By NJ Ayuk, Executive Chairman, African Energy Chamber
The major players in the global energy stage are well-known, and particularly in the oil and gas sector, where most of them have been in the game for a long time. In Africa, countries such as Algeria, Nigeria, Libya, Egypt and Angola have been active for decades, although much of their resource wealth remains untapped. When new discoveries come to light in previously unexplored or unexplored nations, one would think that these more experienced countries would be able to outdo and surpass them when it comes to attracting investment dollars. However, recent experience shows that this is not always the case.
If there was a Rookie of the Year award in the energy industry, it would go to the South American country of Guyana. Despite being the next-door neighbor of founding OPEC member Venezuela, most of Guyana’s potential oil production of 11 billion barrels has only been discovered since 2015. Less than five years after its initial Stabroek Block discovery, US oil giant ExxonMobil began producing oil through the Liza Phase 1 Project — extremely fast by industry standards. By April this year, ExxonMobil had already approved its sixth oil development in Guyana, putting the country of just 800,000 people on track to one day surpass Venezuela in total crude production. The Latin American country is now one of the fastest growing economies in the world.
This is not the first time I have mentioned Guyana in discussions about Africa, and there is a reason for that. Namibia is currently in the same position that Guyana was in just a few years ago, ready to choose its way forward. Recent discoveries in Namibia’s Orange Basin suggest it could hold up to three billion barrels of oil and 8.7 trillion cubic feet of natural gas, and the country’s total oil reserves could almost equal Guyana’s at 11 billion barrels. Excitement around the newly discovered resources is high, and although oil and gas production still lies ahead, Namibia has become a leader in African oil and gas investment.
Shell (UK) and TotalEnergies (France), which made the major discoveries in the Orange Basin with associated companies, have both dedicated significant portions of their 2024 exploration budgets to ongoing activity in Namibia. Offshore exploration plans have also been announced by Chevron (US), Azule Energy (a joint venture between Italy’s Eni and Britain’s bp) and Portugal’s Galp energy. Meanwhile, Reconnaissance Energy Africa (Canada) and Namibia’s state-owned oil company NAMCOR have begun drilling an onshore oil and gas exploratory well in northeastern Namibia.
What not to do
The enthusiasm for Guyana and Namibia’s resources is significantly different from what we see in some of Africa’s other resource-rich nations. Take Nigeria, Africa’s largest oil producer by far. Despite colossal proven reserves of nearly 37 billion barrels (the world total is 1.73 trillion), Nigeria is currently struggling to attract the $25 billion in annual investment required just to maintain its production of 2 million barrels a year. day (bpd). Oil majors are disinvesting from Nigerian assets and diverting future investment to other countries, as TotalEnergies did when it announced $6 billion in new projects in Angola. No new exploratory well has been drilled in Nigeria for more than 12 years. Why;
The most obvious reason is security. Nigeria is notorious for its environmentally disastrous spills caused by rampant oil theft, vandalism and sabotage. The country’s failure to protect its most valuable economic asset – which accounts for nearly two-thirds of Nigeria’s revenue – is a constant threat to the safety of workers as well as oil producers, and does not help public relations either. There may still be a ton of money under the soil of Nigeria, but it is not going anywhere, so it makes more sense to go get it somewhere safer until these problems are resolved.
The other major problem with operating in Nigeria is legal uncertainty. As TotalEnergies CEO Patrick Pouyanné said, Nigeria’s legislature loves to debate oil policy but rarely settles anything, leading to inconsistent decision-making and a volatile and volatile policy environment. Lack of transparency in permitting rounds, slow and complicated contracting processes that expire too quickly, insufficient incentives for natural gas projects, and local manpower requirements not supported by the education system are all significant obstacles. In addition, local companies buying up abandoned assets are held to lower environmental standards than international companies, meaning problems get worse before they get better.
Nigeria is now belatedly trying to address some of these issues (While the Nigerian Industry Act 2021 was a huge step in the right direction, implementation is proceeding apace), but has already spent much of the goodwill that was provided in the past.
Charting a better path
So what are Guyana and Namibia doing right and what are the takeaways for Nigeria and other African nations? Let’s start with Guyana.
First and foremost, it recognized the urgent need for action to rapidly develop its resources. The global energy transition to renewables will eventually reduce demand for fossil fuels, but for now, the transition is just beginning and demand for fossil fuels remains high. With much of the country covered in rainforest and limited open land for wind farms, Guyana simply does not have the same potential for renewable energy as many other countries and needs to take advantage of what it has. Guyana was determined to sell while the market was still buying before it was too late. He pointed to the rapid development and updating of laws and regulations to speed up the development process and provide a stable investor-friendly regulatory environment.
One of the most immediate benefits Guyana offers is language in its oil contracts that shield energy companies from negative impacts if the government makes legislative or regulatory changes, such as new tax codes. This is known as a fiscal stability clause and can significantly reduce the time required for contract negotiations and the risk of costly project delays by preventing sudden and drastic changes in the regulatory regime. (As I have written, Namibia does not currently offer fiscal stability clauses in its agreements, but it would do well to do so if it wants to accelerate the development of its newly discovered oil fields.)
Guyana’s Petroleum Activities Bill, passed by the National Assembly in August 2023 to update the Petroleum Act of 1986, gives the Minister of Natural Resources extensive authority to oversee exploration, production and licensing, as well as responsibility for law enforcement and fines. It addresses the shortcomings of the old law, such as transporting and storing hydrocarbons from offshore to onshore and gaining access to oil feedstock for any future refineries to keep them running if domestic production falls short. The bill also includes security and emergency response measures, oversight and monitoring requirements, capacity building requirements for energy companies, and a cross-border integration framework for developing reserves that cross international borders.
In addition, Guyana’s assembly also passed local content legislation in 2021 that allows international oil companies to effectively communicate their needs to local businesses, creating opportunities to grow and provide producers with services and skilled, trained personnel. This is in contrast to Nigeria’s local content laws, which include quotas for hiring local people but lack the means to meet them. Guyana continues to improve this policy with input from the Ministry of Natural Resources.
Strong start by Namibia
Although Namibia is still in the early stages of development, it is not just watching from the sidelines. The government has already started work on updating its tax legislation and providing an enabling environment for upstream activity. NAMCOR officials visited Guyana in 2023 to learn more about developments in the oil sector, including how to engage local businesses, raise public awareness and expand port facilities. They also learned from Guyana’s growing pains, noting that some of the best advice they received was to take their time and properly assess the infrastructure.
The country is also taking a lead in diversification, with major law firm ENS helping the government develop a regulatory framework for green hydrogen development and energy transition strategies. While much remains to be done, Namibia is already well placed to offer energy companies heading for exits in Nigeria and elsewhere a soft place to land.
