Russian companies and African states signed a number of new memoranda last week in Sochi

WHAT: The first Russia-Africa Summit took place last week.

WHY: Talks on oil and gas investment opportunities led to the signing of multiple MoUs at the gathering.

WHAT NEXT: These developments are encouraging but do not necessarily portend a huge influx of Russian investment in Africa projects.

The Kremlin’s first Russia-Africa Summit, which took place in the Black Sea resort of Sochi last week, appears to have been a success. It was attended by government officials and businessmen from more than 50 African countries and was described by Russian President Vladimir Putin as the start of a new phase in relations between the Kremlin and Africa.

With respect to oil and gas, the two-day gathering facilitated meetings between Russian and African delegates and led to the signing of multiple documents that called for Russian companies to participate in African projects. This essay will examine some of those deals and discussions.

Equatorial Guinea

One of the African countries that attracted the attention of Russian companies last week was Equatorial Guinea, which possesses both crude oil and natural gas reserves.

During the summit, Gabriel Mbaga Obiang Lima, the African state’s Minister of Mines and Hydrocarbons, signed two documents with Russian firms on October 23. As of press time, neither the Equatoguinean government nor the Russian companies had revealed many details of these deals.

The African Energy Chamber has reported, though, that one of the documents was a memorandum of understanding (MoU) with Rosgeo, Russia’s state geological concern. In a statement, the chamber said that the document provided for the parties to work together “mainly in airborne geophysical operations, 2D and 3D regional seismic survey in transit and deepwater offshore zones, but also in the processing and interpreting of seismic data (including gravity and magnetic survey, electrochemical and geochemical studies), engineering studies and other works.”

Meanwhile, the organisation also reported that Obiang Lima had signed an MoU with Lukoil, Russia’s largest privately owned oil operator. This document lays the groundwork for the Russian firm’s participation in exploration and development work in Equatorial Guinea, it said.

Ghana and Congo

Lukoil also displayed interest in other African countries during the summit. Its CEO, Vagit Alekperov, told journalists at the event that his company was eyeing opportunities in Ghana and the Republic of Congo (Brazzaville).

“We are holding rather active negotiations with the government of Ghana jointly with [the Norwegian company] Aker on a deepwater block,” he said. “I hope that we will hold several joint negotiations, including a meeting with Ghana’s authorities here.” He did not identify the block under discussion but said Lukoil hoped to wrap up negotiations on the project by the end of 2019.

Alekperov also expressed interest in expanding the Russian company’s operations in the Republic of Congo but did not say whether the parties were discussing any new initiatives. But he did state that Lukoil was enthusiastic about its participation in the Marine XII offshore scheme. (Italy’s Eni is serving as operator of this project, in which Lukoil acquired a 25% stake in September.)

“We also wish to expand our presence there jointly with Eni,” the Lukoil chief said. Work is already underway at the Marine XII block, he added.

Nigeria

Russian delegates also held extensive discussions with representatives of Nigeria’s government and its national oil company (NOC) on October 23.

According to statements from both sides, the talks covered plans to revive Nigaz, a joint venture (JV) formed by Nigerian National Petroleum Corp. (NNPC) and Russia’s state-controlled gas monopoly Gazprom. Russian and Nigerian officials pointed out that Nigaz could help Nigeria utilise its massive gas resources and build new gas infrastructure.

Meanwhile, NNPC conferred with Lukoil about several initiatives, including the exploration of deepwater fields and the formation of a JV to rehabilitate the former’s ageing refineries, which have a combined throughput capacity of 445,000 barrels per day (bpd). Alekperov told journalists after the discussions that his company had signed an MoU with NNPC on the downstream project.

Aramco alliance

Meanwhile, Lukoil appears to have even wider ambitions for Africa.

At the summit, Alekperov said that his firm might team up with Saudi Arabia’s NOC to carry out projects in Africa and elsewhere. He did not identify any specific opportunities, saying that discussions on the subject were still at an early phase. “We are constantly discussing joint opportunities with them [Saudi Aramco], including their interest in third countries, in Africa, but this is still at the stage of studying and talks,” he commented.

All of the schemes under scrutiny meet Lukoil’s criteria for commercial viability, he added. The company’s budget allows for the consideration of foreign projects that appear to be economic as long as world oil prices remain at $60 per barrel or below, he explained.

Alekperov also spoke in non-specific terms about the possibility of widening his firm’s footprint in Africa in other ways. “These are, as a rule, offshore projects, plus a number of African countries [have] asked us to study and give possible comments on downstream,” he was quoted as saying by S&P Global Platts.

Morocco

Separately, Russia’s state-controlled development bank, known as VEB, struck a deal with MYA Energy last week on the construction of a new oil refinery in northern Morocco on the sidelines of the summit.

According to Morocco’s state news agency MAP, this agreement lays the groundwork for the construction of a refinery in the northern part of the country for about €2bn ($2.2bn). The plant will have an initial throughput capacity of around 100,000 bpd and may be expanded later to double its design capacity to 200,000 bpd.

The new refinery would replace Morocco’s only existing facility – the Samir plant, which has been idle since 2015. (The refinery went offline because it could not cover overdue tax bills or pay off its debts.)

MAP did not offer any specific details about the scope of MYA Energy’s involvement in the refinery construction project. The Moroccan company appears to focus primarily on solar energy and not on downstream crude oil processing, though it did sign a contract with US-based GE last year on the establishment of facilities that supported the power generation requirements of Nigeria’s Port Harcourt refinery.

Implications

The deals described above are notable for at least two reasons.

First, most of the documents signed in Sochi appear to be fairly non-specific. They are not contracts or agreements; they are memoranda that hold relatively little in the way of concrete investment commitments. As such, they do not necessarily indicate that African oil and gas producers anticipate a huge influx of Russian investment. Rather, they show that both sides are interested in co-operation and willing to discuss the matter further.

Secondly, Lukoil appears to have played the most active role with respect to pursuing African oil and gas opportunities. Since the company is, as noted above, Russia’s largest private oil operator, this is probably significant. It could be an indication that the Russian government is not ready yet to throw its full weight behind African oil and gas initiatives.

At the same time, state-run Russian organisations were hardly prominent. VEB’s refinery deal with Morocco was an obvious exception, and Rosgeo did sign an MoU with Equatorial Guinea, while also finalising memoranda with South Sudan and Rwanda on subsurface mineral exploration. Even so, the Kremlin does not seem to be looking for client states in Africa; instead, it is taking steps towards clearing a path for private sector investments by Russian companies such as Lukoil.