Bulls n Bears Entrepreneurship Zone :: NJ Ayuk: In Niger’s oil industry, fortune favours the bold

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The story of oil exploration in Africa is one of many failures and
victories, of bold bets in unexplored areas that have brought great returns,
of forgotten lands that only some bold few decided to venture in, in the
search for riches. This has been the story for many of Africa’s current oil
and gas hot spots.

It’s hard to imagine that at one point in time, no one believed that
Equatorial Guinea had oil or was even willing to try it out. Sudan, Chad,
Kenya, Uganda, Tanzania, Senegal, Liberia… they are all in one way or
another, nations whose potential was for long snubbed by international oil
and gas companies, until one bold player took the chance and found these so
desired resources.

The Republic of Niger is the newest one in the list, and one that is
attracting more and more attention. Just since April 2018, junior British
independent exploration and production company Savannah Petroleum has
recorded five consecutive commercially viable oil discoveries in its R3 and
R4 Production Sharing Contract areas in the Agadem Rift basin (ARB), in the
Southeast of Niger. While the company has relayed the report of the
estimated reserves in place for the end of its exploratory programme, the
results are extremely promising. So much so that even before its latest
discovery in October, the company had already signed a legally binding
memorandum of understanding (MOU) with the government of the Republic of
Niger outlining the steps of cooperation necessary on both parties for the
adequate implementation of an early production scheme for the R3 block.
These include the support in negotiations of oil sales agreements with the
country’s only refinery, the Société de Raffinage de Zinder (SORAZ), as well
as facilitating access to the third party-owned pipeline connection from ARB
to the refinery.

Savannah’s successes over the last eight months have not gone unnoticed by
oil players in the region. Just this week, Oranto Petroleum, Africa’s most
prominent indigenous oil and gas company, through its chairman, Prince
Arthur Eze announced the signing of a memorandum of understanding with the
Ministry of Petroleum of the Republic of Niger for the acquisition of blocks
R5, R6, Dibella and Dallol in the Tenere and Agadem Basins. Both R5 and R6
border Savannah’s other exploration licenses in the Agadem Basin, R1 and R2,
which have also registered considerable oil and gas prospects in recent
years and that have been assessed by CGG as containing up to 1.6 billion
barrels of oil equivalent (MMBOE) in reserves “yet to find”.

Oranto’s move is symptomatic of the growing profile of the Republic of
Niger as an oil and gas frontier market. It is likely that we will witness
similar moves by other international oil companies in the months to come.
Years from now, we’ll look back and be surprised by how long it took for oil
companies to explore a country that was so evidently rich in oil, bordering
Chad, Nigeria, Algeria, Libya and Congo, well established oil nations.


The bold dragon


However, the true player that took the risk of exploring in the Republic of
Niger when everyone else had given up was not Savannah or Oranto, but the
China National Petroleum Company (CNPC). In fact, history will tell how
there was a before and after CNPC in the Nigerien oil industry.

It was CNPC that in 2008 took over an acreage that Elf, Esso, Texaco and
Petronas had owned, mildly surveyed and abandoned. Three years after it
entered Niger, CNPC had struck oil and started production. Under an
agreement with the government, the company built and operated a 463km oil
pipeline and the 20 thousand barrel per day refinery in Zinder. First oil
was delivered from the Sokor and Goumeri fields in 2011 and from the Agadi
field in 2014, all located in the company’s acreage in the Agadem Rift
basin.

Between 2011 and 2014, CNPC has made 95 discoveries from 129 exploration
wells, confirmed over one billion barrels in oil reserves and has completely
changed the profile of the Republic of Niger as an oil nation.

Since then, Niger has become a de facto oil producer and, through its
refinery, has become self-sufficient in fuel, a rare case across the
continent. Before CNPC, since the country first started being explored for
oil in the 1970s, only 25 wells had been drilled and five minor discoveries
had been made. Naturally, CNPC benefitted from extremely high oil prices to
justify the massive investment in exploration in 2008, but nonetheless, it
broke through a frontier market with great rewards.


A slow but promising start


Despite all of these successes, Niger’s oil production remains marginal,
reaching 20 thousand barrels of oil per day (BOPD) at its peak, and
declining slightly in recent years. That happened despite year after year of
governmental promises and proposals to boost the country’s oil output to 60,
then 80 and then 90 thousand BOPD, a target set for as early as 2014.

