Bank of Oil and Gas Africa initiative

The maiden edition of Sub-Sahara Africa Upstream oil and gas summit ended in in Accra, Ghana, recently. Among other things, the event discussed an exciting initiative designed to establish a Bank of Oil and Gas Africa (BOGA) to address funding challenges facing the sector in Africa.

As is well known, several world class oil and gas fields have been discovered in Sub-Saharan Africa over the past 20 years. Fifty of the fifty-five African countries have hydrocarbons or are searching.

Ghana, Mauritania, Cote d’Ivoire, Liberia, and offshore West Africa are lined with hydrocarbons. Within the sub-Saharan Africa plays, Uganda, Kenya have recorded big finds in oil while Mozambique and Tanzania have shown emerged potential LNG giants.

West African reserves have nearly doubled in 16 years. An estimated 3.7 percent of world oil reserves are in Sub-Saharan Africa and the continent account for 40 percent of new discoveries. The continent boasts of 6 percent of top 10 oil finds.Even within the Western Africa sub-region, the potentials are enormous.

In 2013, three of the world’s largest discoveries were from Western Africa: Angola, offshore – Lontra, 900 Mmboe (Cobalt); Nigeria, offshore – Ogo, 775 Mmboe (Afren) and Congo, offshore – Nene Marine 700 Mmboe(ENI). In 2014, Africa still featured in big new discoveries with Gabon, Congo and Cote d’Ivoire. It is estimated that over 15 billion barrels of oil equivalent could be discovered in West and Central Africa owith 70 percent expected from West Africa. Despite these potentials, Sub-Saharan Africa oil and gas sector remains a paradox. One of the keys to unlock these vast potentials is finance.

Joint Venture (JV) operation has been the continent’s most common funding model for the oil and gas sector. It is the standard agreement between the national oil company (NOC) and international oil companies (IOCs) whereby both the NOC and the IOCs contribute to funding oil operations in the proportion of their JV equity holdings and receive crude oil produced in the same ratio. A recurring problem of this model is the inability of the NOCs to meettheir funding obligations to the JV operations.

In response to the problem inherent in JV funding, countries are beginning to explore other models like the Production Sharing Contracts (PSC) terms and Modified Carried Agreement (MCA).

However, the call for the establishment of Bank of Oil and Gas Africa (BOGA) is an initiative that should be explored towards solving the key problem of accessing funding for oil and gas projects that should benefit the continent.

Participants at the just concluded Accra summit  listened with rapt attention as Anthony Dowell Mirin explained that the concept of Bank of Oil and Gas Africa like the Asia Infrastructure Investment Bank, is a public-private initiative where Sub-Saharan African countries, investors and the private sector will come together for the purpose of financing huge energy projects from exploration to production and power infrastructure. It will entail that all the Sub-Saharan African countries that are signatories to the initiative will provide start-up and human capital for the establishment of the bank.

The essence of BOGA is that African countries that are signatories and owners of the bank can get money to finance huge projects in oil, gas, power and infrastructure depending on the viability and prospect of the project. The bank can also be a surety for getting funds from other international financial institutions.

BOGA while trying to fill up the deficit in infrastructure gap in Sub-Sahara Africa will also promote shared infrastructure. For instance, the bank can finance the building of oil and gas logistic base in Nigeria, Angola or South Africa depending on where there is comparative advantage for the good of members.

It is estimated that about $700 billion is being brought into Sub-Saharan Africa for oil, gas, power and other infrastructure investments but trillions of dollars are equally repatriated in return. The trillions repatriated are funds that should stay in Africa if Africans come together and get an initiative like BOGA moving.

We recommend that Nigeria, being Africa’s biggest economy and by far the most prominent African oil and gas producer should get on the driving seat and get BOGA off the ground as quickly as possible.