Oil & Gas in East & Southern Africa Opportunities & Challenges for
Investment
John Smelcer, Head of Oil & Gas
November 2013
© Webber Wentzel 2013
OIL & GAS
SECTOR
GROUP
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INTRODUCTION
INTRODUCTION
• Region known for mining becoming a petroleum region, led by recent
large-scale gas discoveries
• Those recent large-scale gas discoveries have the potential to be a game
changer for individual jurisdictions and wider region
• Next 18 months to 3 years will be critical to determining the exact scope of
the impact
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RECENT DISCOVERIES
RECENT GAME-CHANGING UPSTREAM DISCOVERIES
• Region known for mining becoming a petroleum region, led by recent large-scale petroleum discoveries
• Those recent large-scale discoveries have the potential to be a game changer for individual jurisdictions
and wider region, particularly in the context of the mining sector experiencing increasing head winds
o Mozambique
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o
• Rovuma Area 1, operated by Anadarko, current estimated recoverable gas reserves 50 tcf
• Rovuma Area 4, operated by ENI, current estimated recoverable gas reserves 45 tcf
• Mozambique basin, operated by Sasol, possible resources of 10-15 tcf
• Many estimate recoverable reserves to approach 200-250 tcf in Mozambique
Tanzania
• Area operated by BG (also part owned by Ophir), current estimated recoverable gas reserves 11 tcf
• Area operated by Statoil (also part owned by ExxonMobil), current estimated recoverable gas reserves 10-13 tcf
• Many estimate recoverable reserves to approach 45-60 tcf in Tanzania
Botswana
• Large reserves of coal bed methane (CBM) gas have been discovered in Botswana
• The Botswana Department of Geological Survey reports that 196 tcf of "gas in place" is present in the central
Kalahari Karoo Basin in Botswana
o
o
South Africa
• Karoo Shale Gas: Estimated resources of 485 tcf, which would make it the fifth largest shale gas field in the world
• Active offshore block activity given proximity to other large-scale gas finds in the region
Oil
• South Sudan
• Recent Kenyan, Ugandan, Ethiopian, DRC discoveries (plus additional West African discoveries)
• Namibia offshore, Lake Malawi potential, South Africa offshore?
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NEW AFRICAN OPPORTUNITIES FOR OIL & GAS INVESTMENT
EAST & SOUTHERN AFRICA
South Sudan
Proven Oil Reserves of 3.75
billion barrels.
Uganda
•
Estimated oil reserves of 3.5
billion barrels – refinery
development plans also in place.
Kenya
Democratic Republic of the Congo (DRC)
Onshore oil discoveries estimated at 10 billion
barrels – recent Tullow Oil announcement of
commercial exploitable reserves.
Lake Albert development
Tanzania
Namibia
Tanzania reports discoveries of an
estimated 35 tcf of gas, enough to make
Tanzania a major player in LNG exports
behind Mozambique. Many estimate
recoverable reserves to approach 45-60
tcf in Tanzania.
Anticipated new large-scale offshore oil & gas
discoveries. Further development of the
upstream portion of the Kudu Gas Field.
Botswana
Large reserves of coalbed methane
(CBM) gas have been discovered in
Botswana – Botswana Department of
Geological Survey estimates that 196
tcf of “gas in place”.
Mozambique
South Africa
It is estimated that the shale gas of the
southern karoo area could hold a reserve
of 485 TCF, which would make it the fifth
largest shale gas field in the world. Also
possible large-scale offshore discoveries.
Mozambique is likely to become the world’s third largest
exporter of LNG, behind Qatar and Australia with likely
total gas reserves of approx. 235 tcf and plans by ENI and
Anadarko to develop a US$50 billion LNG project in the 7
country in the near term.
