CHAPTER 14 OIL AND GAS IN AFRICA A PRACTICAL MAN'S GUIDE TO MINERALS VENTURES IN THE DARK CONTINENT

• Jurisdiction: United States

International Minerals Acquisition and Operations
(Oct-Nov 1974)
CHAPTER 14
OIL AND GAS IN AFRICA A PRACTICAL MAN'S GUIDE TO MINERALS VENTURES IN THE DARK CONTINENT
Charles H. Jepsen
Charles Qwens and Associates, Inc.
Washington, D.C.

TABLE OF CONTENTS

SYNOPSIS

INTRODUCTION

AFRICA, THE BASIC TARGET

TAX CONSIDERATIONS

U.S./FOREIGN TAX CONSIDERATIONS

NEGOTIABILITY

DOUBLE TAXATION TREATIES

INFRASTRUCTURE/LABOR-AVAILABILITY AND COST

HYDROCARBON POTENTIALS

CULTURAL FACTORS

SOURCE MATERIAL

IMPORTANCE OF DOING YOUR HOMEWORK

———————

[Page 14-1]

:INTRODUCTION

These brief notes try to sketch out the main considerations that should effect the economics of resource oriented investment decisions in Africa. These do not necessarily include the detailed tax aspects that this Conference apparently has as its primary focus. They also involve:

— The relationship of U. S. and African tax treatment

— Investment codes in African countries; their problems and opportunities

— Straightforward investment opportunities, which are mainly influenced in the minerals case by

geologic potential

available specific information

transportation factors

relative basic costs

corporate assessment of political risks

degree of sophistication of local governments

et cetera

— Cultural factors and their importance for the investor

— Infrastructure: its limitations and cost implications

— Labor supply: quality, cost and other problems

— Negotiating Problems

— Importance of pre-planning homework

— Data sources,

[Page 14-2]

AFRICA, THE BASIC TARGET

Why Africa? Of all the major land areas this side of the Iron Curtain, Africa is the least known, least explored, and in many ways, the least understood. This status as an enigma not only lends interest to the continent; it also suggests that major opportunities are available for investors who are willing and able to pierce the veil that obscures much of the Dark Continent.

A few rudimentary but fundamental relationships may be worth noting. Africa is the second largest continent in the world. It is three-fourths the size of Asia, a fifth larger than North America, three times the size of Europe and three and a half times as big as Australia.

Africa is also politically the most diverse of any major geographic region. The number of sovereign political entities approaches the number of "provincial" governments in the United States. They also run the political spectrum, from democracies through monarchies to theocracies, with a liberal sprinkling of simple dictatorships along the way. And while economic development is generally less advanced than on most other continents, there is still a wide spectrum of business areas with inviting investment opportunities.

For investors concerned with the main focus of this Conference — minerals in their several forms — Africa is especially interesting. Its geography is diverse but generally accessible, unlike Siberian Asia or the North American Artic. Geologically, it is traversed by the African Rift System, which runs south to north through the middle of the eastern part of the African "L" — perhaps a "L" would be the more appropriate figure for geographers attuned to a Northern Hemisphere orientation.

Although it has been little explored, Africa is clearly a mineralogically fascinating area. King Solomon's mines may have been in the Sudan, Eritrea

[Page 14-3]

or Saudi Arabia, but in any case their legendary riches were associated with the northeast section of that massive continent. Along the northern tier, we have the great oil and gas deposits of Libya and Algeria, and in a lesser sense the production from Egypt, Tunisia and Morocco. Some of the world's largest known phosphate rock deposits are in the Spanish Sahara. Around the hook of West Africa, we have the major oil producing area of Nigeria, with minor but still not negligible production in Angola, the former French Republic of the Congo, Gabon and Cabinda, with oil shows but no significant production yet in Dahomey, Togo Ghana and Liberia.

Further, South Africa is the world's (at least the Free World's) largest producer of gold. Diamonds — a commodity whose market structure precludes significant discussion as an investment opportunity in the context of this Conference, are to put it mildly a significant mineral resource.

The major — even remarkable — copper deposits in Zanibia and...