Western Oil Firms find it difficult to make money in Africa

Large overseas oil companies are finding it increasingly difficult to make money in Africa due to output restrictions, unstable politics and steps by some governments to change contracts.

Africa is one of the last regions available to foreign oil exploration and many companies are reaping the rewards from high energy prices. However, difficulties could endanger future production in an area that is vital to energy supplies globally.

In Venezuela and Russia, governments supported by high oil prices are taking control of exploration plans and increased taxes on overseas operators.

Similar difficulties are now arising in Africa with Chad, Equatorial Guinea and Algerian governments rewriting oil laws and contracts to enhance national interests.

Africa’s economically recoverable oil and natural gas reserves account for almost 10% of the world’s total. The USA and European consumers are heavily dependant on West Africa nations such as Nigeria for crude oil that is easy and cheap to process into products including gasoline because of its low sulfur matter.

According to the U.S. Energy Information Administration, African producers such as Angola and Nigeria now distribute as much crude oil to the USA as Persian Gulf producers like Saudi Arabia.

To improve their own growth prospects and to meet this rising demand, organisations such as Exxon Mobil Corp. (XOM) and Total SA (TOT) and smaller firms such as Anadarko Petroleum Corp. (APC) have invested billions of dollars into Africa at a time when they are being pushed out of drilling in tightly protected energy sectors in much of the rest of the world.