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01 February, 2007

‘Twins’ Face Political Challenges

Obstacles Consume Money, Time

While Africa and South America pulse with opportunities for geologic exploration, the most daunting challenges may be above ground.

Philip H. Stark and Andrew Hayman, both of Houston-based IHS, are prone to talk about two specific examples of this – “Gondwana’s enigmatic twins,” they call them, referring to the challenges facing Africa and Latin America.

Stark and Hayman, who presented their thoughts in a paper at the recent AAPG International Conference and Exhibition in Perth, note that the “twins” had great success from 1996 to 2004, with the oil and gas discoveries totaling 59 Bbo and 214 Tcf.

Deepwater discoveries off both continents and higher prices are stimulating frontier basin exploration. But all the petrodollars flowing into the regions haven’t always benefited the population at large.

“There is extreme difficulty on both continents in converting abundant resources to wealth and prosperity for the people,” Stark said in a recent interview.

Political and Social Obstacles

Shifting political tides and civil unrest have kept standards of living stagnant for both Africa and South America, despite huge revenues flowing into central governments, Stark said.

In addition, corruption costs Africa an estimated $148 billion annually, including lost tax revenue and deterred investment, according to Time magazine (Nov. 6, 2006).

The expanding role of national oil companies (NOCs) in the international arena, he added, further complicates the competitive landscape.

Keith Skipper, who co-chaired the session in Perth on “Exploration Potential of Africa and Its Margins,” agreed, saying some NOCs tie political aid and debt forgiveness to access.

Such political and economic obstacles consume up to 50 percent of management’s time, Stark said.

Investment flowed into both continents as they dramatically opened access in the last decade, he said.

Now other factors – such as close elections in South American countries – might foreshadow a shift to more Socialistic systems, making investors wary, he said.

The reasons may differ, but similar patterns emerge on both continents.

Dictatorships in countries like Venezuela and civil unrest in places like Chad have kept the focus on political concerns, he said, while the countries’ economies and infrastructure have fallen into disarray.

External Dynamics

Another factor is the rise of Chinese and Indian NOCs.

Driven to secure more resources, they have moved heavily into northern Africa, replacing older relationships, Stark said.

The Asian NOCs outbid competitors, but often bring their own crews and gear, cutting locals out of the revenue loop.

“How about employing low-cost laborers in the host countries?” Stark said.

Lack of infrastructure is a major obstacle.

“In Chad, billion-barrel discoveries sat for 20 years waiting for pipe,” Stark said.

“Across 80 percent of both continents, there is no good gas network,” he said.

So the challenge becomes a priority: converting a rich endowment of natural resources into supplies, then into higher standards of living.

“Extremes of wealth and poverty are a driver of political unrest and strife,” Stark said.

Bridging the Prosperity Gap

One way to help bridge the prosperity gap is to balance exports and regional needs as the local economies grow.

Natural resource industries must take an active role in steering production wealth into local needs of business and manufacturing, he said.

Stark highlighted a project by Artemus in Tanzania as a healthy example.

The company reopened an old well, producing enough gas for a plant and pipeline to power local businesses.

Such projects remain relatively rare, he said. One reason is that competition for resources, in the long run, is powered by countries’ need for energy security. Plans for regional pipelines are underway, however.

They include piping gas from Mozambique to Johannesburg, South Africa; offshore gas to Cape Town, S.A.; and the trans-Sahara pipeline.

Skipper said the central policy challenge for the oil exporting countries is managing booming revenues.

Improved transparency that would help ensure benefits are spread widely among the population, he said.

Implementing the Extraction Industries Transparency Initiative (EITI) in producing African countries should be a priority, he said. While it wouldn’t imply greater geological prospectivity, it would make the investment climate more suitable, he said.

The EITI supports improved governance in resource-rich countries through full publication and verification of company payments and government revenues from oil, gas and mining.

Some 20 countries have either endorsed or actively implemented EITI Principles, Skipper said.

Skipper noted with enthusiasm Kenya’s attendance at an EITI conference in Norway in late October.

Africa’s Geologic Challenges

Africa also poses numerous geological challenges, including:

  • The concentration of the bulk of the resources and potential resources in a few selected geologically constrained areas – predominantly North Africa and in the “armpit of Africa.”
  • New geological concepts include toe thrust plays in the Niger Delta, offshore Kenya; more sub-salt in Angola; and the potential for oil discoveries on the East African margin, traditionally thought to be mainly gas prone.
  • Apparent prolific potential for ultra deepwater prospectivity – but who will/can discriminate and rank prospects in these frontier areas?
  • All the usual pre-drill evaluation culprits of (world-class) source, timing of maturation and expulsion, entrapment, product type, geothermics, crustal dynamics, paleoclimates and paleogeomorphology, seismic and other imaging, etc.
  • Narrow shallow coastal margins, i.e. offshore basins and geology, may not reflect deepwater potential but may reflect continent scale paleohydraulics. Africa has the world’s fourth largest proven oil reserves and third largest gas reserves.

“Africa offers something for all levels of players,” Skipper said.

“The answer lies in a diverse scale of players, geological prospectivity and individual companies’ capabilities,” he said.

Transforming resource wealth into general prosperity is not only a moral issue but one of self-interest to countries hoping to lessen dependence on Middle Eastern sources, Stark said.

“If the world doesn’t solve the ‘great divide,’ it will fuel more turmoil,” he said. AAPG can help spread that awareness, he said.

“One company can only do so much,” he said.