BSI Luxembourg ASBL
Château de Wiltz
Dr. SY Ndéye Aïssatou
Senior Legal Advisor, PETROSEN SA.
The strategies of actors investing in the exploration and production of hydrocarbons. The case of Senegal.
The hydrocarbon industry (oil, gas and associated products) is very risky and uncertain with only one discovery for ten (10) drilled wells. Furthermore, the oil and gas industry is very expensive, for instance offshore drill activities costs on average one (1) million USD per day, given that a typical drilling program schedule lasts for thirty (30) to forty-five (45) days. It is for this reason that major oil and gas players define strategic decisions in order to finance their activities. For sure, banks and similar financial institutions do not take the risk to inject funds in a risky and uncertain activity that does not guarantee an immediate pay-out / investment return.
Thereafter, the main players such as international oil companies (majors and independents), national oil companies, services companies or hedge funds implement ways and strategies to raise funds. It is understood that this fund raising has to be tested and proven for more understanding at length.
In order to achieve this, a field study was carried out to acquire data from actors involved in the Senegalese sedimentary basin from April to the end of September 2016. The survey results revealed, on the one hand that the strategies either in Senegal and/or any other country are harmonized in oil and gas, meaning that only independent companies (medium size) take the risk to finance and invest into the exploration activities through equity (via their own funds). In case of discoveries, they negotiate and sell their assets to a major oil company offering strong technical and financial capabilities. In this way, it has been proven that major companies do not take any exploration risk.
On the other hand, economic evolutions and successive oil and gas crises are basically the key elements that put into question the harmonization of practices. Regarding this point, the tendency to deconstruct harmonised practices rises to the surface in light of the results of this study. The analysis of the results also revealed that the major oil companies have been exceptionally taking exploration risks over the period of the last three (3) years. The consequence of this is that the independent companies have drastically reduced their exploration budgets in order to mitigate lower oil prices.
Regarding this situation, we recommend that the industry is restructured, allowing the NOC to undertake international transactions and become the most dynamic competitive operator that is similar to IOC. For cost efficiency, the oil and gas industry must down-size mega-projects that are difficult to design and to finance sufficiently. For sure, the current situation of this challenging oil and gas market leaves little place for collaboration let alone competition among fossil fuels that are increasingly challenged by renewable energies.
The best alternative solution remains a post-modern one using an energy mix of fossil and renewable energies and above all through adaptability and readjustment to manage mitigating risks.
Keywords: Industry, Actors, Players, Hydrocarbon, Oil, Gas, Investment, Risk, Uncertainty, Strategic decisions, Funds, IOC, NOC, Competition, Cooperation, Crisis, Mutation, Adaptation, Geo-strategy, State-partnership, Public-private.