Mr. NJ Ayuk is the CEO of the Centurion Law Group, a pan-African legal and advisory conglomerate with its headquarters in South Africa and offices in Equatorial Guinea, Ghana, Cameroon and Mauritius. He has consulted for major companies on investment strategies, establishment of joint ventures and cooperation structures, privatisation, licensing and related tax matters, law, oil and gas, power, local content development, contracts negotiation, and other matters pertaining to Africa’s energy sector. Ayuk has also been part of the most strategic investments and projects shaping Africa’s energy sector in recent years. In this exclusive interview with Valuechain, Ayuk urges African countries to diversify their investments from oil, arguing that no reasonable investor would have all of his money in a single basket. He also reckons that political actors in the executive, legislative, and judicial arms of government must understand the severe problems Nigeria will face, if a new regulatory framework is not enacted soon, and acted on fast.
Excerpts.
Tell us about the Centurion Law Group and the group’s connection with the oil sector.
Centurion, as a firm, has focused a lot on energy, and has been driven by lawyers and advisors who want to focus on deal making in the African energy space. We have been blessed to work on many of the big ticket items across the African energy industry.
Your educational background is in law, or legal and business education. How did you get deeply involved in the oil and gas sector?
For us, it was about going on road less travelled. If you want to contribute to Africa, look at our energy crisis. Do good and also make money which I believe represents free market capitalism at its best.
For many African lawyers, oil and gas was, and is still seen as some dirty business. That’s wrong. It is not entertainment law, and you are not doing contracts for Davido, Tiwa Savage, or Didier Drogba. Many lawyers have been arrogant in thinking, “Why do I have to work in communities that are difficult, smelly products pulled from the ground, relegated to practicing in South Sudan, Equatorial Guinea, Angola, Nigeria, Libya, Congo, Gabon, Uganda and similar locations, while your friends are living the life of ‘dream lawyer’ in Lagos or London?
That changed when we started doing a lot of deals in the upstream, downstream or midstream with companies through acquisitions and mergers around Africa. We even got technical. We accepted that our western counterparts were going to look down on us, but that was their problem. I don’t really care, and I don’t need their validation. We focus on results. In the end, that’s all that matters. You only need a co-signer, if your credit is bad.
We saw private equity firms from New York hiring us to do non-African projects, and we understood that we were on to something. Then came the Chinese and the Indians.
Our story is a lesson for many Africans that we lose when we sell ourselves short. We lose when we shy away from the difficult road.
You have been part of the most strategic investments and projects shaping Africa’s energy sector in recent years. Which of these projects in Africa stands out for you?
We have negotiated the highest number of oil and gas contracts in 17 African countries. No firm has done more than we have. What stands out the most for me is having the opportunity to work on the renegotiation of the BG Gas deal in Equatorial Guinea.
Unfortunately, there was no way Equatorial Guinea could have anticipated the U.S. shale revolution when it penned its 2004 agreement to sell LNG – some 3.4 million tons of it a year – to BG Group. And in fairness, neither could BG or anyone else, for that matter.
The deal called for BG to buy gas from Equatorial Guinea for 17 years, from 2007 to 2024, and send it to the U.S. for processing and domestic sales. The product was priced at a discount to Henry Hub – the gas futures benchmark – which is commonplace. That meant the African nation was getting about USD6 per million British thermal units (mmbtu) in 2004, and an even better USD15 mmbtu the following year – 248, not bad, at all.
Then, the bottom fell out of the global gas market. With an influx of American shale coming onto the scene, prices fell below USD4 mmbtu, eroding Equatorial Guinea’s profit. That’s bad enough. But because BG had negotiated terms that allowed it to sell the LNG, it purchased from Equatorial Guinea anywhere in the world. The product previously destined for American shores was diverted to Asia, instead – where an overheated market had pushed prices as high as USD15 mmbtu. That meant BG was making huge profits off of LNG it bought for hardly more than a song.
