Sahel Energy Advisory

Morocco and Western Sahara in the Spotlight

With the hunt for oil picking up momentum in Morocco-considered an investor's haven compared to other Sahelian countries-we are closely watching controversial exploration licenses issued for the disputed Western Sahara territory.

Morocco has issued exploration licenses for blocks in Atlantic waters off Western Sahara, and we expect there to be significant reverberations over this. The exploration licenses went to French oil giant Total SA and US explorer Kosmos. But this offshore territory is undefined and geopolitically loaded with booby traps.

What both the juniors and supermajors are looking at is analog geology that suggests the massive pre-salt finds offshore Brazil could be similar off the African coast. A theory already proven in emerging powerhouses like Angola and Ghana. However, both onshore and offshore exploration will be problematic in areas where basins run into Western Sahara. Algeria is lining up the rest of the region against Morocco and its occupation of this territory claimed by Sahrawi people.

Most recently, earlier this month, Morocco, Total and Kosmos formally pledged that their exploration efforts off the coast of Western Sahara would comply with international rules and that the local population would benefit from any discoveries.

On 9 February, Total renewed its exploration licenses in Western Sahara, despite the independence movement's claims that this is illegal. This will be the third yearly extension on Total's exploration license for the 100,000-square-kilometer Anzarane block, originally issued to Total in December 2011. Kosmos Energy also plans to sink a discovery well this year-which could bring tensions to a climax. The way Morocco, Total and Kosmos see it, "the exploration and production of hydrocarbon natural resources will contribute in a transparent manner to the development of the regions concerned. It is easy to brush this brewing conflict aside, but not everyone is convinced that the dispute won't hinder exploration progress.

In the recent past, European investors pulled out of a $9 billion solar project that was due to set up plants in Western Sahara, due to the unresolved dispute. And Western Sahara activists have at times been successful in pressuring investors to get rid of holdings considered to be encroaching on the geopolitical debate.  But the overriding sentiment here-at least among investors-is that now that Total has renewed its licenses and made it clear that it's going to proceed, and with Kosmos stepping up activities, investors might come out of the shadows on this.

But it's not all about Western Sahara, and in general, this is what investors should consider about Morocco:

•    It is being referred to as the "Norway of North Africa"-and this is not just a quaint comparison, but a geological reality, if not slightly removed from Norway itself. An oil find in the Flemish Pass offshore Newfoundland actually led explorers to Morocco's coast. Newfoundland and Morocco used to be "tectonic" neighbors, so what is found offshore Newfoundland could, by analog geology, be found offshore Morocco.

•    Between 1990 and 2013, only 9 exploration wells were drilled in Morocco because it wasn't even on anyone's exploration radar. Now more well are be drilled in a year than in an entire decade, with at least 10 new wells planned within in the next 12 months. Simply put, there's a sudden burst of activity here, and a lot of joint venture deal-making going on. (OP Tactical's Exclusive Land Packages Program can help investors interested in breaking into this area-ask James Stafford for more information).  

•    This is a virtually unexplored and highly prospective area, which the supermajors have already caught on to. BP will start drilling this year, and Chevron has also bought up stakes.

•    The security environment is stellar compared to Morocco's Sahelian neighbors, and barring any violent incidents emanating from Western Sahara. The fiscal environment is also fairly attractive, as is the infrastructure-in place. The tax structure nets the government less than 30% of petroleum income

Other Energy Developments in the Sahel

•    Tullow Oil has announced early-stage drilling success in Mauritania. It's not a commercial discovery declaration just yet, but there is a great deal of optimism for further exploration results.

•    Algeria is inviting Russia's Gazprom and Lukoil to tender for the development and exploration (with state-run Sonatrach) of some of the 30 fields up for offer (these 30 fields represent one-fifth of Algeria).

Algeria announced the launch of the bidding round for more than 30 fields in late January. 17 of the fields are in the south, five in the north and the rest in the central part of the country. There is a 6 August deadline for submitting bids, and contracts will be signed in September.

Algeria's hydrocarbons law was amended last year, and this auction represents the first under the new regulations. (Contact OP Tactical for more information on Algeria's playing field and regulatory environment.)