Attracting Investments through Practical Regulatory Regimes

AOP talks to Lizel Oberholzer, Director of Norton Rose Fulbright South Africa Inc. about the role of practical regulatory regimes and favorable environments in attracting investments in Africa’s oil and gas sector.

Norton Rose Fulbright is a global law firm. The firm provides the world’s preeminent corporations and financial institutions with a full business law service. It’s key industry sectors include financial institutions, energy, infrastructure, mining and commodities.

What do you see as the key trends for the oil and gas sectors in 2018?

The oil market is still challenged by high stocks and lower prices. Demand has increased but not enough to really change the status of the industry. Prices have increased slightly, but this is in part due to OPEC’s decision last year to cut production.

Unconventional energy production has continued to achieve significant production cost reductions, which is also putting pressure on the oil sector. This is balanced by the creation of opportunities in shale gas.

As part of the focus in the industry on sustainable profitability, the sector will continue to seek new ways to reduce costs. Technological developments may be one area where this is achieved, specifically in the development of 4D surveying technology.

What does the private sector look for in an attractive regulatory regime in Africa? Which countries would you point to as having successfully created an attractive regulatory regime?

In line with the continued expectations for low oil prices, the private sector is focused on sustainable profitability in new investments. This requires certainty and stability in the regulatory regime applicable to an asset.

Additionally, the private sector will always prefer regulatory regimes which are practical and business friendly, and which do not have overly burdensome or bureaucratic compliance requirements. It is probably not possible to identify a country with a perfect regulatory regime, however, PWC, in their 2017 oil and gas review, noted that respondents to their survey had favoured the Nigerian regulatory system as an example of relative certainty. This is despite the fact that the Petroleum Industry Bill (PIB) has taken six years to be passed by the Nigerian Parliament.

How do you see the changes to Tanzania’s mining and petroleum laws impacting investor confidence in the country? How will the changes impact Tanzania’s ability to compete in the region?

The changes to Tanzania’s mining and petroleum laws have extended state ownership of natural resources to production resulting from the extraction, and have abolished the export of raw materials for beneficiation. This may result in the renegotiation of existing natural resource development and production sharing agreements.

In particular, provisions in these agreements, which restrict periodic review (of the agreement), provide for international arbitration or provide for environmental stabilization may no longer be accepted by the state.

Until the practical ramifications of the new law are made clear, the risk of investing in Tanzania has increased significantly. These changes will defiantly negatively impact investor confidence in Tanzania and may well lead to a decrease in foreign investment in the oil and gas industry.

What steps can governments take in 2018 to attract oil and gas investment in the coming years?

Investors in Africa face two primary impediments: a lack of developed infrastructure; and an increased risk due to regulatory uncertainty. Governments can attract investment by addressing these issues.

Public spending on infrastructure projects to develop transport networks; electricity supply and industry associated with processing resources extracted will increase the attractiveness of a country for energy investors.

Additionally, the development of clear and certain regulatory requirements, which are enforced in a consistent and transparent manner, would decrease the risk inherent to any new venture and increase the likelihood of investment.

As we see oil prices begin to recover, how do you see activity by oil and gas companies evolving in 2018 as compared to 2017?

While oil prices are slowly rising, they have not increased enough to result in significant change in the industry. This may be due to the fact that the increase in the oil price has resulted from OPEC’s decision in 2017 to cut production, and not from a genuine reflection of market conditions.

If oil prices continue to recover, we expect to see service providers withdraw discounted rates currently offered to producers as a result of the lower oil price. This will reduce some of the price efficiency the industry has achieved over the last few years.
Oil and gas companies will need to maintain efficiency despite this in order to achieve sustainable profitability.

What opportunities do you see for the oil and gas sector in Africa in 2018?

This is a very broad question as the sector consists of many components, which may have different or conflicting interests. Generally: the lower oil price has meant that there is opportunity for growth in the unconventional energy industry. Technological advances have allowed the LNG sector to continue to achieve cost reductions in production, and as import terminals are developed around the globe the market is expected to continue to grow in this direction.

September 5-7, 2018 Cape Town International Convention Centre