|Sunday, May 26, 2013|
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OIL & GASThe Russians are here
03/21/12, Biodun Omojola
Russian Lukoil fixed platform LSP-1: Russian companies may deploy such platforms in Africa. AFP
Russian gas companies are looking to Africa to expand their business portfolios in the gas sector.
Russian hydrocarbon companies are looking to the African continent for new fields to explore and open up. Already some countries have opened their shore lines to them for exploration and the results are encouraging. Russia is rich in oil and gas and some of its oil companies have operations far beyond their home country. With their deep pockets, these companies have what it takes to come into the continent and challenge the major oil companies and try to change the status quo. So rich are Russian oil companies that two of them made a combine profit of over $40 billion in 2010 alone and, although many analysts believe that the Russians have a lot of catching up to do in Africa, they are ready to spend a fraction of the huge profits on new investment to increase their global reserves.
One of such companies is Lukoil which was established in 1991. The Russian oil company is looking to invest about $900 million in various oil fields across three west African countries including Ghana, Ivory Coast and Sierra Leone. Lukoil's Investment in new projects in Ghana and Sierra Leone topped 54 percent or about $205 million in the first nine months of 2011. Lukoil owns a 56.66 percent stake in the Cape Three Points Deep Water project in Ghana with co-partners Vanco Energy (28.34) and Ghana National Petroleum (15). It also announced it had bought a 49 percent stake in an offshore block in Sierra Leone.
Late last year, Lukoil announced a large discovery on the Ivorian shelf, but refused to say exactly how much. That project is also in partnership with American Vanco and Ivory Coast's Petroci Holding.
According to Lukoil estimates, the west African projects could yield up to six billion barrels of oil and gas. The company's foreign gas and oil deposits make up around 10 percent of its assets and it plans to double this in the next few years. Lukoil expects the west African oil fields to make a great contribution to this plan. Some experts believe the development could increase Lukoil's production by up to 10 percent.
Another oil company interested in Africa is the Russian gas giant Gazprom. It is already in talks with the Zambian government over the southern African country's potential oil and gas reserves. Zambian president Michael Sata had talks with senior Gazprom executives during their trade promotion visit to Zambia late last year. President Sata reportedly told the officials that "there were no facilities for producing gas in Zambia yet the country was rich in mineral reserves." This is seen as a direct invitation for Gazprom to come into Zambia and explore for hydrocarbons. Zambia confirmed oil and gas finds in its north western and western provinces near the Angolan border in 2006. The government has held two bidding rounds since the discovery offering up around 42 blocks and attracting a total of eight foreign and local companies.
Gazprom's representatives also visited Ethiopia and had discussions on investment in the country. But Gazprom is already in Nigeria, Africa's prolific oil producer where it pledged to spend $2.5 billion developing Nigeria's gas sector. It is also engaged in talks with Sierra Leone. Its African interests include fields in Algeria and Libya. Gazprom does not do things in half measures. To secure rights in Libya, it offered Libya 90 percent of future production to get into the gas rich north African country. Gazprom has said in the past that Africa was certainly on its international expansion path adding that "we are ready to acquire assets. We have the money to do it."
A rig at work offshore. Photo from www.lukoil.ru
Both Russian companies certainly have very deep pockets. Lukoil's revenue for 2010 was $104.9 billion with net income totalling $9 billion. It is Russia's second largest producer of oil, producing 1.9 million barrels per day. With operations in more than 40 countries worldwide Lukoil is the second largest public company next to ExxonMobil in terms of proven oil and gas reserves. As at January 2009, it had proven oil reserves of 14.5 billion barrels and 29.3 trillion cubic feet of gas. Although Lukoil's African projects are currently, geographically, limited to the countries of the Gulf of Guinea - which has one of the richest oil deposits in the world - it is also interested in any remote opportunities across the continent that may come its way. One of such opportunity is in Uganda. In 2010 it presented an investment proposal in Uganda's oil sector to President Yoweri Museveni.
Gazprom, on the other hand, made $31.9 billion in net income in 2010. Its revenue during the same period stood at $117.2 billion. Owned in part by the Russian government (50.01 percent), it is the largest Russian company and the largest extractor of gas in the world, accounting for17 percent of worldwide gas production in 2008. Gazprom has a large investment purse. In 2011, it allocated 1.277 trillion roubles ($39.8 billion) for investment, an amount that drew the ire of many who accused the behemoth oil company of an "overblown investment programme."
Though its investment kitty for the New Year has reduced to 776.7 billion roubles ($24.9 billion), this figure is still formidable. Of the 776.7 billion, 709.6 billion roubles ($22.3 billion) will be set aside as capital expenditures, while long-term financial investment will receive 67.04 billion roubles ($2.1 billion).
With its investment dollar, Gazprom may soon become a world leader in capital expenditure in the oil and gas sector.
Part of Russian companies' focus on Africa stems from their strategy to go global in terms of acquiring assets outside Russia. Africa happens to be an emerging continent blessed with lots of countries who want to join the few oil-producing countries on the continent. As a result these countries are opening their doors to the Russian overtures. Part of the Russian strategy is to provide "strong technical expertise and financial resources" to these countries. But there are many who believe this is another ploy to get African hydrocarbon on the cheap. They point to China which is now a dominant force in Africa's oil sector based on its promise to help African countries develop their countries.
To win mining licenses worth billions of dollars, Chinese oil companies often promise African countries infrastructure. But reports are rife that China is failing on its promises. China International Fund (CIF) with ties to the Chinese government has failed to meet its obligations after gaining access to lucrative African mines and oil fields. Formed in 2004 and now a key player in the African markets, in the past few years, it has promised more than $18 billion in investments. Countries that have fallen for the Chinese ploy are many. The Central African country of Guinea hasn't received the 100 public buses promised it after signing a 2009 contract. Zimbabwe's gold went for yet-to-spring up infrastructure while in Angola "work on three railroad projects came to a halt in 2007; and the international airport project stalled at the design stage." Quality of Chinese-built public works has also been criticized as is China's disregard for human rights.
Russia may not carry this baggage but African nations are now wary of these super-rich countries that are not traditionally Africa's trading partners. Germany, America, France and United Kingdom among others are Africa's traditional trading partners. However, Russia's resolve to continue to invest outside its home - if it offers good deals that are sincere - will see them challenge China and Africa's traditional trading partners.
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