Mozambique rising

July 17, 2013

All eyes are on Mozambique as significant natural gas finds are set to turn the East African country into a major LNG player, but are oil riches on the horizon?

The US Energy Information Administration (EIA) plots recent discoveries in Mozambique’s Rovuma basin. Also listed: Anadarko and Eni’s Mozambique LNG facility on the Afungi peninsula in Cabo Delgado province.Mozambique’s prolific Rovuma basin holds 12 offshore discoveries within a 50km radius. Rovuma’s deepwater basin covers 12,500 sq km and includes the Anadarko- and Eni-operated fields Area 1 and Area 4, in which the companies have found a combined 170 Tcf of natural gas. Norway’s Statoil and Malaysia’s Petronas took stakes in Area 2 and 5, and 3 and 6, respectively, during past licensing rounds.

All four companies have maintained a presence in Mozambique since the country’s second licensing round in 2006, and have spent billions in the process.

For other companies interested in Mozambique, claiming a stake now can be pricy. In April, China National Petroleum Corp. (CNPC) purchased a 28.57% at Eni’s subsidiary – Eni East Africa – for US$4.2 billion, giving it a foothold in Mozambique’s Area 4, where 75 Tcf of gas has been discovered.

In 2012, a bidding war escalated between Royal Dutch Shell and Thailand’s PTT Exploration & Production over Dublin-based Cove Energy, which held 8.5% participating interest in Anadarko’s Rovuma Offshore Area 1. PTTEP eventually took over the East Africa-focused explorer for US$1.9 billion.

Japan’s Inpex announced in April that it would farm into 25% of Statoil’s share (reducing Statoil to 40%) in Areas 2 and 5. The price of the farm-in was not announced by either party, but JOGMEC said in May that it would provide equity financing of US$89.3 million (JPY 8.5 billion) to Inpex to carry out the transaction, with JOGMEC becoming a shareholder of Inpex’s subsidiary Inpex Mozambique Ltd.

While natural gas has proved abundant in Mozambique, three companies are also seeking to produce oil. Currently, executives at Statoil and UK-based Tullow Oil espect to prove commercial oil deposits at their Cachalote well, in Area 2, south of Mozambique’s current gas finds. Tullow Oil’s Angus McCoss told Bloomberg last month that finding oil off Mozambique is an attractive prospect. “The value lies in oil,” he says. “Cachalote is certainly worth doing as a potentially needle-moving prospect.”

Eni has similar plans to explore for oil off Mozambique. The Italian firm will drill its first oil exploration well this month in Area 4, where it has already discovered 80 Tcf of natural gas in the Mamba Complex and Coral prospects. Eni plans to drill the Agulha-1 prospect later this year, to test the hydrocarbon potential of Area 4’s deeper plays.

With all eyes now on Mozambique, the country’s National Petroleum Institute (Instituto de Petroleo/INP) used its spot at this year’s Offshore Technology Conference in Houston to advocate for investing in the country’s infrastructure including new rail and ports. A new airport in the capital, Maputo, opened in February.

INP’s exploration manager Carlos Zacarias, who spoke at OTC, touted Mozambique’s new “Gas Master Plan,” which offers revisions to the country’s petroleum laws, regulations, and fiscal packages, including new royalty rates for its abundance resources.

According to a study by ICF International, Mozambique could earn US$5.2 billion annually from its gas resources by 2026. Reforms to its current petroleum laws are certainly attractive to both the government and the oil and gas companies operating there.

“There’s 170 Tcf in Area 1 and Area 4, but they are not fully explored,” Zacarias told OTC delegates. “We hope the companies operating in Mozambique will continue to unlock more resources.”

Anadarko’s Mozambique playbook

Last year, at IHS CERAWeek, Anadarko’s CEO and Chairman James Hackett told Daniel Yergin that the company ‘doubled’ down on Mozambique out of desperation. Hackett was being facetious, but he went on to say that the company needed to invest in a place that “wasn’t already picked over by the majors.” These are exciting times for Anadarko; R.A. “Al” Walker replaced Hackett as President and CEO last May and Chairman this year.

