Unlocking The Potential Of Africa’s National Oil Companies

Unlocking The Potential Of Africa’s National Oil Companies
Nigeria’s NNPC

AFRICANGLOBE – Major oil and gas discoveries have opened new exploration plays in East Africa and offshore West Africa. Equally, ever-expanding energy requirements from domestic markets support the commercialisation of these discoveries and many African governments are creating national oil companies (NOCs) or restructuring their current NOCs to ensure greater national participation in their upstream petroleum sector.

According to Mark Essex, ‎director of extractive industries at KPMG Kenya, “These African governments are giving their NOCs very ambitious mandates by expecting them to take on greater operational roles and responsibilities by becoming upstream operators. The reality is that often the expectations of such a role aren’t in line with existing reserves or financial and human resources and, as a result the NOCs are struggling to establish themselves.”

Becoming an upstream operator is particularly demanding in terms of financial commitments and involves organisational changes to the form and functions that NOCs have traditionally had in Africa. Where, prior to these discoveries many have been limited to supporting pre-exploration work, data management, licensing, overseeing regulations, fiscal systems and running downstream operations.

“Many of these NOCs are having to undergo major restructuring – an almost 90 degree shift from what their traditional roles have always been – though in the long-term increased national involvement in the extraction, production, distribution and/or exportation activities of their petroleum sector can bode socioeconomic and beneficiation benefits for the country,” suggests Essex.

“Having a clear mandate with the support of the government and, sufficient resources – in financial and human resources – are paramount to successfully unlocking the potential of a NOC,” continues Essex. “However, more often than not there isn’t a clear mandate and/or a NOC may fail to consider all of the resources that they will require to be able to fulfil their mandate, which leaves the NOC with a mismatch between the role they are tasked to do and the means they are given to implement it. The result of this is that the NOC’s stewardship of oil and gas reserves may be sub-optimal and risks the vision of creating national champions that drive a broader development agenda not being met.”

Additionally, managing recruitment and skills development is consistently identified as a major challenge faced by NOCs in emerging producer countries. As the petroleum sector is so new to the country there are often not enough qualified and experienced potential employees, where NOCs rely heavily on consultants and/or the expertise and guidance of their private sector partners. Added to this, NOCs are frequently constrained by civil service rules, making it difficult to compete with other industries and companies for national talent.

“Most executives in NOCs will agree that the number one challenge they face is a shortage of sufficient skills and that this is major influencing factor as to why the process of establishing a NOC can take up to 7-15 years. As such, when considering the long-term objectives of the NOC, the government should have a clear vision of what it is they want to achieve, the costs involved and make decisions based on the available resource reserves. For instance, where the geological reserves don’t exceed 15 years, pursuing such an endeavour may not be as meaningful as initially intended and, this may then become an opportunity to reconsider the mandate and strategy for the NOC,” concludes Essex.