Norwegian oil giant Statoil ASA ( STO ) has sold its 25% working interest in an exploration license offshore Mozambique to Tullow Oil PLC − an U.K. based oil exploration and production company. However, the parties kept the commercial terms of the deal confidential.
The divested properties comprise two blocks in area 2 and 5, offshore Mozambique in the Rovuma basin, covering 7800 square kilometers. The blocks are located at a water depth of 300 meters to 2,400 meters.
Following the transaction, Statoil will retain its 65% stake in the license and act as the operator. On the other hand, Mozambique's state run company Empresa Nacional de Hidrocarbonetos ("ENH") will hold the remaining 10% interest. The first well in the license is scheduled for next year.
This agreement is in sync with the Norwegian company's exploration strategy of early access in a prolific area with its significant presence, while sharing the geological risk. Of late, major oil and gas companies, like Anadarko Petroleum Corp. ( APC ) and Eni SPA ( E ), made major gas finds to the north of this acreage.
Statoil has been in the Mozambique region for the past six years and has recently acquired 30% of Tullow's share in the 2,369 square kilometer deepwater Block 47 in Suriname. Recently, Statoil also discovered a huge gas deposit in the Lavani well on Block 2, off Tanzania. The company plans to develop its gas find through a liquefied natural gas solution but has not revealed the cost estimate. Per the analysts, the development cost of the project would be around $10 billion.
The initial outcome of the logging proved that the Lavani well holds an estimated recoverable resource of 3 trillion cubic feet (Tcf) of gas. Notably, according to the U.S. Geological Survey, East Africa has an estimated reserve of 253 Tcf of gas off Kenya, Tanzania and Mozambique and is becoming the world's rapidly growing gas hubs.
However, the region needs proper infrastructural development and hence major energy companies, like Statoil, are expected to financially back the development of a gas liquefaction facility there.
We remain upbeat on Statoil's long-term production growth profile given its growing upstream presence in the emerging basins of the Barrents Sea, Africa and the deepwater U.S. Gulf of Mexico. We also believe that the growing share of natural gas in Statoil's Norwegian Continental Shelf volume mix and its extensive interests in infrastructure assets enable it to play a leading role in the European natural gas market.
PTT Exploration and Production, the subsidiary of PTT, may be still holding out its bid for Mozambique-focused oil and gas explorer Cove Energy, but one analyst says the acquisition is a bad idea for the Thai oil company because it would hurt its balance sheet.
"It's (PTT) biting off more than it can chew, and I would prefer it to do smaller deals. We think already that PTT has a reasonably constrained balance sheet and that by doing this, the funding of the development puts more strain on the balance sheet," Scott Darling, Head of Oil and Gas Sector Research at Barclays, told CNBC Asia's “Cash Flow” on Wednesday.
Darling estimates that the potential Cove acquisition would raise the PTT’s gearing to around 70 percent from the current 48 percent.
On Tuesday, PTT — which has been locked in a battle with Royal Dutch Shell for Cove — extended its deadline for investors to accept its $1.9 billion offer for London-listed firm.
While Cove's board has recommended PTT's higher 240 pence offer, the Thai firm had only received acceptances accounting for 0.25 percent of Cove's shares as of last Friday.
Under U.K. takeover rules, Shell has until July 17 to come back with a higher bid, with July 11 the next deadline for Cove shareholders to accept its $1.8 billion offer.
PTT and Shell are vying for Cove’s huge gas assets off the coast of Mozambique. In May, PTT's CEO Pailin Chuchottaworn told CNBC he foresees huge demand from Asia for natural gas and that if PTT won the bid, it would provide “a very stable market for the product.”
But Darling argues that PTT could do smaller deals in South East Asia to cater to the region's rising demand for gas, without straining its finances.
"If you look at the region (South East Asia), it's running out of gas, it's increasingly becoming a net importer. So we think there are more opportunities for exploration, drilling and development in its home region as opposed to going to East Africa where Cove has its assets and doing a new project which it doesn't have any experience on."
Darling said Myanmar could present opportunities for PTT as the country begins to open up.
Political reforms in the country have prompted Western countries to ease sanctions imposed on Myanmar, leading to interest from international investors.
Chuchottaworn told CNBC in May, that Myanmar would be a focus for PTT and said the firm hopes to build energy infrastructure in the resource-rich Southeast Asian nation and eventually sell gas there.
Darling has an overweight rating on PTT Exploration and Production with a target price of 220 Thai baht. He says that if PTT goes ahead with the Cove deal, Barclays will revisit its rating on the firm.
Disclosure: Barclays holds the stock and does business with PTT.Source: CNBC -- Roshan Vaswani
An out-of-favor stock in an out-of-favor sector, Anadarko Petroleum, gets little credit for its exploration skills. If investors don't recognize the company's value, an acquirer might.
Anadarko Petroleum probably has the best portfolio of international projects of any major U.S. energy exploration company, highlighted by a massive find off the coast of Mozambique. That field alone could contain 60 trillion cubic feet of natural gas, worth $30 billion to $60 billion.
Investors, however, are unimpressed. Anadarko shares (ticker: APC) are down 12% year-to-date, to $67, and stand considerably below their February peak of $89. The stock and those of other midsize energy companies have been stung by low natural-gas prices and, more recently, by the drop in oil prices to $87 from over $100 a barrel.
Source: Barrons – Andrew Barry
Since this time last year, Rio Tinto Coal Mozambique has made much progress and this morning I look forward to updating you on that. I am particularly proud of how our organisation is developing a safe world class coal business in Mozambique as well as bringing wider benefits to this country.