PUTTING THE RECENT
DISCOVERIES IN CONTEXT
PUTTING THE RECENT DISCOVERIES INTO CONTEXT
• Pande & Temane total reserves = 3 tcf / Recent Rovuma finds = 150 tcf (probably 250 tcf ultimately)
• 40% of discoverable gas from last year (2012) occurred in Mozambique (source: Wood MacKenzie)
• Eni and Anadarko have agreed to build the world’s second largest LNG plant with expected investment of
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US$50 billion; Mozambique’s GDP in 2011 – US$12.8 billion
Mozambique is likely to become the world’s third largest exporter of LNG, behind Qatar and Australia
Statoil and BG have announced plans to eventually develop an approximately US$14 billion LNG plant in
Tanzania
The estimated shale gas reserves in the Southern Karoo area are at 485 tcf, which would make it the fifth
largest shale gas field in the world
Qatari gas reserves = 990 tcf / Recent regional finds = 800-990 tcf
Qatar Growth Story (source: Silk Road Finance)
2001
Multiplier
2011
GDP (US$ bn)
17.5
9.7x (or 25% pa)
170
GDP per capita
(US$)
27,000
3.6x
98,000
Qatar Stock
Exchange Market
Cap (US$ bn)
12
10x
125
Banking assets
(US$ bn)
16
12x
190
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POSSIBLE CORE ECONOMIC DRIVER FOR SOUTH AFRICA
The estimated shale gas reserves in the Southern Karoo area are at 485 tcf, which
would make it the fifth largest shale gas field in the world, behind China, USA,
Argentina and Mexico
USA shale gas transformation
• Scale of find: USA – 840 tcf potential / South Africa – 485 tcf potential
• In 2000 shale gas provided only 1% of U.S. natural gas production; by 2010 it was
over 20% and the U.S. government's Energy Information Administration predicts
that by 2035, 46% of the United States' natural gas supply will come from shale gas
• Net energy importer to net energy exporter
• Insulation from world gas and downstream petroleum product pricing shocks
• Significant gas price decrease fostering huge growth in gas-supplied industries with
large-scale multiplier effect (June FT headline – "Steelmakers reap benefits from US
shale gas revolution")
• Transition from coal-fired thermal power to gas-fired thermal power (much cheaper
option given fall is gas pricing)
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ROUTE TO MARKET: MONETISING
THE RESOURCES
ROUTE TO MARKET: MONETISING THE RESOURCES
Downstream options
• LNG
• Gas-fired power
• Fertilisers
• Gas-to-liquids
• Methanol / other Petrochem
• Natural gas for distribution
Economics are different in different contexts, though LNG tends to present the highest pure
economic return under current market conditions
In Mozambique and Tanzania, operators are pushing for large-scale LNG projects, but query
whether government will require that a portion of the discovered gas be utilised for other
downstream (and onshore) activities
In Botswana and South Africa, other down-stream options may be more attractive given the
difficult route to market for LNG and other pressing priorities such as power and liquid fuel
requirements
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OPPORTUNITIES & CHALLENGES
FOR INVESTMENT
OPPORTUNITIES FOR INVESTMENT
• Continuing and increasing world-wide demand for gas, particularly LNG
• Large and increasing regional demand for gas and gas-supplied downstream
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products
o Power
o Liquid fuels
o Fertilisers
o Demand for other petro-chemicals and for natural gas for direct distribution to
increase
Very attractive economics for recent upstream discoveries
Promise of abundant gas supply in region
Robust and sophisticated local capital
Large-scale recent discoveries will attract offshore investors and lenders that have
never invested in the region before - Export Credit Agencies, international banks,
etc
Upstream gas finds can be anchor supply and anchor tenants for downstream
projects and associated development projects
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CHALLENGES FOR INVESTMENT
• World-wide glut of recent gas discoveries
• Availability of long-term SPAs for LNG sales at Asian market pricing
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increasingly coming into question – consensus forming that the window is
closing and will likely be closed by end of the decade
Scale of investment required for mega projects unprecedented in the
region:
o Largest project financings in Africa to date: US$800 million Mozal /
US$2.6 billion Egyptian Refinery Company
o Mozambique LNG: US$50 billion
Execution of large-scale projects incredibly challenging even in the best
environments
Regulatory challenges
Infrastructure challenges – required associated infrastructure often poor to
nonexistent
Skills shortages worldwide and in region
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IMPACT ON SUB-SAHARAN AFRICA'S ENERGY MIX
• Are we moving towards a gas and renewables Southern African future?
