Turning to Tanzania

Turning, Tanzania, big deepwater, gas finds, Tanzania, Songo Songo, LNG, deep water, africaAfter a succession of big deepwater gas finds Tanzania is setting its sights much higher. After a succession of big deepwater gas finds Tanzania is setting its sights much higher

Tanzania's Nascent gas industry has been something of a beacon in east Africa for years. Natural gas from around Songo Songo island has been piped ashore to feed power generation plants and industrial users in and around the capital Dar es Salaam for the best part of a decade now.

It has long been viewed as something of a pioneering project, and one that has helped this poor country pin down a more reliable energy supply, using its own domestic gas resources rather than relying purely on imported fuel oil or erratic hydro electricity. Needless to say, the project has saved the country a tidy fortune in reduced oil imports.

But it is upstream matters, pure and simple, that now fascinate foreign investors.

It follows a series of high impact deepwater gas finds that have effectively turned Tanzania’s upstream sector on its head. From a largely forgotten drilling backwater, the country is now hot property, with new investors keen to stake their claim in this emerging hydrocarbon province.

An acceleration in drilling work is now expected as a result, primarily offshore in the little explored areas of the Ruvuma and Mafia Deep basins. This is expected to become evident in the coming year as more leads and prospects are tested. Drillers have also taken heart from a series of deepwater gas finds just across the border in neighbouring Mozambique.

Tanzania's natural gas reserves are now stand at more than 10 trillion cubic feet (tcf) from a previous estimate of 7.5 tcf following major gas discoveries offshore. It means, from small domestic power-generation projects, Tanzania and the growing ranks of energy companies now plying their trade there, are thinking on a much bigger scale. That includes world-class size liquefied natural gas (LNG) export projects among other initiatives.

Deepwater discoveries

Tanzania still remains a heavily under-drilled location though the times are changing. In the thick of things is the UK’s BG Group, which last year took on offshore blocks 1, 3 and 4, and has since made its presence felt in a big way. Back in April, it announced its third gas discovery with the Chaza-1 well, in Block 1, roughly 18 km off southern Tanzania in water depths of around 950 metres.

The Chaza-1 well sits some 200 km south of two earlier finds, Pweza and Chewa, making a hat-trick of discoveries and truly breaking open this frontier territory for further exploration. The three discoveries together have found approximately 137 MMboe contingent resources, with 111 MMboe prospective identified, according to early data. The largest of the three appears to be Pweza, with gross mean contingent gas reserves of some 1,709 billion cubic feet.

On all three of its blocks, BG partners lesser known UK explorer, Ophir Energy, a company that is now making a name for itself on the markets because of its exposure to Tanzania’s high potential gas sector. Ophir recently launched a US$186 million bid for fellow Tanzanian focused explorer Dominion Petroleum, another UK-listed entity.

Second wave

More is to come from this dynamic duo with the successful wells drilled so far only part of a larger initial work programme planned across the three concession areas. This includes further drilling, commencing around the year-end, plus the acquisition of more than 4,000 sq km of 3D seismic data. It means excitement is now building ahead of the start of the next round of drilling, with all of the blocks containing multiple untested drilling leads and prospects.

BG and Ophir are currently finalising the details of their next move, with up to five new exploration wells on the cards. The pair have secured the services of the dynamically positioned semisubmersible rig Deepsea Metro-1 rig for the best part of a year, with the rig expected to arrive on site around mid-December. The joint venture anticipates spudding the five wells throughout the course of 2012.

An additional 3D seismic survey is also being considered across Block 1, in an area that is believed to potentially contain an extension to the successful plays that have been drilled in Mozambique by the likes of Anadarko Petroleum and, more recently, Eni.

Other major international companies are preparing to commence Tanzanian drilling too, including esteemed companies such as Petrobras, Shell, Statoil and ExxonMobil. It means 2012 is likely provide a real and thorough test of Tanzania’s true potential.

And, understandably, those active in the region are already starting to think ahead, with gas fields now confirmed and the prospect of more to come. Commercialising options are rising to the fore. According to Ophir Energy - which also controls the largest interest in the East Pande gas field, where more drilling is due late 2012  - the recent string of finds off both Tanzania and Mozambique have the potential to support a multi train LNG facility. It is still early days for this emerging region but front-end development studies are already underway on this potential world-scale gas export project.

In’s and out’s

And it has inevitably brought in more newcomers, prised away from the more established and better known oil regions of west Africa. In October, Dominion Petroleum - Ophir Energy’s takeover target - farmed out a 20% share in its deepwater Block 7 to a subsidiary of Mubadala Oil & Gas, of the UAE The deal will help Dominion finance seismic work in the coming year. Dominion’s CEO Andrew Cochran said at the time the pairing may look to bring in a further party as they approach the drilling phase next year.

