'Perfect storm': Central African oil investment at risk amid FX row

For seven years, international oil companies have been locked in negotiations with a cluster of Central African states over what the industry sees as unreasonable foreign exchange policies.

But one in particular, related to environmental restoration funds for oilfield cleanup, has become a massive sticking point, pitting the Bank of Central African States, or BEAC, against some of the world's largest oil companies, numerous industry sources, executives and insiders told Platts.

With BEAC demanding $10 billion be deposited in its accounts, ten times what IOCs say they expect to pay over the course of a decade, the row has drawn US intervention, delayed projects, and could threaten billions in upstream investment.

"The whole industry is pretty much on standby. It's going to kill investment," said an oil industry source. "They are really shooting themselves in the foot."

Consultants from S&P Global Commodity Insights have calculated the current forex regulation implementation will reduce regional investment by $45 billion and government revenues by $86 billion through 2050.

The Economic Monetary Community of Central Africa, or CEMAC, comprises OPEC members Equatorial Guinea, Gabon and Republic of Congo, as well as fellow oil and gas producers Cameroon and Chad and the non-producing Central African Republic.

Collectively, they produce some 750,000 b/d of crude, according to data from S&P Global Commodity Insights, as well as large quantities of natural gas, and host US companies Chevron, Kosmos Energy and Vaalco, Anglo-French independent Perenco, UK-based Trident, French major TotalEnergies and others.

'Milk bill'

The issue dates back to 2018, when BEAC -- which handles monetary policy for the region's CFA franc -- issued new foreign exchange policies, including restrictions on relatively small payments and demands for revenue repatriation.

It followed broad monetary policy recommendations from the International Monetary Fund -- which supports the six countries with loans -- focused on boosting depleted hard-currency reserves.

"You can't pay the milk bill without getting approval from BEAC, and that might take two months," one source who has been involved in negotiations with the bank and spoke on condition of anonymity due to the sensitivity of the situation said of the 2018 directives.

Following lengthy discussions, BEAC in 2021 approved various accommodations for the hydrocarbons sector including trimming the repatriation of export revenues from 100% to 35%.

But the restoration funds issue has rumbled on, sources said, and came to a head this year when BEAC announced an April 30 deadline for deposits, and threatened to impose fines.

An IMF spokesperson told Platts that the fund had "been encouraging both the Bank of Central African States... and extractive sector stakeholders to continue negotiations to reach a mutually satisfactory agreement."

They added that the IMF has "consistently advocated for transparency, calling for publication of production sharing agreements and related documents...which would enable stakeholders and the public to better judge whether the sector is well managed."

Best practices

Restoration funds are traditionally ringfenced in accounts with Western banks and paid gradually from around the half-way point of a production license.

But oil company sources say BEAC officials told the industry they plan to use the funds to boost their foreign currency reserves, dubbed a "red line" for IOCs. "We want international best practices to be applied here," said one company official.

The "whole point of FX reserves is they need to be readily available," said one representative from a company operating in the region, who was not authorized to speak publicly, "whereas decommissioning funds have to be held in an escrow account."

In May -- after the April 30 deadline came and went -- the IMF told BEAC that the funds could not be used for foreign currency reserves, two sources said. The IMF spokesperson did not comment on that claim.

The five states have also accepted that, insiders say.

It followed a meeting between US officials and the Central African finance ministers at the World Bank meeting in Washington in April, where they were told that US President Donald Trump was watching, according to a person familiar with the discussions.

Two US congressmen have also introduced a bill to pull IMF funds for the countries until the issue is resolved. The African Energy Chamber, a lobbying group, called the foreign exchange policies "opaque and restrictive", and backed the bill.

France, which has monetary cooperation agreements with CEMAC, is also understood to be involved.

For now the issue remains unresolved, with ongoing disagreements over how much will be deposited and whether BEAC will waive its immunity from enforcement under any agreement where funds are repatriated.

Sources said some countries, fearing a loss of investment in their vital upstream sectors, which account for a key chunk of government revenues, have taken to engaging directly with the companies.

Nevertheless, Simon Cudennec, partner at law firm Bracewell, said the dispute marks "a significant shift in paradigm" amplified by "BEAC's newly asserted regulatory authority, including the power to impose direct sanctions and financial penalties on non-compliant operators."

"For many industry stakeholders, this raises concerns about the erosion of legal predictability and operational autonomy in a sector where contractual stability and the sanctity of sovereign agreements are foundational," he said.

Competition for capital

The issue is wrapped up with central bank politics, with BEAC's Cameroonian headquarters said to be plagued by infighting. Current governor Sana Bangui Yvon is understood to have survived at least one internal attempt to oust him.

BEAC and CEMAC did not respond to multiple requests for comment.

It also comes alongside what some analysts describe as a bout of resource nationalism in the region, exemplified by pre-emptions and nationalizations, with Central African governments looking to exert more control over their hydrocarbons sectors.

Industry players note the tough competition for capital, including within company portfolios.

"The free flow of cash and equity is absolutely key," George Maxwell, CEO of Vaalco Energy, which has assets in Gabon and Equatorial Guinea, told Platts in a recent interview. "Anything that has a restriction on returns to investment becomes problematic."

But he added that Vaalco was "finding a way to continue to invest through these issues."

A recent note from consultancy Horizon Engage said the most likely scenario was a "face-saving compromise," with the IMF brokering an "escrow structure co-managed by an international bank with quarterly audit visibility for BEAC," but did not rule out an unpleasant legal showdown.

Yet sources said projects had already been paused due to the current uncertainty, just as IOCs are prioritizing frontiers like Namibia and Guyana, or investor-friendly countries like Angola, which took steps to resolve a similar FX issue.

Commodity Insights consultants said that 18 unsanctioned oil and gas projects could be shelved as a result of the FX policies.

"It's a perfect storm for the sector," said an industry insider familiar with the row. "If any African country wanted to do the sensible thing, they would do exactly the opposite of what CEMAC is doing."