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Tanzanian turning point

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    Tanzanian turning point
    Friday, 6 February 2015

    Justin Niessner

    ONSHORE Davids and offshore Goliaths represent the first pioneers in what seems destined to be a major energy hub.

    Messy headlines coming out of Tanzania’s energy sector are the last thing the country needs as it tries to set the stage for a major gas boom. Fortunately, industrial players have seen these growing pains as a transitional clean-up rather than a meltdown.

    Tanzania has enjoyed relative political stability since restoring a multi-party system in 1995 after decades of socially rocky post-colonial rule and minimal economic momentum.

    Development of the country’s resource sector has been at the centre of this story. And by most accounts, the next chapter will be about gas.

    It’s little wonder then that the political power structures still grappling with corruption and adequacy issues have had their fair share of bumps on the road to transforming the national economy.

    Recent news around Tanzania’s energy sector has included allegations Prime Minister Mizengo Pinda authorised fraudulent payments to offshore banks under the guise of energy contracts. Concerns over such deals have reportedly caused the freezing of almost $US500 million in international donations to the country.

    This situation has precipitated the arrest of state oil and gas officials and an increased scrutiny over all things energy as negotiations continue over how to most fairly distribute Tanzania’s hottest new commodity set.

    The latest uproar comes in the wake of a leaked contract last year between Norway’s Statoil and the Tanzania Petroleum Development Corporation.

    Discrepancies found between the Statoil deal and a presumed model for the country’s production sharing agreements have stoked public debate on how to redraw an inadequate gas regulation framework.

    Tanzania has no commercial oil operations and only two producing gas fields, but the potential has already attracted just about every major player in the sector, with Shell, ExxonMobil, Ophir Energy, Petrobras and British Gas having staked claims offshore.

    As the government considers new terms for the heavyweights on hotly pursued offshore properties, the junior sector onshore has felt the pressure of additional policy uncertainty on the more risky mainland tenements.

    The challenge will be to establish a regime that balances attracting investment with appropriate taxes and royalties for both the deepwater projects run by deep pocketed majors and the cheaper onshore holdings of the small-caps.

    “They’ve got to do it on a risk-reward basis,” International Energy Solutions director Peter Grant told affiliated publication RESOURCESTOCKS.

    “They’ve got to understand that initially until they’ve de-risked the onshore, they need to make conditions reasonably attractive. Once it’s de-risked and people realise it’s very attractive and very prospective, then the risk-reward will change.

    “I think they understand it – it’s bringing it into play that’s the difficult thing. They haven’t really drilled many wells recently onshore, but offshore, there’s very healthy government participation in assisting to get everything ready. So it is doable.”

    With one eye on national elections this October, junior operators are continuing to make headway in this environment.

    Perth-based Jacka Resources has reported important hydrocarbon potential at its Ruhuhu licence, flagging prospective resource assessments of 263 million barrels for conventional oil and 20 trillion cubic feet for gas.

    A farm-out process has been initiated with a US consultancy helping the company identify potential partners as its mulls commercialisation options with players such as national electricity provider Tanesco.

    Meanwhile, Bounty Oil and Gas is expecting its first Tanzanian revenues to come from the Kiliwani North project, where 45 billion cubic feet of gas will connect to a new processing plant via a 2km pipeline currently under construction.

    Kiliwani is set to produce this year at a rate of 364 barrels of oil equivalent per day net to Bounty.

    One of the more integrated foreign operators, however, may be Sydney-listed Swala Energy, which became the first oil and gas exploration company to list on the Dar es Salaam Stock Exchange last year.

    Swala CEO and managing director David Mestres Ridge told RESOURCESTOCKS the move was part of a strategy toward greater local participation.

    “In Tanzania we have some very good regulators (the Capital Markets and Securities Authority or CMSA, managed by Nasama Massinda) and the Dar Stock Exchange, whose CEO, Moremi Marwa, is doing a tremendous job of educating people on the benefits of the exchange and of growing the offerings of the DSE,” he said via email.

    “It is sometimes easy to overlook institutions because they are young, but we forget that the technical capability of their leadership has been developed in places like the US or the UK, and that they have a very strong vision – not just in Tanzania but elsewhere – of where they want to take those institutions.”

    Perhaps the main risk factor for these companies outside of regulatory uncertainty is Tanzania’s wanting infrastructure development. The gas discovered offshore will mostly be exported as LNG, but onshore projects will require a gas reticulation concept for the major cities.

    It’s another area where government is going to have to step up to the plate because onshore juniors are simply not going to be able to invest in a pipeline from the southern gas fields to Dar es Salaam.

    The technocratic hiccups that have characterised Tanzania’s energy scene as these challenges become public debate will undoubtedly scare off some investment. But the growth statistics for the country’s gas industry have so far pointed to a country that can no longer be ignored.

    Tanzania’s gas reserves have been estimated to total between 50-53Tcf, based on exploration company discoveries. Market analyst HIS reported that gas discoveries in east Africa as accounting for more than 25% of added reserves worldwide, with Tanzania and Mozambique leading the way.

    The politics are undoubtedly choppy at the moment, but no one ever said creating a new world-class energy region was a pretty process.
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