Africa’s top 500 companies: Oil firms look to a brighter future
A late oil price rally in 2017 – prices of around $68 per barrel as The Africa Report went to press – suggested that a prediction of $62 per barrel for the coming year from Goldman Sachs may not be off the mark. Tensions between Saudi Arabia and Iran, sustained global growth and robust expansion in demand over the past 24 months provide a floor to the price – and fast-reacting US shale-gas operators provide a ceiling.
Surging commodity prices may mask the challenges caused by the slump of 2014. Over the past few years, Africa’s energy sector development has ground to a halt. Investors have delayed decisions over projects such as the huge gas liquefaction plants in Mozambique. Exploitation of some of Ghana’s oil deposits was put on hold. But in June 2017, Italy’s Eni finally announced it was going ahead in Mozambique, while Tullow said it is pursuing the expansion of its Tweneboa, Enyenra and Ntomme fields, after the resolution of a maritime border dispute with Cote d’Ivoire.
Operators in Nigeria’s burgeoning indigenous oil sector were hit by the whiplash of purchasing assets from international oil majors at the peak of the business cycle and then having to service their debts in a low-price environment. Companies like Seplat (#396) and Oando (#83) have weathered the storm, albeit in battered fashion: Oando, for example, had to sell off stakes in downstream assets to both Vitol and Helios to stay lean operationally. Oando is not out of the woods yet. A forensic audit is underway after Ansbury and Alhaji Dahiru Mangal filed a petition against the company in May 2017.
A helping hand was given to Seplat by the resumption of the Trans Forcados Pipeline that had been damaged by militants in the Niger Delta. The stock gained 57% over the course of 2017, according to analysts Proshare.
Elsewhere, Shoreline Energy International, run by chief executive Kola Karim (see page 75), has also been forced to pivot, securing a $300m deal with Shell for gas distribution in Lagos.
The larger challenges brought to light by the oil price slump are still being processed by the institutions they struck hardest. In an attempt to fix things, leading company Sonatrach (#1) is now run by Abdelmoumen Ould Kaddour. He was thrown in prison in 2007 by elements of the security services who did not appreciate his rigid application of governance rules. During the boom years, the ruling elites leaned on the national oil company to finance all kinds of personal and political projects. Sonatrach has had nearly a dozen chief executives over 15 years, an insight into how problematic management has become at this behemoth. It has 120,000 employees, 154 subsidiaries and a turnover of $30.2bn in 2016.
Similarly, in Angola, national oil company Sonangol (#3) is facing a shake-up. Incoming national president João Lourenço dismissed Sonangol’s chairwoman, Isabel dos Santos. The sacking of the daughter of the previous president appears to be an attempt to clean up the sector. She has been replaced by veteran technocrat Carlos Saturnino, who previously was secretary of state for oil. Six other board members were swept aside in the clear-out in late 2017.
Many of the large state-run companies that dominate the sector’s top 10 hope that 2018 will bring a surge of investment. But what of smaller companies? In Nigeria, local content legislation has provided a boost to firms that provide engineering, construction, subsea and maintenance services to the larger oil companies. Oilserv, for example, is now managing the Nigerian National Petroleum Corporation’s gas pipeline between Delta and Edo states.
Refiners tend to struggle when the oil price rises – and not all of them made hay while the oil price was low. Engen (#19), 74% owned by Malaysia’s state oil company Petronas, has done better than most. Its strategy has been to exit the retail side of the market and focus on higher-value corporate customers. In 2016, the company won a contract to supply fuel and lubricants to the Husab uranium mine in Namibia. And in December 2017, Engen agreed to sell 300 petrol stations across nine African countries.
After long speculation over whether or not the Egyptian government was going to privatise Middle East Oil Refineries (MIDOR, #79), it appears that massive government investment is the preferred route. MIDOR should see a second expansion of its facilities, to boost refining capacity from 115,000 to 175,000 barrels per day.
This article first appeared in the February 2018 print edition of The Africa Report magazine