“If
you base the TCF valuation on the same benchmark as the Ophir-Pavilion deal
where Pavilion paid $353 million per TCF for its 20% stake in Tanzania’s
offshore blocks 1,3,4, then Ruvuma would be valued on an un-risked basis
(1.17tcf) at $413 million minimum but on 2.3 tcf (AMINEX resource estimate for
Ruvuma) of $811 million. Solo own 25% of the Ruvuma PSA. Accordingly the value
attributable to Solo could be anywhere between $100 million to $200 million,
and remember the Ntorya well in the Ruvuma PSA has pipeline infrastructure
nearby and is an advanced project that can get into production very quickly.”
When BG Group announced in August 2014 that
it had produced higher than expected flows of gas from their Mzia-3 test well
off the southern part of Tanzania's coast, it was news that must have caught
the eye of Royal Dutch Shell.
Mzia-3 was not only producing better than
expected results, but it was reaching a flow rate of 101 million cubic feet per
day, nearly double the flow rate measured at their Mzia-2 well that had test
flowed a year earlier.
The impressive flow rates served to boost
the financial viability of BG Groups planned Tanzanian LNG terminal and
associated upstream production facilities and infrastructure, a factor that
must have also interested Shell.
Shell’s decision to buy BG Group was one
that focused on long-term asset building. It has enabled the company to get
access to BG Groups significant advanced exploration portfolio. BG Group had
sunk huge capital into the ground. This is where Shell clearly saw the long-term
value in this mega deal.
However, we feel it is access to Tanzania
that featured as a major factor in the purchase of BG Group, given Shell
ended a £1.12bn cash offer for Cove Energy back in 2012 which was designed to
give the company a foothold in east Africa’s gas sector, that attempt sadly failed.
Shell’s major African continent gas projects
are located primarily in west Africa, not ideal in terms of shipping logistics
to the Asia market. Shell were fully aware of the gas potential in Tanzania. In
2002, the company won a Tanzania Petroleum Development Corporation tender for
four offshore blocks around Zanzibar island, but the deal got blocked by the
Tanzania government. Shell holds at least four exploration licenses off
Zanzibar and is working with Petroleo Brasileiro SA on two off Tanzania. But it
is the legal process of essentially two jurisdictions, Zanzibar and Tanzania
that has served to hold up Shell’s progress offshore. The deal with BG Group,
essentially fast tracks the company’s foothold into Tanzania, which is set to
become a huge future supplier of gas to Asia.
BG Group entered Tanzania in 2010 and is
the operator of offshore Blocks 1, 3 and 4 in which it has a 60% interest.
Around 15 tcf of total gross resource has been discovered and work is
progressing to develop a joint LNG plant in collaboration with the Block 2
partners. Mzia was confirmed as second giant gas discovery, after Jodari, other
highlights include
·
Taachui gas discovery secured
in Block 1
·
LNG site MoU signed with the
government
·
HoA signed with Block 2
partners: BG Group is lead developer for pre-FEED
·
Contracts for upstream and LNG
plant pre-FEED have already been awarded.
Putting
this into context
Why
Ruvuma must now be a major acquisition interest.
Back in November 2013, Ophir Energy
(LSE:OPHR) announced the sale of 20% interest in Tanzania blocks 1, 3 and 4 to
Pavilion Energy for a staggering $1,288
million. The transaction with Pavilion a wholly owned subsidiary of
Temasek, the Singapore investment company, served as one of the most important
pricing benchmarks for Tanzania’s hydrocarbon sector.
With the most recent gas discovery on the
Kamba-1 well in Block 4, the total discovered gross 2C resource to date is
estimated at 17.1TCF across the three blocks, which is enough to underpin a two
train LNG development.
So
essentially Pavilion paid $1.2 billion USD for 3.4 TCF or $353 million per TCF
It was also a deal that showed the
strategic importance Asia investors are placing on Tanzania in respect of its
huge gas export potential. Given that
the season for mega deals is now underway and why Tanzania is featuring at the
centre stage of mega deal making once again, I think it is time to remind
investors about Tanzania’s massive Ruvuma gas field.
The Ruvuma PSA originally covered 12,360
square kilometres in the extreme south-east of Tanzania of which roughly 80% is
onshore and 20% offshore. This is a licence development area that was awarded
back in 2005. Ten years of work has been undertaken on Ruvuma.
