The massive expansion of natural gas reserves offshore Mozambique and Tanzania will accelerate development for natural gas finds at a much greater pace. The lure of more than 170 Tcf of natural gas in place will bring unprecedented investment into the region.

To put the investment in Mozambique in perspective, the US $15 billion cost for the first two trains in the Anadarko-Eni LNG plant is more than the country’s estimated gross domestic product in 2011 of $12.8 billion. How the country handles that level of investment remains to be seen. Yet Mozambique has the potential to be the third largest LNG exporter behind Australia and Qatar by 2030.

Although the future of LNG in East Africa looks bright, the potential for growth does not come without challenges. So far the easiest aspect of this frontier development is the exploration, with virtually every well drilled offshore Mozambique and Tanzania discovering natural gas. Lack of infrastructure and limited local industry are two of the challenges that must be overcome, putting a hefty price tag on development.

Smaller companies like Wentworth Resources, Ophir Energy, Tullow Oil, Pancontinental Oil and Gas, Premier Oil, Africa Oil, Solo Oil, Afren, Taipan Resources, and others – not exactly household names – are at the forefront of one of the biggest exploration plays currently unfolding worldwide, holding acreage in Mozambique, Tanzania, Kenya, and Madagascar.

It is those same reserves that have attracted newer and bigger players, such as Anadarko Petroleum, Eni, Statoil, ExxonMobil, Petrobras, Royal Dutch Shell, and BG.

Gas resource drives offshore development

Carlos Zacarias, minister of the National Institute of Petroleum in Mozambique, told participants at a topical breakfast on “investment opportunities in Mozambique offshore oil and gas” at the Offshore Technology Conference (OTC) 2013 May 7 in Houston, “Mozambique joined the club of gas-producing countries in 2004 with gas from the Temane field being sold to South Africa. In the last two years we have had amazing gas discoveries in the Rovuma basin. There have been 12 discoveries in a 50-km [30-mile] radius.”

The country’s reserves went from about 5 Tcf in 2009 to an estimated 170 Tcf in 2013. Zacarias described the two main sedimentary basins currently being developed in Mozambique. The Mozambique basin in the southern part of the country is both onshore and offshore. The Rovuma basin in the north is shared with Tanzania. Offshore blocks are operated by Anadarko, Eni, Petronas, and Statoil. In total, about 150 wells have been drilled in Mozambique – 85 wildcat wells, 24 production wells, and 40 appraisal wells.

“Mozambique will become a major gas producer and exporter in the next 10 years. The main discoveries have been in areas 1 and 4. Other companies are still exploring other areas for more gas,” Zacarias said. “Our neighbor, Tanzania, has major gas discoveries, and exploration is going on in Kenya.”

The government has decided to adapt and update all the legal papers and regulations for oil and gas development since LNG projects were not included in the original laws. “The Mozambique Petroleum Law; regulations; and exploration, production, and concession contract will all be updated,” he continued.

The country is developing a gas utilization plan, which will address options for pricing structures and mechanisms for using the gas revenue stream for Mozambique. The plan considers using gas domestically for fertilizer, petrochemicals, gas-to-liquids, power generation, methane, and LNG, he noted.

“There will be a new bidding round after the new petroleum law is enacted. Exploration areas will likely include deep water east of areas 4, 5, and 6 and new concessions off the southern end of the country. In 2014 we will make an announcement of the bidding round,” he added.

Huge investment needed

The challenges of rising costs are magnified for the smaller companies that are faced with developing huge gas reserves with greenfield projects. Even the larger companies are seeking partners. Eni had initially said it would spend $50 billion to develop its 40 Tcf of natural gas with a subsea production complex, pipeline to shore, and LNG plant.

To ease the financial burden, Eni and Anadarko signed a heads of agreement (HoA) in December 2012 to jointly plan and build the LNG plant and separately develop the offshore facilities. New estimates for total development costs have not been released.