Obviously, Equatorial Guinea was upset. You would be, too. But it was hamstrung by the fact that it had failed to negotiate a profit-sharing agreement with BG for any gas sold to non-U.S. buyers. The country also lacked a renegotiation clause.
After a new set of negotiations – a process that I was fortunate to be part of – BG agreed to give the government the larger of the 12.5 per cent of Asian profits. BG also agreed to social programmes supporting maternal and child health, malaria prevention, and sanitation projects.
Since then, BG Group was sold to Royal Dutch Shell, which inherited the 12.5 per cent deal. Fortunately, with the now-Shell deal wrapping up in a few years, the Minister of Mines and Hydrocarbons, Gabriel Mbaga Obiang Lima, has a chance to return to the negotiating table.
This LNG offtake deal was the sexiest deal in Africa ever for a trader, and it continues to be presented as an example of how not to do a deal in oil and gas training courses and law school. The worst deal in the world.
Fair enough. But I would suggest there’s another takeaway to consider: You can always fix bad deals while respecting the sanctity of contracts. While the end result still wasn’t perfect, Equatorial Guinea was able to recover significant revenue from BG.
From your perspective, what sort of year was 2020 for the African oil and gas sector in view of the COVID-19 pandemic, and what’s the outlook of post COVID-19?
2020 was not, in any way, an easy year for the African oil and gas sector. The dramatic decrease in oil and gas demand, triggered by COVID-19, had a significant negative effect in oil exporting countries, in the process of exploiting their natural resources in the continent, and even worse, in countries that just began developing their oil and gas industry. Such events, paired with an accelerated transition to a lower-carbon world, caused a delay, suspension, or even termination of some investments, projects, and licensing rounds in most African countries, which has had devastating impacts on their economies and population.
In the post-COVID-19 world, African oil-reliant countries now face an accelerated energy transition, pushed by developed economies. The road to an oil and gas success story is closing in fast for African countries, especially for countries that have just begun exploring their natural resources, as investments in the industry, especially for high-risk exploration investments and highly contaminating projects will be hard to obtain in the new world’s drive to cleaner projects.
While we agree with the energy transition goals to a cleaner world, we also firmly believe that African economies should keep exploiting their natural resources in a carbon-efficient manner. Investments need to keep pouring into the continent’s sector. Africa’s oil and gas sector has to take advantage of the existing technologies to develop a lower-carbon sector. It can be done. However, we must be given that chance.
With the devastation of the industry caused by COVID-19, do you expect that the industry will still see resurgence in quality deals being closed, more bidding rounds for new licenses, sanctioning of new projects earlier put on hold?
As mentioned in my previous answer, coming out of COVID-19, African countries face the challenge of an accelerated transition to a lower-carbon world. This will significantly impact the development of oil and gas projects as more IOCs (international oil companies) and institutional and non-institutional investors switch their portfolios to lower-carbon projects. Oil-producing countries will face a money shortage which will probably cause their natural resources to remain stranded.
However, this does not necessarily have to be the case. African countries and companies can invest and exploit lower-carbon resources like natural gas, which is widely available in Nigeria, Algeria, Egypt, Libya, and most recently, in Mozambique, Tanzania, South Africa, Mauritania, Angola, Senegal, and Equatorial Guinea. That gas can be used to electrify the continent with gas-power projects. In this spectrum, we believe that most of the quality deals and investments need (and will) occur, as estimations are that sub-Saharan Africa has the potential for approximately 400 GW of gas-generated power. Other good deals could come in developing LNG plants and facilities and constructing cross-regional gas pipelines, as we have recently witnessed in the Kenya-Tanzania $1.1 billion gas pipeline deal signed last week.
Countries must remain vigilant of the new challenges, and adjust their regulations to provide for competitive fiscal terms, royalties, and taxes, allowing for more uncomplicated and rapid investments in these projects, which will bring growth to their economies, and create multiple sources of employment. We must not allow governments and bureaucrats to hide from their responsibilities, or even worse, to put more obstacles in Africa’s road for development. The window for opportunity is closing fast. This is the moment to make a stand, to be ingenious, and to find solutions. Africa must find a way to be at the centre stage of investments in natural resources.
