Institutional Design in Low-Capacity Oil Hotspot

This paper focuses on low-capacity countries courted by investors seeking access to petroleum resources during the exploration boom. In emerging oil hotspots, there has been growing interest in promoting national participation, largely by securing stakes in projects for national oil companies (NOCs). Some of these countries are new producers or remain in the exploration phase without having made any significant commercial discoveries, while others are established producers on a relatively modest scale and are now attracting renewed interest. The key question that emerges in all cases is how to organize and manage the petroleum sector in order to maximize the public benefit derived from oil and gas resources. In particular, what role should the NOC and other governing bodies have? This paper addresses the relationship among institutional structure and the goals of economic development and political accountability. It also examines the argument that oil producers are most likely to succeed when they separate commercial, policymaking and regulatory functions across distinct public bodies and restrict NOCs from performing any regulatory duties. Following on existing literature, this paper argues that the capacity level of a country at the time it seeks to establish an institutional structure has a major impact on which sorts of arrangements are most likely to succeed.

The report is available to download at the link below.

The Cost of an Emerging National Oil Company

 

  • The fall in oil prices since mid-2014 has profoundly changed the prospects for national oil companies (NOCs). If, as seems likely, prices remain low for a number of years, investors will be far more cautious, international oil companies will see reduced cash flows, and many exploration projects will be put on hold or cancelled. NOCs, and the oil and gas industry as a whole, must reconsider their strategies.
  • This will have an impact on the ambitious plans that some emerging producers had nurtured for national participation in the petroleum sector, forcing them to refocus on an affordable strategy for developing upstream capabilities.
  • Governments of emerging and prospective producer countries, and their NOCs, need to understand the cost of various NOC roles, and how these can be financed at different stages of developing the resource base. This will enable them to formulate clear and appropriate strategies for the future.
  • The current environment offers an opportunity for governments to refocus their efforts on defining a mandate that supports their national vision and priorities. This requires an evaluation of the resource base, national capabilities (including those of the NOC) and possible revenue streams, so that the NOC can be tasked with a role it can execute and the state can afford.
  • Governments must approve clear revenue streams for NOCs.
  • NOCs should focus on costs, as well as on strong accounting and reporting standards.
  • Governments and NOCs should be strategic about capacity-building, so that efforts and scarce resources are dedicated to building the right skills and using them on the job.

The report is available to download at the link below.

Enhancing the Performance of African National Oil Companies

Countries endowed with oil and gas hope these resources will lift their economies. They create national oil companies (NOCs) to act as vehicles for national participation in the oil and gas sector, to capture a greater share of the resource rents and act as catalysts for the implementation of broader development goals. The fulfilment of these aspirations depends on the technical and commercial ability of the NOCs, as well as the operational environment provided by their governments. The ability of NOCs to carry out their mandate should therefore be assessed, as should the inducements offered by their government. This study proposes a methodology to evaluate and benchmark the performance of African NOCs, taking into account the regulatory and policy environment in which they operate. It also offers pathways for enhancing their processes and capabilities.

This report was drafted for the African Development Bank. The below document is the authors’ manuscript completed in January 2020. The final report was published by the AfDB on 17 June 2021 and is available on the AfDB website.

Africa’s New Oil and Gas Producers Must Prepare for More Disappointment in the Post-Coronavirus Era

 

The crash in oil and gas prices, triggered by the coronavirus pandemic and the slump in economic activity, has dealt a blow to the plans and public finances of major oil and gas producing countries. But a group of countries in sub-Saharan Africa once designated as “prospective producers” are facing a different challenge. For new producers in the pandemic era, some licensing rounds are likely to be cancelled, and production is being pushed back once more. Debt is becoming an even greater issue. Yet some investors – like Total in Uganda – still show signs of interest. To clarify this mixed picture, we have reviewed our analysis of the experience of the 12 sub-Saharan African countries that made their first major discoveries during the period from 2001 to 2014.

A link to the original article is available below.

How Did Africa’s Prospective Petroleum Producers Fall Victim to the Presource Curse

 

This paper reviews resource sector developments in 12 countries in Sub-Saharan Africa that made their first (major) petroleum discoveries during the most recent commodity boom. The analysis, which goes back to 2001, looks at sector forecasts of international organizations, governments, and companies and compares them with the results that emerged. The paper finds that a third of the countries did not make any commercially viable discoveries. Among those that potentially had commercial finds, the latest timelines from discovery to production are 73 percent longer on average than initially expected. In the six countries for which there are comparable data, revenue collected thus far or the most recent revenue projections for countries yet to reach production are 63 percent lower on average than the initial forecasts. All 12 countries experienced a disappointment in at least one of the three dimensions analyzed—and these disappointments are likely to be exacerbated by the recent price crash. The paper also documents the various policies adopted in response to the discoveries and — with the benefit of hindsight — finds that, in some cases, this over optimism contributed to the ‘presource curse’: suboptimal policymaking that did not align with the new realities. Some recommendations are provided on how better to navigate the inherent uncertainties in developing the sector.

The paper is available at the link below.

National Seminar for Ghana

In December 2018, the New Producers Group held a brainstorming session in Accra, convening Ghanaian government agencies and non-governmental stakeholders, the Ghana National Petroleum Corporation (GNPC), oil companies, and officials from emerging producer countries with onshore projects. The aim of the national seminar was to anticipate how possible successes in exploration onshore in Ghana could affect the operating environment for GNPC.

A summary of the National Seminar is available below.

Annual meeting 2018

The meeting brought together officials from the member countries of the NPG for focused discussions over two days, followed by a National Seminar for Ghana. The discussions were organized in the form of short presentations from government and national oil company (NOC) officials from producer countries as well as executives from oil and gas companies. The presentations were followed by working group discussions with recommendations that were presented and interrogated further.

A summary of the Annual Meeting is available below.