Despite Troubles, Africa Beckons As Oil Frontier

From Fuel Fix

By Jeannie Kever

The Layton Corp. expects to invest $1 billion in sub-Saharan Africa over the next few years.

“It’s really one of the last frontiers,” said Daniel Layton, whose energy investment firm is making its first move into Africa.

The attraction hasn’t changed since Anadarko Petroleum entered the continent 25 years ago: Energy companies follow oil and gas.

“In a resource- constrained world, finding large fields becomes more challenging,” said Anadarko spokesman John Christiansen. “We see a lot of opportunities (in Africa).”

But in a region with a history of corruption, violence and political conflict, balancing risk and reward requires research, money and patience.

“Turmoil with insurrection, terrorism, piracy – those things all have to be taken into account before companies go to work in Africa or any place overseas,” said Kerry Williams, an attorney with Chamberlain Hrdlicka who works with American companies operating in West Africa.

Some countries are safer than others; all say they want to curb corruption and violence.

“It’s still pretty risky,” Williams said. “As the countries start to develop oil wealth, it becomes imperative for the country to protect that wealth and the people developing that wealth, but it also … increases the turmoil and the acts that people will take to get a piece of the wealth.”

Pitfalls include the Foreign Corrupt Practices Act, which prohibits payments by U.S. business executives to foreign officials to secure contracts; rules requiring payment in local currency rather than dollars; unexpected tax implications; and rules on exporting equipment out of the United States, he said.

New competition

It’s hard to generalize about Africa because each country is different, said Bill Arnold, a professor of energy management at Rice University’s Jones Graduate School of Business. He formerly worked at Royal Dutch Shell as director of international government relations and senior counsel for the Middle East, Latin America and North Africa.

But Arnold said common themes include emerging competition from China and ongoing problems with corruption and security, including theft from pipelines in nations where oil production is long-established, especially Nigeria.

Terence McCulley, the U.S. ambassador to Nigeria, said during a recent trip to Houston that Nigeria’s newly elected government has promised to tackle corruption. But he said it remains a serious problem, as does violence in northern Nigeria and the Niger Delta.

“The oil curse meant that from the ’90s, Nigeria became a rogue economy,” McCulley said. “The revenue from oil – that was all people were interested in.”

The country has begun trying to diversify its economy and make it easier for citizens to see how oil money is spent, the ambassador said, but a 2011 effort to establish an independent regulatory agency to oversee the national oil company failed.

‘Rich become richer’

After decades as West Africa’s primary oil-producing nation, Nigeria suddenly has competition.

Ghana, Ivory Coast, Equatorial Guinea, Gabon, Sierra Leone and Angola are among the countries where companies are exploring or have reported discoveries of oil and natural gas. Huge deposits of natural gas have been discovered offshore in Mozambique, on the continent’s east coast.

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