Within the PSA are two specific, adjoining
licence areas, known as Lindi and Mtwara. Following the first exploration
period and an extension about 75% of the area was relinquished and the
remaining PSA covers 3,447 square kilometres. Prior to the award of the current
PSA 1153 kilometres of 2D seismic had been acquired in the area of the PSC
between 1981 and 2002. No wells had been drilling within the boundaries of the
PSA, but a well at Lukeledi-1 to the north had been drilled by Texaco in 1992
and the Mnazi Bay-1 well to the southeast had been drilled by Agip in 1982.
Following award of the PSA Ndovu Resources, a subsidiary of Aminex, acquired
370 kilometres of offshore seismic in the Lindi Block and a further 430
kilometres of 2D seismic onshore in the Lindi and Mtwara Blocks.
The first well under the Ruvuma PSA was
drilled in 2010 on the Likonde prospect. Likonde-1 is located in the Lindi
Block and encountered thick sands with hydrocarbon shows. The well was drilled
to a total depth of 3,647 metres and results of drilling, wireline logs and
side-wall coring showed that the well intersected two sandstone intervals of
over 250 metres (820 feet) combined thickness with evidence of residual oil and
gas. Drilling had to be terminated in the deepest objectives due to the high
rate influx of gas.
Based on the encouraging results of the
Likonde-1 well the available 2D seismic was reprocessed and reinterpreted to
select the location for a second exploration well, within the Mtwara Block. The
chosen location, Ntorya-1, was intended to target the updip extent of the sands
encountered in the Likonde-1 well.
On the 6 October 2011, prior to the
drilling of Ntoya-1, Solo announced that it has increased its stake in the
Ruvuma Basin PSA from 12.5% to 18.75% by assuming the additional obligations
associated with the additional interest relinquished by Tullow Oil who reduced
their over holding from 50 to 25%.
Ntorya-1 was spudded on the 22 December
2011 and intersected a gross 25 metre section of Mid-Cretaceous sandstones with
gas. The upper 3.5 metres of the gas bearing zone were tested at a maximum rate
of 20.1 mmscfd with 139 barrels oil per day of 53 deg API condensate through a
1” choke. The flow rate was considered to be of potential commercial interest
and well has been suspended.
After intersecting the primary target, but
prior to deepening to the eventual discovery level in the Ntorya-1 well Tullow
Oil elected to transfer their remaining 25% interest to the partners, Ndovu and
Solo in proportion to their existing interests in return for the assignees
accepting future obligations in the second exploration period. As a result Solo
increased its interest in the Ntorya-1 discovery and the Ruvuma Basin PSA to
25%.
A resource report has been prepared by ISIS
Petroleum Consultants that attributes 5.75 tcf of potential gas-in-place
resources to the Ruvuma PSA. ISIS calculates that Ntorya holds mean 1.17 tcf of
unrisked gas in place of which 178 bcf are considered discovered, but recently increased its internal
resources estimate of Ruvuma to 2.3 tcf.
“If
you base the TCF valuation on the same benchmark as the Ophir-Pavilion deal
where Pavilion paid $353 million per TCF for its 20% stake in Tanzania’s
offshore blocks 1,3,4, then Ruvuma would be valued on an un-risked basis
(1.17tcf) at $413 million minimum but on 2.3 tcf (AMINEX resource estimate for
Ruvuma) of $811 million. Solo own 25% of the Ruvuma PSA. Accordingly the value
attributable to Solo could be anywhere between $100 million to $200 million,
and remember the Ntorya well in the Ruvuma PSA has pipeline infrastructure
nearby and is an advanced project that can get into production very quickly.”
The Ntorya-1 discovery is now the subject
to an application for an appraisal extension to the licence to carry out a
two-year program of additional infill seismic and a further well. Elsewhere in
the PSA an additional seismic program and two additional exploration wells are
planned to follow-up the success of the first two wells. It is anticipated that
a farm-in partner will be found to take up to a 50% interest in return for a
substantial financial contribution to the remaining work program.
Essentially
Ruvuma’s gas reserves equate to approximately 30% of BG Group’s stated Tanzania
gas asset reserves. For Asia investors that want access to near term lower risk
onshore gas production, then snapping up Ruvuma would be a very wise move.
Solo’s
shares shot up last week on the back of the major oil reserve upgrade by the
Horse Hill Development consortia, where they own 6.5% interest in the Horse
Hill-1 well.
But
we suspect the biggest value catalyst for Solo after their Kiliwani well enters
production this year, will be Ruvuma. Watch this space.
