Is This The Next Great Oil Frontier?

Nigeria has long been known for its oil riches.

Angola has too, but decades of entrenched corruption have chased foreign investors away.

Now Namibia is joining the African oil conversation with one of the most oil-friendly regimes on the continent. It's offering 5% royalties on what might just be a very productive shale play in Reconnaissance Africa's (RECO.V) Kavango Basin.

Emerging markets are where oil upside might be found these days but navigating them is a challenge.

Nigeria: How To Push Away Investors

Take Nigeria, for instance.

As Africa's largest producer of oil, Nigeria has outsized status in the hydrocarbons world. But the party is coming to an end from an investor's standpoint.

Nigeria is home to about 37 billion barrels in oil reserves. And while it's got some 32 active oil rigs out there, only 81 wells were completed last year - down from 141 in 2014.

Since oil prices started tumbling in 2014, the government has been taking more from oil companies, with back taxes and new legislation. Now, it wants majors Chevron, Shell and French Total SA to pay them around $62 billion. It claims in was short-changed under a revenue-sharing agreement dating back to the 1990s.

Chevron (NYSE: CVX) is seeking to sell several Nigerian oilfields, and it isn't the first: Exxon and Shell (NYSE: RDS-A) have both been reducing their footprint in the country.

And it might get worse.

Now, Nigeria is proposing new legislation that would increase taxation on the oil industry. The bill would add another 3-10 percent in royalty rates at oil prices between $50 and $80 per barrel. Nigeria's current system gives Nigeria between 60 percent and 70 percent of all deepwater revenues, which includes taxes, royalties, along with state-run Nigerian National Petroleum Corporation's share of production.

Angola: Reforms That Might Not Be Enough

Angola, too, is a tough sell right now. Even though it's Africa's second-largest producer, it's been mired in decades of highly entrenched corruption, and while there is a new regime in power and reforms are on the books, investors aren't 100-percent sold on the idea.

Angola is hoping to sell stakes in state-run Sonangol oil company and a string of other energy companies. To do that, it's banking on major economic reforms to attract investors and bring in much-needed cash.

No one's forgotten the gross mismanagement of Sonangol under its previous leadership, though, so the Angolan government is going to have to make people believe things have changed. Sonangol has a history it needs to overcome.

The goal is an IPO for Sonangol in 2022. Beyond that, the government is also hoping to lure investors into stakes in Puma Energy, the China-Sonangol oil venture, and the Ivory Coast SIR refinery. But it's only been two years since we saw a change of regime in Angola, and investors don't seem thoroughly convinced just yet.

In 2017, Joao Lourenco took power, ending the four-decade power play of Jose Eduardo dos Santos, along with his daughter's destructive leadership of Sonangol. But two years may not be enough time to convince investors.

The government has made it easier for investors to repatriate money via commercial banks; it's made it possible to invest in the sector without a local partner; and it cut taxes on some oilfields by 50%, creating an independent body for managing oil and gas concessions. The first litmus test will likely come later this year with the attempted sale of stakes in the SIR refinery.

But in the meantime, some bigger potential has emerged on the continent:

Namibia: Starting From Zero

Namibia - a country that has never produced a barrel - is the newest venue reaching the investment radar screen.

That's because it has the potential for new discoveries at a time when they are increasingly hard to come by.

Even better when it's in an investor-friendly regime.

The so-called "Land of the Brave" has an oil and gas friendly regime with only 5% royalties.

That's why Exxon (NYSE: XOM) recently acquired an additional 7 million net acres from the government for a block extending from the shoreline to about 135 miles offshore in water depths up to 13,000 feet, with exploration activities to begin by the end of this year.

What Exxon's banking on is that Namibia, which according to theory once fit together with Brazil, shares the same geology as Brazil's pre-salt basins, Santos and Campos, which have already proved resource-rich, according to Deloitte.
 

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