Contrary to more traditional financing mechanisms for large-scale energy projects, private equity investment offers the ability to expand businesses more quickly and generate higher profits for investors, partners and portfolio companies, while spurring sustainable economic growth by injecting foreign capital directly into local economies. Moreover, as oil and gas multinationals slash oil exploration budgets in light of the clean energy transition, private equity and small market capitalization companies can seize this as an opportunity to play a more active role in Africa’s exploration and production (E&P) arena.
The U.S. has already emerged as a leader in this domain, with American private equity-backed operators commanding frontier and mature plays in Africa’s largest oil and gas markets. U.S. independent explorer Kosmos Energy, for example, is backed by Warburg Pincus and Blackstone Capital Partners, and represents the first and largest private equity-backed, Africa-focused oil and gas venture. The Dallas-based firm sought to align its financing model with its highly autonomous business strategy, which focused on unconventional, deep-water exploration offshore West Africa, with assets in Ghana and Equatorial Guinea, along with its Greater Tortue Ahmeyim gas development offshore Mauritania and Senegal. In this regard, private equity investment can be well-suited to operators seeking to undertake high-risk, high-return exploration campaigns.
Financed by American private equity firm The Carlyle Group, Assala Energy is another E&P company that leverages U.S. private capital, yet instead prioritizes low-risk, high-return brownfield assets that maximize efficiencies and generate long-term dividends. In Gabon, Assala Energy is the second-largest oil producer after French major Total and operates five licenses in the country. By focusing on brownfield assets and the technological modernization of existing wells, Assala Energy has been able to reduce market entry risk and withstand volatile oil prices through its lower production costs. Meanwhile, The Carlyle Group adopted a pragmatic investment approach by investing in an established market and taking advantage of the exit of supermajor Shell at the end of 2017.
While PE activity on the continent is on the rise, to date, the majority of deals have been confined to established PE hubs such as South Africa, Nigeria and Egypt. That said, a number of smaller markets are seeing a rise in activity, including Tunisia, Senegal, Mali, Ghana and Rwanda, after adopting more investor-friendly regulatory frameworks that eliminated significant bureaucratic red-tape. In terms of driving private equity activity on the continent, mitigating both real and perceived risks, enhancing local banking capacity, advancing infrastructure development, augmenting transparency and establishing exit strategies for investors would all serve as strategies to facilitate the influx of private capital into Africa’s top petroleum markets.
Energy Capital & Power (ECP) – in partnership with the African Energy Chamber’s U.S.-Africa Committee – invites U.S. companies, investors and organizations to participate in the first-ever U.S.-Africa Energy Forum (USAEF) (December 9-10, 2021, Houston, Texas), introducing American companies to African opportunities. To learn more about how U.S. firms can advance the agenda of sustainable, long-term investment in African energy, please visit www.energycapitalpower.com. To sponsor, speak or attend USAEF 2021, please contact Senior Director James Chester at firstname.lastname@example.org