Oil & gas: buried treasure (The Africa Report n°38 – March 2012)

Huge discoveries of gas offshore in Mozambique, and promising finds in Tanzania, have turned East Africa into a new prospection frontier.

Two companies, Anadarko of the US and ENI of ltaly, have announced gas finds of over 50 trillion cubic feet (tcf) combined off Mozambique. Abutting the Tanzanian border, both Area I (Anadarko) and Area 4 (ENI) form part of the promising geology of the Rovuma Basin. And there may well be more to come.

Anadarko hopes to get a final investment decision by year-end 2013, “and in order to achieve that milestone, we need to get reserves certified and market sales agreements agreed in principle”, said Donald Macliver, Anadarko’s vice president for operations. The company is appraising the offshore Windjamme, Barquentine and Lagosta fields, which are currently thought to contain 15-30 tcf of recoverable gas. This should support an onshore liquefaction facility of at least two Liquid Natural Gas (LNG) trains of  5mtn/year, with the first gas expected around 2018.

The Italians are keen to help the Mozambican economy, especially in power generation. Paolo Scaroni, ENI’s CEO, told the recent World Petroleum Congress in Doha that $50bn would be invested in Mozambique: “Part of the gas from our supergiant Mamba field in offshore northern Mozambique will be used to develop the local and regional community.”

The company has a track record in setting up gas-fired power plants in Africa, and says this was useful in the bidding rounds for the block. More bullish on its lead times, ENI believes first liquefaction could happen in 2016.

Anadarko, however, is focused on the export market. Without ruling out any longer-term development, Macliver believes “The first two trains should really be seen as LNG for export it’s very dry gas, so the premium market is the best way to use this resource. It’s very far north, so we are far away from any infrastructure.”

Anadarko has an operating interest of 36.5% in Area l, and its Asian co-investors – a Japanese company, Mitsui, and two Indian companies, Bharat Petroleum and Videocon Industries – should help lock in marketing agreements, especially in South Korea and Japan. ENI, with 22.5 tcf in reserves after successful strikes at Mamba South-1 and Mamba North-1, says it will build a three-train LNG facility, also turned towards eastern markets.

The other member of the Area 1 consortium, Cove Energy with 8.5%, provides a gauge of just how exciting Mozambique’s energy prospects appear to the markets: the London AlM-listed Cove has sparked a bidding war by announcing the whole company is up for sale, and large premiums are already being priced into the shares. Oil India, Thailand’s national oil company PTTEP, and the UK’s BP are in the running.

The explosion in shale-gas development internationally does not appear to have put off operators, despite the vast shale reserves in the US coming on stream from 2020 onwards. “It’s clearly competition, but we are confident in the market. There is adequate market for our two trains,” says Macliver. Anadarko is also placing faith in the relative ease of the project. “What we have seen from our pre-feed work on developing a two-train facility is that the cost of developing is going to be significantly cheaper than in Australia – we are pleased with the numbers coming in.”

South Africa’s Sasol, finally completing the $300m expansion of its upstream gas production facility in Mozambique from the Temane/Pande fields, is now turning to fresh projects in Mozambique. In February 2012 the company will begin seismic surveys on land around the tourist-friendly Inhambane province. It is also looking for partners for its Sofala offshore interests.

Beyond Mozambique, the East African region is now attracting significant interest. Morgan Stanley is predicting the drilling of 23 wells in 2012 in Kenya, Tanzania and Mozambique – double the activity of 2011. Orca Petroleum, through its subsidiary Pan-African Energy, has been developing its Songa Songa deposit for several years (see interview with Andrew Brown below). Ophir Energy, which, with partner BG Group, owns the operating interest in offshore blocks 1, 3 and 4, had a fruitful year, drilling three successful wells. It has found around 4 tcf of gas so far.

The activity is not just from the smaller independent companies, but majors too. Shell has a partnership with Petrobras to survey the Tanzanian coast. BP is reported to be looking at buying Ophir outright. Norway’s Statoil is drilling an exploratory well with ExxonMobil.

