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This study investigated how senior managers at small and medium sized petroleum companies make the decision to explore for petroleum in East and Frontier Africa. Leke and Yeboah-Amankwah (2018) said if one can build a successful business in Africa, chances are, one could be competitive in many other regions of the world. Management decisions are about making the company successful.
These small and medium sized petroleum companies, also referred to as independents, are crucial to the global industry by opening areas ignored large companies (the majors). Once petroleum production potential has been proven, large oil companies become involved in these discoveries. Having smaller companies take the risk, may be seen as a good strategy for the big companies but the perspective from the smaller companies needs exploring.
However, in the oil industry, poor decision-making leads to “an estimated US$ 30 billion or 25% of its annual upstream expenditure” (Nandurdikar,2014, p.15). Goode (2002) and Bratvold and Begg (2008) showed that many projects in the petroleum industry underperform due to uncertainty clouding the decision-making process. Nandurdikar (2014) stated that over the past 15 years, asset development has only delivered only 60% of expected value. Boschee (2012) quoted the president and chief executive officer of Independent Project Analysis, Edward Marrow, as saying less than 30% of major oil projects were successful between 2002 and 2012 (pg. 3). Briel, Luan, and Westney (2012) mentioned that most decision makers expect that there is a less than 50% chance of a project overrunning, but the truth is 5-25% of projects are delivered as promised. Most of the information available on decision-making methods and results in the petroleum industry focus on industry averages based on service companies' work or larger companies. Information from smaller companies is lacking.
Independents choose to explore in and bring new areas into the realm of oil production as a deliberate strategy. How these independents approach the decision of where to drill and partially why is explained in this paper.
East Africa and Frontier Africa as a whole have been through several phases of oil exploration in approximately 20-year cycles. West Africa, with Nigeria as the pivot, and North Africa (Algeria to Egypt) have become established regions with other areas regarded as limited potential until the early 2000s. Each cycle corresponding to major global events with the last cycle starting in the mid-2000s with the rise in oil prices. Keith Hill presented data, at the Africa E&P Summit, London 2018, that showed the largest oil discoveries between 2012 and 2016 were made in Africa. The importance of Africa is felt with the increase in exploration activity offshore the Guianas (Guyana, Suriname and French Guiana) in South America. With there being a geological connection between the North Western Africa (Mauritania to Sierra Leone – MSGBC Basin) Basin and the Guianas. With exploration success in the MSGBC Basin directly influencing exploration in the Guianas with some of the same companies involved in both regions. The MSGBC Basin and areas without commercial oil exploration are considered frontier Africa.
There is little published information on how and why managers of small and medium sized companies make the decision to enter perceived risky areas such East and Frontier Africa. Most information are shared in private meetings and conferences verbally as companies may want to limit or control information sharing (perhaps a competitive rationale). Not wanting information written were given more than once for declining interviews. There is more on why big (majors) companies with greater resources explore for areas where others have not gone before.
Nandurdikar (2014) stated that over the past 15 years, asset development has only delivered only 60% of expected value with poor decision-making leading to an estimated US$ 30 billion or 25% of its annual upstream expenditure. Though the average commercial worldwide oil exploration rate has risen to a 35% to 40% rate of success (Kunjan, 2016) yet small oil companies accept this risk and explore for oil in East and Frontier Africa. Kunjan goes on to mention that the number of wells drilled by each company are relatively small. Berry (2015) showed that between 2009 and 2014, eleven companies working in East Africa drilled between one and 32 wells. Thus, making statistical analysis difficult.