These benefits are not by accident. Creating them is integral to Rio Tinto's approach, in which we set out to build enduring relationships with our neighbours and host communities that demonstrate mutual respect, active partnership and long term benefits to Mozambique.
Eighteen months ago Rio Tinto was seeking to develop a coal business here. At the time we said we were one of the few groups in the world with the capabilities, the values and incentives to develop the former Riversdale projects in Tete quickly and to a world class standard, and to bring considerable benefit to the people of Mozambique. Since acquiring the business in April last year we've achieved some important milestones. I would like to talk to some of these.
First this cautionary statement is required at the outset as there are some forward looking statements contained within this presentation
Benga Mine officially opened 3 May, 2012
Our first mine, Benga, commenced operations in the first quarter of this year with an official opening in May. In early June we celebrated the official opening of the new coal terminal at Beira and just over a week ago our first shipment of quality coking coal left Beira bound for our export markets.
Our investment in this country is long term. It underlines Rio Tinto's commitment to Africa, where our activities extend beyond our operating mines and includes many associated infrastructure projects, an extensive exploration programme and numerous development projects in the region.
Industry, commentators and government all agree: a new era is ahead, one that sees the resurgence of mining in Africa as a central force.
However to fully unlock this potential, the future of the mining industry must be built in a sustainable manner, and that's what Rio Tinto's approach is all about.
This morning I'll first give you a quick overview of Rio Tinto, our presence in Africa and here in Mozambique, and then I will focus on our approach – which starts with safety.
Rio Tinto has a global footprint
Rio Tinto is a leading international mining group, which started up in 1873.
Our major products are aluminium, copper, diamonds, thermal and metallurgical coal, uranium, gold, industrial minerals (borax, titanium dioxide and salt) and iron ore.
Today, we have around 70,000 people working in more than 40 countries across 6 continents.
More than 8,000 of them work in Africa.
Our presence in Africa is growing in significance and is a key element of our growth strategy
Rio Tinto has operated in Africa for nearly 40 years.
We currently have eight different operations in Africa, plus numerous projects including the Simandou iron ore project in Guinea.
In Mozambique, we have four businesses: aluminium, exploration, mineral sands and of course coal. Rio Tinto's Iron and Titanium group is currently evaluating the Mutamba and Chilubane heavy mineral sands projects, which are located in Inhambane and Gaza provinces respectively. Rio Tinto's aluminium business has offices in Matola, while our exploration and mineral sands group has offices in Maputo. Our Benga Mine and other coal projects are located in Tete, with offices in Maputo, Tete and Beira.
Building a safety culture
Everywhere we operate, Rio Tinto strives to achieve the goal of zero injuries.
We want all of our employees, contractors and visitors to work and return home safely from our operating sites and offices each day.
From our first days in Mozambique, our challenge has always been to safely build a large, efficient and sustainable coal business in Mozambique.
As we have set up our workforce – which is currently more than 3000 people – it has been critical for us to empower our leaders to drive a safety culture across their teams, to ensure employees and contractors work diligently to improve our health and safety culture and practices.
It has been, and continues to be, a journey which requires everyone's participation.
Our entire workforce must be involved, inspired and empowered to lead safety: and to live by our safety values and principles.
To be successful, we need our employees to be responsible for their own health and safety, as well as for their fellow employees.
It's a culture which supports the full and timely reporting of all hazards, incidents and near misses.
This slide is a good example of how we communicate hazards and encourage employees to watch out for their mates.
It is a poster that we discuss in toolbox talks and which is displayed prominently at site.
The top of the slide shows the view from the driver cabin of one of our many haul trucks on site.
However the main part of the slide – where you can see people, four wheel drive vehicles and other equipment – is what the haul truck driver can't see.
It's one very big blind spot. And it's a very dramatic way to show why we must identify, control and reduce risks.
Our on-site safety performance at Benga Mine since April 2011 has to date improved by around 40 per cent. This is a great result, one we are very pleased with, but one that we are committed to continue to improve.
Safety awareness is a key priority
Communicating our safety messages through induction, detailed training and explanatory pictures like this are an important part of educating our workforce.
Safety must be a core value for all companies that participate in the mining industry.
We must all work in a focused way to ensure the industry develops a strong safety culture founded on an unwavering commitment to develop and sustain safe operations.
This will only be achieved if the industry works together in ensuring our practices meet our own internal expectations and those of our key stakeholders.
The health of our employees is a core value as is improving local medical conditions
Health and safety, of course, go hand in hand.
The good health of our people is clearly important to our employees and communities. It is also important to our business.
Malaria is a key threat to the health of our people and the entire population in Mozambique.
We have very proactive malaria campaigns to reduce the risk to our people as well as helping them back to work if they do fall victim to this disease.
It involves extensive information, communication campaigns when risks increase such as weather patterns and when standing water free has developed, as well as free prophylaxis at our medical clinic in Tete.
We are also providing support to local medical clinics to improve the conditions for neighbours to our business. This will not just benefit Rio Tinto Coal Mozambique and those that work with us, but will also have a broader community benefit.
I'd now like to take you through our mine and other development projects.
The Benga Mine is located in the Moatize Basin of Tete in the north of Mozambique.
Rio Tinto is pleased to be in Mozambique and involved in developing what is clearly one of the most prospective undeveloped coking coal regions in the world.
It is set to be a major source of large scale seaborne hard coking coal with the potential to deliver large volumes of product to international markets. It also contains export quality thermal coal.
