East Africa abuzz on Mozambique gas discovery

The Italian energy company Eni has announced a giant natural gas discovery off the coast of Mozambique, which was hailed as the “biggest in company history”. According to an Eni press release, the Mamba South discovery in Offshore Area 4, located more than 1,500 metres underwater and 40 kilometres off the northern coast of Mozambique, could contain a potential of 425 bcm of gas. The company said that the find confirmed offshore Mozambique to be “a world-class natural gas province”, with at least 15 tcf of gas in place. Eni has described the Mozambican gas discovery as a milestone in the company’s history. This is Eni’s first well offshore Mozambique, and it next plans to drill a further well, Mamba North 1, which will assess the potential of the Tertiary Play that exists in Area 4. Eni operates the Offshore Area 4 with a 70% interest, alongside exploration partners Galp Energia (10%), KOGAS (10%) and the Mozambican ENH (10% carried interest).

Anadarko’s Gas Discoveries Leading the Way
This significant gas find follows earlier discoveries made in Mozambique’s Offshore Area 1 by Anadarko and its exploration partners Cove Energy, Mitsui and Bharat. On 22 March 2010, Anadarko reported that its Windjammer wildcat in the Rovuma Offshore Area 1, located 45 kilometres from the north-east Mozambican coast, had encountered a total net gas pay of more than 555 feet (168 metres). The stakes were raised further with four additional discoveries, the second being the Barquentine wildcat, which encountered 416 feet of total net gas pay, while the most recent well, the Lagosta, delivered another 550 feet. Mozambique’s prospectivity was further bolstered by the first liquid hydrocarbon discovery in East African deepwaters at the Ironclad-1 well, also in the Rovuma Area 1, where Anadarko encountered 125 feet of oil-saturated sands. In early October, the company increased the reserve estimate for Area 1 from 6 tcf to 10 tcf following the evaluation of the drilling results of its most recent exploration well on the Camarao prospect, which encountered a total of 380 feet of natural gas pay. Anadarko still has a considerable amount of appraisal work to complete, including the evaluation of two newly acquired 3D seismic data sets and the drilling of additional prospects, with an extensive reservoir testing programme and a maximum of seven exploration/appraisal wells planned over the next year. Given the size of Area 1 (400 by 160 kilometres) and the fact that discoveries have thus far been mirroring seismic interpretation, additional discoveries off Mozambique remain likely, further boosting the country’s gas reserve estimate.

Eni and East Africa
Unusually for an international oil company (IOC), the Italian government retains a golden share in Eni, which is facing government pressure to secure sufficient energy supplies in order to ensure Italy’s energy security. This means that the company is not hesitant to pursue exploration objectives in developing countries with frontier exploration area where the geopolitical risks are high. For instance, Eni is present in Iraq, Venezuela and Kazakhstan, as well as Libya. Although Mozambique is politically stable, its infrastructure is underdeveloped and thus developing the gas reserves may prove to be expensive.

Nevertheless, as with many IOCs, Eni has been keen to increase its global gas portfolio amid an international energy market that increasingly favours gas as an alternative to oil and coal in electricity generation, and indeed, in the transportation sector. It has therefore been increasing its exposure to potential gas plays in sub-Saharan Africa, as elsewhere. According to its press release, the discovery “expands the leadership of Eni in Africa by opening a new eastern front of activities”. Whereas Eni has long been exploring and producing petroleum in West African nations such as Angola and Nigeria, its success in the developing East African country is likely to cement its ambitions to follow its IOC counterparts Shell and Total into exploring elsewhere in the region. Eni lost out in the race for onshore Uganda assets to Total and CNOOC, but is still said to be interested in the country. Meanwhile it has taken on acreage in Ghana, Congo and Gabon as part of its effort to deepen and broaden its African base.

Outlook and Implications
The series of strong discoveries in Mozambique made by Anadarko and Eni significantly raises the likelihood that Mozambique will become a leading regional LNG producer. Both companies have indicated that their gas reserves will be used for gas and LNG processing to serve the regional and international markets. In fact, Eni states in its press release on the discovery that it is planning “a large scale gas development” that will serve the regional and international market through “LNG and supply to the domestic market”.

For Eni, this represents the first opportunity for the Italian major to lead an LNG project, with its LNG interests to date based on minority stakes, given the historical focus of the Italian major in oil and gas that can be fed by pipeline to Italy. Together with Anadarko’s October reserve estimate increase to 10 tcf, Mozambique’s gas discoveries now total 25 tcf.

Although some of this is still to be appraised, these discoveries are bound to turn both the country’s and the region’s energy outlook around. For East Africa, Eni’s discovery will also have far-reaching consequences, making it more likely that other international companies will follow suit with deepwater exploration, particularly elsewhere in Mozambique but also in Tanzania and Kenya.

Nevertheless, there are still a number of challenges and risks. In Mozambique this includes a degree of regulatory uncertainty with several discrepancies between the country’s 2001 Petroleum Act, the 2007 Petroleum Regulations, and the 2008 Model Agreement: for instance, there seem to be different stipulations for signature and production bonuses between the three pieces of legislation. In addition, the country remains underdeveloped and a significant amount of investment is required in downstream infrastructure.

About the author: Marne Beukes is IHS Africa energy analyst.