Oil Exploration: East Africa Lessons from Mozambique?
Friday, 27 April 2012
Not strictly speaking East Africa, but on the same coast: Mozambique plans to launch a new bidding round for offshore acreage by the end of the year. This fifth licensing round will focus on “non-exploited offshore areas in the southern part of the Rovuma basin”. In that territory, Anadarko and ENI have already announced significant discoveries.

Christopher Melville, Africa consultant with political risk firm Menas Associates, thinks that the apparent enthusiasm for Mozambique is justified. Discoveries, he says, have been very exciting and so far, “the government has taken a business-like approach to the early stage development of a natural gas industry.” But Mozambique – like Kenya and Uganda – is a relatively young player in this industry. Melville cautions: “The next 12 months will be a crucial test of this approach, however. Market jitters following the government’s announcement that it would impose a capital gains tax on the proposed acquisition of Cove Energy – which has an 8.5% stake in Anadarko’s highly prospective Area 1 – highlights the fragility of investor confidence in a country with little previous experience of hydrocarbons development. While the government has clarified its position on the tax, this appears part of a trend of emerging government assertiveness towards resource investors – we’ve seen similar moves in Mozambique’s mining sector.”

Perspectives
Similar to Uganda and Kenya whose oil-exploration legislation is limited and largely outdated, Mozambique also needs to look at the regulatory framework for the development of LNG projects, and is currently revising the hydrocarbons code: “In order to maintain momentum, it will also need to make some clear decisions about how it wants the industry to develop.”

And as elsewhere, politics may interfere: “Ordinarily, we’d expect the Frelimo government to make sensible long-term decisions on such issues, but the party is currently engaged in a sensitive succession process. Not only is this distracting official attention from key issues facing the sector now, but the dust may not have settled until after the presidential election in 2014, leading to a protracted period of less incisive decision making.”

Uganda has underwhelmed the exploration industry recently in how it handled the sale of Heritage Oil’s assets and the question of capital gains tax, and Tullow’s farm in of total and CNOOC. It keeps dragging its feet in developing a legal, regulatory and institutional framework for the oil sector, and the fact that the Museveni government massively overspent ahead of the 2011 elections contributed to the messy situation.
 
In Kenya, the commercial viability of the oil found in its northern Turkana region still needs to be confirmed, but exploration is also ongoing in other areas, and industry players are optimistic that Kenya will eventually become an oil producer. With this improved outlook, Kenya stands to attract more interest from exploration firms, especially from the bigger firms. Will Kenya avoid Uganda’s mistakes?
 
Also read:
Kenya Oil Find: Good News?



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