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The reasons for declines in the oil and gas industry in Africa are not a mystery. Investments required to sustain production levels and add reserves have not been forthcoming, even in countries with relative economic and political stability. The bright spots lie to the west, offshore and in deep water (and the subject for another column). But onshore, an enormous effort will be required just to staunch the bleeding, in every sense.
Libya’s troubles are well-documented. The country holds the continent’s largest proven reserves of crude oil, and the fourth largest natural gas reserves, and has been a very important source of light, sweet crude to the European markets. The civil war in 2011 and subsequent removal of its petro-dictator sent oil production into near-complete collapse. With the advent of an unsteady peace, production did slowly recover, so that by 2012, output reached an average 1.39–1.45 MMbopd, still a ghost of its former glory. Political/labor-related disruptions in 2013 kicked the chair out from under the tepid recovery, as rebel protestors shut down oil fields and closed ports.
Last year showed signs of improvement. A deal with the rebels allowed ports to reopen. In mid-July of this year, Libya’s oil minister told Reuters that the nation’s output had risen to 588,000 bopd, as the giant El Sharara oil field began a return to production. Foreign investors are still waiting on the sidelines, which is usually the case with such a tenuous peace.
Nigeria is Africa’s largest economy, with a GDP in 2013 of 80.2 trillion Nigerian naira, or about $500 billion U.S. When it was announced last spring, this figure moved Nigeria ahead of South Africa for the first time, and suggested a truly stunning growth rate of 89% year over year. However, there is a certain artificiality to the news, because the new GDP is the result of “rebasing,” which is an overhaul of the way GDP is calculated. This sort of reassessment is done by most countries every few years to reflect basic changes in the economy. However, Nigeria did its last rebasing in 1990, when sectors such as electronics, banking, e-commerce, and even the country’s rapidly growing “Nollywood” film industry, were virtually non-existent. While most economists agree that the change better reflects the reality of modern Nigeria, few Nigerians are impressed. The wealth is taking a long time to reach down to the average citizen.
As a local farmer told the Al-Jazeera network, “I don’t feel it in my pocket… Those controlling the economy, those with government contracts, get all the money.”
While Nigeria’s overall economy has been growing, the petroleum sector has not been leading the way, though it is still a very large contributor. Along with the other three top producers in Africa (Algeria, Angola and Libya), Nigeria experienced a decline in production, beginning in second-half 2013. Nigeria’s average daily crude output fell 24,000 bopd from 2013 to first-quarter 2014.
Speaking at the Nigeria Oil and Gas conference and exhibition last March, Shell Upstream International V.P. Markus Droll said that decline rates in Nigerian crude oil production run as high as 15%–20%. Droll told attendees that reversing the decline rates “requires more funds than are currently available,” and that the high-cost operational environment in Nigeria further worsened the situation. The Nigerian National Petroleum Corporation has blamed funding shortfalls on the high costs of oil and gas projects that were put together by the IOCs.
Algeria, Africa’s second largest producer of oil and gas has seen petroleum output fall in the past few years, due to waning interest from production partners and foreign investors. According to reports, disappointing project results and unfavorable project terms have been discouraging to foreign companies, along with alleged corruption at Sonatrach, the country’s national oil company (NOC). Allegations were made that Italian company Eni paid $256 million in bribes and kickbacks through its Algerian subsidiary, Saipem, to help win oil contracts. The Minister of Energy and Mines was fired, and Sonatrach’s managing director went to jail.
This scandal was followed by the armed terrorist attack in 2013 on a remote BP-Statoil gas facility, which resulted in 37 deaths and caused international firms to reevaluate their presence in Algeria.
Algerian production averaged 1.15 MMbopd in November of last year, a 15% decline from the 2005–2010 average. The nation’s gas production has also fallen steadily since 2005 to 2.9 Tcf in 2011. This situation has left the country’s reserves mostly level for the last decade, with exports to Europe continuing to decline. Despite an effort in Western Europe to diversify its natural gas sources (i.e., away from Russia), the region’s slow recovery from economic woes has kept a lid on demand. Unfortunately, Algeria’s largest natural gas customers, Italy and Spain, have been the slowest to bounce back.
In a major effort to reverse a five-year decline in oil and gas production, Algeria announced an initiative to invest about $100 billion in the country’s energy industry between now and 2020. The plan is intended to increase exploration and boost proven reserves, with an emphasis on the country’s large shale deposits in the middle-Cretaceous Benue Trough region.
The loss of interest on the part of foreign partners, and resulting fall in production levels, is a particular problem in Algeria, because of the country’s heavy dependence on oil and gas for 97% of its export revenues, and a sizeable chunk of the government’s annual budget. According to sources, plans call for $42 billion for the development of fields over the next four years, starting just ahead of the country’s planned bidding round for 31 fields this coming September. For the first time, this round will include blocks with unconventional resources, and will include tax incentives for foreign companies interested in investing in shale development. 
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