Africa's oil & gas sector is recovering from the global dip in prices

03 December 2018 3 min. read
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After a prolonged period of financial struggles, the African oil & gas sector appears to be on the road to recovery, particularly as oil prices make their way back to the pre-crisis levels, according to a new review of the continent’s sector conducted by global professional services firm PwC. 

Oil, gas and natural resources represent the backbone of some of Africa’s largest economies. The sector has grown to contribute a large portion of national GDPs across the continent, which is a boon in many ways, but also means that most economies are overly reliant on a particularly volatile sector.

The manifestation of this risky scenario presented itself in 2014, when global oil prices plummeted and many economies in the region were sent into an economic struggle. Thereafter, most countries  have begun to prioritise diversification in accordance with the strengths of their individual economies.

Development in break-even prices

According to Big Four accounting and advisory firm PwC, a recovery in oil prices across the globe has now brought these economies back to more stable footing. Nevertheless, the interim period of economic struggle has given birth to a more innovative and resilient oil sector. 

“Companies have largely adapted to a lowcost environment, which promises to be even more beneficial given the currently recovering oil price. They have restructured portfolios with a focus on established regions, less exploration, higher value plays with low break-even cost, and projects with shorter lead times and lower risk – above the ground, geological and operational,” says the report.

Nevertheless, the dip in oil prices was not the only set of challenges that the regional economies have to contend with. The period of austerity resulted in a number of personnel reductions, and the talented individuals who found themselves out of work have now moved on to other engagements.

Merger & acquisition activity

As a result, most companies currently suffer from a shortage of talent, and only a handful of firms that have advanced automated capabilities have the ability to continue strongly. Outside of the internal mechanisms, oil & gas companies are facing a number of external threats to their operations.

Political instability is prevalent across a number of African countries, which creates an ambiguous regulatory environment in addition to issues of corruption and fraud. The continent also suffers from a severe lack of infrastructure, which results from a large gap in infrastructure investment.

Perhaps one of the biggest external challenges to oil & gas revenues on the continent is an increasing tendency towards renewable energy. As governments across the continent look to improve their power and energy generation capabilities, a number of them are turning to more renewable forms of energy production.

M&A upstream activity

As oil & gas prices continue to rise however, companies are looking towards inorganic means of growth in order to meet the demands going forth. As a result, the number of merger & acquisition (M&A) deals across 2016 and 2017 was in excess of 15 and valued in excess of $20 billion.

Other areas of hope also exist for the sector. As elucidated in the report, “despite the challenges, Africa does offer plenty of opportunities in the form of unexplored acreage and ever-increasing hydrocarbon demand fuelled by population growth, urbanisation and the emergence of a growing middle class.”