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Statoil Strikes Oil in Mozambique?

Brian Hicks

Written By Brian Hicks

Posted June 17, 2013

Mozambique could yield some substantial oil discoveries.

Statoil (NYSE: STO) and Tullow Oil (LON: TLW) are completing a test well that could lead to the first commercial discovery of oil in the East African nation. The partners are hoping to extract 200 million barrels of oil from the offshore Cachalote well.

africa oilThe companies are drilling through natural gas fields in a prioritized search for crude. Natural gas has already been discovered in Mozambique, but the partners hope to be the first to unlock the country’s commercial crude potential.

In 2012, Statoil farmed down a 25% working interest with Tullow in areas 2 and 5 of Mozambique’s Rovuma Basin. The Cachalote well, located in area 2, is the main focus of the project and has the best chance of yielding commercialized oil.

Approximately 100 trillion cubic feet of natural gas was discovered by Anadarko Petroleum (NYSE: APC) and Eni SpA (NYSE: E) in a bid to build the world’s second largest liquefied natural gas plant in Mozambique by 2018. During Eni and Anadarko’s aim to find natural gas, oil was discovered, but not enough to spend capital on extraction.

Natural gas in the Rovuma Basin is said to contain enough reserves to begin operations for LNG, a commodity heavily valued in parts of Asia and Europe.

Mozambique is a nation that relies on natural gas exports, consumes most of its coal production, and relies on the expertise of outside companies to develop its fields.

But Statoil and Tullow could become pioneers in the Mozambique oil market – an accomplishment that would likely attract more energy companies and investors alike.

Mozambique Oil

For a nation that has shown so much potential in the natural gas arena, it is somewhat surprising that no prominent oil discoveries have been made.

But that could change very soon.

While other companies are on the prowl for natural gas, companies like Statoil and Tullow are carving out a niche for Mozambique oil. But they better work fast, since Eni is planning a new expedition in the area 4 portion of the Rovuma by the end of this year, with a specific eye for oil.

Commercial oil production would not only benefit the Statoil/Tullow alliance but Mozambique as well. The nation is one of the poorest in the world, and a large oil discovery could give a helping hand to Mozambique’s infrastructure and economy.

Tullow and Statoil are certainly digging in the right place; East Africa as a whole has certainly generated some of the most lucrative oil sites in Africa.

If the larger region is any indication of what’s in store for Mozambique, then an oil discovery is inevitable and could change the nature of Mozambique energy exploration. And many companies around the world are already flocking to the nation even without the presence of oil.

Companies in Mozambique

Statoil has had farm-in agreements with other companies as well, including Japanese corporation INPEX Corporation (OTC: IPXHY), whose subsidiary, INPEX Mozambique, Ltd., has been in areas 2 and 5.

Royal Dutch Shell (NYSE: RDS-A) and ExxonMobil (NYSE: XOM) are in talks with Anadarko Petroleum in the sale of a 10% stake in the Rovuma Basin. Eni and Anadarko have high aims in building a massive LNG plant in Mozambique, but the two companies have little experience in managing such facilities, which is why the companies are looking for outside help from two of the biggest names in the LNG field.

BP (NYSE: BP) has been in Mozambique since the 1920s with original venture partner Shell. Even after Shell left Mozambique in 1978, BP has operated alone with no other stake holder.

In 2012, French company Total (NYSE: TOT) farmed in with Malaysian company Petronas for a 40% stake in South Rovuma.

India is getting in on the mix as well, with Oil India (NSE: OIL) and Oil and Natural Gas Corporation Limited (NSE: ONGC) acquiring a 10% stake from Videocon Industries (BOM: VIDEOCON) for $2.5 billion. The Indian companies will explore area one of the Rovuma Basin.

It is not surprising that Indian companies are setting up a beachhead in one of Mozambique’s most fertile LNG areas, since the commodity is vital in fueling India’s developing economy.

The Rovuma seems to be getting more crowded, but Total and Statoil have a slight edge if their project produces an oil strike before any other companies. It is not certain what the Cachalote well will generate, but the focus on oil could have massive payoffs, and it is something investors should keep on their radar.

But even without oil, the upcoming exporting plant by Anadarko and Eni could place Mozambique on the map as a major LNG exporter in the international market.

It is one nation investors should keep an eye on, not only for crude discoveries, but for the sake of LNG exports.


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