Mozambique is ideally located to serve the growing demand for coking coal in Brazil, India, China and Europe, and the strong demand for thermal coal in India and the Middle East.
As mentioned, a week ago Benga Mine celebrated its first shipment of coal, with 34 thousand tonnes of premium quality coking coal exported to India. 5
Once coal chain capacity is in place, we expect to have potential production from Benga of 5.3Mtpa run of mine coal, making for 1.5Mtpa of hard coking coal product for export, and 0.9Mtpa thermal coal product. This is stage one production only.
Second stage coal production could come on line as early as 2015, though timing is heavily dependent on the availability of coal chain capacity.
Second stage production will require additional coal handling and preparation plant capacity as our coal production increases, and we believe the growth potential from the Benga Mine ultimately could be up to 20Mtpa run of mine coal.
Our other projects in the Moatize Basin
We also have a range of future growth projects in the region, which are in various stages of study and development.
Since we acquired Riversdale we have been significantly building our exploration activity and we now have one of the largest exploration programmes in all of Africa.
This is important to ensure we are quickly assessing the quality of the resources and positioning our business for future growth.
We see significant growth potential from our Moatize basin licence areas. We are currently progressing mine, port/rail and power plant studies that we anticipate will prove the viability of up to four large scale mines.
One of these mines, the Zambeze development is at an advanced stage. We submitted an application for a mining concession to the government last year for our Zambeze project which we expect to be our second mine development in the region.
We believe we could be producing first coal from our Zambeze Project as early as 2016.
However, this is of course subject to approvals and very much dependent on coal chain capacity.
We believe Zambeze has a very strong growth production profile, of potentially more than 30 million tonnes per annum run of mine coal.
We are currently conducting exploration activity across our Tete East and Minjova exploration areas to assess the coal resource and quality. We hope this work will demonstrate the viability of two more large scale mines in the region.
We are also progressing studies for a power plant at Benga, which we will use to supply electricity to Rio Tinto's mining operations, as well provide generation capacity for Mozambique and the Southern African Power Pool.
The project is expected to create significant local economic benefits with the creation of more than 1500 jobs during construction stage and the provision of a secure, reliable increase to the region's power supply.
The power plant project will use coal from the Benga Mine and future Rio Tinto Coal Mozambique operations. The initial configuration is likely to be around 400-600MW with a design that will allow for future expansion. It has environmental approval for up to 2000 megawatts.
Coal production is infrastructure-constrained
As we all know our current production and future growth is infrastructure constrained. The coal transport capacity is insufficient to meet the current and future needs of Rio Tinto and other coal companies.
To achieve our growth – not to mention that of other coal producers – Mozambique requires significant new coal chain investment, including port and rail infrastructure.
In total, future coal production out of the entire Moatize Basin has the potential to grow to 100 million tonnes per annum.
To date, the railway line to Beira can only transport about 2 million tonnes per annum. Further refurbishment of the line is in progress, and additional upgrade work is required to deliver the rail line's nameplate 6 million tonnes per annum.
The coal terminal at berth 8 at Beira has been opened and is operational. The completion of the full scope of works is nearing completion.
Production for all coal companies will remain constrained until coal chain capacity is increased.
Last year we organised a visit by the President of Mozambique, to Rio Tinto's Iron Ore infrastructure facilities at Dampier, in Western Australia, during which we began discussions of how we might bring our experience and expertise to the Moatize Basin.
Rio Tinto is internationally recognised for its experience in building and operating large scale integrated infrastructure projects.
We wish to work with the government to optimise the infrastructure the industry needs, and also identify how this can help develop the social infrastructure that is also required in Mozambique.
The greater the efficiency and productivity of our operations, the more value they will create for the host country and all its people.
In fact a very efficient coal chain solution is essential for thermal coal in the Moatize basin. This is due to the significant distance from Moatize to the coast. With anything other than the most efficient solution the viability of thermal coal will be challenged.
Infrastructure improvements in Mozambique, at the scale that we need, will bring lasting benefits to a range of industries in Mozambique and provide a platform for much broader economic development.
It's why we believe so strongly in the concept of shared value.
Training a locally skilled and diverse workforce
Of course, none of this work on infrastructure, our mine and power projects, is possible without a skilled and diverse workforce.
Employing locally and developing Mozambique skills is central to Rio Tinto's approach.
During the construction of the Benga Mine, more than 6,700 Mozambicans were employed, of whom more than 3,200 were from the local community.
The operations team employs more than 3000 people (employees and contractors). Almost 2700 are Mozambicans.
When it comes to people, Rio Tinto's approach is about building the skills and capabilities to ensure we meet our future talent needs.
At our Training Centre in Tete, more than 32,000 people have registered.
We are very proud of what this centre is achieving.
To date, more than 2500 people have received training in a number of areas and at different levels, and a graduate programme has also been developed.
We are currently running a three year trades course in each of boiler making, mechanics, instrumentation and electrical. For each trade we have one Rio Tinto employee being trained as a future Trainer. We are also training a future trainer in each trade for the Government's Labour and Training Department.
We have also trained 60 metallurgists who are currently employed by one of our contractors.
A graduate programme has also been developed. In 2010, 17 geologists graduated and were employed on a permanent basis by Rio Tinto Coal Mozambique. Another group of undergraduate geologists were recruited in 2011 and are currently doing a two year programme similar to the first group.
To assist Mozambican educational institutions to prepare students adequately for opportunities in the mining sector, partnership agreements are in place with technical and higher education institutions. These partnerships are focused on geology and mining, and related areas, and include curriculum development, scholarships and internships.
