1. Can you tell us about Pinsent Masons’ history on the African continent?
The firm has been active in Africa since the early 1990s when we exported the private financing model to South Africa, culminating in the development of the Gautrain. Since then, the firm has provided an entire project lifecycle service, supporting those who have an economic interest in Africa’s major energy, natural resources and infrastructure assets, and are proud to have used our legal expertise to help facilitate the financing and growth of vital energy infrastructure on the continent, and to have provided strategic advice and representation to market participants.
Our Africa practice has grown at the rate of 25% per annum since the beginning of the decade, and reached an important landmark in January 2017 with the opening of our Johannesburg office, which stands as a symbol of our ongoing commitment to the continent.
Structurally, we are a single partnership with an Africa group that draws on 150 lawyers and 50 partners from across our London, Paris, Johannesburg, Dubai, Beijing and Aberdeen offices. The group is currently active on 200 mandates in over 45 African jurisdictions, and we are present in each of those markets through our local network of firms. Each client team is sector-led by an African oil and gas partner and staffed to accommodate the specificities of the matter and of the linguistic region of Africa.
2. Where do you see the opportunities for growth within the industry in the next 5 years and how is Pinsent Masons positioned to support these opportunities?
As oil prices swing violently higher in the wake of geopolitical events, we sense that the medium term outlook is strengthening, despite a backdrop of pervasive change, uncertainty and risk.
Our explorer clients continue to seek out high impact deep-offshore and near-field opportunities to build capacity and sustain production. However, we foresee the balance of leverage in the E&P-contractor relationship shifting to the oil service provider. Recent trends towards greater risk participation by contractors may give way to traditional fee-based models. Given the volatility, we anticipate continued opportunities for creative pricing formulae tied to the oil price.
With respect to gas infrastructure, we expect the trend towards more flexible supply options to favour the continuing deployment of small-scale floating LNG, particularly in West Africa. While Mozambique leads the way in south eastern Africa, it remains to be seen whether East Africa has the political appetite to introduce the regulatory and fiscal framework necessary to attract greater investment in the LNG space.
Further downstream, we see significant opportunities in the African refining space. Having advised on the development of Africa’s largest refinery in Nigeria, we are acutely aware of the crippling absence of refineries on the continent. Nigeria, the region’s dominant oil producer with a population close to 200 million, relies on just four operating refineries to serve its demand for fuel. Contrast this with Japan’s 30 refineries, and the USA’s 140. Even South Africa’s Energy Minister has publicly expressed governmental discomfort with his country’s reliance on imports to meet more than one quarter of its liquid fuels demand.
Finally, as we look further into the future we see digital technology unleashing innovations across the oil and gas value chain, affecting everything from field development, to procurement, transportation of production right through to HR and back-office services. Pinsent Masons, which is consistently ranked as one of the world’s most innovative law firms, is well-placed to support this fundamental change to the value chain. We have taken the lead in developing contracting models that encourage innovation and collaboration in the supply chain, allowing for the deployment of digital technologies alongside energy infrastructure to deliver efficient, connected, resilient and agile assets which respond intelligently to real-time or historical data.
3. What do you see as the key challenges facing the industry in the region over the coming 5-10 years and how is Pinsent Masons’ positioned to overcome these challenges?
Clients have consistently indicated to us that uncertain regulatory frameworks are the prime challenge facing the sector in Africa over the coming decade. But, this is not unique to Africa. Indeed, our team was negotiating in Tehran on behalf of a foreign oil major when the global regulatory framework for Iran came crashing down following Trump’s announcement.
Current difficulties stem, in part, from the overly reactive nature of certain African governments to recent oil price spikes, which have resulted in the introduction of laws and regulations which, while a ‘good idea at the time’, have had a tendency to discourage investment when prices are volatile.
The issues we have seen span exchange controls, the application of transfer and capital taxes, the terms of cost pool transferability, the retroactive application of reforms to existing assets and investments, and the scope of local content regulations (which expand the regulatory net much deeper within foreign supply chains).
To this regulatory uncertainty, we can also add high financing costs, as domestic banks continue to struggle with bad debts and continued foreign currency volatility among oil-dependent producing countries, such as Nigeria and Angola. This has, of itself, led to the issuance of emergency regulations, adding to the complexity.
As far as decarbonisation is concerned, we have witnessed some African clients diversify into low carbon activities with mixed success, and we anticipate many more having to change their business models to cope with changing demand patterns and oil price volatility. For them, and others, the watchwords are flexibility and resilience.