In the same month, Brazilian oil giant Petrobras brought in Shell to help out on Blocks 5 and 6, where it has been looking for a farm-in partner for some time. The deal comes as drilling of the first well on Block 5 gets underway, with completion due by the end of 2011.

The two Petrobras-operated blocks are located in water depths ranging from 600 to 3,000 meters. Seismic interpretation work is still underway on the other block.

On Block 2, Norwegian heavyweight Statoil brought in the world’s biggest international oil company ExxonMobil, highlighting just how far Tanzania’s offshore has now come. The two companies have been busy shooting seismic and working up data with a view to commencing drilling in 2012.

Small is beautiful

But while Tanzania’s high potential has now attracted a large number of the better known international oil companies, its modest development means there remains a mix of smaller firms, like Ophir Energy, ready to make their mark in this exciting new play.

Among them is UK-listed west Africa specialist Afren, which announced the acquisition of a 74% interest in the Tanga Block, located mainly offshore north east Tanzania in coastal to shallow waters, directly south of and adjoining Kenya. Its shift to Tanzania shows how east Africa is slowly starting to tempt investment away from the more established areas of west Africa.

At the end of October, the Tanzanian government also signed a production sharing agreement (PSA) with another UK-based investor, Aminex Plc. It will explore for gas in the Nyuni area off the coast of Tanzania in the Indian Ocean,  where it has been working for some time, through its subsidiary Ndovu Resources. It is partnered by RAK Gas and Bounty Oil.

The new Nyuni contract replaces an earlier contract for the so-called Nyuni-West Songo-Songo licence. The updated concession area includes an additional four contiguous and relatively unexplored blocks totalling 338 sq km to the north of the previous licence area. Estimated contingent and prospective resources for the Nyuni area stand at 2.8 trillion cubic feet.

Aminex and its partners have already drilled four wells in the area, announcing two gas discoveries, including the Kilwani North gas field. A 25-year development licence has already been awarded for the Kiliwani North site, which the company expects to put into production during 2012, another sign of the growing maturity of this region.

After signing the new Nyuni contracts, Aminex chief execitive, Stuard Detmer, called offshore Tanzania “one of the most exciting exploration provinces in the world”, highlighting the great undiscovered potential of the whole area. “Aminex believes there is considerable scope for establishing a new play fairway on the continental shelf, which could share similarities to recent deep water drilling successes in the region.”

Onshore exploration

And it is not only offshore where drillers are getting excited, after land-locked Uganda in recent years unearthed huge quantities of oil around its Lake Albert region. At the end of October, the government also signed a PSA Heritage Oil, one of the companies to open up Uganda’s oil sector a few years ago. The deal again highlights the growing interest in this emerging onshore play area as well.

Heritage Oil extended its upstream Tanzania position with a new contract area covering virtually the entire Rukwa Rift Basin, which it says shares geological similarities with Uganda’s Albert Basin, where it enjoyed such great success before selling up to partner Tullow Oil.

The company, which is targeting both oil and gas, will start off with a round of 2D seismic. In the event of an oil discovery, the Rukwa Rift basin lies less than 100 km from the railhead at Mbeya and, according to Heritage, economic scoping shows the commercial viability of either rail export to Dar es Salaam or export by pipeline depending on exploration success.

Songo Songo growth

Meanwhile, further investment is expected to grow Tanzania’s existing gas facilities, including infrastructure supporting the so-called Songas project, which takes gas from Songo Songo to provide power to the capital. But with demand for electricity growing steadily there is a need for more. Energy demand is expected to grow to 1,583 megawatts by 2015, from the current demand of around 1,000 megawatts, according to estimates by the country's energy ministry.

Toronto-listed Orca Exploration's Tanzanian unit, PanAfrican Energy - which operates the upstream facilities - plans to invest US$130 million to double gas output, drilling two new wells and expanding production at a third existing well. It expects to up gas production capacity from 113 million standard cubic feet per day (MMcfd) to over 250 million standard cubic feet per day in the coming months, the company said in November. Drilling of the first of the new wells is expected to begin by late November or early December.

There are plans to bring additional fields onstream. In September, Tanzania signed a US$1 billion loan agreement witt China to build a 532 km natural gas pipeline from Mnazi Bay - the site of a separate and currently stranded gas reservoir - and Songo Songo island in the south of Tanzania to the country's commercial capital, Dar es Salaam.

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
T: +44 20 7834 7676, F: +44 20 7973 0076, W: www.alaincharles.com

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