Friday, November 2, 2007

Mozambique: Exploration is under way!


Mozambique is often not a country that one associates with oil and gas exploration.



This country in southeastern Africa is bordered by the Indian Ocean to the east, Tanzania to the north, Malawi and Zambia to the northwest, Zimbabwe to the west and Swaziland and South Africa to the southwest.



Quoting from the INP, we can get a good history of oil and gas exploration here:



"Exploration for hydrocarbons in Mozambique goes back to 1904 when the early explorers discovered thick sedimentary basins onshore Mozambique. Poor technology and lack of funds halted those early exploration attempts.



From 1948 onwards international oil companies moved into Mozambique and carried out extensive exploration, mainly onshore with limited activity offshore. As a result the Pande Gas Field was discovered in 1961 by Gulf Oil followed by the gas discoveries of Búzi (1962) and Temane (1967). Exploration activity declined in the early 1970’s due to political unrest.



New activity was established in the early 1980’s with the enactment of law 3/81 and creation of ENH. In the following years extensive work was carried out to map and appraise the Pande Field. A breakthrough was made in 1993 when it became clear that the Pande Field could be mapped using direct hydrocarbon indicators (DHI) from seismic data and it turned out that there was a giant bright spot at the top of the reservoir. The method was later also used to map the Temane field with good result.



From 1970 to 1980 there have only been drilled 6 wildcat wells in Mozambique – 3 of them offshore. An extensive drilling campaign conducted by Sasol in 2003 which included exploration and production wells in the Pande/Temane Block allowed the expansion of gas reserves and the discovery of Inhassoro Gas Field, making total of 5.504 trillion cubic feet (TCF)."



In total, there have been 97 wells drilled in Mozambique. Breaking the numbers down further we see the following:




  • 61 wildcats

  • 24 appraisals

  • 12 production


They were located in the following regions of Mozambique:




  • 15 wells were located offshore

  • 16 wells over the Pande Gas Field

  • 18 wells in the Temane Gas Field

  • 6 wells in the Inhassoro Gas Field

  • 4 wells located offshore Zambezi Delta

  • 1 well in the Rovuma Basin


At the Africa Upstream Conference in Cape Town (Nov 2nd), INP announced (INP press release) the dates for the 3rd Mozambique Licensing Round which will include both onshore and offshore blocks (3rd License Round Map).



Currently, companies such as Petronas, StatoilHydro, Anadarko and ENI are working offshore Mozambique.



Why are companies looking to come to Africa to explore?



In 2001, Mozambique enacted, similar to Columbia, a regime that encourages exploration.



The details are as follows:



There are three kinds of concession contracts, and they are:



  1. Reconnaissance Contract: Maximum two years exclusivity.

  2. Exploration and Production Contract: Exploration period maximum 8 years. Production period maximum 30 years.

  3. Pipeline contract: Period depends on the project.


A tax and royalty regime that is competitive with other nations.


The Corporate Income Tax rate is 32% of net profit, with no ring fencing. Development costs are depreciated over four years.



The Law sets the royalty at 2 % to 15 %; normally rates are 3-7 % for crude oil, 2-4% for natural gas depending on water depth.



Onshore: 8% for crude oil and 5 % for natural gas.



And the legislated Code of Fiscal Benefits provides various investment incentives for the petroleum sector, such as exemption from import fees and VAT (petroleum).



As we can see the majors have entered and there is plenty of potential in Mozambique for companies willing to enter the country. Mozambique is stable and is not heard of often in the news - which is good.



Will Mozambique become the next Angola or Nigeria?



Time will tell.




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