On 28th January RFC Ambrian presented Company Winners and Losers in Africa at the Finding Petroleum’s Africa conference.
We believe that for those well placed oil and gas companies that can hold their nerve, this is a time to make substantial long-term gains. What do we mean by well placed? These are production companies that combine low financial leverage and low operational leverage. We also believe that those companies that have made recent commercial discoveries and are about to commence substantial appraisal operations are in a strong position to take advantage of falling rig rates and lower other oil service costs.
Winners will include companies that got their licences several years ago (ie, before fiscal terms tightened). Operational leverage is not really high for many African oil and gas production companies and most got their licences a while ago. So, the main differentiating factors for producers are financial leverage, access to capital and recent discoveries. For exploration companies, a high net cash position should allow them to weather the storm and perhaps let them take the lead in consolidating the sector.
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