Undoubtedly, a number of Russian companies have largely underperformed in Africa, which experts described as primarily due to multiple reasons. Most often, Russian investors strike important investment niches that still require long-term strategies and adequate country study. Grappling with reality, there are many investment challenges including official bureaucracy and technical hitches in Africa.
Lukoil, the largest Russia’s oil company, has had a long history, going forth and back with declaration of business intentions or mere interest in tapping into oil and gas resources in Africa. In the past, Lukoil have said in separate reports about its business deals in a number of African countries including Ghana, Cote d’Ivoire, Sierra Leone and Nigeria. These are coastal countries on the Gulf of Guinea (Atlantic Ocean) in West Africa.
Besides technical and geographical hitches, Lukoil noted explicitly in its official reports that “the African leadership and government policies always pose serious problems to operations in the region.” It said that the company has been ready to observe strictly all of its obligations as a foreign investor in Africa.
Lukoil has moved to Senegal. Predominantly rural and with limited natural resources, Senegal is classified as a heavily indebted poor country, with a relatively low Human Development Index. Most of the population is on the coast and works in agriculture or other food industries. Other major industries include mining, tourism and social services.
Energy is produced by private operators and sold to the Senelec Energy Corporation. According to a 2020 report by the International Energy Agency, Senegal had nearly 70% of the country connected to the national grid. Current government strategies for electrification include investments in off-grid solar and connection to the grid. Senegal has a population of approximately 15.9 million.
In spite of that, business is business. Quite recently, Lukoil, one of the largest Russia’s oil companies, publicly declared that it finally concluded an agreement with Cairn Energy PLC to acquire a 40% interest in RSSD (Rufisque, Sangomar and Sangomar Deep) project in the Republic of Senegal for $300 million in cash.
The agreement provides for potential bonus payment to Cairn Energy PLC of up to $100 million after the commencement of production. The transaction is subject to customary conditions, including the approval by the Government of the Republic of Senegal.
The blocks of the project covering 2,212 sq. km are located on the deepwater shelf of the Republic of Senegal 80 km from the shore with the sea depth of 800-2,175 meters. The blocks include two discovered fields: Sangomar and FAN.
The Final Investment Decision (FID) on the Sangomar field was taken early 2020 and the field development has begun. According to the Company’s estimates, the recoverable hydrocarbon reserves of the Sangomar field total approximately 500 million. The field is planned to be launched in 2023, with designed production level of 5 million tons of crude oil per year, according to reports.
The RSSD project is currently implemented under a production sharing agreement. Woodside is the project’s operator with 35% stake. Other participants are FAR (15%) and state-owned company Petrosen (10%).
“Entering the project with already explored reserves at early stage of their development is fully in line with our strategy and allows us reinforcing our presence in West Africa. Joining the project with qualified international partners will allow us to gain additional experience in development of offshore fields in the region,” said Vagit Alekperov, President of PJSC Lukoil.
Early 2020, precisely on January 28, during a briefing with President Vladimir Putin on the annual work performance and activities of the Lukoil holding, Vagit Alekperov noted the unique window of opportunity that opened up after the summit held with African countries late October 2019 in Sochi, Russia.
“In fact, we are beginning to work actively in West Africa: we have started working in three countries and another four have offered to launch joint work. This is unprecedented. This summit gave an impetus to Russian companies to work in one of the most promising markets: West Africa,” he told Putin in the Kremlin.
After Putin noted that it was surprising that African colleagues had asked only for collaboration and nothing else, Alekperov reassured that “today, it is not just a declaration but these are real projects: in the Republic of the Congo, in the Republic of Ghana, we are now looking at a number of other countries in the region, and in Cameroon.”
Its media release shows that Lukoil’s portfolio is quite extensive. It works in 32 countries worldwide, conduct geological exploration both in the West and in Africa.
For now in Africa, it has only one success story. For the past ten years, Lukoil operates in the Republic of Ghana where it focuses on upstream exploration. The reserves evaluated on the blocks proves to be sufficient for the industrial development.
On the opposite side, Russian news agencies reported that Lukoil exited projects in Cote d’Ivoire, where it had led exploration in the deep offshore. The company confirmed the information about leaving the projects to local Russian media, TASS News Agency.
As far back in August 2015, Lukoil also pulled out of the oil and gas exploration and drilling project that it had begun in Sierra Leone. According to Interfax, a local Russian Information Agency, the company did not currently have any projects and has backed away due to poor exploration results in Sierra Leone.
It reported that drilling in West Africa, including Côte d’Ivoire and Sierra Leone, did not bring Lukoil the expected results, as preliminary technical results did not demonstrated commercial hydrocarbon reserves. According to official reports, Lukoil has been active in a number of countries with a high level of political and economic risks that could significantly complicate the work of the company in the region.
For Lukoil, while such a task of exploring the shores of the continent is daunting, it is necessary to make its own stimulating story in the media. Particularly at this time, when there are negative perceptions and skepticism in the local African media, it is also an opportunity to build bridges of corporate image, in spite of the competitive business environment, Russia still has much to offer Africa.
Russia’s Lukoil is one of the world’s biggest vertically integrated companies for the production of crude oil and gas, and their refining into petroleum products and petrochemicals. The company is a leader on Russian and international markets in its core business and its key mission is to harness natural energy resources for human benefit and supports long-term economic growth, social stability, prosperity and progress in the regions where it operates.