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Madagascar Oil shares suspended on London's Aim

The development of 1bn-barrel Tsimiroro field under threat

Madagascar has also been attracting attention both for its prospects as an onshore heavy-oil play, as well as for its offshore potential (PE 10/10 p34). But recent uncertainty surrounding UK-listed Madagascar Oil's heavy-oil assets will hardly have bolstered confidence among potential investors.

In mid-December, having only just raised £50.5m ($81m) from an initial public offering on London's Alternative Investment Market (Aim), the company was forced to suspend its shares after the Malagasy government said it was interested in compulsorily buying all the blocks controlled by Madagascar Oil, with no guarantee that it would pay the market price for the assets.

By mid-February, the Ministry of Mines and Hydrocarbons (MMH) had not taken steps to carry out the purchase. Indeed, the company said it was still in talks with the MMH and that it had been told the ministry was carrying out an audit to establish whether Madagascar Oil had complied with the terms of the production-sharing contract (PSC) governing the development of the company's Tsimiroro heavy oilfield – the firm's key asset.

The firm said Mamy Ratovomalala, Madagascar's mines and hydrocarbons minister, had told it the audit was "not a cause for concern". For its part, Madagascar Oil said it was confident the audit would show it had complied with the PSC terms, but added that it remained "extremely concerned" by the delays caused by the government's intervention and said that its shares would remain suspended.

There was no indication of precisely what lies behind the dispute. There is speculation a government starved of cash since donors suspended aid following a peaceful coup last year could be seeking more favourable PSC terms. But another potential problem could be a tax dispute dating from mid-2010, mentioned in the firm's Aim admission prospectus. According to reports in the UK press, Madagascar Oil has been contesting a $7m bill with the government for some months.

The company had been hoping to push on with work at Tsimiroro this year. It says "best estimate" reserves for the field total 0.97bn barrels of heavy oil in known structures, and that there are 0.78bn barrels of potential in prospective, adjacent structures on the block.

Ratovomalala has said the government is not interested in playing a hands-on role in the sector. In January he told members of the country's professional association of upstream oil companies – including representatives of Total and Tullow – that the government did not want to become a player in the oil sector. "But the role of the government is to ensure we get concrete results. For this reason, the government is under obligation to work only with serious companies," he said, according to Midi Madigasikara newspaper.

Selective scrutiny

So far, it is only the fields controlled by Madagascar Oil that are known to have come under government scrutiny. Bemolanga, another heavy-oil field in which the firm has a 40% stake, but which is controlled by Total, has not received the same treatment – which may reflect the government's unwillingness to take on a company based in France, the former colonial power and main bilateral donor.

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