Most upstream oil firms these days are looking to Africa for the prospects that will help them offset slowing output and falling reserve replacement rates. But surging investment in the continent underlines the need to address transparency concerns that are growing amongst these firms.
Africa holds an estimated 8-9% of global reserves, but accounted for a third of new reserves discovered worldwide over the last five years. That disproportionately large share of upstream growth reflects the steadily rising investment by majors in the continent over the period. And as access to upstream blocks in Venezuela, Russia and the Middle East becomes even more constrained, their investment in Africa will hit new highs in the coming years. That could see the share of new discoveries climb higher still, especially with the avid interest shown in upstream bidding rounds in Libya and Nigeria this year. Those rounds show how high oil prices, and a lack of upstream access elsewhere, have changed the balance of power upstream in Africa.
Africa is growing in strategic importance for the US as an alternative to the Middle East as a source of crude. The US already imports more crude from the continent - 17% of its total imports - than it does from Saudi Arabia. And it wants that share to rise to 25% of total imports by 2015. It is no coincidence that US majors Chevron and ExxonMobil are the top two operators in Angola, the region's second-largest crude producer, and are focusing on further growth in its largest producer, Nigeria.
But Africa is also attracting the attention of other strategic investors. US majors are increasingly in head-on competition for new acreage with the state-owned companies of Asia-Pacific's emerging giants, China and India. This face-off has spurred other investors to step up their bidding for new acreage in the most promising regions, such as Libya, Nigeria and Angola. And rising signature bonuses underline the fact that the issue of transparency is becoming even more significant for Africa as its oil revenues grow.
Continued transparency concerns leave other oil companies at a potential disadvantage when competing for African contracts with China's state-owned firms. Backed by state financing and not beholden to the ethical concerns of the majors' shareholders, Chinese state-owned firms have stolen a march on private-sector investors in controversial countries such as Sudan. They have also agreed to terms elsewhere that proved unacceptable to the majors. Chinese state-owned oil firms have shown a nominal willingness to take over operations of Nigeria's loss-making state-owned oil refineries in exchange for securing new upstream stakes.
Pressure from the World Bank, the IMF and the UK-led Extractive Industries Transparency Initiative (EITI) is slowly changing the way business is done. But there is still a long way to go. The governments of Angola and Equatorial Guinea remain resistant to transparency initiatives. The US Securities and Exchange Commission continues to investigate possible corruption by oil firms in Equatorial Guinea and services companies involved in the Nigeria LNG project. Meanwhile, Sao Tome and Principe has called on Nigeria to clarify the award of a number of blocks in the two countries' joint development zone to Nigerian firms with strong links to some of Abuja's leading politicians.
Calls for improved oil revenue transparency and sustainable environmental, business and social practices moved to centre stage at the recent World Petroleum Congress in Johannesburg. Industry leaders warned that the fight against corruption is key both to the public image of the oil industry, and its long-term future in Africa.