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Wednesday, 15 January 2014

Investment Opportunities in Africa's Oil & Gas Sector on the Rise

Africa's home grown oil & gas company , CAMAC Energy, a rising star
by Zayd Nakwa

14 January 2014; Johannesburg: 
This year is likely to see renewed interest in the African oil & gas sector from global multinationals across the continent. With significant new discoveries in both oil and gas across Africa, the continent’s collective contribution to the sector is expected to reach 13% of global oil production by 2015. According to the latest report by PwC, Africa holds 132 billion barrels of oil or 8% of the worlds’ supply and 513.2 Tcf or 7% of the worlds’ gas supply.  This brings opportunities to invest in the sector and is giving rise to some of the continent’s own rising stars.
On a macro level, the US is expected to achieve energy self-sufficiency in the next two decades and become a net exporter of energy. However, the growth in Africa’s oil and gas sector is expected to continue given the growing energy needs of the Asian and European markets. 
The West African region is changing and developing fast as the discovery of hydrocarbons in the traditionally under-explored western African nations such as Gambia, Ghana, Senegal and Liberia are set to fundamentally change the economy of this region over the next decade. Additionally, the oil and gas landscape in Africa has extended south and east from the once dominant West African region.   African oil companies are expanding across the continent seeking new opportunities and markets, either partnering with one of the global multinationals or investing in their own operations.
One example is NYSE-listed CAMAC Energy Inc. (NYSE: CAK).  CAMAC Energy operates as an independent oil and gas exploration and production company focused on energy resources in Africa.  Its asset portfolio consists of 8 licenses in 3 countries covering an area of 41,000 square kilometers (~10 million acres), including production and other projects offshore Nigeria, as well as exploration licenses offshore and onshore Kenya, and offshore Gambia.  CAMAC pursues a growth strategy of reducing investor risk by forging long-term partnerships that aim to leverage opportunities within the energy sector.
Kase Lawal, Chairman and CEO of CAMAC said, “Africa is full of opportunities. We see enormous potential in the African energy sector and are focused on developing the assets we operate in Nigeria, Kenya and Gambia.”
Across Africa there is a growing consumer middle class driving both industrialisation and urbanisation.   To sustain the economic development of these countries, significant capital will need to be invested in upstream, midstream and downstream operations. While part of the capital will come from the region, the sheer scale of the investment requires large external capital inflows.  Some of this however, will still come from the traditional sources of Europe and to a lesser degree the Americas.  What is different today is that a significant part of this investment will come from new emerging market sources of capital include other markets such as Latin America, the Middle East and Asia, especially China as well as South Africa.
In late 2013, CAMAC announced its intention for a secondary listing on the JSE which is imminent. This will be the second by a Nigerian oil company to do so, the other being Oando several years ago. CAMAC’s JSE listing brings with it the South African Public Investment Corporation’s (PIC) $270m equity investment of which $170m will be used to fund the cash portion of the Allied Energy acquisition.
The PIC will hold close to a 30% ownership in CAMAC and further strengthens its balance sheet and underpins its exploration, development and growth strategy by providing immediate funding for realizing the 2014 work program which will increase oil production to 14,000 bopd this year, which in turn improves the cash flow from increased production which enables further funding and further development in the Oyo oil field off the coast of Nigeria.
“Being dual-listed on both the Johannesburg and New York Stock Exchanges will provide increased liquidity and transparency for shareholders,” commented Lawal. “The listing will add momentum to CAMAC’s growth trajectory through additional equity funding, further exposure to international capital markets and support for its exploration programme and production profile.”
More recently the company announced additional funding of US$300 million through a bond offering which is expected to provide the capital to complete Oyo-7, drill and complete Oyo-8, and drill and complete Oyo-9 to ultimately bring online 21,000 bopd net.
CAMAC’s strengthened balance sheet, forecasted production increase, significant asset holdings and up-coming secondary listing are near-term catalysts that are indicative of the company’s long-term vision of becoming a leading pan-African oil exploration and development company. The group’s proven ability to form long-term partnerships with some of the global leading multinationals has seen CAMAC thrive in an unpredictable environment. 
Another key issue in the sector is who will own and fund the gas ‘infrastructure’ and what will be the desired balance in responsibilities between the public and private sectors. Huge capital investment is required and private investors need to be assured of returns on investment.
CAMAC recently signed a Letter of Intent (LOI) securing the floating, production, storage, and offloading system (“FPSO”) ARMADA PERDANA for up to seven years.  This particular FPSO can process up to 40,000 barrels of oil per day, with a storage capacity of one million barrels of oil, and currently supports CAMAC’s daily production of approximately 2,000 barrels of oil and 40 mmcf of natural gas from the Oyo Field offshore Nigeria in OML 120. This underscores the company’s relevant and extensive technical expertise required to find, extract and transport oil and gas.
According to Chris Heath, CAMAC’s Director of Corporate Finance and Investor Relations, the company is “focused on execution and aims to maximize shareholder value through the drillbit by expediting development of the Oyo Field offshore Nigeria, participating in high impact exploration projects, and opportunistically pursuing M&A and partnership activities.”
Courtesy of Magna Carta

Magna Carta is Ketchum's Exclusive Affiliate in Africa and is part of TBWA\Worldwide