Tanzania: BG exit rumours resurface

The near-perennial rumours that BG may sell its 60% stake share in Tanzania’s Offshore Block 3 have resurfaced this week. The Sunday Times reports that BG is quietly searching for a buyer and a sale is likely, echoing rumours that have been circulating for some months. 

BG operates and holds 60% stakes in Blocks 1, 3 and 4 with Ophir holding the remaining 40% in each. The Tanzania fields are incredibly large, but their size is equalled by the cost of bringing the fields to production. Tens of billions of dollars will need to be invested, partly because the country is bereft of even the most basic infrastructure, including a port, roads, and power that would be required for a gas liquefaction plant.

This comes at a time when BG is looking to downsize its global empire, which includes the North Sea, Brazil, East Africa and Australia, following a series of profit warnings that led to the resignation of its chief executive, Chris Finlayson.

Although it is currently understood that BG is looking to sell its entire 60% stake in Tanzania’s Block 3 exploration area, BG also owns 60% of Blocks 1 and 4. This means that BG has the option of selling a minority stake, bringing in cash, reducing its share of future spending, while enabling it to keep operational control of the development.

One industry source has told Menas Associates that ExxonMobil, which is the minority partner in Block 2, may also consider buying out its partner Statoil. A pull out by BG would affect the management of the proposed LNG project because the project manager is currently a BG position based in the UK. This would be mitigated by ExxonMobil’s presence in the project already. However, no move is likely until there is agreement on outstanding issues, including gas pricing, domestic market obligations and the finalisation of the project site.

For more news and expert analysis about East Africa, please see East Africa Politics & Security.

© 2014 Menas Associates

Mozambican parliament approves new Hydrocarbon Law

Mozambique’s long awaited petroleum law has been approved by the parliament with substantial amendments by MPs who argued that the changes will strengthen the role of the Mozambican state in oil and gas exploration and production.

The bill, which will come into effect by the end of the year, was approved with votes from Frelimo and MDM. Renamo voted against the bill on the grounds the High Authority of the Extractive Industry – the body that oversees oil and gas operations - must be composed by elected members from all political parties.

The most important point in the new law is perhaps the fact that the state, through the National Hydrocarbon Company (ENH), controls the production, transport, marketing and transformation of all LNG and their derivatives.

It also states that the government must create the conditions for the involvement of Mozambican business people in the oil and gas industry. This is in response to local businesses who have been demanding a better share in the oil and gas business.

The sector is currently dominated by giant multinationals such as Anadarko and ENI and their own international service suppliers. It is very unlikely that any local company will venture into bidding for concessions of oil and gas exploration areas because they neither have the necessary expertise, nor the funds. They have, however, asked the government to introduce a special regiment that forces multinationals to contract local companies for service and products supply.

For a comprehensive analysis of Mozambique’s petroleum law, the Renamo amnesty deal - otherwise unavailable in the international press - and the political, business and security issues affecting Mozambique, please see our latest issue of Mozambique Politics and Security.

© 2014 Menas Associates

Dana Gas: Favourable ruling in Iran and Crescent Petroleum Tribunal

UAE-based energy firm Dana Gas has released a statement that an international tribunal has issued a favourable ruling in the dispute over a natural gas supply contract between Iran and Dana’s largest private shareholder, Crescent Petroleum.

The tribunal ruled that a 25-year contract for National Iranian Oil Co (NIOC) to supply gas to Crescent was valid and legally binding, and that NIOC had been obligated to deliver gas since December 2005, Dana said on 9 August.

NIOC and Crescent signed the 25-year contract in 2001, with the price tied to oil. Deliveries were delayed, however, as oil prices rose and some Iranian officials and politicians called for a revision to the gas pricing formula.

Crescent Petroleum initiated arbitration proceedings in July 2009; a three-person arbitration tribunal was formed under the terms of the 2001 contract.

According to Dana, NIOC first introduced gas into its transmission network and Dana’s UAE processing facilities for commissioning purposes in July 2010. The system had to be shut down again, however, when leaks were discovered in the transmission system.

Dana did not state when it expected gas supplies to start flowing again, but a source familiar with the matter said that supplies would not begin in the near term as subsidiary agreements needed to be reached and infrastructure work completed.

The contract provides for the UAE to import some 600 million cubic feet of Iranian gas per day, although the actual amount will depend on many factors and may only become clear in coming months. The UAE is eager to obtain additional natural gas supplies to support its rapid economic growth.

In the last few years, international financial sanctions imposed by the US and Europe over Tehran’s disputed nuclear programme have restricted trade between the UAE and Iran. Dana did not say whether the sanctions might complicate efforts to implement the gas supply contract.

For more news and expert analysis about Iran, please see Iran Strategic Focus.

© 2014 Menas Associates