Uncertainty and volatility still rule the industry, despite OPEC’s historic ‘Declaration of Cooperation’, and in view of the fact that many African producers rely on oil for revenues. Does this further strengthen the call for diversification from oil?
The price of commodities has been and will remain to be volatile. This has been the norm for oil, at least, for the last half a century. There is no way to have a fixed price as it is driven by market (and sometimes political) forces. However, such volatility has not been a cause for developed countries to stop expanding their oil and gas industry. On the contrary, such volatility has been a cause for development with a structured approach. The story should not be different for Africa.
African countries should diversify their investments from oil, not only based on the price volatility, but also because it just makes simple sense. No reasonable investor would have all of his money in a single project. No. Diversification is necessary, especially for countries in dire need of growth and employment.
However, this does not mean that African countries should stop focusing on exploiting their oil and gas resources. They should keep doing so but with a 30-50 year growth and development plan, encompassing other types of projects, including mining, conventional and renewable power, manufacturing, infrastructure, technology, to name a few.
You are particularly active in the structuring, negotiation and implementation of petroleum, mining, LNG, and other natural resource projects for leading operators in Equatorial Guinea, South Sudan, Uganda, Angola, Congo-Brazzaville, Senegal and other sub-Saharan countries. Are there projects you have handled in Nigeria, and could you tell us more about them?
In Nigeria, we have advised many Nigerian companies, and successfully raised capital for marginal field projects. We have advised IOCs on tax matters in Nigeria, and also on asset acquisitions in Nigeria. Field development projects have been a boom for us, as you need a specialty in understanding the process. Attracting investment into Nigerian energy deals has been something we continue to do, but the government passing into law the PIB could be a boost.
Our Nigerian practice has been different, and led by highly skilled Nigerian lawyers, continues to differentiate what Nigerian lawyers can do in a rapidly changing legal services marketplace. We recognise that law firms must be creative and innovative in the servicing of their clients and our Centurion Plus model has been a boom. Our belief in working with western private equity firms has helped us in getting the deals done and funding key strategic projects.
In your book, ‘Big Barrels: African Oil and Gas and the Quest for Prosperity’, you talked about Equatorial Guinea being a success model with gas – a country, which 20 years ago, had no lights, but today, has more power than any African country. Nigeria has declared 2030 as the ‘Decade of Gas’. What should the country be doing to achieve what Equatorial Guinea has done with gas?
It would be hard to address Nigerian problems with Equatorial Guinea’s solutions. What worked for one country would hardly work for another, particularly considering the size of (each) countries’ economies, populations, and reserves. However, some lessons could be drawn from Equatorial Guinea’s experience.
For example, contrary to Nigeria, Equatorial Guinea has not had important security concerns in its oil and gas projects. In contrast, Nigeria has historically suffered from crime and terrorism, negatively impacting the industry, and scaring away investments. Also, Equatorial Guinea did not face such significant midstream infrastructure problems as Nigeria, which has failed to connect the gas of most fields, leaving the gas stranded, or in many cases, flared. Finally, Equatorial Guinea has shown an investor-friendly environment, passing and implementing regulations with reasonable fiscal terms, and protecting the foreign investors with international mechanisms, whereas Nigeria has taken more than a decade in discussing the Petroleum Industry Bill (PIB).
Nigeria should be focusing on passing the PIB, which was once said to be the most significant transformation for Nigeria’s industry in decades. We fear that the discussions have taken so long that a once-awaited industry-changing bill will now fail to cover the challenges the oil and gas industry is facing today, and will continue to face for the next decades. We would like to see a PIB encompassing the future challenges for the energy industry and not only addressing the past issues.
