- The Washington Times - Wednesday, December 27, 2006

DAKAR, Senegal

Angola is joining the Organization of Petroleum Exporting Countries, African oil exploration is booming, and China is investing. The stampede for African oil has continued, even as militant attacks in some countries and precarious governments in others make returns uncertain.

Though much of the continent is as conflict-ridden as the Middle East, analysts say Africa is increasingly attractive because it is one of a diminishing number of regions still welcoming foreign corporations.

“It’s one of the few places still where in virtually every country the international oil companies can invest,” said Julian Lee, senior energy analyst at London’s Center for Global Energy Studies. “I can’t think of anywhere in Africa that has not let in international companies.”

The Middle East, which has nearly 60 percent of the world’s proven petroleum reserves, operates mainly through state-owned companies. Russia, the No. 2 oil exporter after Saudi Arabia, took over much of its former oil giant Yukos early this year and has continued to tighten its control over foreign companies. Meanwhile, South American policies have become increasingly nationalistic: Venezuela forced contract changes on foreign oil companies, Bolivia nationalized its petroleum industry, and strong leftist parties in Peru and Ecuador have made corporations increasingly wary.

“President [Hugo] Chavez of Venezuela has basically politicized Latin American oil,” said Mehdi Varzi, who heads an independent oil consultancy in London. Mr. Varzi said nationalization isn’t an option for African countries with poor infrastructure and little technical expertise to develop an oil sector on their own.

Mauritania, Africa’s newest source of oil, was long merely a potential oil exporter until an agreement with a team headed by Australia’s Woodside Petroleum Ltd. led to offshore finds in 2001. Though the northwest African country’s reserves are small by world standards — about 1 billion barrels — the government estimates that it will see oil revenue of $350 million in 2006, its first year of production. That’s major revenue for one of the world’s poorest nations. Woodside owns the largest stake of the field, with nearly 48 percent, and the Mauritanian government owns 12 percent.

Foreigners also show no signs of leaving Nigeria, though its normal daily output of 2.5 million barrels has been cut by a quarter because of attacks by militant groups angling for a greater share of oil wealth.

The West African country, Africa’s biggest oil source and the fifth-largest supplier to the United States, hosts multinationals such as Royal Dutch Shell PLC and the Italian oil firm Eni SpA in profit-sharing agreements with state-owned companies.

In contrast to Russia and Venezuela, the Nigerian government is making efforts to privatize more of its oil operations, according to Shell financial reports. The government has a majority share in Shell partnerships, and the petroleum sector accounts for about 80 percent of Nigeria’s revenue.

Still, African oil development has problems that can trump those of the Arab world. Nigeria is often near the top of lists of the world’s most corrupt countries, as is Angola. Much business in both countries takes place in an informal economy. And long histories of coups in many regions mean new governments can’t always be counted on to keep old promises.

Although Africa likely will never compete with the Middle East, there’s plenty of oil to be found. The continent’s proven oil reserves more than doubled from 1980 to 2005 to 114.3 billion barrels, according to the BP Statistical Handbook. That’s a growth rate comparable with that of the Middle East, and outpacing a worldwide increase of 84 percent in that period.

African output rose about 60 percent during that time and now accounts for about 12 percent of the world’s oil.

There’s enough demand that though U.S. and European companies mostly have stayed away from politically charged Sudan, the country has found investment from Asia. China is the primary foreign investor in Sudan’s oil fields and has not shown any signs of decreasing involvement, despite the continuing threat of U.N. sanctions over Sudan’s refusal to allow U.N. peacekeepers in its Darfur region.

“There’s the phenomenon of countries that Western countries may not be able to do business with that become a niche for other countries,” said Greg Priddy, an analyst at Eurasia Group.

In the past decade, many poor African countries have moved toward privatization of state-owned enterprises under the advice of the World Bank. In an October report, the World Bank encouraged Angola — Africa’s No. 2 source of oil and one of the continent’s fastest growing oil powers — to do more to encourage private investment.

Peter Egom, an economist and research fellow at Nigeria’s Institute of International Affairs, argues that Africa has the manpower and know-how to aspire to oil nationalism. He said the major stumbling block for African oil sources is the lack of financial means because nations with weak currencies have to compete in an industry where the U.S. dollar is the currency of trade.

Venezuela has worked hard this year to befriend African nations, indicating that Caracas could be pushing similar theories. Mr. Chavez attended an African Union summit in Gambia this summer and urged South American-African partnerships. A conference between South American and African countries last month ended with an agreement to explore natural resource collaborations.

But while Africa tries to decide the best way to exploit its resource, some analysts say the continent’s promise of vast oil reserves has been exaggerated.

Mr. Priddy said much of Africa’s oil is more expensive to extract than oil in the Middle East, so it remains attractive only as long as oil prices stay high.

“The idea was that [Africa] was going to reverse the global decline,” said Jonathan Bearman, managing director of London-based Clearwater Research Services, which evaluates risk for energy companies. “But I think some of the expectations have been moderated. The drilling results have not lived up to expectations.”

Mr. Bearman said offshore wells in Nigeria have had a success rate of about one in three, compared with earlier success rates of one in two for onshore wells.

“The costs are going up, and the pace of development is very slow,” Mr. Bearman said.

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