Building the capacity of our local communities
At the start of this presentation I touched on how we set out to build enduring relationships with our neighbours and host communities that demonstrate mutual respect, active partnership and long term benefits to Mozambique. 8
It's important to us that we understand the social, environmental and economic implications of our activities; so that we can maximise the benefits and reduce the impacts – both for our near neighbours, our local communities and for regional and national economies.
As you can see from the images on this slide, we have supported a range of significant community initiatives.
Shortly after we acquired Rio Tinto Coal Mozambique, we undertook an assessment against the Rio Tinto communities standard to identify improvement areas and how we could ensure we build strong and enduring relationships with our communities.
We are focussing on fulfilling our commitments to the local community. We are undertaking a socio economic baseline study to give us a thorough understanding of the communities in which we are and will be operating, and which will help us deliver community development programmes.
We have also discussed with the Ministry of Planning and Development a study we are proposing to undertake to assess the macro-economic impacts of the natural resource sector. Rio Tinto conducted a similar study in Mongolia, which we presented to the Mozambique government, civil society and other mining companies. The study raised a lot of interest with the various parties and we are now preparing the next step of this research project.
Meanwhile we have asked for a human rights assessment to be undertaken by an internationally reputable institution.
This assessment is important as it will identify whether any potential human rights risks may arise from the activities of Rio Tinto Coal Mozambique. In turn, this will enable us to develop mitigation strategies can be built to address any potential human rights risks if they are identified, to build further on the work we have been doing.
Work in the community includes the construction of an extensive repatriation village with housing, electricity and water supply, and other social infrastructure.
Under the leadership of the provincial and district governments of Tete, and working with community leaders and other stakeholders, agreement was reached on a programme to resettle more than 400 families from Benga to the Mualadzi village.
Resettlement houses in Mualadzi
The new houses range from one to four bedroom homes, are in line with World Bank standards, and provide each family with two hectares of land that is fully prepared for farming – including seeds and agricultural tools.
At each step in our community work, our approach is to engage directly with the community and work together to develop solutions.
In the Mualadzi resettlement programme, we did this from concept stage right through to implementation. In fact, our people continue to meet regularly with members of the community, as well as through the more formal community committees that we have established which consist of elected community members. 9
These committees have been established to oversee the performance and governance of the resettlement and social development activities.
Through the programme, the Mualadzi development now has social infrastructure such as a primary school, health centre, orphanage and a church, but they also contain roads and an electricity and water grid.
Income generation is very important for the livelihood of these families in the longer term, and as a result we've initiated a number of socio-economic projects, such as a nursery, bakery, poultry farm, piggery and bee-keeping. We've also supported the creation of an association that produces baskets of local materials for grain storage.
Our sustainable development team is currently analysing the agricultural potential for growing cash crops, and to interlink them with the catering companies that are servicing our mines.
There are also water management and animal husbandry programmes to enable sustainable food sources.
In all of these activities, Rio Tinto is helping establish initiatives that will over time become self-sustainable.
Our approach is to achieve prospering economies
These activities are part of our quest to not just be a valued member of our community, but to build community capacity through training, new skills, economic opportunities and jobs.
At all times we aim to do this in partnership with the Government and the people of Mozambique, and according to Rio Tinto's core values of accountability, respect, teamwork and integrity.
In fact, at Rio Tinto we have a global code of business conduct, called The Way We Work, which contains these core values and which we require all employees to follow.
Today, 15 months since we purchased Riversdale, we are pleased to be able to see that economic benefits are already being felt in local communities.
Last year Rio Tinto Coal Mozambique spent more than US$120 million locally, outside of construction costs. This year we predict we will spend US$160 million locally on items like general supplies, fuel, catering, spare parts, medical assistance, advisory services and logistics.
We also expect our capital expenditure this year will reach US$250 million for construction, infrastructure and resettlement costs.
We are making an extra effort to reach out to the local business community. Working with Mozambique's business association CTA, the Investment Promotion Centre and the Zambezi Development Agency, we have held workshops in Zambezia, Sofala, Tete and Manica, where our procurement team presented our wide range of business needs and provided information to companies on how to register on our procurement data base.
And, in a few weeks' time, we will open an Enterprise Centre in Tete to help local businesses understand how they can become a supplier to Rio Tinto. In coordination with other partners the Enterprise Centre's mission is to develop an enterprise training program and a financial support program.
Rio Tinto's approach to developing a world class coal business in Mozambique goes beyond the mine gate: it goes beyond jobs, taxes and royalties.
It goes to the heart of creating opportunity and a better future for all stakeholders.
At Rio Tinto, our aim is to achieve a mutually beneficial approach; and help achieve prospering economies.
Ours is a constant journey. We continue to learn and respond each and every time we operate in a new location, and with a new culture.
Importantly, this approach is just as relevant in developing countries as it is in OECD countries.
Speaking notes for
Rio Tinto Coal Mocambique, Chief Operating & Development Officer
3rd Annual Mozambique Coal Conference
Tuesday 3 July, 2012, Joaquim Chissano Conference Centre
When Royal Dutch Shell proposed a 195p-a-share, £992m offer for Mozambique-focused oil and gas explorer Cove Energy in February, many in the City regarded it as a “full” offer.
“The valuation looks stretched,” wrote one analyst. “The proposed offer is unlikely to face a challenge,” said another. More than four months on, Thailand’s PTT now leads a bidding war with a 240p-a-share agreed bid.