However, Eni was covering its bases with the latest entrant into the play – Petrochina Co. Ltd. – which offered Eni $4.21 billion for a 20% interest in Mozambique’s Offshore Area 4. Statoil was diversifying its geological risk and sharing the potential upside by farming out 25% of areas 2 and 5 to Inpex Mozambique Ltd.

The high costs are driving other companies to seek additional partners or farm out interests in blocks. Anadarko and Videocon are reported to be in negotiations with several companies to sell interests in the Mozambique Offshore Area 1 project.

Aminex Plc also is seeking farm-out opportunities for its assets in the Rovuma basin offshore Tanzania. The company started the process in 2012 with a call for bids due in March 2013. More than 30 companies signed confidentiality agreements and reviewed data. Aminex is continuing negotiations with companies that are still interested. The company noted in its 1Q 2013 report that “it has become apparent that the market for relatively early-stage farm-outs in frontier areas is less developed than anticipated.”

The company said that it would not be feasible to complete its two-well commitment by year-end 2013 even if a farm-out is completed. The Tanzania Petroleum Development Corp. agreed to transfer the two wells to the final period of the production-sharing agreement (PSA) that expires in 2016. Aminex is waiting on formal approval.

The most recent farm-in was announced May 24. Statoil acquired a 12% working interest in the Block 6 license offshore Tanzania from operator Petrobras Tanzania Ltd. The block is in the Mafia basin about 170 km (114 miles) north of Statoil’s Block 2. After the farm-in is complete, the owners will be Shell Deepwater Tanzania with a 50% interest, Petrobras Tanzania with a 38% interest, and Statoil with a 12% interest. The transaction is subject to approval by the Tanzanian authorities.

LNG projects take center stage

Given the massive reserves in the region, the only viable development option is LNG. In a January 2013 presentation Ophir Energy indicated that as many as four LNG projects could be built in East Africa. The Anadarko-Eni and BG-Statoil facilities were moving forward. The two other plants were in the proof-of-concept stage awaiting further exploration success. These projects would include a plant near Dar es Salaam in Tanzania that could involve Ophir, Petrobras, and Shell and a facility in Kenya that might include Ophir, Anadarko, Apache, Eni, and Total.

The Anadarko-Eni project is the most advanced. With about 3,000 km (1,800 miles) of coastline, Mozambique has a lot of offshore area to explore, said John Peffer, president, Anadarko-Mozambique, who also spoke at the May 7 OTC breakfast. The government of Mozambique asked Anadarko if its LNG facility can be designed to accommodate 14 trains,

producing 70 million metric tons per year (MMmt/y) of LNG. Anadarko was a little taken aback by the request but showed the government that indeed its plant site could include up to 14 trains.

The company now has two major complexes to develop – Prosperidade and Golfinho – with 35 Tcf to 65 Tcf of recoverable reserves. That is more than enough for the first two trains of the Mozambique LNG development. “We are focused on Prosperidade, which would supply the 12 Tcf for the first two trains. The LNG park would be built onshore near Palma. We are in the front-end engineering and design phase,” Peffer said.

“We have the gas resource and cost advantage in being a long-term strategic supplier for premium markets in Asia,” he continued. “We also can supply markets in the Atlantic basin. First cargoes are expected in 2018. We are submitting the environmental impact assessment [the week of May 13 to 17]. We are now finalizing the translation. We are making good progress on the commercial, financial, and marketing sides of the project.”

Cory Weinbel, project manager of Mozambique facilities for Anadarko, told participants at a topical breakfast on “Mozambique gas development – an exciting and transformational opportunity” at OTC 2013 May 8 in Houston, “We are focused now on four LNG trains for Phase 1.”

Eventually, Anadarko and Eni will form a joint development company for the onshore plant. The scope of the HoA does not include marketing or reservoirs that do not straddle both areas. “We will focus on Area 1, but we also will work with Eni to make sure the systems are compatible,” he added.

