Nigeria is struggling with declining oil production and a complex regulatory environment while smaller African nations sweeten their own deals, lowering operational costs to keep overseas companies’ oil and gas output flowing.
From Angola to Congo, governments are adjusting terms to lure picky investors who are increasingly concerned about long-term demand for fossil fuels as renewable energy gains ground.
These reforms have made them increasingly competitive destinations for investment in the global energy market.
Angola’s Bold Moves
Angola has been particularly proactive in attracting foreign investment. The country has focused on deep-water exploration, where significant oil reserves have been discovered.
BusinessDay findings showed one of the most compelling reasons why Angola is currently viewed as more attractive than Nigeria is its lower tax burden on oil companies.
“In Angola, investors are our number one priority. We guarantee contractual stability so you can preserve the value you have,” said Hélder Iombo, director of negotiations at Angola’s National Agency of Oil, Gas and Biofuels (ANPG). “We are agile to give you concessions, flexible to give you the right terms and pragmatic in creating the right environment for investors.”
Angola recently reduced its petroleum income tax from 65.75 percent to 55.75 percent, along with a decrease in the petroleum production tax from 20 percent to 15 percent for association contracts.
Experts say these reductions lower the effective tax rate and make Angola a more appealing destination for international investors seeking cost-efficient exploration and production opportunities.
In contrast, Nigeria’s PIA imposes both companies income tax (CIT) and hydrocarbon tax, which significantly increases the overall tax burden, especially for onshore and shallow water operations.
Read also: Oil, gas firms’ debt rises 73% on weak naira
“While deep-water projects are exempt from the hydrocarbon tax, the tax structure in Nigeria remains more complicated and, for many projects, more expensive than Angola’s simplified regime,” Folabi Ogunrinola, a senior energy analyst at Sofidam Capital, said.
Cost recovery is another crucial aspect where Angola’s new fiscal terms have a competitive edge. Under Angola’s revised terms, the cost recovery ceiling for certain oil fields, like Block 3/05, has been raised from 65 percent to 75 percent.
Ogunrinola added, “This change allows operators to recover their investment more quickly, enhancing project cash flows and making it easier for companies to move into profitability faster.”
On the other hand, Nigeria’s PIA limits cost recovery to 70 percent, which, while competitive, is lower than Angola’s 75 percent.
Tunde Ayeni, a London-based risk analyst, said this minor difference could make a significant impact on large-scale projects, as a higher cost recovery ceiling can be a game-changer in terms of the speed and efficiency with which an operator can recover its initial capital expenditure.
Another key area where Angola’s fiscal terms outperform Nigeria’s is in the division of profit oil. Under the revised terms, Angola has increased the profit oil share for contractors in certain blocks from 30 percent to 40 percent.
Analysts say this is a substantial increase, especially for projects in high-risk or marginal fields, where the potential for return on investment can be directly tied to the contractor’s share of the oil profit.
In contrast, Nigeria’s profit oil split is heavily dependent on production volumes, with the government taking a larger share in mature or low-production fields.
“Although the PIA offers flexibility for contractors, it generally doesn’t reach the 40 percent share that Angola is now offering. For contractors seeking higher returns on their investments, Angola’s terms present a more lucrative proposition,” Ayeni said.
Angola has also introduced targeted incentives for smaller and more technically challenging fields, including reduced royalty and income tax rates for marginal fields.
Findings showed this is especially important in Angola’s broader strategy to unlock previously underdeveloped oil resources and encourage investment in technically complex or high-risk fields, such as deepwater and marginal oil fields.
In comparison, Nigeria’s PIA offers fewer specific incentives for marginal fields.
“This lack of targeted support for smaller-scale developments makes Angola more attractive to operators focused on niche opportunities or those with projects that may not fit into the broader scope of large, high-capital developments,” Ayeni further said.
Angola’s fiscal terms also stand out when it comes to gas monetisation. The country has introduced specific gas fiscal terms, which aim to facilitate the commercialisation of previously stranded gas resources.
This provides companies with a clearer framework for gas exploration and development, expanding the potential revenue streams from natural gas alongside oil production.
While Nigeria’s PIA does have provisions for gas, its focus is primarily on crude oil, and the regulatory framework for gas monetisation is less developed compared to Angola’s more comprehensive approach.
Namibia
An influx of foreign investment has helped Namibia to begin exploring its oil and gas potential, and it looks like it may be quickly paying off with several new finds in recent months, with some dubbing it the ‘new Guyana.’
