NewsNorth AfricaTop Oil & Gas Companies: Crude awakening for players large and small


Posted on Friday, 04 March 2016 11:35

Top Oil & Gas Companies: Crude awakening for players large and small

By Martin Yeboah

Skikda oil refinery, 350 kilometers east of Algiers, Algeria. Photo©Anis Belghoul/AP/SIPAWith the oil price plummeting, lawyers caught up with the big boys while smaller players realised they'd been taken for a ride.

The era of low oil prices not only spells trouble for the economies and spending plans of major oil-producing economies like Nigeria and Angola, but also for the continent's oil companies.

With $100 per barrel a distant memory, Africa and the world market face divergent price scenarios – a 2016 recovery to $60 or above, or a doomsday scenario in which oil descends to as low as $20 per barrel.

The latter could happen if the Saudi Arabia-led Organisation of the Petroleum Exporting Countries doesn't act to stem supply while demand remains low and sanction-free Iran pumps billions of barrels.

The oil and gas sector had already begun to feel the pain in 2014. The sector's turnover in our Top 500 companies dropped to $160.6bn, a fall of by 9.4% compared to 2013 results.

Africa's oil refineries should have benefited significantly from lower oil prices that began in 2015, but they did not.

Côte d'Ivoire's Société Ivoirienne de Raffinage (SIR, #52) is "trapped in a cycle of government debt", explains Ecobank head of energy research Dolapo Oni. It neglected to carry out required maintenance and upgrades, and has not taken advantage of cheap oil to build its reserves.

As Lagos-based FBN Capital's energy and natural resources expert Rolake Akinkugbe observes, the window of profit opportunity provided by cheaper oil feedstock will diminish in the longer term, so time is of the essence.

The near-term outlook for major refineries is subdued. Morocco's Samir (#24) shut down operations at its 200,000-barrel-per-day plant in August 2015 due to severe financial difficulties. It has large debts to major oil trading companies like Vitol and Glencore, and lost on its unhedged crude oil inventories built when oil prices were higher.

Rapped knuckles

In 2015, Samir also faced the wrath of Morocco's tax authorities, legal action against it, and the suspension of its shares on the Casablanca exchange. It is reliant on Saudi/ Ethiopian billionaire Mohammed Al Amoudi, who is behind Samir's majority shareholder, to assist with a major financial restructuring and raising of at least $1bn in additional capital.

Meanwhile, officials at Egypt's government-owned Middle East Oil Refineries (#35), which seeks major investment to upgrade its operations, hope lenders are not discouraged by the subdued refining environment in North Africa. Algerian refiner and distributor Naftal (#32) is going through its own difficult changes. It got a new chief executive in May and plans approximately $1.9bn in infrastructure investment for its distribution network.

Naftal's parent company, Sonatrach (#1), faces major restructuring of its own. It is planning for a 5% increase in oil production this year while counting on an oil price recovery and courting foreign investors for oil and gas exploration.

In 2015, Sonatrach was wracked by major management changes at the very top and at its subsidiaries, partly to drive forward its renewed emphasis on increasing production and against the backdrop of a corruption scandal and trial engulfing the former company leadership. It has also been engaged in negotiations with western European countries over gas supplies, where EU tensions with Russia could work to Algeria's advantage.


Another upstream behemoth, Angola's Sonangol (#2), has problems of its own. In May, its chairman criticised – in a supposedly confidential memorandum – Sonangol's expensive and inefficient agreements with contractors for raising its costs to "unsustainable" levels.

Sonangol remains the octopus-like hub of Angola's oil industry, having recently presided over the award of exploration licences to local companies, entered into discussion on potential gas-to-power projects with Italy's ENI, and agreed to the purchase of Cobalt Energy's Angolan oil block interests.

The success of oil block purchases by local companies will depend on oil prices and access to capital, among other factors. Renaissance Capital Nigeria head of research Adesoji Solanke argues that oil prices of $30 or below could cause "real problems" not just for oil companies but also for Nigeria's banking sector.

FBN Capital's Akinkugbe also sees the $30 level as worrying and says access to capital is a key issue affecting smaller companies, especially "those still developing assets". ●

Subscriptions Digital EditionSubscriptions PrintEdition










Music & Film



Keep up to date with the latest from our network :


Connect with us