By Ian Talley
of Dow Jones
Western oil companies operating in Africa, one of the world's fastest growing petroleum regions, are meeting their match - in the form of Asia's national oil companies.
Aggressive, determined and motivated by burgeoning domestic demand, the Asian upstarts are making their way into African plays by addressing the countries'
developmental needs, aided by huge state coffers provided by governments less concerned with profit than supply. African government officials say unless Big Oil adapts to meet the challenge, it risks losing market share.
”I'm concerned about the U.S. companies...they have very tough competition," particularly from India and China, Algerian Oil Minister Chakib Khelil said Thursday at a U.S.-Africa oil and gas conference sponsored by the Corporate Council On Africa. The domination of western oil companies in Nigeria, Algeria, Angola and other African oil producing markets "is not going to work like it was before," said Khelil.
Now, he said, "they have to work with state oil companies...to have access to acreage and also diversify their risk in various countries."
National oil companies such as Chinese National Petroleum Corp. and India's ONGC Videsh, the overseas exploration unit of state-run Oil & Natural Gas Corp., "are changing the rules of the game," said Warwick Davies-Webb, a poltical analyst at the South-Africa based Executive Research Associates.
Some analysts, however, play down all this talk about competition between East and West for limited resources. Asian investments in energy help raise production everywhere - and since oil markets are global, higher output benefits all consumers, said Cambridge Energy Research Associates Director Dan Yergin. "The notion that they invest in Angola" doesn't mean that "they've tied up," said Yergin. "With the Chinese growing the way they are, not investing more on a global basis would be worse. I don't believe it's a zero-sum game."
A Matter of Priorities
For publicly traded, private-sector companies such as Exxon Mobil Corp., Royal Dutch Shell PLC, and Chevron Corp., the companies' primary priority is profit, said Davies-Webb.
"But the first priority for national oil companies is supply...They have lower profit expectations and are more determined to segment out oil and gas supplies for the motherland," he told ministers, officials and executives at the conference Thursday. They do so with support from institutions such as China's Development Bank, which has reserves of around $350 billion. "That's massive financial power that can be leveraged in their energy strategy," the Executive Research Associates research director said.
In terms of making bids, the Algerian oil minister said Western companies have a better chance of competing against national oil companies in Algeria because of the open bidding process. But in countries that don't have as much transparency, bidding against NOCs with deep pockets will be much more difficult.
Oil companies should be talking to U.S. Energy Secretary Samuel Bodman and President George W. Bush to "create a big fund for oil companies, to help those companies move into these countries," Khelil said with a laugh.
But Khelil says many U.S. companies have been somewhat slow to adapt to the changing nature of the game. "We have been trying many times to try to develop projects with U.S. companies outside Algeria, even talking about exchange of assets, but we haven't been able to do that."
Western companies must show a "willingness" to define their strategy in the current competitive environment, where national oil companies are open to swapping assets and partnering across the globe with African state firms such as Algeria's Sonatrach and Angola's Sonangol, the minister said.
Mozambique Deputy Minister of Minerals Abdul Razak Noormahomed said although Western companies currently are the only foreign shareholders in exploration and production in his country, both Chinese and Indian company officials "are coming to check out our resources" and are awaiting exploration results to prove the country's attractiveness.
Norsk Hydro ASA, Anadarko Petroleum Corp., ENI SpA, and a handful of small U.S. companies have won lease agreements to explore several of Mozambique's prospects which government officials said show potential for trillion-cubic-feet of gas and billion-barrel fields. Anadarko has been studying one of Mozambique's offshore basins and says it is highly prospective and could rival proven world-class petroleum systems of the Niger Delta, Mahakam Delta and the Gulf of Mexico.
A Matter of Culture
Part of the Asian companies' allure is that they seem to understand the logistics of local development better than their Western peers, African officials said. They're also more eager to please.
"The reason Africans approach China is because the Chinese know the needs of Africans," said Gabriel Nguema Lima, vice minister of oil for Equatorial Guinea. "What we need is hospitals and infrastructure. The oil company won't build them - but they will call their government to make sure our needs are met."
Major Western companies have less flexibility, he said - with the exception of the independents, which are scooping up many of Equatorial Guinea's new exploration blocks. "The independents are like the Chinese. They're interested in helping the country, talking to the ministers and presidents, and understand what we want."
Some independents can also get along with their new Asian partners. Max de Vietri, chief executive of Baraka Petroleum Ltd., an independent oil company that's been operating in Mali for five years and has close ties with the government there, said the Chinese are "model partners."
The company this week showed successful exploration results on a prospect that could total 400 million barrels. In the joint-venture with Baraka, De Vietri said that his Chinese partners were "willing to listen" on proposals for operating strategies. "That doesn't happen" with many Western companies, he said.
(Dow Jones Newswires, 1/12/2006)