The City now expects Shell – which has so far raised its offer to 220p – to come back and at least match PTT, potentially even upping its bid to above 300p. Cove’s prized asset is its 8.5pc stake in the Rovuma 1 block off the Mozambique coast, where giant gas reserves have been discovered.
The fact that interest in the company has so greatly exceeded expectations is, in large part, due to the astonishing run of further gas discoveries in the block since February. But the bidding war also highlights the importance with which East Africa is regarded by the world’s biggest oil and gas companies – and the premium they are willing to pay .
“In the space of a few years, East Africa has become a feeding ground for most of the world’s oil majors, which have sniffed our resources of oil and gas on a truly gargantuan scale,” wrote Malcolm Graham-Wood, oil analyst at VSA Capital, in a recent note. And in the world of oil and gas where, as he puts it, “if you find it, they will come”, those gargantuan reserves are the key.
“It’s been known there’s oil here for 100 years,” Laurie Hunter, chief executive of explorer Madagascar Oil says. “It actually seeps out on the surface in places.”
But with exploratory drilling consistently exceeding expectations, the geology of East Africa is proving to be even better than once thought.
FTSE 100 explorer Tullow Oil began drilling by Lake Albert in Uganda in 2006 – the first well there since 1938. It has drilled 45 wells to date; 43 of them have hit hydrocarbons. The company says it believes the Lake Albert rift basin is a “a major hydrocarbon province in its own right”, with resources as high as 1.1bn barrels. French oil major Total and Chinese CNOOC have paid $2.9bn to buy into Tullow’s stakes.
In March, Tullow struck oil in its first exploration well in Kenya, the country’s first ever discovery. After further success, Tullow has already suggested Kenya’s reserves could exceed those in Uganda.
But while the oil discoveries look transformational – for all involved – it is gas that is causing the most excitement. In the balmy waters of the Indian Ocean, off the coasts of Tanzania and Mozambique, gas discoveries are estimated to stand at more than 100 trillion cubic feet (tcf). Potential resources are significantly higher. By way of context, the UK’s entire annual natural gas consumption in 2010 was 3.3tcf.
The discoveries have made Ophir Energy the darling of the UK stock market. Since listing in July 2011 at 250p a share, the explorer has more than doubled in value, closing last week at 580p.
In May Ophir and partner BG Group announced their fifth consecutive gas discovery off Tanzania, taking their estimated reserves there to more than 10tcf. Ophir says its “unusually high success rate” is aided by the fact the basins’ geology is “ideal” for producing 3D seismic data, reducing the exploration risk.
Other major players off the coast of Tanzania include Norway’s Statoil and US giant ExxonMobil, who together have already discovered about 9tcf this year.
Further south, Mozambique’s Prosperidade gas complex in the Rovuma block is thought to contain recoverable reserves of 17tcf to 30tcf of gas – the discovery that brought Shell and PTT to the table for Cove. America’s Anadarko and Italian company ENI have also made giant Mozambique finds.
To date, Mr Graham-Wood says, Mozambique is “undoubtedly the biggest success story in East Africa”.
But it’s not just the geology that makes East Africa so exciting – it’s also the geography. “Conveniently,” Mr Graham-Wood notes, East Africa’s gas “faces the lucrative markets of India and the Far East and is now a truly valuable commodity”.
The gas will be cooled into liquefied natural gas (LNG) so it can be shipped to Asia. Gas consumption jumped 21.5pc in China and 11.6pc in Japan in 2011, according to BP data.
“We believe there is enough gas offshore Tanzania in total for an LNG export project,” says Martin Houston, chief operating officer of BG Group. “Looking at global gas demand growth between 2010 to 2020, supply will actually need to grow by more than 9pc per year – this is roughly equivalent to bringing onstream '20 Norways’ by the end of the decade. LNG is set to increase from just under 10pc of the gas supply mix today to around 14pc in 2025 with Asian demand the engine of this growth.”
“Gas is cheaper than oil, it’s easier to find big supply sources, and it’s cleaner,” explains analyst Stuart Joyner of Investec. “The Japanese nuclear industry has basically shut down, the UK has gone from being a net exporter of gas to a net importer. The growth in the gas market globally is phenomenal. The returns on LNG right now are much much better than they are for oil.”
Exploiting the reserves in East Africa is not without its challenges, as Mr Joyner notes from a recent visit to Mozambique. “There are no roads and you have to fly everywhere on dodgy twin-props.”
There are political challenges, too. Tullow was forced to defend itself against unfounded corruption allegations in Uganda, and has been embroiled in a tax dispute with former partner Heritage Oil.
Madagascar Oil’s shares had to be temporarily suspended in 2010, a month after listing on AIM, amid a tax dispute with the island’s government, now resolved. And Shell’s plans to explore in four “exciting” offshore deepwater blocks have been delayed for a decade by a stand-off between Tanzania and semi-autonomous Zanzibar over production sharing rights.
Yet challenging environments are part and parcel of frontier oil and gas exploration. There is little doubt that East Africa is well on its way to becoming a major new oil and gas exporting province.
No wonder, then, that analysts believe the bidding race for Cove has a long way to go - and is unlikely to be the last.
Shell last week extended its 220p offer, despite having been outbid. Mr Graham-Wood suggests that could be a “cunning ruse to buy time on another deal” – to buy a stake from one of the other partners in Rovuma. Even in February Shell had said it was assessing potential opportunities to build a higher stake in the block.
