Africa Energy Advisory

In this week's Africa energy advisory we look at some key regulatory changes that will affect oil and gas exploration and production in emerging gas venues Tanzania and Mozambique, and East African emerging oil giant Angola.

Tanzania-Regulatory Caution

Investors and potential investors should be aware of the following regulatory developments in Tanzania's gas industry as the country adapts to its new discoveries and attempts to handle gas differently than it handled mining-on trend with other African countries:

•    We are concerned about the regulatory trends in emerging gas player Tanzania, where a political debate regarding the scale of involvement of local companies is reaching its climax. Tanzania's parliamentary standing committee on energy and minerals has challenged the government over the dominance of foreign companies in the production of natural gas. Not only are they challenging the dominance of foreign companies, but they are calling for measures to be taken to favor local companies.  This idea is gaining a fair amount of momentum.  The main impediment to more local involvement, however, remains the high cost of exploration, which makes it very difficult for local companies to compete.  The same figures are calling for the government to repossess mining sites awarded to foreign companies in cases where development has not proceeded as planned.

•    Tanzania will receive its first-ever capital gains tax from the sale of three gas blocks by Ophir Energy to a company from Singapore, Pavilion Energy. The $1.3 billion sale will net the government $258 million in taxes. The proceeds will be used to acquire two gas blocks on the border with Mozambique on behalf of the Tanzania Petroleum Development Corporation (TPDC). The transaction should be completed in the first quarter of 2014.

•    The TPDC will start selling shares in new production-sharing contracts (PSCs) on the Dar es Salaam Stock Exchange to open up participation to locals. TPDC will take a share of up to 65%-75% in new PSCs. The stakes held by TPDC may possibly be made available to locals through IPOs (initial public offerings). This will be set in motion with the fourth licensing round for gas exploration blocks in Tanzania. The government is currently accepting bids for the fourth round of natural gas blocks. Bidding will close in March 2014. Seven blocks are open to bidding.

•    On 16 December, Tanzanian government officials sat down with BG Group and its partners-Exxon Mobil, Statoil and Ophir Energy-to review BG's proposed site for a gas liquefaction plant. If the proposed site is approved it will be a major coup for BG Group and its LNG plans in Tanzania and the wider region as well. This will also be a major coup for Tanzania because it will put it in league with other major LNG players like neighboring Mozambique, Russia, Australia and Canada-all of whom are preparing for 2020, when the LNG market is expected to boom. The final investment decision on the project is due in 2016, and the location was expected to be approved by the government before the end of this year.

Mozambique-Anxiety over Target LNG Export Date

•    Mozambique's parliament is considering an amended petroleum law

•    There is growing concern that Mozambique-which is essentially in a race with Tanzania to export the first LNG from East Africa-may not make its target date of 2018 for the first LNG exports, though the government insists there will be no delays. Much of the concern is centered on what the market will look like when the US starts exporting more LNG in the coming years.

•    Mozambique will hold its fifth oil and gas bidding round sometime in 2014. Most blocks will be offshore in the deep-water Rovuma Basin, the Zambezi Delta and the Beira High regions.  This will be the second auction since 2009. There may be some onshore blocks up for bidding, but the government has not yet released any details. So far, some 150 trillion cubic feet of gas has been discovered, and the government and explorers are confident they will double this estimate.

•    A new round of bidding for coal mining in the Tete and Niassa provinces will also be opened in June 2014

Angola-New Auctions, New Laws

•    Under a new law enacted on 22 November, oil explorers will have to pay a 0.1% duty on the value of imported materials for oil and gas exploration and production, removing an exemption of duties that was previously in place. The list of imported materials subject to the new duty has not yet been published. This follows a new law that took effect in October levying a consumption tax of up to 10% of spending by oil companies for services and supplies, including the rental of drilling rigs. The consumption tax increases will give the government more cash to finance infrastructure.

•    Angola's state-owned Sonangol EP is preparing to explore five onshore blocks, which if discoveries are made will be tendered for development. Four of these blocks are in the Kwanza basin, while the fifth is in the Lower Congo basin.

•    10 additional new onshore blocks will be auctioned off in early 2014, but Sonangol will retain a 50% share in four of them in the Kwanza basin and will hold exploration rights in five other blocks on the list

Ghana-Strict Local Content Laws Put in Place

•    The parliament has approved a key deal with AGM Gibraltar for exploration of the offshore South Deepwater Tano block, even though the deal was at first opposed by watchdogs who had said the company lacked the necessary experience. The significance of this deal is that it went through a very stringent examination process that eventually led to its signing by both major political parties. It is also significant because the deal does not appear to meet the requirements of a new local content law, but was nonetheless accepted.  

•    In late November, Ghana passed the Petroleum Local Content and Local Participation regulations of 2013, in line with the African local content trend that is taking greater shape this year and will continue to do so in 2014. Of concern is an article of the local content law that requires all entities engaging in petroleum activity to comply with the new regulations within three months of their implementation and sets stiff penalties for non-compliance.