The initial phase will include two trains supplied from Area 1 and two trains supplied from Area 4. Each train will have a capacity of 5 MMmt/y and will need 850 cf/d of natural gas to feed it.

“Anadarko is making sure we have enough gas from Area 1 to support two trains and sustain that for 25 years,” Weinbel said. “The overriding message is that we have a lot of gas and can easily supply two trains.”

In addition to the Prosperidade complex, which straddles the boundary of Eni’s Area 4, Anadarko has another major complex with its Golfinho/Atum field, which is entirely within Area 1. One more major find was recently announced with the Tubarao-2 well, he continued.

The wells are located about 50 km (30 miles) offshore, and the field is about 50 km to 60 km (30 miles to 36 miles) long. Wells should be capable of producing 100 MMcf/d to 200 MMcf/d each. The development includes three separate systems: offshore gathering, a 22-in. pipeline to shore, and an LNG plant. For the LNG facility Anadarko issued three FEED contracts to Bechtel, CBI and Chiyoda, and JGC and Fluor. Three FEED contracts also were issued for the offshore field development to Technip and Heerema, Subsea 7 and Saipem, and McDermott and AllSeas.

The FEED contracts were signed in January 2013. The LNG FEED is due within 14 months and the offshore FEED in 10 months. The company expects to receive the environmental permit in 3Q 2013. Site improvement work has started. The final investment decision and engineering, procurement, and construction are expected in 2014. First sustained LNG production is set for 2018, Weinbel added.

Tanzania projects

The latest discoveries by BG and Statoil provided the impetus for further studying development of offshore reserves and construction of an LNG import plant in southern Tanzania near the border with Mozambique. Plans for the project, which will include the recommended location for the plant, are expected to be presented to Tanzanian authorities in 2Q 2013, according to Statoil. First LNG deliveries could begin in 2020.

The government asked the two companies to work on a joint development plan for blocks 1 and 2. The plant could cost about $10 billion, Dodson said. A final investment decision is at least three years away. Statoil expects to develop the field with a subsea installation and pipeline to shore.

In August 2012 Tullow acquired 25% of the Statoil-operated offshore areas 2 and 5 in the Rovuma basin.

Statoil and ExxonMobil confirmed their third discovery in deepwater Block 2 with the Tangawizi-1 well, with an estimated 4 Tcf to 6 Tcf of gas in place. The Tangawizi-1 well is about 10 km (6 miles) from the Zafarani and Lavani discovery wells and is in a water depth of 2,300 m (7,590 ft).

Aminex has several onshore/shallow-water plays in Tanzania. Its Ntorya-1 gas discovery in its Ruvuma PSA has an estimated 161 Bcf of P50 resources. Mapping of the PSA has identified additional stratigraphic leads. The Kiswa and Sudi base Tertiary channel complex leads appear analogous to BG/Ophir’s Jodari base Tertiary gas discovery, which is in deep water about 25 km (15 miles) from the prospect.

The company also has deepwater acreage in the Nyuni PSA, which is of exploration interest. For 2013, 3-D seismic is planned.

Kenya strikes onshore oil

The first well in a six-well onshore program by Tullow Oil in Kenya, Ngamia-1 encountered more than 100 m (330 ft) of net oil pay and flowed 281 b/d of 30°API oil using a progressive cavity pump. This was followed by a second successful well at Twiga South-1, which flowed at a constrained rate of 2,812 b/d from three zones.

Significant activity will continue in this area through 2013 to 2014. Tullow began drilling the Ngamia-1A on Block 10BB in March, where it planned to test four zones using the Weatherford 804 rig.

With the offshore success in neighboring Tanzania, a lot of companies also are beginning to focus on offshore Kenya. Anadarko has about 6 million gross acres in blocks L-05, L-07, L-012, L-11A, and L-11B. Several very large traps have been identified, and the company will drill two exploration wells in 2013 – Kiboko on L-11B and Kubwa on L-07.

