Offshore East Africa: what’s next?

By Jeremy Berry

As a result of recent offshore successes in Mozambique and Tanzania, the entire East Africa margin currently has the attention of the world’s new ventures teams, explorers and gas (LNG) buyers. What might happen next in this new hydrocarbon province? Jeremy Berry explains.

Deepwater sands of Tertiary and Cretaceous ages, related to the Rovuma and Rufiji River deltas, offshore Mozambique and Tanzania, have proved to be the most prolific new offshore “basin” in the world in the past five years, with some 185 Tcf of natural gas resources already having been discovered since the first well (Windjammer-1 in Area 1, offshore Mozambique) in March 2010. Given the length of the coastline (about 4000mi from Somalia to South Africa) and the licenses around surrounding islands (e.g. Madagascar and Comoros), the deepwater of the region remains largely unexplored with only 85 wells drilled in the last five years; 85% of which are within a 250mi “golden-zone” running either side of the Tanzania-Mozambique border. The wells drilled offshore East Africa during the past five years are summarized in Table 1.

Gas was first discovered onshore East Africa in the 1960s, albeit at a significantly smaller scale than the current offshore volumes. The most substantial onshore discoveries were Pande (discovered 1961) and Temane (discovered 1967) in Mozambique and Songo Songo (discovered 1974) and Mnazi Bay (discovered 1982) in Tanzania.
However, it was not until the 2000s that these more material accumulations began production. The limited local market and lack of infrastructure in the region – responsible for the delay in the development of these onshore fields – remains the major challenge for the monetization of the huge offshore gas resources. While plans for various local gas utilization projects – which will fuel industrial development – are being advanced, particularly in Mozambique, the anchor for any such activities is onshore LNG and the associated infrastructure that will actually bring gas to shore.
Both Mozambique and Tanzania have sufficient gas resources already discovered (~150Tcf and ~36Tcf respectively – as reported by the operators) to justify LNG developments and although plans are progressing in both countries, no final investment decisions have yet been announced.
With a minimum of four years for construction, between project sanction and first LNG production, in these greenfield sites, the earliest LNG export dates from the region will be 2019-20 for Mozambique (which has already selected a site for the LNG plant in Cabo Delgado province) and 2022-23 for Tanzania. However, project finance also still needs to be put in place to fund these developments and with each two train plant costing in the region of $20-30billion, further delays may be envisaged in the current climate.

Future prospects

Figure 1 shows the current licensing position offshore East Africa along with highlights of recent drilling activity as summarized in Table 1. Only 13 wells have been drilled in deepwater East Africa outside of the Rovuma/Rufiji golden-zone in the last five years. No wells have been drilled offshore Somalia, Madagascar, Comoros or the eastern margin of South Africa in this period. Of the wells drilled, none have found sufficient hydrocarbon and/or encountered reservoirs of the quality to be deemed commercially successful, and in fact despite published gas discoveries, some operators have decided to relinquish their holdings (e.g. BG in Tanzania Block 3 and Apache in Kenya Block L-8). It is therefore apparent that the understanding of the deepwater petroleum systems, offshore East Africa, is still very much in its infancy. But with the scale of the recent successes discussed above, exploration potential remains high.

Figure 1: East Africa licenses and activity comments

Currently (January 2015) there are only two drillships active in the region (Belford Dolphin for Anadarko in Mozambique and Discoverer Americas for Statoil in Tanzania: Deepsea Metro is stacked in Tanzania), from a high of five in November 2012, and four operating as recently as August 2014 (Baker Hughes’ Rig Count). It is difficult to conceive at the present time of any increase through 2015. Depending upon the results of the ongoing interpretation of seismic and wells in Kenya, Tanzania and Mozambique, and the remaining exploration periods for licenses across East Africa, the drillships already in the region could potentially be assigned to any number of prospects through the year, but it is most likely that for the time being they will be focused on the Rovuma/Rufiji areas. It should be noted that the formal exploration period for the 2nd Round blocks in Mozambique (including Areas 1 and 4) was eight years and so will be expiring shortly. The 11-year exploration period for the Tanzania licenses means that there are still 2-4 years remaining for the current license holders there.

Although drilling activity may quieten during the coming year, additional acreage will be coming available. Mozambique is currently offering its 5th Licensing Round with 15 blocks being made available offshore Rovuma, Angoche and Zambezi (see Figure 1). Following representation from the industry INP (National Petroleum Institute) has extended the deadline for applications to 30th April 2015. Madagascar has stated that it is planning to offer 30-50 offshore blocks in a license round later in 2015 once a new petroleum code is approved by parliament. Soma Oil & Gas has completed a seismic option agreement over an extensive offshore evaluation area and reconnaissance area in advance of submitting PSA applications with partners to the Federal Government of the Republic of Somalia in 1H 2015.

A key consideration with respect to future activity offshore East Africa is whether there remains any appetite for exploration for additional gas resources outside of the blocks where commercial volumes have already been proved? If not, there is a real need to resolve the riddle of where oil may have been generated and trapped offshore. Oil discoveries and developments onshore East Africa in Madagascar, Mozambique (Inhassoro) and Kenya (Lokichar), as well as the Sunbird discovery in a carbonate reef offshore Kenya (Block L-10A) and the presence of oil seeps along the margin, continue to tantalize.

Cautionary notes

Real success has only been achieved in a very limited area offshore East Africa, and even here has yet to generate any revenue. There is still a long way to go to crack the codes of the other plays along the East African margin. However, it is not just the geology that remains the challenge. Terms originally intended to attract have led to the current license position (see Figure 1), but the recent exploration successes have strengthened the hand of the host countries and are prompting governments to update petroleum codes and license terms.

Tanazania’s 4th licensing round in 2014 attracted minimal interest, and was accompanied by tougher new PSA terms. In South Africa, concerns over the impending Minerals and Petroleum Resources Amendment Bill have meant there has been no offshore drilling activity for over a decade, other than for Total’s Brulpadda well, which unfortunately was suspended in October 2014, due to mechanical issues related to extreme current and sea conditions. In most areas, early mover advantage is now over.

In a scramble to be part of the economic boom that hydrocarbon production is anticipated to bring to all of East Africa, individual states are jostling for position. In its pursuit of appropriate revenue sharing with Tanzania, Zanzibar’s semi-autonomous government has effectively blocked any work on four licenses awarded to Shell since 2002. Maritime boundary disputes are always a concern, and as recently as August 2014, Somalia took its claims for a southeasterly trending boundary with Kenya, following the line of the land border, to the United Nations (see Figure 1), a concern for licensees in the now disputed zone.

Right now, of course, oil price is a hugely limiting factor on the number of high cost deepwater wells likely to remain on company’s drilling plans in the immediate future, particularly as the priority objective now is to find a working oil province.

Five years ago no-one expected to have been able to prove up gas resources on the scale of those in the Rovuma Basin. With so much of East Africa’s deepwater virtually undrilled, not least Somalia, Madagascar and South Africa, we can but hope for continued success in the coming years.

Jeremy Berry serves as global business development director at Gaffney, Cline & Associates. His primary technical strength is in the geosciences. Berry has an in-depth understanding of sub-Saharan Africa.