The argument by the Organisation for Economic Cooperation and Development (OECD) that tightening South Africa’s wealth tax regime would rebalance ... generational inequality has a fundamental flaw: it targets a “flighty” base, says an expert from the African Tax Institute.
Angola’s and Nigeria’s experiences setting up indigenous companies underline the pitfalls behind encouraging local actors in a business prone to corruption
Discoveries from Namibia to Mauritania have turned the west coast of Africa into one of the world’s most sought-after prospective oil exploration areas and led to the creation of indigenous oil companies.
But after more than a decade, few of these new players have managed to break through to become more than middlemen in the long-standing relationship between international and national oil companies.
Traditionally, it has been international companies with their expertise, access to capital and buccaneering spirit who have opened and then exploited new hydrocarbon plays around the world. In the frontier areas of Africa where risks and rewards are high, juniors and independents have played pivotal roles in establishing new exploration areas. But, even as the attractiveness of Africa’s Atlantic seaboard has become more established, attempts by governments to foster indigenous oil sectors have foundered, as local entrepreneurs have sold out to foreign partners who continue to be the driving force behind new exploration.
Nigeria, the first country to develop its own oil companies, set the pattern that every other country has since tried to avoid. Many of the dozens of local companies set up in the early 1990s failed to make progress after the problems of the 2005 licensing round, when they got blocks but could not pay for them. More than five years on, a handful of players have established working deals with international oil companies (IOCs) which have led to production coming on stream. In almost every case, the Nigerian partner, even if it is officially the operator, is in fact playing a minor role.??
Reliance on others
Nigerian independents are mostly, in fact, dependent on foreign advisors. Total is technical adviser to operator Amni in OML 112/117. Amni is also partners with LSE-listed Afren in the Okoro and Setu fields. Total has a similar adviser deal with Conoil in OML 136. Chevron is technical adviser to Yinka Folawiyo Petroleum Company in OML 113. Famfa Oil, founded by Folorunso Alakija, is the operator of the Agbami field in the Central Niger Delta. Early on in its development of the area, the company brought in Chevron Texaco subsidiary Star Deep Water Petroleum as a technical adviser. Brazil’s Petrobras is also a partner. The field produced its first oil in July 2008. It was estimated that production could peak at 200,000 barrels per day (bpd).
Oando is one of the few exceptions to the rule. It has 11 Nigerian oil and gas assets and is listed on the Nigerian Stock Exchange, with a secondary listing on the Johannesburg Stock Exchange. It has participating interests in a number of producing assets, and was the first indigenous company to have an interest in a deep offshore producing asset.
In 2008, Merrill Lynch International arranged a two-year naira-linked loan for Oando to buy a pair of offshore oil licences from Royal Dutch Shell. The total cost was $625.7m, which was guaranteed by Zenith Bank and Guaranty Trust Bank – the first time that these institutions have sat behind an offshore loan.
These are the companies that are are breaking the mould, and moving up the tough path to upstream production, like Oando, and others such as Afren, who are expanding to East Africa.
Further down the coast, in Namibia, many of the exclusive prospecting licences (EPL) granted to black economic empowerment enterprises since the mid-1990s were swiftly farmed out, a practice that energy and mines minister Isak Katali, who was appointed in mid-2010, says he wants to end. A probable target of his criticism was the businessman Knowledge Katti, described in the Windhoek daily newspaper New Era as “one of the fastest growing EPL millionaires in the country”. Katti’s big break came in 2008 after Canada’s Universal Power Corporation took a majority stake in his company Kunene Energy, which had interests in a pair of licences.
No longer indigenous, Kunene is now part of an outfit traded on the Toronto Stock Exchange’s TSX Venture Exchange and which controls a total of five EPLs originally awarded to Katti’s exploration outfits.??
In Angola, a new generation of local independents first emerged during the 2005-2006 licensing round. Half a dozen previously unknown companies obtained minority stakes in exploration assets in frontier regions, and also in some of the more prospective deepwater offshore blocks. These included companies such as Falcon Oil, whose owner Antonio Mosquito Mbakassi also runs Audi and Volkswagen dealerships. Others included Angola Consulting Resources, which is run by a local oil professional, Carlos Amaral, Prodoil and Somoil.
Here, in contrast with Nigeria, the number of local companies has been limited and some well-connected new players appear to be doing more than just deals. Local oil professional and former Texaco employee Pedro Godinho Domingos founded Prodoil in 2001. The president and majority shareholder is José Pacavira Narciso, about whom little is known, but who is said to have close family connections to President Dos Santos. In an interview with The Africa Report, Domingos explained that he had been running his own oil and mining services company named Grupo Veleiro, but set up Prodoil as an independent business because “people wouldn’t believe that my business could get involved in oil”. In 2006, Prodoil secured a 20% stake in an offshore block for $165m and on which Tullow became the operator.
One of the oldest local independents, Sociedade Petrolifera de Angola (Somoil), was established in 2000 and won stakes in three blocks outside the main licensing rounds, with an annual turnover of just less than $7m. Like the other independents that have acquired interests, Somoil has not become the operator of its block. According to African Energy, the national oil company Sonangol “was careful to keep a close watch on the number of indigenous players taking part, mindful of the example of Nigeria’s messy 2005 round where local companies defaulted on signature bonuses”.
“I don’t believe it is unexpected or bad – there is a small Angolan elite, due to historical circumstances, and it’s not surprising that deals circulate.” According to this point of view, indigenous companies with their top-level contacts perform a useful function. As another IOC executive put it, “They bring local knowledge and access to infrastructure and people.”
This article was first published in the March 2011 edition of The Africa Report
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