CAPE TOWN (Reuters) - A few years ago governments in east Africa would
practically pay companies to come and explore for oil or gas on their
territory.
Those days are gone.
Promising discoveries from Mozambique to Kenya have put governments in the
driver's seat and the rising fees they will demand from oil and gas
companies will start to weed out the smaller players that have blazed the
region's exploration path.
Kenya has said it will revamp its tax rules to benefit more from profits
earned by foreign oil and gas exploration.
Energy Ministry Permanent Secretary Patrick Nyoike said last week the
country was proposing to raise the signature bonuses companies pay for
exploration and drilling licences to $1 million from $300,000.
This remains small change on a global scale but the upward trend is clear.
Oil producing countries, established or emerging, are keen for exploration
companies to pay to signature bonuses and other fees, not least because they
are instant cash for government coffers.
The joint venture Sonangol-Sinopec International (SSI) in 2006 bid $2.4
billion for the rights to prospect for oil in the relinquished areas of
Blocks 17 and 18 in Angola, setting a new record at the time for a single
signature bonus with $1.1 billion.
There are no billion dollar bids on east Africa's immediate horizon, but
they are expected to rise sharply and go beyond the million dollar price
tags Kenya plans to introduce.
Industry executives say this is to be expected.
"Yes, signature bonuses are going up. But it's basic economics," said Aidan
Heavey, chief executive of British explorer Tullow Oil plc.
The company said on Wednesday it had encountered oil in a second well it is
drilling with Africa Oil Corp in northern Kenya close to another one where
they had struck oil earlier in the year.
"Look at Kenya. People looked for oil there for 30 years and could not find
it. After years and years and years of spending money and not finding oil,
no one wants to go there. So, to make it attractive, governments give better
terms," Heavey told Reuters on the sidelines of an African oil conference
organised by Global Pacific & Partners.
"So, the person who finds oil generally finds it on quite good terms," he
said.
In countries such as the central African state of Chad, which became an oil
producer about a decade ago, industry sources say they have run as high as
$15 million.
This is far out of reach of the small companies that have done much of the
exploring in east Africa.
"It's really tough, we are really feeling the squeeze now in east Africa,"
said a senior executive with one small exploration company that is active in
the region.
Governments are trying to extract more revenue and benefits from the oil and
mining sectors amid perceptions they have not delivered wider prosperity on
the world's poorest continent.
"Asking for higher fees, that's not resource nationalism. That is the
evolution of a frontier province," said Galib Virani, associate director at
oil and gas explorer and producer Afren.
"I think the governments are totally in their rights to let market forces
determine the price," he told Reuters.
OFFSHORE NEEDS BIG PLAYERS
As east Africa's oil industry matures, bigger players will also naturally
move in to take on the projects that small companies simply cannot
undertake, which has been the case in the established crude province of west
Africa.
Much of the exploration in east Africa has been onshore but as it moves
further offshore, only big players have the capital and technical abilities
to search for oil in deep water.
Total for example is exploring in water depths of between 2,000 and 3,500
meters in Kenya's offshore block L22.
Analysts and industry watchers say this is in line with what has happened in
other emerging oil provinces, such as Latin America.
"You are seeing the same evolution in east Africa. Often it is smaller
operators who start the exploration because they are the ones who can take
the greater risk," said Paul Bugala, senior sustainability analyst at
U.S.-based Calvert Investment Management, Inc.
"After that it becomes a big boy's game," he said.
Interest in east African hydrocarbons has been growing rapidly since the
2006 discovery of oil in Uganda.
Among new frontiers, industry sources said they expect a round of bidding
for exploration blocks next year from the Seychelles, a tropical Indian
Ocean island state famed as a tourist destination for its beaches and warm
waters.
The price of admission there remains relatively low, industry sources say.
That is sure to change if it struck oil or if more was found in the
neighborhood.
C Thomson Reuters 2012 All rights reserved
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Received on Fri Nov 02 2012 - 19:26:23 EDT
