Wood Mackenzie says that revisions to how oil and gas companies are taxed may be needed to unlock sub-Saharan Africa's 48 billion barrels of discovered oil if the current period of low energy prices persists.
Revisions to how oil and gas companies are taxed may be needed to unlock sub-Saharan Africa's 48 billion barrels of already-discovered oil, according to the findings from a new study by consulting firm Wood Mackenzie.
The findings, released on Wednesday to coincide with Cape Town's Africa Oil Week, prompted Wood Mackenzie to assert that the oil price crash has accelerated the need for fiscal adjustments, as sub-Saharan African governments prepare to weather significant reductions in vital tax revenue.
With no increase expected in production volumes, Wood Mackenzie believes that future revisions will need to strike the right risk and reward balance – incentivizing investors to commercialize the continent's vast untapped resource base.
"Less than 10 percent of the 48 billion of barrels of oil equivalent (boe) discovered in Sub Sahara Africa over the last decade have reached final investment decision (FID). As a result, there will be little or no increase in production from new developments that offsets the loss of vital hydrocarbon tax earnings. Nigeria alone relies on the oil and gas industry for 70 percent of its revenues."
"Since 2010, almost 20 sub-Saharan countries have revised their fiscal frameworks. Throughout the process, we've seen two common themes emerging: tougher terms in response to previous exploration success and updated hydrocarbon laws to capture current industry trends, such as increasing focus local content, technological advance and new areas of exploration. In addition, increased state equity, greater local company participation and the profit-related production sharing contracts (PSCs) are some of the key changes we've seen widely introduced.
"Whilst the region has tremendous resource potential, neighboring countries are in direct competition for international investment and must understand where the next round of fiscal changes could position them against their peers in the eyes of the global upstream industry," Kelly said.
"Finding oil is one thing, but getting it to market as a taxable commodity is another. Sub-Saharan Africa has a tremendous opportunity to generate wealth from hydrocarbon resources in the coming years, but in order to do so need to ensure that future fiscal revisions strike the correct balance for investors between risk and reward," Kelly added.
Sub-Saharan Africa has seen some major oil and gas discoveries in recent years. While Nigeria has long served as the region's main source of hydrocarbons, Tullow Oil's TEN cluster of oilfields, offshore Ghana, was found in 2009 and contains gross reserves of approximately 300 million barrels of oil equivalent. The TEN development is on track to produce its first oil in mid-2016.
Meanwhile, on the other side of Africa the Rovuma Basin in Mozambique has been estimated to contain in excess of 30 trillion cubic feet of natural gas.
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