Legal strategies and tools for mitigating legal risks associated with oil and gas investments in Africa

Africa provides unique opportunities for international oil and gas companies to spearhead oil exploration and production in emerging markets, and to acquire interests in fields with unexplored economic potentials. Despite these investment opportunities, entrants into oil and gas markets in Africa often face legal risks that pose monumental threats to the economic viability of oil and gas investments. These include resource nationalism; lopsided contractual provisions in oil production contracts that confer unfair advantages on national oil companies; arbitrary change in contract terms; delays in operational approvals, complex local content requirements and high corruption potentials, among others. If not properly considered and managed, these risks may reduce the positive economic prospects and gains in a hitherto profitable investment enterprise; they may also frustrate a first time investor. While these legal risks have been perceived as disincentives to oil and gas investments in Africa, this paper takes the view that these risks do not call for surrender, rather they could be efficiently managed at contract negotiation phases. This paper draws examples from key resource-based African countries to provide an overview of the commonly encountered legal risk points in African oil and gas investments. The paper provides suggestions on how to effectively deal with these risks as early as possible through extensive due diligence and diligent contract negotiations.