Mr Joyner agrees that the supermajors are circling. “Ophir is the obvious next target, but I think you could also see consolidation of some of the smaller stakes in the Mozambique projects and ultimately Anadarko and possibly ENI cashing in,” he says. “At the moment, you have a mix of independents and medium-sized companies. Fast-forward five years, you will see a very different picture.”
By Emily Gosden
With great sales volumes and a total commitment to uncovering new energy riches, Anadarko Petroleum (APC) is a company I believe to be one to buy now and hold for a long time. The company is finding new plays in the exploration of both oil and natural gas and is making headway in the production of both. When natural gas prices bounce back to a respectable level, Anadarko will increase revenues and profits making for a happy investor following.
With a market cap of $30.48 billion, the company is a fighter nipping at the heels of larger oil and gas companies such as BP (BP), ConocoPhillips (COP), Exxon Mobil (XOM), Chevron (CVX) and Total (TOT). Last year, driven by a 10% year-over-year increase in liquids volumes, Anadarko reported record sales volumes of 248 million BOE. The company is showing healthy signs of progress offshore Mozambique where it more than tripled the original recoverable resource estimate, and in the Wattenberg HZ in northeastern Colorado, the company has identified 500 million to 1.5 billion BOE of net resources. There are many more success stories which lead me to believe Anadarko is a company to buy now.
Mozambique seems to be where a lot of activity is paying out for Anadarko. A group led by the company has found as much as 60 trillion cubic feet of recoverable natural gas, or more than six times the U.K.'s existing reserves. Leading a partnership, Anadarko recently made a discovery off the shores of Mozambique that establishes a second major natural gas complex in the Rovuma basin in Offshore Area 1. Lying mainly in Offshore Area 1, Anadarko estimates that the new complex contains 10 to 30+ tcf of recoverable gas.
With the potential to form the foundation of a large liquid natural gas (LNG) development, the partnership will immediately begin a four-well appraisal program in the new complex. The partnership breaks down as follows: Anadarko is operator of Offshore Area 1 with a 36.5% working interest. Mitsui E&P Mozambique Area 1 Ltd. has 20%, Videocon Mozambique Rovuma 1 Ltd. 10%, BPRL Ventures Mozambique BV 10%, and Cove Energy Mozambique Rovuma Offshore Ltd. 8.5%. Empresa Nacional de Hidrocarbonetos ep's 15% interest is carried through the exploration phase.
Regarding this recent discovery, Anadarko's President and CEO Al Walker stated "With this latest discovery at Atum and a successful upcoming appraisal program, we believe the total estimated recoverable natural gas resource in Mozambique's Offshore Area 1 is between 30 and 60 tcf, and the current upside for total gas in place for the discovered reservoirs on the block is approaching 100 tcf. We still have additional exploration opportunities that could expand the resource potential further. A recoverable resource base of this scale supports our initial two-train development plans, as well as significant future expansions. Our current activity is focused on achieving reserve certification and a final investment decision in 2013, as the partnership works toward expected first sales of LNG in 2018."
Here in the U.S., the company has started construction on a natural gas processing plant in La Salle County, Texas, with plans to ramp up drilling in the Eagle Ford Shale. The facility, known as the Brasada Gas Plant will initially process 200 million cubic feet of natural gas liquids each day, handling as many as 400 million cubic feet per day. The plant, located on 156 acres about one mile south of Cotulla, will use a cryogenic process in which temperatures as low as minus 160 degrees will aid in separating various valuable components of natural gas, such as butane and propane, making it easier to be extracted and sold. Anadarko has approximately 400,000 gross acres in the Eagle Ford Shale in South Texas where it has identified more than 4,000 possible drilling sites.
The company gets by with a little help from its friends. In 2011, the company made a deal with Korea National Oil (KNOC) with plans to drill horizontal wells that target oil in the Eagle Ford. In the joint venture deal, Korea National earned a 33% interest in Anadarko's Maverick Basin assets for $1.55 billion and received 80,000 net acres in the liquids-rich Eagle Ford Shale oil play and 16,000 additional acres prospective for the deeper Pearsall Shale gas formation. Korea National also participates with Anadarko in its oil and gas gathering systems and facilities, giving the company the advantage of leverage where others its size might not have.
The company has been shining brightly out west. In Colorado, the company plans to spend $1 billion per year on the Niobrara formation, which involves the Colorado counties of Weld, Boulder, and Broomfield. Anadarko set a record for its quarterly sales from the Wattenberg field during the first quarter, averaging 80,100 boe/d. Sales volumes of liquids were up more than 40% compared with the same period last year. In Wattenberg, the company drilled 60 vertical wells using three operated rigs, ending the first quarter with 28 horizontal wells drilled targeting the Niobrara and Codell formations, and seven horizontal rigs active in the play. Currently the company produces from 36 horizontal wells in Wattenberg field, and plans to add three more horizontal rigs this year.
The company is financially sound. Year on year Anadarko had net income fall from a gain of $761 million to a loss of $2.6 billion despite a 27.16% increase in revenues from $11 billion to 14 billion. In 2011, the company reported a dividend of $0.36, equaling the previous year dividend. The company reported first quarter 2012 earnings of $0.92 per share, exceeding last year's first quarter results by 27.78%, and reported annual 2011 earnings of 3.37 per share. Anadarko had first quarter 2012 revenues of $3.45 billion, 10.21% below the prior year's first quarter results, but had revenues for the full year 2011 of $13.97 billion, 27.16% above the prior year's results.
