Africa Oil & Gas Conference - Opportunities in adversity

Transcription

1 Africa Oil & Gas Conference - Opportunities in adversity London Tuesday 2 June

2 Welcome & Introductions Alan McCrae Partner, Tax, PwC UK

3 This morning s Chair Nadine Tinen Partner, PwC Cameroon

4 Setting the Africa Oil & Gas scene Ross Hunter Global Oil & Gas Leader, PwC

5 The oil price rollercoaster Chair: Alison Baker Partner, Head of Oil & Gas, PwC UK Panellists: Robert Plummer Vice President, Institutional Investors, Wood Mackenzie Rob Turner Partner, PwC UK Michael Quinton Partner, PwC Tanzania Francis Kamulegeya Partner, PwC Uganda Moshood Olajide Senior Manager, PwC Nigeria

6 Africa O&G 2 June 2015 Oil price - implications for industry Rob Turner

7 Why we ve been saying it s bad, and why the conditions will continue whatever happens to the oil price 1 Price The story is not where it ll end up, but how bad it s been, and how uncertain the outlook is 2 The industry has to react the real story here is the freezing of investment, while the Africa challenge is in attracting the marginal dollar Oil price implications for industry PwC 2 June

8 Our key message is uncertainty Some think it could go lower And hopes of a v-shaped recovery are a mere memory "I would not be surprised if the price falls to as low as around $20... Nobuyuki Nakahara, former oil executive and ex-member of the Bank of Japan's policy board Prices could fall to US$25/bbl Vagit Alekperov, CEO of Lukoil Bob Dudley, CEO of BP "We have go to plan on this [price] being down, and we don't know exactly what level, but certainly a year, I think probably two and maybe three years. Claudio Descalzi, CEO of Eni "A lot of our projects are long term to have production in five or six years. And that is a problem. If you are cutting capex drastically now - we can have a lack of production in four or five years creating a new increased oil price at $200 maybe." " maybe prices have reached a bottom How long will it last? I don t know but I am sure the price will rebound. Abdalla El-Badri, OPEC Secretary General Vagit Alekperov, CEO of Lukoil "We think that the current trends in the oil market and the global economy are only pushing the world oil to its lower levels. We think the crisis is only at its earliest stages and the demand situation in world market is not really conducive to oil prices going up." I don t think we re going back to US$100 oil. Amy Myers Jaffe, Energy expert Michael Chaney, Chairman of Woodside It is impossible to predict just how long this lower oil price environment will last, but the company is planning on the basis that it could be for several years. Oil price implications for industry PwC 2 June

9 Implications where uncertainty is king, new investment and marginal projects suffer International portfolios look uneconomic Project sanction will require a view through a long cycle - Inevitably this means very material revisions downwards of cost assumptions industry already seeing 20-30% capex reductions across the board The time of the downturn, and the level of uncertainty, means that these downwards revisions absolutely must take hold in planning Oil price implications for industry PwC 2 June

10 Breakeven cost ($ per barrel) Add. Processing Gains Iran Saudi Arabia Asia Pacific OPEC NGL Africa Others N. Am. Deepwater Europe Non OPEC NGL Biofuels North America Tight Oil China Other Tight Oil Oil Sands Venezuela Latin America Many portfolios are uneconomic at 2014 prices Cost of new production capacity ($/b) CtL GtL GCC Other Libya, Algeria Angola Nigeria FSU Russia Brazil 40 Iraq Source: IEA World Energy Outlook, Rystad Energy, Strategy and analysis 2020 Production (mb/d) Addressing the y-axis: Project cuts to limit cash exposure strong evidence in utilization forecasts, project flow Capex cuts material reduction in development costs Opex cuts supply chain adjustments should take hold Oil price implications for industry PwC 2 June

11 Implications: spending can, and will drop supply sector and host governments affected Spending can and will drop - E&P struggling with uneconomic projects, imbalanced portfolios - Rates and activity down, affecting OFS Host governments, especially in the high cost and frontier regions, will have to reconsider tax in this context - As a part of the capex/returns equation, and as part of the opex/efficiency equation And tax has often been as suboptimal as the service sector - Inefficiencies sheltered by high demand, need for access, and the high price - Clear equation with inefficiencies in the supply chain Will be a major issue in the re-assessment of investment in high cost and frontier basins Oil price implications for industry PwC 2 June

12 So far, we have seen constructive and obstructive responses from host governments 1 Constructive often more flexible, less resource-based economies able to look at nurturing investment 2 Obstructive often more cash-starved resource economies cash collection, activity levels, reassessments (and potential disputes) Oil price implications for industry PwC 2 June

