Anadarko's Mozambique discoveries attracting other companies to region

Katherine Flynn
IHS

Two recent gas discoveries in the northern part of Offshore Rovuma Block 1 in Mozambique (East Africa) by Anadarko Petroleum Corp. have raised the company's recoverable natural gas estimates for its holdings in the region, and makes its bid for Cove Energy, which owns an interest in the same block, seem more reasonable, according to a new IHS regional play assessment.

On June 11, Anadarko said that its Atum 1 well in the northern part of the block had discovered 300 feet of net gas pay. The company stated that this Oligocene discovery appears connected to its recent Golfinho discovery, which encountered 194 feet of net gas pay in two Oligocene zones.

Taking these two wells into account, the company estimates that the Atum and Golfinho complex could hold an additional 10 trillion to 30-plus trillion cubic feet (tcf) of recoverable natural gas, separate from the 17 tcf to 30 tcf previously estimated in the Prosperidade complex in the same block to the south.

Anadarko plans to drill four more wells to appraise these new discoveries. While Eni, operator of neighboring Offshore Rovuma Block 4, has been drilling south of the Properidade complex, Anadarko has been drilling north, closer to the Tanzania border.

Over the border into Tanzania, Block 1 is owned by BG Group and Ophir Energy, which have made three discoveries on the permit. In March, the consortium made the Jodari 1 gas discovery in the Lower Tertiary. The fairway between Golfinho 1 and Jodari is undrilled, leaving room for more discoveries on both the Mozambique and Tanzania sides of the border. The most recent Mazia 1 well, the fifth consecutive discovery for BG and Ophir, was their first Cretaceous discovery and was consistent with drilling to the north in Tanzania.

Cove Energy's main asset is an 8.5% participating interest in Mozambique's Rovuma Offshore Area 1 Block. The most recent bid for the company by Thailand's PTT Exploration and Production Public Company Limited (PTTEP) of £2.40/share implies a total transaction value of £1.11 billion, or US $1.75 billion. Assuming a median estimate of 45 tcf in recoverable reserves for the block, given the recent resource increase from the Golfinho 1 and Atum 1 discoveries, the median US dollar/million cubic feet equivalent (mcfe) value is $0.46, which is more in line with other transactions involving potential LNG projects.

As the recoverable resource estimates prior to these recent two discoveries were 17 tcf to 30 tcf total, both Royal Dutch Shell and PTTEP, which have been in a bidding war for Cove Energy, seemed to have been paying up for additional potential. Shell initially bid 195 pence per share in February, which was topped by PTTEP's 220 pence per share, which was matched by Shell, only to be topped by PTTEP's latest offering of 240 pence per share. Anadarko has now said that it is on its way to proving 100 tcf on the block, making the earlier Cove Energy bids, which seemed high, now look more reasonable.

On January 30, Cove said it would divest its Tanzanian interests to Wentworth Resources, comprising a 16.38% share in production operations and a 20.475% share in exploration operations in the Mnazi Bay production sharing contract (PSC). A component of the agreement is the termination by Wentworth of its 4.95% royalty interest over Cove's 8.5% share of the profits derived from the Rovuma Area 1 Block.

The parties said the deal is valued at about US $39 million, which IHS is using as the value for the Tanzanian assets pending additional disclosure. Cove Energy also holds a 10% interest in the Onshore Rovuma Block in Mozambique as well as 1.27 million net acres covering seven concessions in the Kenyan deepwater.

Given the continued exploration successes in the Rovuma Basin, many companies are seeking to enter the play or are jockeying for position to commercialize discovered resources. We expect this interest to continue in the coming months.

With Eni drilling to the south of recent discoveries on Block 4 and Anadarko continuing its efforts in Rovuma Block 1 to the north, resource estimates for offshore Mozambique could still grow in size during the next few months, making current estimates conservative. While Eni has stated that it wouldn't sell any stake until it finished the exploration program at the end of this year, majors such as BP, Royal Dutch Shell, and Total have all shown interest. Asian national oil companies, including PTTE&P, which has extended its bid to acquire Cove Energy, might also be interested in getting into the area. We expect bidding to be quite spirited for new areas to the south of Blocks 1 and 4 in an upcoming licensing round. OGFJ

About the author

Katherine M. Flynn is an energy equity analyst at IHS in Norwalk, Conn., where she covers company analysis, including Anadarko. She is a graduate of Bucknell University in Pennsylvania, where she studied economics and psychology, and minored in political science. She can be reached at [email protected].