“Not everyone gets to open a new gas resource in their lifetime,” says President of Anadarko Mozambique, John Peffer, of the country’s 2.56 billion boe in proved reserves. Two decades ago when he started, Anadarko had no international division. “It’s been an incredible ride.”

Anadarko has big plans for Mozambique. Walker wants to see the country become a major LNG player. Anadarko and Eni formed a joint partnership to develop and bring on stream a US$15 billion, two-train offshore LNG facility at Palma by 2018. The facility, Mozambique LNG, will eventually have the capacity to produce up to 50MMTPA.

But the road to becoming an LNG exporter is a long one, as Peffer acknowledged at OTC. Much like the companies that are flocking to Brazil (another predominantly Portuguesespeaking country with coveted resources), those in Mozambique are finding that they must work around infrastructure and workforce difficulties.

Anadarko set up training centers last year (See: “Jubilee points way for Prosperidade” - OE September 2012) to teach local workers construction skills for the LNG facility, road and dock improvements.

“Labor is quite restricted,” Peffer said to OTC delegates. “It can be a challenge for whoever comes into the country.” Peffer said Anadarko worked with INP to get its foreign workers into the country, but urged companies who follow in their footsteps to do so with their eyes open.

Peffer highlighted some of Anadarko’s infrastructure developments. The company set up a camp at Mocimboa da Praia and built a heliport. At Pemba, Anadarko built a base to manage its northern operations and supply chain logistics. The Pemba port has a 180m quay, which Peffer says Anadarko jockeys for space alongside container vessels and partner Eni. Currently, a floating dock system has taken some pressure off the main dock. “Before the dock you could only have three rigs,” he says.

Anadarko is focused on developing its large-scale Mozambique LNG project at Palma and plans are in the works to build an air strip there. Anadarko will need to route flowlines around surface faults and deep channels.

Infrastructure difficulties aside, Peffer said there are many other challenges in Mozambique, including managing expectations of local citizens and government. He says Mozambique’s government seemed to be most focused on capacity building – making sure that its citizens have good jobs and training. Another challenge: the distance from Anadarko’s northern discoveries and the capital in the South, where most of the schools, educated workforce, consulates, and government officials reside.

It’s not all bad news. The coastline may be long, but so far the discoveries are close enough to the shore to give them a cost-competitive advantage over many other projects worldwide, Peffer says. Another bonus is a good working relationship with the local government.

“A lot of changes are needed, but the government is open and we do get our input. Although we don’t always get it, we do get our say,” he said. “That’s very different from other countries.”

Mozambique: rising LNG star?

Mike Haney of Douglas Westwood believes Mozambique has serious potential as an LNG exporter.

“Mozambique is well-positioned to play an important role in natural gas supply later this decade,” Haney said in advance of the OTC panel discussion on Mozambique. “From a relatively minor player only a few years ago, the waters offshore Mozambique have been found to contain some of the world’s largest natural gas reserves. Some industry experts foresee ten or more LNG trains being built to bring this gas to market, which would transform Mozambique into the world’s third largest LNG exporter after Qatar and Australia.”

However, Haney warned that Mozambique could face some hardship in the LNG sector due to Australia’s numerous LNG projects, which are slated to come on stream during the same time frame, and a US entrance into the market. “Mozambique will face a tough challenge getting into the Asian markets because of Australian LNG, which is closer to that market,” he says.

Anadarko Petroleum conducts flow tests off Mozambique with Transocean’s fifth generation drillship Deepwater Millennium. Flow tests in the Prosperidade and Golfinho/Atum complexes yielded facilityconstrained rates of 90-100 MMcf/d. (Photo courtesy of Anadarko)For that reason, Peffer believes Mozambique LNG could potentially export its wares to the Atlantic. “We have to clear a path to get here.”

But for now, Anadarko can’t argue with the numbers. Mozambique’s Golfino-Atum complex holds 15-35 Tcf of recoverable natural gas resources. The Prosperidade discovery, located to the north of Golfino-Atum, find boasts 17-30 Tcf, and those numbers are more than enough to keep the company motivated to work toward LNG exports.

‘There’s a lot of hard work to do before we get there,” Peffer says of exports. OE



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