• Attractive combination – good base-load mix with renewables
• USA example of transition from coal-fired to gas-fired thermal power
generation, mixing with renewables
• 70% Gas / 30% Renewables long-term future energy mix a real possibility
given recent upstream gas finds (including Karoo Shale Gas)
o Price of gas regionally should come down significantly
o Upstream gas finds will drive midstream infrastructure
o Gas much more efficient and much cleaner to burn than coal
o Unconventional gas developments lend themselves to gas-fired power
being part of their route to market
Template of the South African renewables program can and is being used for
a thermal-fired procurement program for gas
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CONCLUSION – OIL & GAS AS GAME CHANGER
• Game changer for:
o
o
o
o
o
Revenue for governments in region and also South Africa
Investment in the region by private sector
Energy mix of region and regional economies
Potential to unlock power constraints
Potential to assist with meaningful infrastructure development /
transport corridors
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ABOUT WEBBER WENTZEL
ABOUT WEBBER WENTZEL
• A leading law firm in Africa.
• Webber Wentzel continues to be recognised by peers and international research
•
•
organisations
o Ranked by Chambers Global 2013 in Band 1 across 11 practice areas including:
• Energy & Natural Resources
• Projects & Energy
• M&A
o Awarded Legal Advisor of the Year at the Africa investor (Ai) Infrastructure
Investment Awards 2013
Our clients include many of South Africa’s Top 100 companies and many leading
global companies
In December 2012, Webber Wentzel entered into a collaborative alliance with
global law firm, Linklaters LLP
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ABOUT OUR OIL & GAS SECTOR GROUP
• Webber Wentzel is developing one of the strongest oil and gas teams in Eastern and Southern Africa.
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Our lawyers have significant experience in the development and financing of oil and gas projects in
Africa and other parts of the world. This experience includes executing numerous farm-ins and
farm-outs and acquisitions both onshore and offshore across the region, recent conventional
upstream oil & gas financings, unconventional gas project developments in Botswana and South
Africa and assisting with the development and financing of downstream petroleum supplied
industries, including refineries, gas-fired power, fertilisers, bio-fuels and gas-to-liquids.
From a regulatory perspective we have advised a number of oil & gas producers on the AIPN model
agreements, the Extractive Industries Transparency Initiative, the international investment law
implications of legislation and model agreements and in relation to the laws and regulations
applicable to the industry across the region.
Our Oil & Gas Sector Group regularly represents sponsors, governments and lenders (including
commercial banks, export credit agencies, underwriters and development finance institutions) in all
aspects of the concession arrangements, project development and the financing of such projects.
We provide creative, flexible, market-leading and cost-effective solutions across the petroleum value
chain for our clients and the projects in which they are involved.
Our recent alliance with Linklaters provides clients access to Linklaters’ extensive global experience
in oil and gas transactions and an understanding of comparative best practices from different regions
of the world. Our network of best friend law firms and our association with the Africa Legal Network
provides clients with on-the-ground expertise in getting projects done in Sub Saharan Africa.
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WEBBER WENTZEL'S OIL & GAS OFFERING
Operations
National Oil
Companies
Finance
Regulatory
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WORKING ACROSS AFRICA
The correct balance of sector/transaction expertise, legal understanding and linguistic
ability enables us to assist our Clients wherever they do business.
LINKLATERS
• The alliance provides our clients with an advantage in Africa through the firms’:
o combined experience,
o know-how, and
o international and on-the-ground resources.
• Webber Wentzel’s clients have seamless access to Linklaters' global network
ALN
• Webber Wentzel is associated with ALN.
• ALN is an independent alliance of leading law firms in Africa.
BEST FRIENDS
• Regularly partner with local law firms outside the ALN group
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KEY CONTACTS
•
John Smelcer, Head of Oil & Gas
+27 11 530 5026
+27 79 186 0411
john.smelcer@webberwentzel.com
•
Sean Testa, Business Development & Strategy Manager
+27 11 530 5736
+27 76 716 1157
sean.testa@webberwentzel.com
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Legal Notice: these materials are for training purposes only and do not constitute legal or other professional advice