There were two stories about African oil in the Financial Times today.

The new scramble for Africa’s resources:

The rise of Africa as an energy region is not a short-term trend
. . .
Yet the effect of increased corporate interest has not always translated to economic well-being for African countries. (an almost comic understatement)

Soaring oil prices have threatened to wipe out recent economic gains on what is both the world’s poorest continent and its fastest-growing oil and gas exploration zone of the past decade. According to the International Energy Agency, the increase in the cost of oil in 13 non-producing countries, including stable economies such as South Africa, Senegal and Ghana has since 2004 been equivalent to 3 per cent of their combined gross domestic product. This is more than the debt relief and foreign aid received during the same period.
. . .

The contrast between the multi-billion dollar international oil industry and the grinding realities of Africa is nowhere more apparent than in Nigeria’s Niger Delta, the most prolific zone in the Atlantic basin, from where the US expects to source up to a quarter of its oil imports in the next decade. There, armed militants using an anti-poverty rhetoric have cut a quarter of Nigeria’s production in pre-dawn raids on oil facilities and kidnapped scores of oil workers in the past two years, a potent symbol of the kind of disorder that can occur on the doorstep of huge investments.

Much of the capacity being added on the continent may be too far offshore to be affected by the kind of militancy seen in the delta. But US policymakers nevertheless remain deeply concerned about stability in oil-producing zones. In response to this concern, President Bush last year ordered the creation of Africom, a dedicated US military command centre for Africa which is expected to be situated in a yet-to-be chosen country on the continent.

The US military has recently started focusing on West Africa, with a $500m plan to help Saharan states eradicate Islamist cells linked to al-Qaeda that could otherwise threaten stability in oil-producing countries in the region, particularly Nigeria. The co-operation has drawn criticism from human rights groups which say the US is repeating its Middle East mistakes by cosying up to despotic and corrupt regimes on the continent.

Indeed, Condoleezza Rice, the US secretary of state, typified US confusion on Africa policy when she described Teodoro Obiang Nguema, the president of oil-rich Equatorial Guinea where US supermajors Chevron and ExxonMobil have interests as a “good friend”, despite widespread concern over human rights abuses and corruption.. . .

Where Africa’s resources are becoming hot property, big energy producing countries are beginning to push for greater control of their own oil and gas industries, much to the chagrin of the traditional oil majors.


As you see above, the Financial Times flatly states that African oil is the reason Bush created AFRICOM, and the reason for the US military focus.

Energy producing countries should push for greater control of their resources and industries. Of course they also need to push for a more equitable distribution of the profits. How, and how much, will AFRICOM be used to push back and maintain US control?

The second article, Plenty of room for minnows discusses the proliferation and role of small oil companies in Africa.

With many of the oil majors in the past few years focused on the multibillion dollar deepwater investments in the Gulf of Guinea, and oil prices so high, the past few years have seen plenty of incentives for smaller companies to try to make it big in Africa.
. . .
If they develop their assets cleverly, or even discover significant oil finds, the rewards may be a lucrative takeover bid from a big company.
. . .
. . . “Essentially, the creation of a secondary market is just beginning to happen on the continent.”

Companies that are interested in Africa range from small start-ups that have snapped up speculative oil licences, to the likes of Tullow Oil, which has booked a relatively large discovery in Ghana and which today has a market capitalisation of more than £3.7bn. Medium- sized companies from the Arab world have also started expressing an interest in holding African oil and gas assets.

Some of the more successful companies have built up their reputations by leveraging their insider contacts in government circles.

Indeed, Afren’s founding board members include Rilwanu Lukman, the former president of the Organisation of the Petroleum Exporting Countries and Nigerian presidential adviser, which probably goes some way towards explaining why Afren was able to secure a $200m non-recourse facility from BNP Paribas, the largest loan the bank has ever made to a company with no cashflow.
. . .
But the share price volatility of such companies remain high because their assets are often concentrated in a small number of countries. Indeed half of small oil companies trading on Aim are now below their issue price.
. . .
But the share price volatility of such companies remain high because their assets are often concentrated in a small number of countries. Indeed half of small oil companies trading on Aim are now below their issue price.
. . .
In the meantime, some companies, detecting wider investor scepticism, are busy looking to tie themselves more closely with African investors who may also have clout in government circles.

This is not the kind of situation that makes fighting corruption easy.