Thought Leader: NJ Ayuk on Oil & Gas
Having built his law practice on energy companies and advising governments on energy matters, this thought leader has contributed to and witnessed the explosive growth of the oil and gas industry in Africa over the last 10 years.
“Centurion Law Group is based on our belief in the potential of this great continent, and our commitment to developing legal capacity in Africa – both in terms of developing talent and developing markets. The firm operates out of our headquarters in Johannesburg and four main regional offices, in Mauritius, Accra, Douala and Malabo – from here we serve all jurisdictions across the region. I’m proud to have led the firm from its inception and to have been able to guide the firm with a vision that unifies our tremendously talented attorneys and support staff.”
“We built this firm on the basis of providing legal services to the energy sector in Equatorial Guinea and Central Africa, but our role, as I see it, is much bigger than that. Pan-African and pro-African, Centurion is an advocate for the rise of this continent – and an example of how firms born and raised in Africa can succeed in a competitive marketplace – and this guides our work. An example of this is our Business Mentorship Program, where entrepreneurs from any of our core markets can submit an application to receive free legal and business advisory services. So far we have accepted five SMEs to the program and look forward to welcoming more.” – Centurion Law Group
What are the biggest issues affecting the oil & gas industries in Equatorial Guinea right now?
Equatorial Guinea’s energy industry enjoys certain benefits. Contract sanctity; a long record of successfully executing major, complex projects; the will to develop and monetize gas reserves, and an ongoing interest in welcoming foreign investors.
The low oil price since 2014 has resulted in a drop in revenues for the government, and consequently reduced government spending on large construction projects. Equatorial Guinea invested massively in energy infrastructure prior to the crash, so it is well placed to weather the storm. It is undeniably more challenging to push through major projects during this time, but as we see with the Fortuna floating LNG development and agreements for the Bioko Oil Terminal and REPEGE petrochemicals plant, deals are still being done in the country.
Two of the major challenges being addressed by policy-makers are involvement of locals in the petroleum sector and the involvement of local financiers in projects. The 2014 National Content Regulation seeks to increase the participation of Equatoguineans in the energy business and Centurion supports this agenda through its strong emphasis on development of local staff. The Ministry of Mines and Hydrocarbons is also looking into ways to increase the involvement of the national bank BANGE in projects.
Equatorial Guinea is a small country that already punches well above its weight in the international energy industry. Despite the challenges brought by the low oil price, the country continues to prioritize diversification and capacity growth – in human resources, education and training, local enterprises and financing – as pillars of its policy.
What are the most common challenges that arise in the financing, management, and negotiations segments of this industry, and how do you navigate these?
The traditional sources of funding for oil and gas projects have always been debt and equity or IPOs. However, lately banks have been forced to introduce tighter lending controls in response to new legislation, caution around risk management and the pressure to deliver an appropriate return. In the case of IPOs, being heavily dependent on oil and gas prices and economic and financial market conditions severely limits investors. In a bid to mitigate this, most investors are turning to the bond market, project partners, private equity and export credit agencies.
Oil and gas is a unique resource in the sense that it depletes once an acreage has been drilled to within an inch of its life, and the entire infrastructure has to pack up and move on. The major challenges surrounding management have to be the need to look for oil and gas in challenging frontier areas, increased difficulty in acquiring acreages, soaring input costs, and difficulty in delivering large capital projects on time and within budget. With the current volatility in oil and gas prices, it has become necessary to accelerate dramatic reductions in project costs and more accurately estimate project costs and time to first oil.
As energy demands rise, and investment within the energy sector increases, what obstacles lie ahead for your clients in Africa?
Providing enough energy to meet the needs of a fast-growing world population with increasing living standards will require major advances in energy supply and efficiency. Improvements in technology and policy with respect to the energy sector will have deep implications for the growth, international competitiveness, economic security and prosperity of developing countries.
In Africa the scale of the challenge and the corresponding opportunities are huge. Less than half of the population of the continent has Oil & Gas access to steady electricity. Putting measures in place to fix that, in many instances, means starting almost from scratch. Combined with moribund legislation and political instability in some countries, we have a long way to go, but we are moving in the right direction.
You often advise governments on legal matters; what are the key considerations to put forth when advising these on the oil & gas industry?
Having built our practice on energy companies and advising governments on energy matters, we have been party to the explosive growth of the oil and gas industry in Africa over the last 10 years. During this time, we have seen countries like Ghana and Mozambique, with virtually no oil and gas experience, suddenly become the focal point of global energy investment.
African nations often have petroleum legislation that is either outdated or inappropriate for the modern energy industry. The foundation of a prosperous energy industry is a modern petroleum code that is flexible and that accounts for all stages of the value chain, and that incentivizes foreign investment while balancing the labor needs of the population. Local content regulations that take into account international best practice are key.
Governments looking to manage a resource windfall must be able to tap into the knowledge of countries and companies that already have experience. For some governments, balancing the interests of investors with the desire to gain revenues can be challenging. In this area, stability and sanctity of contract are as important as financial incentives and the impact of taxes and royalties on the bottom line. This is a global industry and money moves where conditions are best. African governments are working on this premise as they build their energy sectors from the ground up.
How easily is risk managed within this industry and what is your golden piece of advice for your clients?
When it comes to the oil and gas industry, risks abound: political, geological, pricing, costs, supply and demand, and more. It would seem that an already long and established exploration history would have prepared the industry to weather every storm, but the complex nature of this business means that is not always the case. For clients, especially those working in developing nations, careful analysis and building sustainable relationships with international oil and gas partners are invaluable. Forecasting the likely oil and gas prices over the term of the project in order to determine the timing and feasibility of a project is also important.
You are a member of many oil & gas organizations, like the Association of International Petroleum Negotiators (AIPN); how does this help you expand your knowledge and practice in the oil & gas industry?
Learning is how we grow as a firm. Our connections with legal professionals and entrepreneurs through our African and global network are our lifeblood and we are proud to contribute to various legal and energy associations. This also helps us to fulfill our role as a business advisory firm. Petroleum is above all a global business, and it’s a globally competitive business. We never lose sight of our need to keep learning, implementing international best practices in Africa and exporting best practice from African nations’ world-class energy industries to other regions.