Apache, operator with a 50% interest, announced Sept. 12, 2012, the completion of the first well on Kenya’s Mbawa prospect on Block L8, an offshore area in the Lamu basin. The Mbawa-1 well encountered 52 m (170 ft) net of natural gas pay in three zones. The partners are analyzing well data to determine future exploration plans. Origin Energy (20%), Pancontinental (15%), and Tullow Kenya (15%) are the remaining partners in the block.

Newer plays

Since 2007, Tullow has been very active exploring the Lake Albert basin in Uganda. In 2012 the company successfully completed a farm-out of its acreage to CNOOC and Total for $2.9 billion, with each partner having a 33.33% interest. Total operates Exploration Area-1 (EA-1) with Tullow operating Exploration Area-2 (EA-2). In the former Exploration Area-3A, CNOOC operates the new Kanywataba license and the Kingfisher production license.

More than 1.2 Bboe (P50) have already been discovered in the Lake Albert Rift basin. Through further appraisal drilling and enhanced recovery, Tullow expects to add further resources in the basin. A development project has been submitted to the Ugandan government that includes an export pipeline and refinery.

Madagascar is another play that is just getting started. The government proposed a licensing round after presidential elections were completed this year. Some of the acreage to be offered is in the offshore portion of the Morondova basin.

ExxonMobil, operator (50%), BG (30%), SK Innovation (10%), and PVEP Corp. (10%) have the license for the 15,840-sq-km (6,116-sq-mile) Majunga offshore Profonde block. The block is considered to be oil-prone and forms a largely unexplored frontier basin.

Comoros, which is a group of islands between northern Madagascar and Mozambique in the Mozambique Channel, awarded its first-ever oil exploration license to privately owned Bahari Resources Ltd. The acreage is adjacent to areas 1 and 4 in Mozambique’s Rovuma Delta. Under the agreement, Bahari will undertake a phased seismic and drilling program.

The government is developing regulations for its exploration efforts. A petroleum code is expected to be in place by 2013. The country hopes to hold a licensing round within two years.

Development will boost need for supply vessels in East Africa

With multiple exploration campaigns currently under way offshore Mozambique, Tanzania, and Kenya, opportunities for offshore service companies will continue to expand.

By Rodolphe Bouchet, Bourbon

East Africa is considered an area where offshore oil and gas is expected to strongly develop; blocks have been awarded, and the oil majors are at work there. Multiple campaigns are currently on track in Mozambique and Tanzania, and Kenya will follow soon.

The success rate for exploration in the region continues with every well drilled in the last two years being a discovery.

For example, BG Group’s latest drilling campaigns in Tanzania yielded gas discoveries. According to the BG Group 2013 strategy update released May 2013, the company will continue exploration and appraisal drilling offshore Tanzania for an undetermined period of time.

Eni discovered gas in Mozambique to an extent that exceeded its expectations and will continue its exploration followed by a development (straddling and nonstraddling recourses) campaign, consistent with Eni’s 2013 to 2016 strategy issue.
Statoil has drilled five wells off Tanzania so far and expects to drill more wells in Tanzania and Mozambique this year.

Many drilling campaigns are ongoing offshore East Africa. Bourbon has participated and is participating in exploration campaigns, but it is currently a market under development in the sense that most of its current campaigns are time-limited.
The development phase is expected to start soon – as soon as next year – which will help this market grow substantially.

Offshore needs in East Africa

A specific focus on security is essential due to the proximity of Somalia, where pirates remain a problem to shipping.

Regarding operations, most of the fields in East Africa are related to deepwater offshore. Bourbon’s experience in operating deepwater offshore includes subsea operations. The company said it has the know-how to meet the current and future requirements in this area.

As Bourbon has done in other areas, it is committed to supporting its clients in this phase. The company has worked in Tanzania and is currently operating two mid-size platform supply vessels in Mozambique, providing supply services to drilling rigs.