of their fiscal revenues originate from crude sales, and they are struggling to cope with the low oil prices.
A critical consideration is the breakeven oil price that sits at almost US$80 for Nigeria,” the report noted.
Given the high capital costs in oil and gas sector and the long-term investment cycle, the analysts noted that oil and gas producers have little alternative but to relentlessly focus on cost.
According to the analysts, layoffs, reduced capital expenditure budgets and aggressive discounting across the supply chain, reflect a sector trying to adjust to a new reality.
The analysts stated that while the much-heralded wave of consolidation across the sector was yet to be realised, it is clear that more transactions may well follow a period of financial distress.
“There are of course other trends shaping the oil and gas sector. With the ongoing emphasis on cost reduction, demand for innovation in technology will grow. Whether it is the more widespread application of the digital oilfield or the use of drones to undertake offshore inspections of pipelines, technology is key to reducing cost and improving operational efficiency,” it added.
In their own view, analysts at McKinsey Oil and Gas stated that over the past several years, the global oil and gas industry has had to navigate very choppy waters.
According to them, after a prolonged run of high and growing rig counts, mega-capital-expenditure projects, and plentiful capital to support investment, oil prices slid precipitously in 2014 and 2015, adding that within a matter of months, oil companies that had invested heavily based on rosy forecasts were slowing or even halting operations.
Despite the challenges posed by low oil price, stakeholders are unanimous in their views that Africa still offers significant opportunities, especially in its oil and gas sector.
Already, governments and oil firms in the continent had commenced preparation for the future, especially having realized that the future would certainly look very different to the status quo to which they are accustomed.
Key strategies that they have started developing, according to experts, would be adaptable to a number of possible future scenarios, meaning that the cyclical commodity prices will not impact them as drastically as in the past.
Chief among these strategies is the use of technology and deployment of innovation. Again, McKinsey in one of its reports stated that with recent technological advancements, oil executives should consider digital technologies with the potential to transform operations and create additional profits from existing capacity.
It stated that its research found out that the effective use of digital technologies in the oil and gas sector could reduce capital expenditures by up to 20 per cent; it could cut operating costs in upstream by 3 to 5 percent and by about half that in downstream.
In the report titled, ‘The next frontier for digital technologies in oil and gas,’ the analysts said thanks to the latest technological advancements, Africa is now poised for a second digital age that could further reduce costs, unleash unparalleled productivity, and boost performance significantly—if executives can harness the right technologies to support their business strategy.
They noted that making better use of existing technology can deliver serious returns, up to $1 billion in cost savings or production increases, adding that executives that make their organizations more digital will be well positioned to pursue new growth opportunities.”
They said, “The oil and gas industry is tailor-made for this transformation: operations typically span multiple regions, with heavy capital investments and extended supply chains. The visibility and clarity delivered by digital technologies and advanced analytics can give executives unprecedented, granular views into operations, increase agility, and support better strategic decision making.
“Digital enablers, from process digitization to robotics and automation, can also help realize this potential by supporting processes in dynamic ways.”
McKinsey further stated with the current oil and gas market, companies need to reinvent themselves to improve productivity.
According to analysts at the company, while capital expenditures or acquisitions might give executives pause, investing in digital technologies is a no-regrets move that could increase production from existing operations.
“Since these technologies are readily available and have proved their value in the form of reduced operating costs, increased efficiency, and revenue generation, oil companies should move quickly to embrace digital. It could be the difference between leading the next wave of industry innovation and being left behind,” they said.
Also commenting on the issue, Roman Kilisek, an analyst for Breaking Energy said, “The key to unlocking reserves are experience, engineering innovations in deep-sea drilling and advances in technology – that is, increased computer capacity as well as new seismic equipment – all together allowing for exploration of previously out-of-reach subsea layers of rock.”
Among a number of companies already leveraging technology to ride on waves of boom and bust in the near future is Obijackson Group and its subsidiaries. The group had continually deployed technology delivering high quality services to companies across key sectors, ranging from oil and gas, construction, aviation and fabrication among others.
One of its subsidiaries, Energy Works Technology, is expanding its capacity into the fabrication of super duplex stainless steel, a kind of welding and fabrication that is required for subsea facilities.
Another of its subsidiaries, B&Q Dredging and Nesthak, a horizontal directional drilling company, had through the use of technology engaged in a massive dredging project in Bayelsa State and in the laying of pipes under roads and rivers for the OB3 pipeline project respectively.
Particularly, B&Q Dredging, a dredging company, helped in dredging the River Niger for the Second Niger Bridge project, while Nesthak is currently involved in helping to cross the Ase River in the OB3 pipeline project, with the River Niger, being the next target, a distance of 1,800 meters.
