Strategies for Securing Capital in a Reduced CAPEX Climate

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A panel discussion under the exploration financing forum during African Energy Week 2022 explored the various strategies for securing upstream capital in the current financial landscape.

The 2022 edition of African Energy Week (AEW) takes place under a mandate of making energy poverty history by 2030, and as such, is committed to driving investment and development across the entire energy value chain in Africa. In line with this objective, a panel discussion on the second day of the conference explored strategies for securing upstream capital in the current financial landscape.

Moderated by Bimbola Kolawole, Head of Business Development, Africa at Rystad Energy, panelists included Zion Adeoye, Managing Director, Centurion Law Group; Anastasia Deulina, CFO, Afentra; Paul Eardley-Taylor, Director Oil & Gas Southern Africa, Standard Bank; Gerd Nji, CEO, Kariya Energy; Andrew Knox, CEO, Red Sky; and Dr. Tshepo Mokoka, GCOO, Central Energy Fund.

During the panel, speakers explored changing the narrative on oil and gas development on the continent, with Adeoye stating that, “In the long term, creating a bigger market in Africa is the solution. The fundamental bankability that Africa needs to maintain is important. We need to continue to have one voice. We need to focus on that initial bankability and get a bigger market, then we will be able to get financiers to compete. We have to recognize that in Africa, there is a large market.”

Expanding on the role the continent’s resources play in Africa, Nji stated that, “We are talking about energy security, affordable power in Africa, and that is the focus. If we look at the resources on this continent, the focus has been for export. Exploration in Africa, monetizing, you have to think about what aspect we are missing in terms of tapping the African market. The market is there but we have to change the narrative: let’s produce the resources and have the infrastructure available to tap that market. It is up to us to look at how we monetize those resources and make sure these resources go through the pipeline on the continent.”

However, despite the need for oil and gas development, investment for such projects has been on the decline. Thus, the need to ensure a high return on investment for frontier market exploration was emphasized by panelists, as well as promoting more efficient and sustainable practices in the oilfield as methods of remaining attractive for investment.

To this effect, Eardley-Taylor stated that, “There are a few issues of funding in Africa. The first is quantity and what is available and the second is the capital nexus. The reality is, there isn’t enough money in countries to finance projects. In order for banks to lend to projects, they need a good credit risk. We are optimistic about gas in the African environment. Before the Russian conflict, the EU labeled gas as green. As the balance steps more towards energy security, the focus on decarbonization facilities improves. We are fairly optimistic and there is a lot more trend towards energy realism.”

With the Russia-Ukraine conflict, however, speakers emphasized that Africa’s attractiveness for gas-related investment has actually enhanced, with Deulina stating, “The world has changed in the last six months and Africa features more favorably now compared to six months ago. Angola definitely features in most banks’ favored lists. The irony is that the larger the project, the more sustainable cash flows are, the easier it is to find financing. We raised financing for our Angolan projects and continue to stay optimistic that in the near future, the amount of that financing will increase. The message is consistent, as long as the project is sustainable and can demonstrate cashflow, the easier it is to find money.”

Similarly, Dr. Mokoka stated that, “The expectation is for us to see increased activity. If you look at the just energy transition story, gas becomes important in the transition path of different countries. You will find that because of the pinch globally of feedstock, African assets that are untapped are becoming more and more desirable, not only for NOCs but for financiers. In funding that activity, the solution needs to come from the African continent. We need to have our pension funds taking a lead in funding those developments. The funding of those developments is currently not led by local companies.”

Finally, the conversation shifted towards strategies for enabling indigenous E&P companies to raise capital and develop small- and medium-sized assets.

“You need to encourage exploration. There is a demand supply issue. As you see the majors diversify out of oil and gas to renewables, they are not exploring as much as in the past. You have to look at equity raising. It has to be risk/reward. You need to look at how you handle that, it is not also tax-incentivized but they typically do help uplift your spend. Think about your signature bonuses and your ringfencing to encourage smaller companies to fill that void that is being left by the majors to encourage them to go exploring. They don’t have the cashflow and will be looking hard to monetize those assets as quickly as they can,” stated Knox. 

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