At the forefront of the minds of both Tanzania and Mozambique’s citizens is how to reap the benefits of this flurry of investment. Mozambique’s minister of mines, Esperença Bias, told reporters that the government’s programme “focuses on greater utilization of natural gas”, especially in power generation and petrochemicals. The growth of large agricultural projects like the Beira corridor would benefit from gas used as feedstock for fertilizer.

For his part, Tanzanian minister of finance Mustafa Mkulo told IMF chief Christine Lagarde in a letter, “Discussions on how to position the country to best take advantage of the huge natural gas potential have been initiated”, and that he had proposed a “future generations fund to save a portion of the resource wealth”. Galvanized by complaints over gold-mining companies that had won overly favorable tax concessions, the Tanzanian parliament is likely to scrutinize future energy-sector deals more carefully. The government has taken a loan from China’s Exim Bank to develop a pipeline for power generation from the gas province of Mtwara to Dar es Salaam.

Nicholas Norbrook

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Interview: Andrew Brown, General Manager, PanAfrican Energy, subsidiary of Orca Exploration “Capacity can be doubled in the next two years”

PanAfrican Energy has operated Songa Songa, Tanzania’s largest commercially producing gas field, since 2004, and intends to play a major part in the government’s planned gas industry expansion.

The Africa Report: Are your operations focused on Songa Songa West?

Andrew Brown: Currently we are working on a production well in the main fields – this will be to enhance production. In Songa Songa West we plan to drill in July, and we’re in discussions with two other companies about an exploration-sharing opportunity for an offshore well to drill that. As an exploration well, it’s essentially 50/50, but we’re hopeful that it’ll give us about four to five hundred billion cubic feet in additional reserves, and everything seems to be pointing in a favorable direction. It is next to an existing field with very similar size properties, so my colleagues are quite confident.

TAR: How is the working relationship with the government? What are their goals, as it were, in how you’re working together?

AB: The working relationship with the government is very good. Their ambition is to see gas expand its role in Tanzania significantly – they have high hopes for not just the reserves that we found, but also for the exploration taking place offshore with the likes of Ophir, BG Group and Petrobras. The government of Tanzania is very keen to see a much-expanded gas industry as quickly as possible, and we hope to play an important part in that process.

TAR: The government is building a gas-processing plant on Songa Songa Island and a pipeline up to Dar es Salaam, so they must have asked you to produce more.

AB: They have; they’ve asked us if the field is capable of producing more. We can double capacity from currently 102 million standard cubic feet a day and we’ve given them a plan that gets us to 200m a day. We’ve had no confirmation of whether the plan is accepted or confirmed and no formal notification as to when infrastructure will be in place, but we know their ambition is either this expansion project or the Songas expansion project. Songas was originally looking at expanding the existing plant to bring 140m a day to Dar es Salaam. So we’ve got these two projects to bring new infrastructure, which is great from a supplier point of view, but there needs to be some clarity as to what it will be and I’m hoping we’ll get that soon.

TAR: Could you outline your capital works programme for the next two years?

AB: If we assume that the 200m is accepted, we’re drilling a well now on Songa Songa that will add the potential for between 40m and 60m. We’re looking at probably investing between $f00m and $130m over the next 18 months to two years as a company. It all depends on when the infrastructure comes into play – we’ll match production to meet that infrastructure.

TAR: You say that you need to resolve a dispute with the government so that the Songa Songa project can once again be held out as a true Tanzanian success story: those are fairly strong words.

AB: We’ve been heavily criticized by a parliamentary committee and associations in the energy business. A number of criticisms lie against Pan-African which, for the most part, are unfounded but we need to answer them and we’ve been relaying a number of responses to the Ministry of Energy and Minerals.

We consider ourselves to be good corporate citizens, and we’ve been part of a significant success story in Tanzania. I think it is important to remember that this original project – the wells were drilled in I think the late ’70s and early’80s – took almost 30 years to be realized. When it started [production] it was supplying 40m a day to a power plant and now here we are just seven years on with over double that.

We’re supplying on a regular basis over 100m a day, and most of that goes into power generation. The country has saved around $2bn in that period of time, offset against generating the same electricity with oil, so it’s a successful project.

lnterview by Nicholas Norbrook

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