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Price slump seen prompting review of African oil and gas explorers’ expenditure plans

27th February 2015

By: Zandile Mavuso

Creamer Media Senior Deputy Editor: Features

  

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Oil and gas explorers in Africa will be looking at their budgets and deciding where to allocate their limited capital spend, given the substantial decline in the oil price, as low oil prices could have an impact on production, while undermining certain players in the market, says advisory firm PwC Africa oil and gas advisory leader Chris Bredenhann.

“In the past decade, Africa has seen substantial successes in exploration, including the entry of new country players, with East Africa joining the ranks of its West African neighbours. However, the drop in oil prices is expected to have a significant impact on Africa,” he states.

Owing to this, Bredenhann highlights, the key to surviving the ups and downs of the cyclical oil and gas market is to learn how to adapt quickly, as oil and gas companies now need to plan for the upturn that is sure to follow to ensure that the potential boom does not go bust.

He points out that the drop in oil prices means that oilfield services companies have to cut back on spending while oil and gas players in the market, such as frontier areas, host governments, major gas projects and oilfield services companies, are expected to be most likely at risk from the drop in the oil price.

PwC mentions that frontier areas such as those that include technically difficult pro- jects that require more spend than conven-tional production, such as deep-water, sub-salt, shale gas and enhanced oil recovery ventures, will be affected by the lower oil prices. Areas such as offshore South Africa, sub-salt Congo and Angola, offshore Tanzania as well as shale gas in South Africa are likely to see delays in projects.

“Major African gas projects are also expected to be under increased scrutiny, as oil-linked liquefied natural gas (LNG) prices have dropped significantly,” notes Bredenhann, adding that, although the major LNG projects in Mozambique and Tanzania will not be cancelled outright, costs will be a major concern for investors.

Faced with this challenge, he indicates, governments should put regulatory, legislative and fiscal policies in place to attract investors when the oil price recovers.

However, despite the negative impact of the low oil price, Bredenhann says there are a number of opportunities to invest in the industry in Africa.

“There are still risks, but onshore exploration is also significantly cheaper.”

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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