This influx of capital stands in stark contrast to the challenges faced by Nigeria, which has struggled to attract similar enthusiasm for its energy resources.
There’s a ‘big chunk of oil’ in waters off Namibia, said Patrick Pouyanne, chief executive officer of TotalEnergies SE, which, alongside several other companies, has made significant discoveries in the African country.
The southern African country is planning for its first oil production from TotalEnergies’ giant Venus field in 2029/2030, Maggy Shino, its petroleum commissioner, said.
In the most recent strike, Portugal’s Galp Energia said it had found at least 10 billion barrels of oil equivalent in its Mopane field, in the largely unexplored Orange Basin, Namibia.
“It is one of the newest and most attractive areas being explored by the industry and we are very excited by the discoveries so far,” James Parr, vice president for new ventures exploration and development at Woodside Energy, told Reuters.
Read also: Nigeria’s crude oil production in October rises by 35,000 barrels- OPEC
Côte d’Ivoire
While Namibia has yet to launch its crude oil production, Cote d’Ivoire has been producing crude for years and is set to triple its output by 2027, thanks to the recent oil and gas finds in its waters.
Reports by Upstream Online, a global intelligence publication, showed Shell is in talks to acquire a trio of promising deep-water blocks in Ivory Coast as exploration interest continues to grow in a country that is evolving into what is probably the most sought-after upstream play in Africa.
Ivory Coast was something of an oil exploration and production backwater until Italy’s Eni made its big Baleine oil and gas discovery in September 2021, a find that triggered oil companies to take a fresh look at the nation’s offshore geology.
Italian major, Eni, announced the discovery of light oil, gas and condensates in Ivory Coast’s offshore Block CI-205 last month as part of its Murene 1X exploration well.
In August 2023, Eni started oil and gas production from the Baleine field offshore, Cote d’Ivoire, less than two years after the discovery in September 2021 and less than a year and a half after the Final Investment Decision (FID). According to the Italian group, Baleine is the first Scope 1 and 2 emissions-free production projects in Africa.
The initial production phase is taking place via a refurbished and upgraded Floating Production Storage and Offloading (FPSO) unit capable of handling up to 15,000 bpd and around 25 Mscf/d of associated gas.
The country, also referred to as Ivory Coast, expects to attract $15 billion in investments in its oil and gas sector and become a regional oil and gas hub.
As a modern producer, Ivory Coast is prioritising the use of decarbonisation technologies to reduce the carbon footprint of hydrocarbon exploration and extraction, as well as integrating natural gas within its transition strategy.
Eni has also stated plans to make the Baleine field the first net-zero emissions project in Africa, and its second phase of development is set to enable the production of 200 million cubic feet of natural gas per year by 2027.
Congo
French oil major, TotalEnergies, is moving to invest $600 million to strengthen exploration and production activities in the Republic of Congo in 2024, snubbing the Nigerian oil and gas sector for the second time in quick succession.
According to the press statement seen by BusinessDay, the investment will be used to finance exploration and maintain production in the country’s deep offshore Moho Nord field.
“The $600 million investment by TotalEnergies shows that the IOC is in the Republic of Congo to stay. Congo’s oil and gas can play a much greater role in alleviating energy poverty and driving industrialisation in Africa, and partnerships with companies to the likes of TotalEnergies will be instrumental in achieving these objectives,” said NJ Ayuk, the executive chairman of the African Energy Chamber.
Nigeria’s struggles
For a frontier market with the population of Nigeria, oil majors not looking in its direction should be a big worry for the government as it has dire implications for social welfare and economic growth.
Since President Bola Tinubu assumed office in May 2023, the federal government has implemented a series of reforms aimed at enhancing the competitiveness of Nigeria’s oil and gas industry while streamlining costs and reducing timeframes for conducting business in the sector.
The government has also introduced tax relief measures for deep offshore oil and gas projects, alongside VAT exemptions on LPG, CNG, diesel, and other energy products.
These initiatives are outlined in the Value Added Tax (VAT) Modification Order 2024 and the Notice of Tax Incentives for Deep Offshore Oil & Gas Production, in line with the Oil & Gas Companies (Tax Incentives, Exemption, Remission, etc.) Order 2024.
While Nigeria boasts vast reserves, its long-standing issues are proving to be a turn-off for investors.
“Perhaps, the oil majors are going to other countries that are becoming an emerging frontier. Maybe, it is a lot easier for them to do business there because the above-ground risk is probably a lot easier to deal with in those regions as opposed to Nigeria,” Aisha Mohammed, an energy analyst at the Lagos-based Centre for Development Studies, said.
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