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Madagascar could lead unconventionals push

Sub-Saharan Africa holds known oil sands and shale oil resources, but politics make exploitation tricky

Madagascar's new government is likely to be asked to sanction Sub-Saharan Africa’s first major heavy-oil project in the coming weeks. But, while bitumen and other unconventional deposits are scattered across Sub-Saharan Africa, marginal economics, political instability, difficult investment conditions and environmental considerations are stymying most unconventional-oil developments.

Prospects for commercialisation of Madagascar’s unconventional – and conventional – hydrocarbons resources improved after December’s presidential and parliamentary elections passed off relatively peacefully, paving the way for an elected leadership to replace a stop-gap one. Foreign firms’ operations have been disrupted by a political crisis that flared in late 2008 and resulted in the ousting of ex-president Marc Ravalomanana by transitional president Andry Rajoelina, who was backed by the military. December’s elections were won by former finance minister Hery Rajaonarimampianina, who was championed by Rajoelina. EU monitors described the polls as free and credible, though losing presidential candidate Jean Louis Robinson complained to an electoral court, claiming the vote was rigged. The court was set to rule on the dispute by mid-January. 

Madagascar Oil, the London-listed firm seeking to exploit the Tsimiroro heavy-oil field in its Block 3014 licence area in western Madagascar, said in a mid-December operations update that it planned to make a declaration of commerciality (DoC) on the field in February 2014 as a precursor to developing it for commercial sales. This development followed the settlement of a long-standing tax dispute between Madagascar Oil and the government in November 2013. The government had previously threatened the company with expropriation of its licence areas.

If the Tsimiroro development does go ahead it will represent an uptick in the fortunes of Madagascar Oil, whose plans to develop the Bemolanga oil sands deposit in adjacent Block 3102 were put on hold a couple of years ago. The company persuaded Total to farm into the block with a 60% stake and operatorship in 2008, but tests carried out up to 2010 revealed the deposits to have half the concentration of bitumen found in similar Canadian deposits, making them uneconomic to develop in Madagascar at prevailing oil prices.

The Tsimiroro heavy-oil acreage has an estimated 965 million barrels of contingent original-oil-in-place and 708m barrels of prospective-oil-in-place, with a high estimate of 5.5bn barrels, according to Madagascar Oil. The company has been producing oil on the field since May 2013, but only enough to power the generators needed to supply steam for steam-flood operations.

The planned DoC at Tsimiroro must be followed up by the submission of a development plan to the government for approval within 180 days. Chief operating officer Stewart Ahmed has highlighted the significance of the move, noting that it will be the first time the Madagascan government has had to assess a full hydrocarbons development plan. 

Success will depend on securing buyers for the oil at a viable price. “Work also continues on marketing studies to allow a firm understanding of the international markets available to Tsimiroro crude,” the company said. It is looking at local and international markets for refinery, power generation and marine fuel-oil use.

Reliance

Progress may also depend on the strength of environmental opposition to the project. Much early production could be used for power generation in Madagascar, which relies heavily on diesel power from imported oil. Tsimiroro’s oil is a sweet, heavy low-wax content crude with an API gravity of 15° API. Blending trials to meet fuel standards for domestic power generation have already been carried out by downstream suppliers.

If the project does push ahead, it will still be several years before substantial production can be achieved. The company hopes to produce 10,000 b/d from Tsimiroro over the first three years of commercial operations, but output is unlikely to hit peak for at least a decade. Ahmed has said he believes the field could eventually yield a maximum 100,000 to 150,000 b/d.

Madagascar Oil is also keen to find a partner to explore three more blocks in the region, 3015, 3106 and 3107. The company launched a drive to attract farm-in partners at Africa Oil Week in Cape Town in November.  

Unconventional reserves are scattered across Sub-Saharan Africa, though little progress has been made in exploiting what have so far turned out to be at best marginal reserves, often located in politically volatile areas. Italy’s Eni has ploughed resources into investigating the potential of oil sands in the Republic of Congo (Congo-Brazzaville) and the Democratic Republic of Congo (DRC), but has produced little to indicate they can be made commercial in the near term. Both countries also have conventional reserves, which are likely to draw most hydrocarbons investment for the foreseeable future.

Eni has estimated the bitumen resource in Congo-Brazzaville to be at least 500m barrels risked and 2.5bn barrels unrisked. The reserves lie at 100-200 metres depth across a 1,790 square km concession covering two areas in the south of the country known as Tchikatanga and Tchikatanga-Makola.

As part of a $3bn investment programme in the country, Eni agreed to embark on exploration in the two areas in 2008. The company said in 2012 it had launched a small pilot feasibility project, but has yet to announce any breakthroughs. Any development of Congo-Brazzaville’s bitumen is likely to meet stiff opposition on environmental grounds as they lie in savannah, rainforest and wetlands, border a national park and extend into the UNESCO-recognised Dimonika biosphere.

Eni has also signed an agreement with the DRC government, in 2009, to explore for unconventionals in the east of the country. Oil sands are located in several parts of its vast area, including the Lake Tanganyika Graben in the east and near Angola’s Cabinda province in the west. However, political instability makes significant progress unlikely in the short term.

Both Angola and Nigeria possess bitumen reserves, and southeastern Nigeria holds a low-sulphur oil shale deposit. While these reserves are unlikely to be developed while substantial conventional oil production continues in Angola and Nigeria, the existing presence of foreign oil companies could make unconventionals exploitation a more practical proposition than in some other parts of Africa.

Meanwhile Ethiopia possesses oil shale deposits, which have been known about for decades, but remain largely unexplored. The largest lie in the Tigray region, which is the subject of a long-running conflict and territorial dispute between Ethiopia and adjacent Eritrea and, as such, remain unattractive to investors. 

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