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Despite oil gloom, Total rallies $14bn for Mozambique project

By Christophe Le Bec
Posted on Wednesday, 22 July 2020 17:03

total
The logo of French oil and gas company Total is seen in a petrol station in Paris, France February 6, 2020. REUTERS/Gonzalo Fuentes

The French supermajor recently completed financing arrangements for its $20bn gas project, brushing off criticism from civil society organisations.

In spite of the drop in oil prices and the global health crisis, Total signed a $14.9bn senior debt financing agreement for Mozambique LNG on 17 July, after acquiring the asset from US-based Anadarko in September 2019.

Patrick Pouyanné, the chairman and CEO of the French oil major, made this gas megaproject the priority mission of Nicolas Terraz, who joined Total Exploration & Production (E&P) in July 2019 as head of sub-Saharan Africa.

The Mozambique LNG project involves plans to construct the country’s first onshore liquefied natural gas (LNG) plant, including the development of the Golfinho and Atum gas fields located within the Offshore Area 1 concession in Cabo Delgado Province, in northern Mozambique, as well as the construction of a two-train liquefaction plant with a total capacity of 13.1 million tonnes per annum.

READ MORE Mozambique will need deeper gas discoveries to ensure diversified client base

If Pouyanné was in such a hurry to get the project off the ground, it’s primarily because it will speed up Total’s transition towards a more gas-based energy mix, especially on the African continent, which accounts for around 25% of the company’s oil and gas production but where it has almost exclusively been producing oil until the present time, unlike its major rival in Africa, Italian energy company Eni.

Mozambique LNG’s available reserves are substantial. According to sector research firm Rystad Energy, around 3.6 billion barrels of oil equivalent could be extracted from Mozambique’s subsurface, or twice the amount extracted by the BP-operated Greater Tortue complex, a cross-border project in Senegal and Mauritania. Rystad Energy also reports that the gas could be extracted at a competitive cost of around $6 per thousand cubic feet, i.e., a price on par with that of Greater Tortue, but $2 less than the cost of the NLNG consortium’s Train 7 project, the largest Nigerian gas project currently under development.

Financially backed by Japan

Terraz had to walk a tightrope before he was able to woo a consortium of eight export credit agencies, 19 commercial banks and the African Development Bank (AfDB) to arrange the largest syndicated loan ever secured for an extractive project on the continent, and which represents a total post-FID investment of $20bn.

First, Terraz had to successfully manage the delicate transitional phase of the project, during which he was able to retain the bulk of Anadarko’s US team of engineers who had been leading the project thus far, with the crucial advantage of maintaining the project management team in Houston rather than moving them to Paris.

READ MORE Coronavirus: Pandemic puts strain 30 major African oil and gas projects

On the financial front, Total sought out a more diverse group of financial partners than it usually does, making use of the project’s geographic location, as it is well-positioned to supply Asia. This explains the presence of the Japan Bank for International Cooperation (JBIC), Nippon Export and Investment Insurance (NEXI) and the Export-Import Bank of Thailand (EXIM Thailand) in the consortium of financial backers.

NGOs take the oil major to task

To defuse the political and diplomatic situation, executives from the French oil company, including Pouyanné himself, made numerous trips to Maputo to meet with authorities and discuss the planned acquisition. Total also took an offensive stance towards NGOs, with a particular focus on the French environmental organisation Friends of the Earth (Les Amis de la Terre), which published a report in mid-June 2020 alleging that Total was colluding with the French government and local authorities, contributing to the militarisation of and growing tensions in the Cabo Delgado region, endangering biodiversity and fuelling the spread of COVID-19.

READ MORE In Mozambique, protecting nature helps people survive

Denying every single one of these allegations, the French oil major reacted immediately, strongly asserting its desire to move ahead with the project, despite all obstacles.

Total’s focus on Mozambique and developing its gas business has already had an impact on other projects – ones it considers to be less strategic or profitable. On 24 March, as the lockdown was getting underway in France, Pouyanné announced that the company was reducing its investments planned for 2020 by more than $3bn worldwide due to lower oil and gas consumption and plummeting prices.

In May, Total abandoned its plans to acquire Anadarko’s other assets in Algeria and Ghana. The company headquartered in La Défense’s high-rise towers at the edge of Paris also deferred its final investment decision regarding the Lake Albert oil project in Uganda, although it has taken over the operational management of Tullow Oil. Lastly, in Angola, several projects to optimise the operations of adjacent fields have been dropped.

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