Investing in Anadarko does not come without risks. Zacks Equity Research recently maintained its "Neutral" rating on the company. Anadarko investors must deal with the company's exposure to volatile oil and natural gas prices. Furthermore, since Anadarko operates both onshore and offshore, investors need to pay close attention to weather events such as Tropical Storm Debby, which recently had the company close down two of its Gulf of Mexico oil and gas operating platforms due to the storm. These events can greatly impact the company's bottom line, thus impacting the stock. Investors should also watch for higher operating costs, new regulatory hurdles, and political uncertainty in the countries where Anadarko has operations.
With the new Mozambique results as well as the company's commitment to its U.S. plays, Anadarko will continue to impress. This is a company that is obviously set to grow by leaps and bounds with both great oil and gas plays catapulting it to new heights, and smart profitable partnerships helping it to gain momentum.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
(Source: Seeking Alpha: Mel Davis)
What on earth is Novozymes, a $1.8-billion industrial biotechnology company headquartered in Denmark, doing in Mozambique, a poor African country (per capita income: $440) where corruption is rampant and more than half of the government’s budget comes from foreign aid? The company says it’s trying to protect forests, increase agricultural productivity, lift farmer incomes, reduce indoor air pollution and, not incidentally, make money.
In an unusual move for a big multinational company, Novozymes and a partner, a New York-based firm called CleanStar Ventures, have created a vertically-integrated, energy-and-fuel company called CleanStar Mozambique. The centerpiece of the new venture is a factory that makes clean-burning ethanol for use as a cooking fuel from cassava, a starchy food crop widely grown in Africa. The factory opened in mid-May, with a visit from Steen Riisgaard, Novozyme’s CEO, who said, according to published reports: “I’ve seen many ethanol plants in the world and this is the smallest. But it is also the one that makes me the most proud.”
CleanStar Mozambique aims to do business at the bottom of the pyramid, where the world’s poor people collectively make up a big market. [See my blogpost, Beer at the bottom of the pyramid, which is also about Mozambique.] BOP, as it’s known, is an appealing theory, but not one that has generated a lot of success stories since it was put forward by two academics, the late C.K. Prahalad (who wrote The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits in 2004) and Stuart Hart, a Cornell professor who co-authored the first article on the BOP with Prahalad and has since become a leading thinker on sustainability.
The idea for CleanStar Mozambique took root after Thomas Nagy, an executive vice president of Novozyme, met the CleanStar Ventures people at a Cornell seminar organized by Hart. “We’d been looking for ways for our technology to get into the BOP market,” Nagy told me, when we spoke by phone. Novozyme is the world’s largest maker of enzymes, which are molecules that catalyze (or speed up) chemical reactions; they’re used in many industries, from detergents and toothpaste to stone-washed jeans, pulp and paper, oil and gas and biofuels. CleanStar Ventures, meanwhile, was formed by Greg Murray and Sagun Saxena, both former strategy consultants, to pursue business opportunities in emerging markets, with a focus on food and fuel. “We founded CleanStar Ventures because a lot of groups that operate in this space have a short timeline,” Greg told me by phone. “They’re in a rush to put money in and take it out. To transform things like the dependence on charcoal for cooking in Africa, we need to take the time to really understand the issues and bring in partners.”
Cooking with charcoal is widespread in Africa, and a big problem for several reasons. First, it leads to deforestation because trees are chopped down to make wood into charcoal. Second, indoor air pollution makes people sick. Third, charcoal is expensive; prices have doubled in the last year in Mobuto, the capital of Mozambique, and some charcoal is transported from more than 200 miles away, according to this story by TriplePundit’s Jen Boynton, who traveled to Mozambique with Novozymes. The charcoal market is Mobuto alone is said to be worth $150 million. “We think we can convert a majority of that over to our solution,” Murray said, and then expand. “As our scale increases, our production costs go down, and we can lower our prices. This is a pan-African strategy we’re trying to prove out here.”
Here’s how it works: CleanStar Mozambique works closely with farmers (about 500 and growing, no pun intended) who grow cassava as well as peas, beans, sorghum, pulses and soy, using conservation agriculture techniques. The company provides them with inputs and technical assistance, and buys their crops. “The land that they use is basically land that today has been slashed, burned and degraded, first from the charcoal and then from unsustainable farming,” Nagy says. “We’re adding value to the farmland and increasing the agricultural capacity of that rural community.” Some of the crop is sold as food, and the rest is processed into ethanol at the new factory, which uses enzymes from Novozyme.
Meantime, CleanStar Mozambique sells cookstoves and cooking fuel through its own shops, all in Maputo. Sagun says: “The pitch to the target customers is all about cost, usability and a better experience. It’s a direct commercial appeal.” The company owns the entire operation. “You can do it yourself or you get taken to the cleaners,” Murray told me. “There are only a couple of trucking companies, and they’re crooks.” “The secret in this project is not so much the technology or the farming practices but the ability to connecting the rural production capacity with the market in Maputo,” Nagy said.
It’s not a simple business. To make the cooking stoves affordable–they sell for about $30, but cost more than twice that–CleanStar Mozambique made a deal to sell carbon credits in advance to Bank of America Merrill Lynch (where the deal was handled by Abyd Karmali, the company’s carbon markets chief). It’s estimated that each cookstove reduces GHG emissions by four tons a year. Will the venture pay off? Novozymes has generated lots of good will, but it wants more than that, Nagy said. “This is a real business. We’re investing now but we certainly look forward to revenues and dividends,” he said.“We are cautious about calling it a victory, but we think we are onto something here that has real potential.”