13 The industry and investors still have a lot to get used to $? Recovery uncertainty First distress now active Oil sector in lock down New funds still hesitating Business plans being revised Host governments There is an increasing belief that the recovery is likely to be U-shaped Oil price to potentially remain at $50- $60 for next 2/3 years First wave of vulnerable players now in processes Other companies have had to initiate strategic processes in order to survive Big companies or portfolios able to hold out for value by taking the long term view Small E&P struggling with access to finance OFS overleveraged Does suggest M&A will pick up Taking the opportunity to raise acquisition funds Value still unclear Revisions beginning not just on revenue/oil price line but on costs will require a major business case revision Still early to make solid commitments Will need to react Will need to offer similar agility as the supply sector To be effective, will have to offer a response to low price oil, and to offer adequate investment incentives Oil price implications for industry PwC 2 June

14 Implications for Africa 1 Our key message on price, and therefore on the industry, is uncertainty 2 We see the impact continuing to gather pace, regardless of recent price changes 3 Supply chain, and host governments, will have to react 4 Africa will face a funding challenge New money very reluctant to commit to Africa, where N America and Europe offer a much lower perceived risk Oil price implications for industry PwC 2 June

15 Thank you Rob Turner Director, London Oil & Gas Strategy +44 (0) Rob is a Director in PwC s Oil and Gas Strategy team. Rob has worked on a range of projects across the oil sector value chain. Upstream, he has advised on frontier market fiscal terms, investment planning and portfolio reviews. Downstream, he has worked in market entry and M&A advice, and more recently on the financial restructuring of the European refining sector, supporting the UK administration of the Petroplus-Coryton refinery in 2012, and since then advising on a number of refinancing and restructuring mandates. While downstream remains busy, 2015 has seen Rob spend a lot more time working with incumbents and new investors as they address the changing face of sector economics. Before joining PwC Rob worked in the oil and gas team at Arthur D Little, on upstream projects with Schlumberger in North and West Africa, and as a downstream markets analyst with PFC Energy/IHS. Oil price implications for industry PwC 2 June

16 Local Content Chair: Douwe Tideman Partner, Strategy&, Netherlands Panellists: Moshood Olajide Senior Manager, PwC Nigeria Richard Marshall Senior Manager, PwC Uganda Lydia Pwadura Director, PwC Ghana Inês Cunha Manager, PwC Portugal (previously PwC Angola) Sébastien Lechêne Director, PwC Equatorial Guinea Cynthia Adoua-Nsingoulou Manager, PwC Congo

17 Coffee is now served

18 Deals and bond holders Chair: Neil Leppard Director, Transaction Services, PwC UK Panellists: Liz Hunt Director, PwC UK Sunny Vikram Senior Manager, PwC Kenya Karim Emam Director, PwC Egypt Sébastien Lechêne Director, PwC Equatorial Guinea

19 Deals & Bond Holders African Oil & Gas Conference 2015 Strictly Private and Confidential 2 June 2015

20 Panellists Chair: Neil Leppard, Director, Transaction Services, PwC UK Panellists: Liz Hunt (UK) Sunny Vikram (Kenya) Karim Emam (Egypt)

21 The market landscape has changed significantly since the oil price began falling in November 2014 Brent pricing June May Source: Bloomberg - 29 January Source: FT - 11 May Source: Bloomberg Deals & Bond Holders PwC 2 June

22 Deal Value $bn NUmber of deals which turned off the deals tap, in line with the Global Oil & Gas Deals market Deal value ($bn) in Africa by subsector (January 2012 to May 2015) Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 2015* Source: 1Derrick, PwC Analysis Upstream Midstream Downstream Deal count Deals & Bond Holders PwC 2 June

23 For deals that have happened in the last 17 months, sources of funds have been changing Upstream: Source of funds (January 2014 to May 2015) 7% 10% Upstream: Destination of funds (January 2014 to May 2015) % 61% 2 - Q Q Q Q Q Q2 2015* Nigeria Chad Angola Other Source: 1Derrick Database, PwC Analysis Source: 1Derrick Database, PwC Analysis Nigeria Chad Angola Other Deals & Bond Holders PwC 2 June

24 as a result, as oil prices stabilise we are expecting to see a diverse group of investors Sovereign Wealth Funds Distressed Debt Funds National Oil Companies Traditional PE HNW Individuals Independents Energy Focused PE Deals & Bond Holders PwC 2 June

25 Panel Discussion Deals & Bond Holders PwC 2 June

26 Recent studies are showing how a number of African fiscal policies have been shifting Deals & Bond Holders PwC 2 June

27 Q&A Deals & Bond Holders PwC 2 June

28 Thank you

29 Transfer Pricing & BEPS Chair: Victoria Horrocks Partner, Tax, PwC UK Panellists: Steve Okello Partner, PwC Kenya Moshood Olajide Senior Manager, PwC Nigeria Alain Chedal Partner, PwC Algeria Michael Quinton Senior Manager, PwC Tanzania

