'Crude' chat with Afentra Plc CEO Paul McDade

Crude oil benchmarks have been bouncing up and down for over 10 days in the wake of geopolitical tension in the Middle East. Predictably, much of the market analysis community is obsessing over where the risk premium might go, and how to square it against the wider crude oil supply and demand dynamic. 

Here are some thoughts via Forbes on what may or may not move the risk premium needle, and it must be noted that crude benchmarks are still way short of the perma-bull pipedream level of $100 per barrel. 

As volatility bites, what do industry operators do to cut out the noise? The Oilholic recently turned to one industry stalwart for his thoughts on the near to medium-term direction of the crude market and approach to a volatile pricing environment - Paul McDade, CEO of West Africa focussed Afentra Plc (LON: AET), and former boss of Tullow Oil.

According to McDade there's no such thing as an optimum or ideal oil price. "I often get asked what is the right oil price assumption for my business, and my answer is wherever our carefully considered hedging strategy takes us. I place a lot of faith in hedging because we operate in a cyclical industry. 

"We see hedging [or shall I say our hedging program] not as a tool for market bets but rather as a form of business insurance, and it all depends on the payback period. If the payback period is a year, you are OK to assume a base of $80 per barrel. But if its five years you would be crazy not to be a little bit conservative, workout what does the downside looks like and be prudent."

More generally speaking, McDade is bullish on the oil price for 2024 and indeed the next five years. "However, there will always be market noise and volatility that's typically associated with our industry. So if you ask me, could oil slip down to $60 per barrel at some point in 2024? Yes that's likely, but the upside would ultimately go further." 

To read the Oilholic's full interview with McDade for Forbes, and learn more about Afentra's journey please click here. More on market developments to follow over the weekend, but that's all for now folks. Keep reading, keep it here, keep it 'crude'!

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© Gaurav Sharma 2023. Photo: Paul McDade, CEO of Afentra Plc (left) with Gaurav Sharma, September 2023.

On oil windfalls and African progress

Is the discovery of crude oil a blessing or curse for emerging economies? Does it further or hinder democracy and development? Is an oil rich nation’s currency destined to suffer from Dutch Disease?

These are profound questions and nowhere do they need to be answered more than in the continent of Africa. John Heilbrunn’s book Oil, Democracy and Development in Africa published by Cambridge University Press tackles the socioeconomic and political impact of oil in sub-Saharan Africa head on. 

In a somewhat refreshing take, Heilbrunn suggests that should historical and economic situations faced by African petrostates prior to the discovery of their oil be contextualised and discounted, there’s little evidence of a curse. Taking on a more optimistic tone than most, the author sets about a fascinating explanation of why he thinks even the most despotic and least accountable of African heads of state do use some proportion of oil revenues to improve their citizens' living standards.

Improvements have “failed to be uniform”, he admits, but that’s not to say there have been none. In a book of 270 pages, split by six detailed chapters, Heilbrunn writes there is much to be positive about while not losing sight of the biggest puzzle of them all – how the discovery of a natural resource changes the national and political psyche, as it is virtually impossible to predict “how political leaders respond to resource windfalls.”

While sum of all its parts makes this book a great read, Heilbrunn’s take on resource revenues, corruption and contracts in latter stages of the narrative should strike a chord with most readers. It has to be acknowledged that some African producers are pretty high on the corruption scale, but not every producer can be tarred with the same brush. 

All said, as Heilbrunn notes, oil can do nothing, being a mere mineral of variable qualities and marketability. “People choose how to oversee their extractive industries and the effects of oil production are consequences of policy choices.”

These choices alone determine the pace and scale of progress anywhere and not just Africa. Some of the book’s conclusions might surprise many readers, some might find the narrative a bit too optimistic for their linking, but for the Oilholic it’s a book containing some unassailable truths on African progress.

Heilbrunn is not attempting to gloss over what’s wrong at African petrostates. On the contrary, he puts forward what they are doing to get it right, with all their imperfections, following on from decolonisation and the inevitable expectations (plus subsequent windfall) a resource discovery brings with it.

The Oilholic would be happy to recommend it to fellow analysts, those interested in the oil and gas business, African development, politics and the resource curse hypothesis. Last but not the least, that growing chorus of commentators calling upon the wider world to ditch archaic conclusions and reassess the impact of natural resources on developing economies would also enjoy many of Heilbrunn’s conclusions.

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© Gaurav Sharma 2014. Photo: Front Cover – Oil, Democracy and Development in Africa © Cambridge University Press, June, 2014.