The argument by the Organisation for Economic Cooperation and Development (OECD) that tightening South Africa’s wealth tax regime would rebalance ... generational inequality has a fundamental flaw: it targets a “flighty” base, says an expert from the African Tax Institute.
After attracting less activity than other regions of the continent, East Africa now hosts a raft of new oil and gas exploration and production project
Uganda may have struck black gold first, but its East African neighbours are now welcoming their own rush of prospectors hunting for hydrocarbons. From the Anza Basin rift in northern Kenya down to the gas-filled waters off Tanzania and Mozambique, territory that had once been left to small independent companies is now catching the eyes of the world’s bigger oil players.
The Ugandan find – estimated at 2.5bn barrels – has reinvigorated exploration in what has been a long underdeveloped region. Unlike other independents operating in Africa such as Heritage Oil or Kosmos Energy, whose model is to sell to an oil major before the real drilling begins, a couple of the newer independents appear to be ready to go from exploration to production.
In October 2010, London-listed Afren acquired Black Marlin Energy, a company with shares in 12 blocks across Kenya, Madagascar, the Seychelles and Ethiopia. The move showed real pan-African intent by the independent, which has already gone into production in Nigeria.
Afren’s associate director, Galib Virani, tells The Africa Report that Kenya’s Blocks 17 and 18 are closest to being monetised because seismic tests have been “extremely encouraging”. If a discovery were to be made by the end of 2011, production could be just two years away, he says.The region will need infrastructure upgrades if it becomes an oil producer. For one, the future of Kenya’s Mombasa oil refinery hangs in the balance. The government has threatened to close down the refinery, which is 50% owned by Essar Energy, if it does not find KSh63bn ($795m) by June to upgrade its facilities.
But the arrival of the independents could spell good news for Kenya, according to Virani. “You had the BPs and the like here in the 1960s, then they got preoccupied in West Africa. In recent years you’ve had a lot of the smaller independents who’ve scrambled for acreage but haven’t necessarily had the financing.” Although Virani was sure that Afren is already on the radar of some of the oil giants, he emphasises that the company is a “full-cycle business”. Proof of this came in its completion of a $450m debut bond on 28 January. Renaissance Capital suggested this would leave Afren with $300m cash in hand and a possible eye on the Shell assets for sale in Nigeria.
Irish-owned Tullow, another large independent with a strategy of going out on its own, is pushing forward with its own regional exploration venture. Tullow had acquired 50% of two blocks in the Lake Albert Rift Basin from Heritage in July 2010, but a capital gains tax dispute has continued to stall plans to pass shares in the blocks to Total and the China National Offshore Oil Corporation (CNOOC).
While it waits for the go-ahead, Tullow is eyeing exploration further east. On 26 January, it paid Canada’s Africa Oil $9.6m to acquire shares in three more blocks – 10A and 10BB in northeast Kenya and one in Ethiopia’s South Omo region. This showed that independents were not put off by the decision in December by CNOOC to withdraw from a joint venture at Kenya’s Block 9 at Isiolo. Africa Oil and partners Lion Petroleum have now been left on their own at Block 9 and said they would carry out further seismic work this year.
The discovery by US firm Anadarko in August 2010 of gas on the Mozambique side of the Rovuma Basin, which spans the Tanzanian border, is attracting big players into Tanzanian waters. The country’s proven gas reserves now stand at 7.5trn cubic feet, according to the East African Community, which is discussing a proposal to build a regional pipeline network.
T?anzania drills offshore wells
The Tanzania Petroleum Development Corporation said up to 10 offshore wells would be drilled off its coast between September 2010 and December 2011, bringing an estimated $500m in exploration investment. The most significant recent discoveries have been made off the island of Mafia, where in late 2010 British Gas (BG) and the UK’s Ophir Energy found gas at both the Chewa-1 and Pweza-1 wells. BG had taken a 60% stake in Ophir in June 2010.
Other major players are following its lead. In March 2010, Statoil farmed out 35% of its deepwater block near Mozambique to ExxonMobil. Shell has submitted an application for a production-sharing agreement on four blocks off Pemba and Zanzibar.
Meanwhile, Canada’s Antrim Energy has returned to exploration in Tanzania, negotiating a new stake in the Pemba-Zanzibar licence with the United Arab Emirates-based RAK Gas and Canada’s Nor Energy.
There are plenty more opportunities. Dominion Petroleum tells The Africa Report that it is seeking a partner to farm into its deepwater block in northeastern Tanzania. “We know our limitations,” says finance director Rob Shepherd. “We’re not going to operate.” ?
If companies can put to use the same drills and rigs on nearby blocks, more joined-up investments are likely in this region of rifts and basins with proven oil seeps and blossoming gas discoveries.
This article was first published in the March 2011 edition of The Africa Report.
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