The Africa Oil Week Conference 2015
Stuart Carter who heads up Fieldfisher's Oil and Gas Team, based in London, recently returned from the 22nd Africa Oil Week Conference where he met many of the delegates and speakers. Summing up his view on the general themes he reported that although much of the fizz surrounding the E&P industry in Africa has not returned to levels witnessed before the dramatic fall in oil prices from its heights in the middle of 2014, the deep sense of pessimism of the past 12 months would appear to be lifting among many of the attendees. This may be explained by a couple of leading factors:
- Firstly, many of the delegates feel that it is now unlikely that there will be a complete collapse of in the oil price and that we are now on the floor and so entering into a period of relative price stability, albeit at prices much lower than the industry has recently witnessed. This allows for better strategic and financial planning as companies are able to get a firmer grip not only on the value of their reserves but also the prospects within their portfolios.
- Secondly, and coupled with the first, many companies over the past 12 months have got on with what needs to be done, not only to survive the current economic environment, but also position themselves for the eventual up turn. Universally this has meant reducing Opex, stress testing of business models and shining a spot light over their asset base.
Tullow Oil is well down this road as Tim O'Hanlon (VP Africa Business) pointed out in his address. But even this strategy doesn't come without its own set of challenges. Assets that are already on the market or will be coming on to the market will need further capital injection. However, because capital markets remain largely closed to pure explorationists on account of several years of disappointing results, many companies are clearly still finding it hard to attract the right interest or the necessary levels of investment to undertake this.
On the tricky subject of long term oil prices there was little consensus among the delegates and speakers alike as to the kind of recovery the industry will experience. Some believe that once prices start to rise they will do so rapidly. This was a theme in Tony Hayward's address. Whilst others believe the rise will be more gradual and will take the form of small steps, influenced by strategies adopted by large producers such as Saudi Arabia. However, there was a definite sense that oil prices will rise above current levels and many, when pushed, thought it would eventually settle within the $65-$85 bbl zone. But even this positive outlook was tempered among delegates and speakers alike by the prospects of new supplies and new suppliers of oil such as those of shale oil producers who can open and close taps much more quickly than conventional field operators in Africa, and the lifting of sanctions on Iran, who will in turn invest to increase production. These challenges themselves are compounded by the increasing strength of the environmental lobbyist emboldened by technological advancements in green energy and the greater acceptance that global warming must be addressed. Consequently the resultant bounce back in oil prices may not be a carbon copy of what's gone before and that sudden downturns may become a more frequent occurrence than hitherto experienced.
These thoughts and many others left delegates and speakers alike much to reflect upon over the next 12 months after which we might just see who broadly got it right and who broadly got it wrong.