We cultivate agility, on-the-ground-experience and grit in our teams, to get under the skin of key African jurisdictions. Face-to-face contact is often critical, and have no qualms supporting our clients directly in-country. Through connections with both regulators and our network on the ground, we aim to provide a practical, well-informed and nuanced approach to help clients navigate a path to success. Our recent experience of large scale restructurings has allowed us to stress-test the robustness of contractual and legal frameworks. This experience will be invaluable to our clients as they wrestle with regulations inspired by $100-a-barrel oil.
4. What have been the evolutions in your business in the African region over recent years?
The recent low oil price environment has caused considerable dislocations in the market, keeping us busy on a number of billion dollar restructurings and disputes. We continue to advise the Nigerian partners on the fallout of $1.5billion collapse of Afren plc, and have been able to closely observe how the legal and regulatory framework, intended to uphold standards and allocate risk, coped with the massive destruction of value to market participants.
While traditional M&A activity waned, we also remained involved in a number of important distressed oil & gas acquisitions and disposals including the acquisition by a supermajor of deep onshore assets in Egypt and the exit of a significant IOC from francophone West Africa.
In the oil services space, we pioneered the development of quasi-equity strategic tools for oil field services companies to enable them to weather the storm, and maintain their participation in oilfield projects.
We also witnessed a diversification of our domestic African oil & gas clients into ‘clean energy’ and have been heavily involved in both the Nigerian and Rwandan renewables programmes.
Downstream, we advised on the development of the $12Billion refinery in Lekki, Nigeria which involved the negotiation of a suite of 700 contracts. We also advised oil traders on the concession of a 400km refined fuel pipeline from Limbe to Yaounde, in Cameroon.
The firm has been central to the development of a decommissioning strategy for E&P clients in Gabon. As assets in the Gulf of Guinea reach their end-of field life, and as the deficiencies in decommissioning regimes become apparent, we expect to see more of this type of mandate.
The recent oil price uptick has emboldened early-stage investors and our market-leading AIM capital markets practice is busy with a number of PE-backed West African listings.
5. What are the strategic priorities for Pinsent Masons in Africa in the next 12 months?
Our firm is rooted on one of the global oil & gas capitals, and we will continue to invest in this sector not only in Africa but also globally. We see oil & gas remaining an essential component in the global energy mix, regardless of developments in renewables, battery technology and nuclear.
In addition to further building-out of our Johannesburg office, we will also look to enhance connectivity between our worldwide offices and our pan-continental African network. This will enable us to continue to spot opportunities for our clients and generally enhance their client experience, as we ‘follow-the-moon’.
Finally, we are and aspire to remain a truly innovative law firm, and have a clutch of international awards recognising this, including being named the Most Innovative Law Firm in Europe by the FT in 2016. Our technology pipeline includes a dedicated R&D function, which examines new technology opportunities in data science & document analytics; workflow & collaboration; and computable law (i.e. blockchain). The team actively seeks to engage in relevant initiatives with our oil & gas clients and quickly adapts innovations to propose solutions that are responsive to each business’s strategic and commercial needs.
6. What question or industry issue are you looking forward to hearing about at the Africa Assembly?
I am particularly interested in hearing from Industry leaders on what their plans are for kick-starting E&P activity in Africa. Conversely, I am also curious to hear whether their views on the challenges posed by battery technology and non-hydrocarbon energy sources have altered since last June.
About Akshai Forfaria
Akshai is a partner at international law firm Pinsent Masons. He also co-leads the firm’s Africa Group and is deeply immersed in the customs and practice of doing business in the region. Dual-qualified in both civil and common law jurisdictions and tri-lingual, Akshai and his team are able to operate seamlessly across anglophone, francophone, and lusophone Africa.
Akshai advises E&P and oilfield service companies, investors, funders, developers and governments on the full asset lifecycle and value chain from framework arrangements with host states through to exploration, production, marketing and ‘market-exit’ as well as acquisitions, disposals, joint-ventures and associated financing. A consummate trouble-shooter and strategist, Akshai recently advised on the fallout of the $1.5Billion collapse of Afren plc, one of the largest administrations in the sector in Africa.
Akshai is a frequent panellist and speaker and was recently appointed as an expert by the United Nations Economic Commission for Africa to advise on facilitation of investment in cross-border energy infrastructure. Akshai continues to lecture senior officials from governments throughout Africa on extractives policy and strategy at the Ecole des Mines in Paris, and is recognised by as a leading lawyer by the principal directories (Legal500, ILFR, etc.). Akshai is based in London, frequently in Africa, and is qualified and admitted to practice in both England & Wales and Paris.