The downturn in oil prices is a growing source of concern for operators, companies and governments around the world and Sub-Saharan Africa is no different.Nigeria has been hit particularly hard. With 70% of the government's revenues reliant on oil, there is now huge strain on the country's economy.

In a bid to stabilise the financial system, the Central Bank of Nigeria has devalued the currency by 8% and raised interest rates by 1%, while the government has announced its plans to save nearly US$3 billion by reducing retail fuel subsidies.

Falling oil company stocks could also prompt new M&A activity by indigenous companies looking to offload overvalued assets. Share prices of Nigerian-focused E&P companies have fallen and those who paid heavy premiums for assets on the basis of US$100 oil and over-optimistic recovery factors will be feeling especially uneasy right now.

The downward trend is a growing source of concern for many operators in the region. Pre-FID projects are now under scrutiny and Maersk expects to make a final investment decision on its deep water Block 16 Chissonga project in Angola's Lower Congo basin by the end of 2014.

The project faces significant challenges at current oil price levels. Maersk holds 65% interest in Block 16 and has said it may look to reduce its stake. We believe this could precede a country exit following difficulties in advancing its projects in a region known for its high costs and tough fiscal terms.

However, many projects still appear secure. Following its FAN discovery in October, Cairn Energy announced the SNE discovery on the same Sangomar Deep block. The operator expects the field to be commercial and preliminary estimates indicate P50 reserves of 330 million barrels, which we have given indicative valuation of US$487 million using our Global Economic Model

Anadarko and Eni-led LNG developments were boosted after the Mozambican Council of Ministers approved project-specific decree law setting out the commercial framework for Area 1 and Area 4.
Once ratified by parliament, the law will clear the way for submitting development plans and will allow the companies to advance with marketing and project financing efforts. We think that FID is achievable in 2015, as long as ratification of the law happens early in the year.

The falling oil price does not bode well for a number of projects in the short-term but, if followed by a corresponding decline in industry costs, it could ultimately allow the development of previously marginal projects to proceed.
Source: Wood Mackenzie