In an exclusive interview with the African Energy Chamber (AEC), David Hartell, CEO of Stellae Energy Ltd., provides more clarity on the current low production output.
What will this low yield of production in Nigeria, Libya, Angola, Congo, Equatorial Guinea and African countries mean for the whole of the continent?
Poor production performance handicaps the countries involved with lower capital and operating expenses on local staff, services, procurement, and logistics. Countries receive less revenue from direct and indirect taxes and royalty payments. The economic multiplier effect hurts the overall economy of these countries. The continent also suffers from reduced economic activity within the continent’s internal markets for goods and services, as well as reduced access to domestically produced energy resources. Importing hydrocarbons from international locations will cost more and require payments in foreign currency, while domestic market transactions can facilitate alternative payments with food, minerals, and manufactured goods.
What do you think are the main reasons influencing the decline in production in Africa?
The initial impact of the pandemic in early 2020 negatively affected the price of oil, which fell significantly, leading to reduced revenue flows and investment deferral. The lack of continued investment has allowed some assets to degrade with a lack of new wells and facilities, inadequate maintenance of existing wells and facilities, and reduced manpower to keep assets running. With depressed oil and gas prices, operators working in these countries had to limit spending to maintain the ability to meet their fixed obligations, including debt payments. A lot of good stuff was released, many small and medium-sized businesses suffered from some going bankrupt, and significant industry experience was lost. The hiring and training of local staff suffer significant delays. Hopefully, we are on the road to recovery.
What can be done to turn this around?
Oil and gas prices have rebounded significantly from 2020 lows with international demand recovering as the pandemic continues to resolve itself. Larger companies with better balance sheets have begun to bring back their work and spending schedules. Small and medium-sized businesses are beginning to pick up the slack with higher cash flows from existing assets. Well and facility maintenance is beginning to improve, and this is vital. Existing assets offer the fastest means to rapidly improve production by performing well maintenance, workover and servicing, and near-field development of existing underdeveloped resources. Continued access to financing and finance is under pressure due to the inadequate appreciation by some international governments, multilateral agencies, investors and decision-makers of the role that Africa’s domestic production plays in helping the 1.2 billion people in Africa to achieve the UN Sustainable Development Goals. and help end Energy Poverty. A united approach and lobbying by African countries with these external banks and multilateral investment parties is needed to help educate them on the need to ensure the affordability and security of energy supply for the people of Africa. Africa accounts for only 3% of global emissions, so better access and development of domestic energy resources will not significantly affect others but will improve Africa’s living standards, access to clean water and better sanitation, education and better economies.
What do you recommend as an industry approach to low-carbon gas monetization and financing in Africa?
The EU’s recent decision to consider natural gas a green investment was an important step in acknowledging the reality that gas plays a role in decarbonisation as renewables continue to grow. Other developing nations have seen significant increases in coal use due to inadequate energy supplies, and gas is clearly better than coal at reducing potential carbon emissions. This gas classification will help improve access to finance and financing for African countries and companies to pursue low-carbon gas monetization. Africa has significant gas reserves and the ability to target additional undeveloped unconventional gas in some countries has significant growth potential. Gas from North Africa can be exported to Europe to improve energy security, but Europe needs financial and financial support. The proposed addition of African Energy Banks and strengthening of the African Export-Import Bank to complement the work of the African Development Bank is a good idea to improve access to finance and financing for gas monetization. Carbon capture and emissions storage can help these gas supplies meet clean energy targets for export.
What should new independents consider when entering a changing African energy sector?
New independents should consider sustainable entry into the African energy sector. They should plan to partner with local companies that have significant experience and knowledge gained over decades with previous and existing energy companies in Africa. Experienced energy personnel, engineers, geoscientists, drillers, logistics providers and operators are available in many countries and regions in Africa. It is possible to improve costs with these local service resources. The smaller national African energy companies are good partners for new independents considering entering with a good understanding of how to successfully meet legal and regulatory obligations to work efficiently. New independents can work with existing local businesses to strengthen ESG frameworks and support the pursuit of the UN Sustainable Development Goals for their local communities.
Is it time for a model gas/LNG production sharing agreement?
As the world grapples with climate challenges, foreign investment available to develop Africa’s oil and gas resources is shrinking. Having countries with complicated PSAs associated with complex trade terms has reduced the attractiveness for outside companies to bring in assets with these agreements. With investment decisions and capital allocation influenced by economic performance and risk, the use of some PES has damaged Africa’s attractiveness to new investors and reduced the interest of existing investors to stay. A well-negotiated model gas/LNG production sharing agreement that addresses these challenges could help better balance direct and indirect revenues and risks and increase investor interest in aiding oil and gas exploration and development in Africa. Unless this happens, tax-advantaged jurisdictions will continue to attract investment from outside Africa.
What pending deals do you think should be completed and announced at the African Energy Week in Cape Town?
A unified African approach to the international community regarding the importance of solving energy poverty is an important announcement that builds on the progress of AEW2021 in this regard.
The various lines of work of African nations and companies to support the Energy Transition should be announced. Stellae Energy is working with a number of African entities to develop clean renewable energy solutions including geothermal, carbon capture and storage, solar PV hybrid and wind power, and energy storage systems, including hydrogen. African companies are well qualified and experienced to begin transitioning some of their work to renewables as existing oil and gas developments come back with increased cash flows for future sustainability investments.
Announced and rumoured pending divestments by some international carriers need to be resolved and announced. Until then, there could be a significant deferral of spending by existing operators and potential new operators unable to implement their plans and make new investments. The uncertainty that hangs over possible divestments will only add to the poor production performance until it is resolved. African governments can help these processes move smoothly to help maximize opportunities for new entrants, especially in combination with national energy companies. (AEC)