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Associated Press: Africa becomes hot spot for oil

Region welcomes foreign investors
By HEIDI VOGT
Associated Press

DAKAR, Senegal – Angola is joining the Organization of Petroleum Exporting Countries, African oil exploration is booming and China is investing. The stampede for African oil has continued, even as militant attacks in some countries and precarious governments in others make returns uncertain.

Though much of the continent is just as conflict-ridden as the Middle East, analysts say Africa is increasingly attractive because it’s one of a diminishing number of regions still welcoming foreign corporations.

“It’s one of the few places still where in virtually every country the international oil companies can invest,” said Julian Lee, senior energy analyst at London’s Center for Global Energy Studies. “I can’t think of anywhere in Africa that has not let in international companies.”

The Middle East, which has nearly 60 percent of the world’s proven reserves, operates mainly through state-owned companies. Russia, the second-largest oil exporter after Saudi Arabia, took over much of its former oil giant Yukos early this year and has continued to tighten its control over foreign companies.

Meanwhile, South American policies have become increasingly nationalistic: Venezuela forced retooled contracts on foreign oil companies, Bolivia nationalized its petroleum industry and strong leftist parties in Peru and Ecuador have made corporations increasingly wary.

“President (Hugo) Chavez of Venezuela has basically politicized Latin American oil,” said Mehdi Varzi, who heads an independent oil consulting firm in London. Varzi said nationalization isn’t an option for African countries with poor infrastructure and little technical expertise to develop an oil sector on their own.

Mauritania, Africa’s newest oil producer, was long only a potential oil exporter until a deal with a team led by Australia’s Woodside Petroleum Ltd. led to offshore finds in 2001.

Though the northwest African country’s reserves are small by world standards – about 1 billion barrels – the government estimates that it will see oil revenue of $350 million in 2006, its first year of production. That’s major revenue for one of the world’s poorest nations.

Woodside owns the largest stake of the field at nearly 48 percent; the Mauritanian government owns 12 percent.

Foreigners also show no signs of leaving Nigeria, even though normal daily production of 2.5 million barrels has been cut by a quarter in attacks by militant groups angling for a greater share of oil wealth.

The West African country, Africa’s biggest oil producer and the fifth-largest supplier to the United States, hosts multinationals such as Royal Dutch Shell PLC and Italian oil firm Eni SpA in profit-sharing agreements with state-owned companies.

In a stark contrast to Russia and Venezuela, the Nigerian government is making efforts to privatize more of its oil operations, according to Shell financial reports.

The government has a majority share in Shell partnerships and the petroleum sector accounts for about 80 percent of Nigeria’s revenue.

Still, African oil development has its own problems that can trump those of the Arab world. Nigeria is often near the top of lists of the world’s most corrupt countries, as is Angola.

Much business in both countries takes place in an informal economy. And a long history of coups in many regions means new governments can’t always be counted on to keep old promises.

While Africa will never compete with the Middle East, there’s plenty of oil to be found. The continent’s proven oil reserves more than doubled between 1980 and 2005 to 114.3 billion barrels, according to the BP Statistical Handbook. That’s a growth rate comparable to the Middle East and far outpacing a worldwide increase of 84 percent during the same period. African production rose about 60 percent during the same time and now accounts for about 12 percent of the world’s oil.

There’s enough demand that even though U.S. and European companies have largely stayed away from politically charged Sudan, the country has found foreign investment from Asia. China is the main foreign investor in Sudanese oil fields and has not shown any signs of decreasing involvement, despite the continuing threat of U.N. sanctions over Sudan’s refusal to allow U.N. peacekeepers in its Darfur region.

Over the past decade, many poor African countries have moved toward privatization of state-owned enterprises under the advice of the World Bank. In an October report, the World Bank encouraged Angola – Africa’s second-largest producer after Nigeria, and one of the continent’s fastest-growing oil powers – to do more to encourage private investment.

Peter Egom, an economist and research fellow at Nigeria’s Institute of International Affairs, argued that Africa has the manpower and know-how to aspire to oil nationalism. He argued that the major stumbling block for African oil producers was the lack of financial means, because nations with weak currencies have to compete in an industry in which the U.S. dollar is the currency of trade.

Venezuela has worked hard this year to befriend African nations in a sign that the country could be pushing similar theories.

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