30 Immigration Chair: Stephan Judge Senior Manager, PwC Legal Panellists: Lydia Pwadura Director, PwC Ghana Rishit Shah Partner, PwC Tanzania Nadine Tinen Partner, PwC Cameroon Sébastien Lechêne Director, PwC Equatorial Guinea Karim Emam Director, PwC Egypt Paul Deeney Director, PwC Libya Inês Cunha Manager, PwC Portugal (previously PwC Angola) Steve Okello Partner, PwC Kenya

31 Lunch is now served

32 This afternoon s Chair Rishit Shah Partner, PwC Tanzania

33 Cost Reduction Chair: Mairi Massey Director, PwC UK Presentation: Craig Stevens Senior Manager, Oil & Gas, PwC UK Panellists: Rishit Shah Partner, PwC Tanzania Darcy White Partner, PwC Middle East/Ghana Sunny Vikram Senior Manager, PwC Kenya Richard Marshall Senior Manager, PwC Uganda Inês Cunha Manager, PwC Portugal (previously PwC Angola)

34 Opportunities in adversity Knowledge transfer from mature markets to emerging PwC Africa Oil & Gas conference June 2015

35 Craig Stevens Resume Atria One 144 Morrison Street Edinburgh EH3 8EX United Kingdom T:+44 (0) Craig is a Chartered Accountant and former Oil & Gas banker. He spent 6 years working with a broad range of independent upstream clients advising on debt finance as well as cross selling other banking products. Craig has extensive knowledge of the upstream banking market, with contacts in several institutions as well as intimate understanding of lender Reserve Based Lending ( RBL ) models and structures. Craig has a wide and varied network of industry professionals and advises the Oil & Gas team on current activity and industry trends. PwC

36 Knowledge capture from the North Sea Reduce capex spend and spend on OFS suppliers and contractors Supply chain optimisation Leverage technology Explore outsourcing/back office rationalisation Review headcount Capital projects optimisation Safety and Culture review Improve cash flow * Improve working capital Reduce/restructure debt* Supplier stability Re-assess long term strategy Coherence with capabilities Joint Venture/contract reviews (including disputes) Decommissioning Stakeholder management Market reassessment Divest non core assets Acquire complementary assets on cheap Tax optimisation Asset impairment/swaps Retain core talent Recruit new talent Behaviours and Culture review PwC

37 Case study The North Sea After 50 years Where we are today PLAN B Headcount Supply Chain Rates Late 2014 Ongoing 2015? PLAN A Do Nothing PLAN C Strategic re-assessment Sustainable Reduction Portfolio Optimisation Long term talent retention Behavioural transformation Efficiency Opex, Production Capex Controls PwC

38 Knowledge transfer to emerging markets Key messages Performance standards Capex Controls Contract Management Production Efficiency (NPT v PT) Fit for $50 Collaboration Stakeholder management Access to funding Matching finance to the field life-cycle Finance options Managing Capex Prioritising spend Market reassessment Capitalise on low rates Acquire assets Tax optimisation Recruit experienced talent Behaviours and Culture get it right from the outset PwC

39 People Viren Doshi Senior Vice President, Global Head of Strategy& Oil & Gas talks with Peter Brown Human Resource Management Leader, PwC UK

40 Tax structuring operations in Africa Chair: Alan McCrae Partner, Tax, PwC UK Panellists: Sébastien Lechêne Director, PwC Equatorial Guinea Michael Quinton Partner, PwC Tanzania Cynthia Adoua-Nsingoulou Manager, PwC Congo Moshood Olajide Senior Manager, PwC Nigeria Karim Emam Director, PwC Egypt Paul Deeney Director, PwC Libya Alain Chedal Partner, PwC Algeria

41 Afternoon tea is now served

42 How to work with Governments Chair: Chris Wales Partner, Tax, PwC UK Panellists: Nadine Tinen Partner, PwC Cameroon Chris Nason Director, Forensics, PwC UK Francis Kamulegeya Partner, PwC Uganda Paul Deeney Director, PwC Libya Lydia Pwadura Director, PwC Ghana Alain Chedal Partner, PwC Algeria Steve Okello Partner, PwC Kenya

43 Thoughts on the day Viren Doshi Senior Vice President, Global Head of Strategy Oil & Gas in conversation with Kevin Hart CEO, Bowleven plc

44 Closing remarks Alan McCrae Partner, Tax, PwC UK

45 Thank you for being here today please now join us for drinks

46 This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers LLP. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity SW-OS