East Africa: Small finds, high hopes
Exploration in east Africa is gathering pace as the region's first offshore oil and gas discoveries prompt a new wave of interest
TWO RELATIVELY small finds in Mozambique's Rovuma basin do not necessarily herald an oil and gas bonanza offshore east Africa. But they do generate excitement in a sector eagerly seeking the next big oil province.
The August oil strike offshore Mozambique, by a consortium led by the US' Anadarko with its Ironclad-1 well, was the first documented discovery of liquid hydrocarbons in east Africa's deep waters, according to Cove Energy, one of the partners. The find came six months after the consortium found natural gas in its Windjammer exploration well, around 100 km to the north.
But, given the relatively small size of these discoveries and the lack of existing offshore production infrastructure, it is unlikely that either will be a commercial proposition, unless further deposits are found nearby.
Ironclad-1, in Mozambique's Area 1 offshore block, penetrated a 38 metre column of oil and gas-saturated sands in one of two fan lobes of cretaceous sediments, after drilling to a total depth of 5,300 metres. The drillers are keeping their reserves estimates close to their chests, but the consortium has indicated that it is not a commercial find. "Future geological analysis of the Ironclad fans will focus on delineating areas predicted to have good reservoir parameters in terms of porosity and permeability necessary to support commercial exploitation," Cove said.
That suggests the Ironclad-1 find contains less than 100-150m barrels of oil. "Anything less than 100m barrels and you are probably looking at something non-commercial at the moment," says Martin Kelly, lead analyst on sub-Saharan Africa at Wood Mackenzie, a consultancy.
The Windjammer gas find encountered more than 550 net feet of natural gas pay in high-quality reservoir sands, in a well drilled to about 4,200 metres in 1,450 metres of water, Anadarko says. If analysts' estimates that Windjammer contains around 2 trillion cubic feet (cf) of gas are correct, then that, too, is not big enough to be commercialised in isolation.
Nevertheless, as the first significant hydrocarbons finds offshore east Africa, these discoveries have sent a ripple of excitement around the exploration sector. "There was probably an element of disappointment that Windjammer was a gas discovery rather than oil, because in frontier locations it is harder to commercialise gas. But the oil discovery has renewed optimism for drilling in the area," Kelly says.
The discoveries have been likened by some hopeful explorers to the first finds in the North Sea, which were small in themselves, but drew attention to what turned out to be a significant oil and gas province. The Rovuma basin measures around 400 km by 160 km and straddles the Mozambique/Tanzania border, both onshore and offshore. But the Mozambique Channel – stretching from Mozambique and southern Tanzania to Madagascar – contains nine basins in all, covering over 1m square km – making it bigger in area than the North Sea.
If the area did turn out to be a large oil and gas play, it would have a big economic impact on a generally impoverished region – and investment is already picking up.
Anadarko and its partners are now pushing ahead with a further exploration programme in the Area 1 licence. The consortium comprises Anadarko (36.5%), Mitsui (20%), BPRL (10%), Videocon (10%) and Cove Energy (8.5%), along with state-owned Empresa Nacional de Hidrocarbonetos, which has a carried-interest option of 15%.
The foreign explorers present in Mozambique's offshore and onshore acreage have invested around $1bn over the last 18 months, according to the state-owned newspaper, Noticias. In addition to the Anadarko-led group, Eni, Statoil and Malaysia's Petronas are also exploring offshore in the Rovuma basin; while companies exploring onshore include Canada-based, Oslo-listed Artumas. Further south, in the Mozambique basin, South Africa's Sasol, Norway's DNO and Petronas are present onshore and offshore.
South Africa is heavily involved in Mozambique's hydrocarbons sector, both for political and economic reasons. Mozambique's neighbour offers a huge market for a country that – with a population of around 22 million and a tiny economy – offers very little domestic demand. Sasol already exports gas from the Pande and Temane onshore fields in the Mozambique basin to South Africa. That field complex has estimated gas reserves of around 3.5 trillion cf, and the country's production totalled 117bn cf in 2008, according to the US Energy Information Administration (EIA).
Tanzania, already a relatively small-scale gas producer from onshore reserves, is also attracting strong interest from international oil companies (IOCs) in its section of the offshore Rovuma basin and adjacent areas. In March, ExxonMobil farmed into Statoil's Rovuma acreage, taking a 35% interest in deep-water Block 2. Statoil retains a 65% stake and operatorship of the block.
That move was followed in May by the agreement by BG Group to take 60% of three blocks from African hydrocarbons specialist Ophir Energy in return for providing 85% of exploration costs. Blocks 1, 3 and 4 are offshore in the Rovuma basin and the Mafia Deep basin in water depths ranging from 100 metres to 3,000 metres, covering 27,000 square km. ExxonMobil and BG have joined a growing list of foreign explorers active in Tanzania, including Tullow Oil, Bermuda-registered Dominion Petroleum, the UK's Aminex and Australia's Beach Energy.
Estimates of Tanzania's proved gas reserves differ widely, but probably total at least 3 trillion cf. According to EIA data, the country produced around 20bn cf of gas in 2008, all of it consumed locally. The offshore Songo Songo project, operated by Canada's Orca Exploration, has been producing gas since 2004, supplying industrial customers and local power utilities. The company is expanding pipeline infrastructure in an effort to meet growing domestic demand. Other deposits include Mnazi Bay, in the southeast, operated by Artumas, and M'Kuranga, in the east, where France's Maurel & Prom found gas in 2007.
Madagascar's political hurdles
IOC interest is also being drawn to Madagascar, across the Mozambique Channel. Until recently, attention had largely centred on onshore heavy-oil deposits, regarded as longer-term plays, most likely to come in to their own as global conventional reserves become more scarce. In 2008, Madagascar Oil, a privately owned US firm, said it had produced Madagascar's first oil in six decades from its onshore Tsimiroro heavy-oil project. The field has estimated reserves of at least 1.7bn barrels, according to the company. In the same year, Madagascar Oil sold a 60% stake and the operatorship of its Bemolanga bitumen project to Total, which says that the field could have reserves of around 10bn barrels. The French major is conducting appraisal work.
But the Mozambique discoveries may lead to greater interest in Madagascar's offshore. ExxonMobil and Sterling Energy have acreage just off the northwest coast, although exploratory wells are unlikely to be drilled until 2011 at the earliest, says Sterling. The delay is largely a result of political unrest stemming from a 2009 coup, which resulted in acting-president Andry Rajoelina taking power. Rajoelina has said he will not run in elections scheduled for mid-2011.
In an effort to signal business as usual, the new government said earlier this year it wanted to auction 50 offshore blocks this month. But a number of important players in the international community have questioned the government's democratic credentials – both the EU and the African Union have imposed sanctions on the country.
This uncertain political situation could make IOCs cautious of a licensing round that may be deemed illegal under a future government – and that possibility could dissuade the government from proceeding with the bidding round.
Nevertheless, the Mozambique finds, together with Uganda's commercial oil reserves and hopes that more may be found further up the Rift Valley in Kenya and Ethiopia, mean that east Africa may soon gain the sort of exploration profile now associated with the other side of the continent.