Also, the country needs to develop its midstream infrastructure to connect stranded gas fields, and stop flaring, which is also one of the commitments of the Paris Climate Accords for 2030. Nigeria has most of the IOCs and major companies that could assist in developing such infrastructure. However, the government needs to meet them halfway. The development of Nigeria’s gas fields in a climate-friendly manner will lead to the ‘Decade of Gas’, but much work is yet to be done.
What is your perspective on the advice for African countries to increasingly invest in the development of renewable/green energy in view of the fact that oil will soon dry up?
Oil will not soon dry up. There is a possibility it will remain stranded, if actions are not taken, but I would not call it ‘dryness’ of oil. As I mentioned throughout this interview, African countries have an excellent opportunity to reorient the energy transition in their favour by proposing the exploitation of natural resources, aligned with climate change goals. We are not proposing African countries not invest in the development of renewable sources to the contrary. African countries should make efforts to grow their renewable energy capacity. However, not all of the resources should be focused on the development of renewable energy, as most African countries have an excellent opportunity to develop their gas industries. Africa should not be asked to divest from one of its most significant sources of revenue from one day to the other.
A balance must be reached between investments in renewable energy and exploitation of other resources such as gas. There has to be a slow, progressive transition towards renewable energy. It would not be convenient at any economic level to stop exploiting oil and gas resources to switch to renewable energy. The fact is that there are more than 580 million people without electricity access in the continent, with that number expected to grow in the millions in this decade. Renewable energy, alone, will not be sufficient to meet the energy demand in the continent. Are Africans expected to live in the dark just because the developed countries are accelerating the energy transition? We believe the answer is no. Africans should continue sustainably exploiting their gas resources, procuring the minor emissions possible. The technology exists. Why not start using more of it?
What are some of the most daunting challenges facing oil and gas exploration activity in Africa today, and what are you doing in your capacity as one of Africa’s top energy lawyers to confront those challenges for your clients?
For the reasons mentioned, exploration activities in the continent will become less frequent. The worldwide trend is to reduce exploration activities as they are capital intensive and high risk, and are not aligned with energy transition goals. As most of the majors transform from big oil companies to big energy companies, exploration activities throughout the continent will drastically decrease.
Governments should come to grips with the new reality, and implement investor-friendly exploration agreements. Exploration terms must become so attractive to compensate for the high risk involved. Terms as signing and production bonuses, hefty taxes and royalties, government fees, among others, must be drastically changed to make the exploration activities attractive for investors looking for a high reward. Also, governments should avoid setting a high entrance fee to look at the data in a licensing round. Investors should be welcomed in such rounds for a reasonable payment. The governments can and will recover for the costs of the data and other expenses during the project’s life.
In Centurion, we are precisely pushing this agenda with our clients and the governments involved. We are constantly campaigning with governments and the private sector to get better terms in the relevant agreements to push more exploration activities. However, this is not an easy task, as governments are used to the standard form of production sharing contract (PSC), and changes do not come rapidly.
For Nigeria, regulatory uncertainty, especially around delays in passing market-driven laws like the PIB has been a major problem for the country. If you are called to fix the problem, what are the things you would do?
Unfortunately, passing such a comprehensive bill as the PIB is not a one-man’s job. As the African proverb goes, “It takes a village to raise a child.” This is exactly what Nigeria needs. Nigeria needs to understand the challenges I have been mentioning, and there must be unity to face those challenges. All political actors in the executive, legislative, and judicial branches must understand the severe problems the country will face, if a new regulatory framework is not enacted soon, and act on it fast. There are examples of countries (like Mexico) that have passed even more comprehensive legislation in less than a year. All it took was a strong political will, and involvement by all of the stakeholders.
Personally, suppose I were called to fix the problem. In that case, I will launch myself into a campaign to raise awareness of the challenges the energy industry in Nigeria has had in the past and the disaster it would be, if the country fails to address the challenges of the future. I will not stop until every member of the National Assembly is convinced of the dire need of passing a sound regulatory framework, or, at least, until they understand that failure to do so will make them accomplices of the destruction of a once-successful energy industry.