Madagascar’s been sitting on some 20 billion barrels in oil reserves for quite a while. Investors have only recently shown interest, though. Extraction is technologically challenging, and no one was quite sure about commercial viability. But the wait is over. The oil will begin to flow—soon.
Expect to see a rush on Madagascar, as all eyes are turned on East Africa’s natural resources.
The good news comes from UK-listed Madagascar Oil, which announced this week that it expects production to begin early next year and hopes to extract 3.9 billion barrels of heavy crude from sands. The country hopes to start exporting oil by 2020.
Madagascar Oil (LON: MOIL) should see its 28-well steam flood pilot project at its major Tsimiroro onshore field operational in three months. The field has an estimated 1.7 billion barrels of oil-in-place—an estimate that could increase with further work in the field.
Madagascar Oil is also working another field—Bemolanga—with partner Total (France).
According to the company, “Tsimiroro and Bemolanga, have been shown to have multi-billion barrel resource volumes in place. Recent field tests and studies suggest that a large portion of the Company's Tsimiroro heavy oil assets have excellent potential for economic development.”
But this is only scratching the surface of Madagascar’s potential.
Madagascar has 225 offshore exploration blocks, plus a number of onshore blocks with three key onshore basins: Ambilobe, Majunga and Morondava. The largest Bemolanga and Tsimiroro fields are in the Morondova basin. Most of this is unexplored.
Upstream, while Tisimiroro holds around 1.7-2 billion barrels oil-in-place, with potential for light oil and natural gas, Bemolanga is an ultra-heavy field with potential resources of 16.6 billion barrels (about 9.8 billion barrels of recoverable reserves).
Why has Madagascar been so complicated? Well, for starters, extraction is not easy. Madagascar Oil has had to use a process that requires steam to heat the oil and change its viscosity in order for it to be extracted.
Infrastructure is also a challenge. Madagascar has no refineries—yet. When Madagascar Oil starts production, it will need an export terminal, a pipeline, a marine terminal and an offshore mooring facility.
The UK-listed company initially estimated the cost of fully developing the field at around $1.5…