Source: Marc Gunther
Along a dirt road in Mozambique’s Sofala province, a long line of men on bicycles stretches into the distance, each carrying an impossibly big bag of charcoal strapped to his bike.
The journey to town takes two days from where they or their families cut down trees and put logs in earth-covered pits to smoulder, to produce the charcoal.
It is a common sight in a country where 80 percent of people rely on charcoal for cooking.
Each year the charcoal sellers’ journey gets longer as locals and foreign logging companies chop down indigenous forests, the source of coal in this southern African nation.
However, breaking the country’s dependence on "dirty" fuel is the aim of a for-profit venture called Cleanstar that began selling ethanol cooking stoves in the capital, Maputo, earlier this year. The ethanol is made from cassava, or mandioca, which is grown in virtually every back yard here.
"Interesting. The alcohol they use comes from mandioca, a product that is produced a lot here. That is good," says one curious potential customer, Maputo taxi driver Milton Bilale.
With the price of charcoal in Maputo’s many open-air markets rising sharply, Cleanstar is banking on being able to corner a tidy slice of the domestic fuel market by offering a clean alternative at no greater cost.
The project’s backers, including Danish biotech giant Novozymes (whose enzymes turn the cassava into ethanol), believe that if it takes off here, it can be replicated in any number of eastern and southern African countries where charcoal prices are spiking and a growing population of urban poor are prepared to spend their disposable income on "aspirational" consumer products.
"We want to demonstrate that you can use this technology, you can work with the bottom of the pyramid and you can make money," explains Novozymes president Steen Riisgaard.
So far, the response has been fairly enthusiastic.
"We like it very much. You don’t dirty the pan because you don’t dirty your hands. It is fast. You get the food quickly," explains Rosa Lina Manhiça, a grandmother who lives in the Maputo neighbourhood of Mavalane, where the product is being piloted.
Designed by the Swedish firm Dometic, the stove was first used on a large scale in Ethiopian refugee camps. Its stable base makes it difficult for children to knock over. The fuel inside will not spill out, nor does the stove produce black, asthma-causing smoke the way charcoal burners do. So it is safe to cook with inside the house. White and easy to clean, it is a step closer to an electric hob.
"Many women work in the city and see people using electric stoves," says Cleanstar’s sales director, Thelma Venishand, who claims the stoves have become something of a status symbol. "You would usually find this in the living room, not the kitchen," she explains.
"People like these stoves. We don’t get headaches anymore from smoke. But the problem is the price," says another Mavalane homemaker, Maria Douça.
Already heavily subsided, the cost of 30 dollars is nevertheless the equivalent of a week’s wages in this lower-income neighbourhood.
Dometic will have to be able to track the stoves’ use over time so that auditors can verify the amount of carbon replaced – a prerequisite to generating carbon credits.
These carbon credits will be sold on international carbon trading markets to polluting industries that want to offset their greenhouse gas emissions.
The Bank of America Merrill Lynch invested four million dollars in the project with the expectation of being able to trade the carbon credits it generates, once the project gets United Nations approval.
"Based on the fact that we are displacing charcoal, based on the fact that we know there is a huge amount of carbon benefit even with one cooking stove, our expectation is that this is going to deliver the kinds of volumes that are very interesting for us," says the bank’s global head of carbon markets, Abyd Karmali.
Until recently carbon market investors preferred large-scale initiatives in China and India that generated high returns with low risk. What has changed is that from next year the European Union has decided to restrict new carbon credits accepted by its Emissions Trading Programme - the world’s biggest carbon trading market.
Only new credits from least developed countries will be eligible. Suddenly, investors are sitting up and taking notice of projects like Cleanstar.
Mozambique is one of the world's 10-fastest growing economies and recent big discoveries in coal and gas have made it increasingly attractive as an investment destination.
"There is no reason why it can’t be a destination for carbon as well," adds Karmali.
Vast coal reserves to the east of the country are driving the frenetic pace of economic growth. Foreign mining companies have begun exporting coal to India and China where it will be used to make steel, fuelling rapid industrial development and contributing to further global warming.
In an ironic twist, Cleanstar has built what it claims is the world’s first sustainable cooking fuel plant close to the Port of Beira, Sofala province, and just a few hundred metres away from the railway line carrying coal to the coast for export.
When the plant came on line in late May it used cassava imported from neighbouring South Africa as a temporary solution. Eventually the plan is to source the fuel from farmers in the nearby village of Savane.
As in much of rural Mozambique, malnutrition is rife in Savane. Farmers eke out an existence based on subsistence cropping, with little or no access to fertilisers and no means of storing their harvest in order to be able to eat all year round.
Cleanstar wants farmers in the area to sign up to a sustainable farming model which will involve rotating cassava, sorghum and vegetable crops but also planting indigenous trees to reforest an area denuded of the coastal forest that covered it just 20 years ago.
"When you fly over this region now you see this patchwork of degraded farms. In ten years time I imagine strips of rich forest in between a vibrant, productive agricultural zone," says Cleanstar’s managing partner, Sagun Saxena.
Villagers are curious about the project, but they have also seen several donor-driven agricultural initiatives start up and fail.
Mother of seven Ana Antonio is one of several thousand Savane residents who have agreed to take part. With the first of her new cassava crop poking out of the earth in her front yard, she is waiting to see how this initiative might benefit her family.
In the meantime, she says, she will go on supplementing her income the old way by cutting down trees and burning the logs in earth-covered pits.
"We will still make charcoal. The children need this and that for school and it costs a lot. It is the only way to make sure they don’t drop out of school," she says.