The delay has mostly been pegged with the lack of export infrastructure for
the crude. Landlocked, Niger has no pipeline connecting it to other nations,
and with a domestic consumption of no more than seven thousand barrels per
day, pushing with production would only create an oil storage problem.

Since 2012, the government has pushed for a pipeline connection to be built
to link Niger to the Chad-Cameroon pipeline to the south, which could
transport the crude to the Cameroonian port of Kribi, in the Gulf of Guinea,
for exports. That asset alone could change the face of Niger forever.
However, the collapse in the prices of crude oil in 2014 has made this
700km, 60 thousand BOPD endeavour difficult to finance for the two partners,
CNPC and the Republic of Niger. Now, the Niger government has stated in
April this year that the construction of the pipeline will start before the
end of 2018, although the same thing had been said for 2017. If it goes
through, Niger could be a de facto oil exporter by 2020 and have access to a
new influx of capital to continue to finance the industry’s growth and
overall economic development, particularly if the price of crude oil
continues to rise.


A note of concern


These are welcome news for one of the world’s poorest nations, despite it
being the globe’s fourth biggest uranium producer. However, it can also mean
trouble. If it is not surprising that Niger has found oil, if we account for
the riches found in its neighbours’ subsoil, one must not forget that
finding oil has not always meant economic bliss for many of them, and that
the same may happen in Niger.

Oil is a pervasive capital-intense employment-light industry that, if not
managed properly, can completely engulf the economy and destroy other,
otherwise competitive, economic sectors.

We have covered this topic extensively in our book, Big Barrels: African
Oil and Gas and the Quest for Prosperity, which looks at what African
nations have done to better manage their hydrocarbon wealth and curb the
potential negative effects of the oil industry on the economy. And on that
front, Niger has done little. Its oil and gas legislation dates back decades
as is more in line with a broad mining legal framework than an oil specific
code.

This is an issue Nigerien leaders are advised to take seriously. They can
take on examples of many African oil and gas countries that battled the same
challenges in recent years. They can look at Ghana for inspiration for a
resource management code that rivals some of the best in the world, as it
created a heritage fund to protect the legacy of future generations as well
as a stability fund to provide security in case of oil price volatility.
They can look at Nigeria’s battles with local content strategies to better
design policies that will include their population and promote the
development of an associated industry to the oil sector, which can have a
measurable impact on employment. They can look at Equatorial Guinea to see
how infrastructure can potentiate the growth of an oil and gas industry
turned towards providing services across borders. They can look for
international cooperation, either through regional associations or by
seeking the know-how of its allies and neighbours. Equatorial Guinea, for
instance, has accomplished much in the development of its international ties
in the oil and gas industry in Africa by providing know-how and technical
knowledge to new comers into the industry. Further, Niger must strive to
avoid the many mistakes witnessed in Africa’s oil nations in the past, and
leapfrog into the understanding of the potential of, for instance, the
development of a natural gas-based economy could have for the economic,
environmental and social future of the country.

In this regard, transparency in the signing of production sharing
agreements and in the use of oil revenue will be paramount. The adherence to
programmes like that of the Extractive Industries Transparency Initiative
(EITI), which Niger had entered and later retreated from, will lay the
groundwork not only for the country’s image abroad but also for the
government’s credibility within its own borders. The understanding by the
civil society of the actual impact of the oil industry and of the way the
wealth coming from it is used and distributed, is fundamental to prevent
social unrest like we have witnessed over and over again in places like
Nigeria or Tanzania.

In sum, Niger is today the new frontier star market in West Africa and an
investment opportunity for industry players big and small. The country is at
the brink of a new era in its history, one that can bring great wealth to
its people and future generations, and that can raise millions from poverty.
The way this opportunity is managed by the country’s leaders will determine
if that potential is ever fulfilled and we can only hope that it is, but
many steps still need to be taken for Nigeriens, young and old, to come to
directly benefit from their land’s hidden treasures.

NJ Ayuk is the founder and CEO of Centurion Law Group and the executive
chair of the Africa Energy Chamber of Commerce. João Gaspar Marques is an
energy analyst and a seasoned Africa specialist with in-the-field reporting
experience from Africa’s petroleum hotspots.—Howwemadeitinafrica 



NJ Ayuk

 

 

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