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Gulf Times (Qatar): Western oil firms face growing troubles in African countries

Published: Monday, 27 August, 2007, 05:31 AM Doha Time
 
COTONOU, Benin: Big foreign oil companies are finding it harder to make money in Africa because of the region’s often unstable politics, output restrictions and moves by some governments to rewrite contracts.

Africa remains one of the last big regions open to foreign oil exploration, and companies of all stripes are benefiting from record energy prices. But fresh obstacles threaten to crimp future production in a region that is crucial to global energy supplies.

Africa’s economically recoverable oil and natural gas reserves account for almost 10% of the world’s total. US and European consumers are increasingly reliant on West Africa nations like Nigeria for crude oil that is easy and cheap to refine into products like gasoline because of its low sulfur content.

African producers such as Nigeria and Angola now ship about as much crude oil to the US as Arabian Gulf producers like Saudi Arabia, according to the US Energy Information Administration.

To meet this rising demand and improve their own growth prospects, companies like ExxonMobil and Total and smaller firms such as Anadarko Petroleum Corp have plowed billions of dollars into the continent at a time when they are effectively shut out of drilling in tightly protected energy sectors in much of the rest of the world.

In Russia and Latin American countries such as Venezuela, governments buoyed by high oil prices have recently moved to take control of energy exploration projects and raised taxes on foreign operators.

Some of these same problems are now popping up in Africa. Governments in Algeria, Chad and Equatorial Guinea have rewritten contracts or oil laws to advance national interests.

Operational risks, including security of staff and infrastructure, have swelled in places like Nigeria. State-run oil companies less focused on profit are snatching business from their Western peers.

Angola, one of the fastest growing producers on the continent, joined the Organisation of Petroleum Exporting Countries in January. While the government is quickly boosting output at expensive offshore projects, Angola will soon get an Opec output quota – perhaps within a year – that could crimp operations for big investors like Total, BP and Statoil when Opec cuts output.

Opec member Libya – which currently pumps about the same amount of crude oil as Angola – was allocated production cuts of 102,000 bpd after Opec cut output twice in recent months.

Underscoring the increased competition state-run oil companies, Austrian oil and gas firm OMV tried to widen its presence in Libya in a recent oil licensing round, but came away empty handed.

“The national companies offered more attractive terms. Competition from them is getting tough,” said OMV chief executive Wolfgang Ruttenstorfer. National companies were willing to take smaller profits on the projects offered by the Libyan government, he added.

OMV and other Western firms have advantages of technology and access to capital over most state firms, but the gaps are narrowing, Ruttenstorfer adds.
Shokri Ghanem, head of Libya’s state National Oil Co, said Libya wants investment from wherever it can get it. “We’re open for business to all companies, private or state.”

At least $5bn in business in Africa has gone to state oil companies, including those of China and India, over the past year or so, up from a fraction of that a decade ago, according to Global Insight analyst Simon Wardell.

Another problem is rising government payments across the continent. In May, Anadarko said it may lose $450mn this year, equivalent to $1 a share based on the share count used in Anadarko’s 2006 annual report, because of a new windfall profits tax in Algeria.

The tax came into effect months ago under the North African nation’s revised oil law, which also restored state control to exploration projects. Texas-based Anadarko declined to comment further on the matter.

In Nigeria, meanwhile, continuing violence and kidnappings in the Niger Delta makes it unclear when Royal Dutch Shell will restart shuttered oil output caused by militant and criminal violence that has cost the company hundreds of millions of dollars since early 2006.

Militant violence, driven by poverty and an unresponsive government, has shut roughly 25% of Nigeria’s oil production the past 19 months.

In May, Shell chief financial officer Peter Voser said Shell’s profit from the Niger Delta, where most of Nigeria’s oil is produced, was $3 to $4 a barrel versus $20 a barrel in the US.

For all the new problems, analysts are quick to note that most African nations aren’t, at this point, going the way of Venezuela by strong-arming companies into resigning contracts.

Countries like Ghana and Egypt are lauded for stable investment climates.

Libya, where significant unexplored acreage remains because of past US sanctions that have since been lifted, has struck some big deals, including one with BP in May in which the company will spend an initial $900mn on exploration.

“On a relative basis, Africa is still a favourite. It’s seen as safer and more predictable than places like Russia and Venezuela,” said Oswald Clint, a London-based oil analyst at Sanford Bernstein, which provides investor research. – Dow Jones Newswires
 
 Gulf Times Newspaper, 2007 ©
 http://www.gulf-times.com/site/topics/article.asp?cu_no=2&item_no=169077&version=1&template_id=48&parent_id=28

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