Statoil, Exxon Find Natural Gas off Energy-Starved Tanzania

As foreign energy companies increasingly circle Africa seeking energy deposits, it would seem that the Magreb countries of northern Africa have the most developed natural gas deposits and western Africa, particularly Nigeria, the most exploitable oil reserves.

Eastern Africa, which has suffered through chronic energy shortages, now has reason to celebrate, as both Norway's Statoil, and U.S. energy firm Exxon have announced finding natural gas in energy-starved Tanzania's Indian Ocean waters in their Zafarani exploration well in their offshore bloc 2 license.

On 24 February Statoil announced that the field's gas reserves are initially estimated at about 140 billion cubic meters but could be larger, as the precise boundaries of the offshore field have yet to be definitively determined. "The well has encountered 120 meters of excellent quality reservoir with high porosity and high permeability. The gas-water contact has not been established and drilling operations are on-going," adding that initial exploratory drilling operations are expected to be completed by late May.

Statoil operates bloc 2 on behalf of the Tanzania Petroleum Development Corp. and has a 65 percent stake in the field, with Exxon owning the remaining 35 percent. Zafarani is Statoil's first East African discovery and Statoil first concessionary exploration well in bloc 2, which covers an area of approximately 2,100 square miles. After completing its Zafarani well exploratory efforts, the Ocean Rig Poseidon drillship, will move on to drill the Lavani prospect in the bloc 2 concession.

Statoil's executive vice president for exploration Tim Dodson modestly proclaimed, "This discovery is the first Statoil operated discovery in East Africa and an important event for the future development of the Tanzanian gas industry. It is also a demonstration of how Statoil's exploration strategy of early access and high impact opportunities strongly supports the company's ambition for international growth."

Tanzania Petroleum Development Corp. (TPDC) Managing Director Yona Killaghane was similarly understated, commenting, "This discovery could potentially be a catalyst for large scale natural gas developments in Tanzania." 

The news can only be welcome in Tanzania, on east Africa's coast, currently one of the poorest states in the world, as it supports the findings that Tanzania could become a major energy player, given that in 2011 BG Group PLC also made a discovery there.

Leaving nothing to chance and further cementing its concession options, last week the Statoil-Exxon consortium covered its bases by signing an addendum to the bloc 2 production sharing agreement (PSA) with the Tanzanian authorities stipulating future commercial terms in case of a development of natural gas resources in the bloc should they prove sufficiently substantial for commercial development.

But thoughtful Tanzanians are already considering the implications of the PSA. Under its current terms, TPDC only has the right to a paltry 10 percent working interest in case of the bloc 2 Statoil-Exxon concession PSA development eventually coming online. The inequities of the arrangements as well as the country's ability to absorb a potential influx of energy revenues led George Wachira to write in The Citizen on 25 February, "Updated policies and laws must be in place to guide the management and governance of the upstream oil and gas sector. Presence of an effective sector legal and regulatory framework reduces perceived investor risks and expedites regulatory and investment decisions. It will not be a surprise to see the civil bodies engage the government on transparency and resource accountability as has happened in Uganda. A more independent and emboldened judiciary is likely to be generous in issuing civil injunctions that can slow down resource development."

Truer words were never spoken for a country developing nascent energy assets, and, as the newspaper's motto notes, "It's the content that counts."

As Tanzania's TPDC such a minimal share of what will likely prove to be a multi-billion dollar project, it would seem that the Tanzanian government likely has ahead of it a hard sell to its citizenry, as the profit sharing numbers would only make sense on Wall St. during its salad days.

By. John C.K. Daly of Oilprice.com