Nesthak was engaged to drill underneath the River Niger to pass the pipeline, so that it is not laid in the water.
Mr. Simeon Tor-Agbidye, Assistant General Manager, Group Business Development, Nestoil Limited, said as part of its survival strategies, the group was is optimizing its processes so as to become very competitive and is also deploying more equipment and training people to be more efficient.
He said, “All the operators are talking about low cost, high quality; but once we optimize, which is what we are doing now, we would become very competitive; we would have businesses. Even if oil price is $20, we are there; our services would be there for people.”
Also, Royal Nigeria Emerging Technologies is making significant inroads into subsea technology domiciliation in Nigeria and is seeking to domicile umbilical technologies.
The company is also seeking to establish facilities for the assembly, termination and testing of subsea controls and distribution equipment including subsea umbilicals.
Managing Director, Royal Nigeria Emerging Technologies, Mr. Anthony Okolo, said the stage had been set for a more expansive domiciliation of this crucial subsea technology in Nigeria which has its first phase development strategy in Port Harcourt.
On his own part, Executive Director of the company, Mr. Ivan Paoli provided clarification on the need for domiciliation of subsea technology in Nigeria and described that umbilicals are part of the building blocks for subsea development in oil and gas industries which offers more to Nigeria in terms of sectoral linkages to the economy.
He stated that domiciling this technology would limit more than $40 million of capital flight per year while providing transferable skills and capacity for the aerospace, agriculture, automotive and hydraulic industries.
Another company, CB Geophysical Solutions Limited, is currently offering proprietary software and technology in seismic acquisition and processing, stratigraphic and structural interpretation, integrated reservoir characterisation, geologic model and reservoir simulation.
The company is providing technical solutions to complicated geological and reservoir development problems in complex sedimentary, carbonate, clastic and fractured volcanic reservoirs.
The company’s technical solutions range from planning and execution of exploration projects, assessment for prospect and field, designing and documentation of field development plan, and integrated approach for brown field re-development, as well as enhanced oil recovery projects.
In the case of Dorman Long, the company said it has the facility to produce advance work and various industrial applications based on specially developed technology.
NigerDock is offering integrated logistics services, storage and warehousing services, offshore logistics, vessel supply base support services, waste management, cargo handling and heavy lift operations and 3rd party ship handling & management to operators in Nigeria and the rest of Africa,.
Its fully equipped base and fabrication yard boasts a wide variety of mobile plant and equipment including self propelled mobile trailers (SPMTs), container handlers, tele-handlers, forklifts and over 25 mobile cranes with up to 500 tonne capacity. The facility has its own power plant generating up to 8MW and bespoke fabrication, rolling plant, paint shops, offices, accommodation services, warehousing and laydown facilities.
The company offers a solution for onsite access to multiple project support facilities within a free zone environment providing a competitive cost base for project support and execution.
AOS Orwel, with operations in Ghana, Uganda and Nigeria, is building on its expertise in oil well construction, process automation, instrumentation and control; OCTG, conductor casing & machine shop services.
It delivers access to the world’s best technology through long-standing relationships with world class OEM’s such as Emerson, NOV, FMC, SDI, DSI, Tercel, EATON, 3P, DeTronics, Hoerbiger and others, as well as true local content gained through its investment in its management and staff in Nigeria, Uganda and Ghana.
AOS Orwell is the first truly indigenous African Oilfield Services Company with access to fit for purpose technology and a proven record of technology transfer into Africa – and the product line diversity to compete with the biggest internationals.
IFS Africa, a South African company, is developing and delivering agile, component-based software for enterprise resource planning (ERP), enterprise asset management (EAM) and field service management (FSM).
The company’s user-friendly software allows oil companies meet and even anticipate changes in technology and business so that you can stay one step ahead of your competitors and the times.
IFS solutions offer the flexibility and power needed to address the many aspects of oil and gas recovery and field service operations. IFS solutions also boast extensive capabilities, including mobile scheduling, GPS monitoring and resource tracking, make it the industry leading solution for oil and gas field service operations.
Baker Hughes, a General Electric company with operations across Africa is deploying intelligent well systems that remotely monitor and control oil and gas production or water and gas injection. They allow the change of flow from/to individual zones without intervention.
They also have well monitoring solutions, comprising permanently installed electronic and fiber-optic systems that help improve production management and optimize reservoir performance.
It has production decision services, which include visualization and analysis software and provides consultation to support production optimization, reservoir management, and asset integrity programs.
From the foregoing, it is seen that Africa is fast learning from its past and taking position to remain relevant and profitable in times of boom or bust.