The major players on the world energy production stage are well known, and particularly in the field of oil and gas, where most of them have been in the game for a long time. In Africa, countries like Algeria, Nigeria, Libya, Egypt, and Angola have been in the business for decades, though much of their resource wealth remains untapped.
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When new discoveries come to light in nations previously unexplored or underexplored, one would think these more experienced countries would be able to out-hustle and out-muscle them when it comes to attracting investment dollars. However, recent experience shows that this is not always the case.
If there was a Rookie of the Year award in the energy business, it would go to the South American country of Guyana, hands down. Despite being the next-door neighbor of founding OPEC member Venezuela, most of Guyana’s potential 11-billion-barrel bonanza has only been discovered since 2015. Less than five years after its initial Stabroek Block discovery, U.S. oil giant ExxonMobil began producing oil through its Liza Phase 1 project — remarkably fast by industry standards. By April of this year, ExxonMobil had already approved its sixth oil development in Guyana, putting the country of just 800,000 people on track to someday surpass Venezuela in total crude production. The Latin American country is now one of the world’s fastest-growing economies.
This is not the first time I’ve brought up Guyana in discussions about Africa, and there’s a reason for that. Namibia is currently in the same position Guyana was in just a few short years ago, poised to choose its road ahead. Recent discoveries in Namibia’s Orange Basin suggest it could hold up to three billion barrels of oil and 8.7 trillion cubic feet of natural gas, and the country’s total oil reserves could be nearly equal to Guyana’s at around 11 billion barrels. Excitement around the newly discovered resources is high, and though oil and gas production still lie ahead, Namibia has become a leader in African oil and gas investment.
Shell (UK) and TotalEnergies (France), which made the major discoveries in the Orange Basin with partnering companies, have both committed substantial portions of their 2024 exploration budgets to ongoing activity in Namibia. Offshore exploration plans also have been announced by Chevron (U.S.), Azule Energy (a joint venture between Italy’s Eni and the UK’s bp), and Portuguese energy group Galp. Meanwhile, Reconnaissance Energy Africa (Canada) and Namibian state oil company NAMCOR have begun drilling an onshore oil and gas exploration well in northeast Namibia.
What Not to Do
The excitement about Guyana and Namibia’s resources is notably different than what we’re seeing in some of Africa’s other resource-rich nations. Take Nigeria, Africa’s largest oil producer by far. Despite colossal proven reserves of almost 37 billion barrels (the world’s total is 1.73 trillion), Nigeria is currently struggling to attract the $25 billion annual investment necessary just to keep its output at around 2 million barrels per day (bpd). Oil majors are divesting from Nigerian assets and diverting future investments to other countries, as TotalEnergies did when it announced $6 billion in new projects in Angola. A new exploration well hasn’t been drilled in Nigeria in more than 12 years. Why?
The most obvious reason is security. Nigeria is notorious for its environmentally disastrous spills caused by rampant oil theft, vandalism, and sabotage. The country’s inability to protect its most valuable economic asset — responsible for almost two-thirds of Nigeria’s revenue — is a constant threat to employee safety as well as the bottom line for oil producers, and it doesn’t help with public relations either. There may be a ton of money still beneath Nigerian soil, but it’s not going anywhere, so it simply makes more sense to go extract it somewhere safer until those problems get resolved.
The other major problem with operating in Nigeria is legal uncertainty. As TotalEnergies CEO Patrick Pouyanné has said, the Nigerian legislature loves to debate oil policy but rarely ever settles anything, leading to inconsistent decision-making and an unstable and erratic policy environment. Lack of transparency in licensing rounds, slow and complicated contracting procedures that expire too quickly, insufficient incentives for gas projects, and local manpower requirements not backed up by the education system are all significant obstacles. In addition, local companies that take over abandoned assets are held to lower environmental standards than international companies, meaning the problems are getting worse before they get better.
Nigeria is now belatedly trying to address some of these issues (While the 2021 Nigerian Industry Act was a tremendous step in the right direction, implementation has been moving forward at a snail’s pace), but it has already spent much of the good will it was afforded in the past.
Charting a Better Path
So, what are Guyana and Namibia doing right, and what are the takeaways for Nigeria and other African nations? Let’s begin with Guyana.
First and foremost, it recognized the urgency of taking action to develop its resources quickly. The global energy transition to renewables will eventually reduce the demand for fossil fuels, but for now, the transition is just getting started, and demand for fossil fuels remains high. With much of the country covered in rainy jungles and limited open land for wind farms, Guyana simply isn’t blessed with the same potential for renewables as many other countries and must take advantage of what it has. Guyana was determined to sell while the market was still buying before it’s too late. It made a point of fast-tracking development and updating laws and regulations to speed up the development process and provide a stable, investor-friendly regulatory environment.
One of the most immediate benefits Guyana offers is language in its petroleum contracts that protect energy companies from negative impacts if the government makes legislative or regulatory changes, such as new tax codes. This is known as a fiscal stability clause, and it can significantly reduce the time required for contract negotiations and the risk of costly project delays by preventing sudden and drastic changes in regulatory status. (As I’ve written, Namibia does not currently offer fiscal stability clauses in its agreements, but it would be well advised to if it wants to accelerate development of its newly discovered oilfields.)
Guyana’s Petroleum Activities Bill, passed by the National Assembly in August 2023 to update the Petroleum Act of 1986, grants the Natural Resources Minister extensive authority to oversee exploration, production, and licensing, as well as responsibility to enforce the law and apply fines. It addresses shortcomings of the old legislation, such as transportation and storage of hydrocarbons from offshore to onshore and obtaining access to oil feedstocks for any future refineries to keep them running if domestic production falls short. The bill also includes safety and emergency response measures, supervision and monitoring requirements, capacity-building requirements for energy companies, and a cross-border unitization framework for developing reserves that cross international boundaries.
In addition, Guyana’s assembly also passed local content legislation in 2021 that enables international oil companies to communicate their needs to local businesses effectively, creating opportunities for them to grow and provide the producers with services and skilled, educated personnel. This is in contrast to Nigeria’s local content laws, which include quotas for hiring local people but lack the provision for means to fulfill them. Guyana continues to fine-tune this policy with input from the Ministry of Natural Resources.
Namibia’s Strong Start
Although Namibia is still at an earlier stage of development, it hasn’t just been watching from the sidelines. The government has already begun work to update its tax laws and provide an enabling environment for upstream activity. Officials from NAMCOR visited Guyana in 2023 to learn more about oil developments, including how to involve local business, raise public awareness, and expand port facilities. They also learned from Guyana’s growing pains, noting that some of the best advice they received was to take their time and do proper infrastructure assessment.
The country is also getting a head start on diversification, with major law firm ENS assisting the government to come up with a regulatory framework for green hydrogen development and energy transition strategies. While much remains to be done, Namibia already finds itself in good position to offer energy companies who are headed for the exits in Nigeria and elsewhere a soft place to land.
