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Cabo Delgado attacks threaten gas developments

Oil firms have slowed work on new Mozambican export projects due to security concerns

Just as the Mozambique government and the consortia developing the huge gas reserves in the Rovuma Basin seem to be nearing final investment decisions, a spate of violent attacks has threatened to throw the projects into doubt, unless the security forces can get a handle on the situation.

There has been no repeat of the stunning attack which announced the insurgency on 3 October 2017, when an armed group effectively took the town of Mocímboa da Praia in Cabo Delgado province for more than 24 hours. The province, which is adjacent to the Tanzanian border in the north of the country, is at the centre of the new offshore gas sector.

Security forces managed to regain control of the town, but insurgents continued to cause havoc in the region, including two incidents of multiple beheadings at the end of May and in early June. The unrest has caused hundreds of people to flee villages for the relative safety of islands and larger towns. Its cause was unclear, with the government not immediately prepared to attribute it to religiously-motivated insurgents—the country has little history of Islamist-related terrorism.

The attacks are already slowing oil and gas development in the region. Wentworth Resources, the Canadian junior that recently moved its headquarters to London, announced on 6 June that it had won an extension to its appraisal licence for the Rovuma onshore area that it inherited from Anadarko in 2016. Part of the reasoning it gave for seeking the extension, was the security situation in the region that currently means it's unsafe for its staff and contractors to continue exploration.

Fear of attacks

Anadarko, which has a significant presence in Cabo Delgado, has been tight-lipped over any measures it's taking to improve security. "We take any threat to the security of our personnel very seriously and are continuing to closely monitor the conditions in the Palma area," the company said in a statement at the end of May. "Project activities continue with high attention to the security environment. Our top priority remains the safety of our people, and for that reason, we do not discuss details of our security measures."

On 8 June, pictures circulated on social media of Anadarko subcontractors refusing to work for fear of being attacked as they travelled there and back. A company source confirmed to Petroleum Economist that construction work had been suspended for security reasons. The same day, the US Embassy warned against travel to the area, saying it had "information pointing to the likelihood of imminent attacks on government and commercial centres in Palma, Cabo Delgado Province in the coming days".

The onshore unrest vindicates the decision to kick-start a floating LNG project

In the following week, the situation appeared to be deteriorating fast. Eyewitnesses told of hundreds of refugees fleeing villages for the apparent safety of islands off the coast. Petroleum Economist also received credible reports of women, young men and boys being abducted by the insurgent group and being taken to their bases in the bush.

The Mozambican interior ministry has promised to bring matters under control, but the security forces have a poor record of counter-insurgency. Reports of drunk soldiers demanding food and money in return for security suggest lessons haven't been learnt from the Renamo insurgency in the late 1970s, which led to a 16-year civil war and peace talks which continue to this day.

There's also the prospect of a privatised security solution. Infamous US mercenary Erik Prince, the founder of Blackwater, has reportedly told Mozambique he could clean up the insurgency through a joint venture between Dubai-based private security company Lancaster 6 and ProIndicus. The latter is the ill-fated security company set up by Mozambique's security services, which put the country $2bn in debt and led to a falling-out with the IMF that has yet to be repaired.

Back to the gas…

The onshore unrest will be seen as further vindication of the decision taken by Eni and the government to kick-start liquefied natural gas development with a floating LNG project on the Coral South field, which reached FID last year. But, if the security situation can be improved, the larger onshore projects may still not be too far behind.

At its annual results presentation at the start of May, Anadarko boasted of having hit its near-term sales target, having signed heads of agreement (HoA) to sell more than 8.5m tonnes a year of the 12.88m-t/y capacity of its initial two-train LNG project in Mozambique.

Mitch Ingram, Anadarko's executive vice president for International & Deepwater Operations, who has recently been given responsibility for exploration, told analysts that he anticipated that those HoAs would be converted into binding sales and purchase agreements (SPAs) by the end of 2018, paving the way for an FID in early 2019.

Long-time observers, however, will feel a sense of déjà vu. In May 2015, the company said it had secured "more than 8m tonnes per annum in non-binding long-term off-take agreements, which are now progressing toward binding SPAs". The only concrete evidence of progress has been the signing earlier this year of a 15-year 1.2m-t/y SPA with EDF of France from its Area 1 acreage. There've been reports—confirmed in parliament by the prime minister—of an SPA with Total, but Anadarko itself has yet to confirm.

ExxonMobil, which took charge of the onshore LNG project for the neighbouring Area 4 after buying half of Eni's operator stake last year, is further behind in the race to get underway; but it now appears to be making swift progress.

The company wants to submit its development plan to the government in H2 2018. Moreover, Exxon is reported to be looking to sell its interest in a project on the Tanzanian side of the Rovuma basin, in order to focus on the Mozambican fields. That development could add more fuel to persistent rumours that it wants to buy Anadarko out of Area 1, thereby capturing the prolific straddling field—called Mamba in Area 4 and Prosperidade in Area 1—all to itself. Plans were originally drawn up for the two consortia to exploit 12 trillion cubic feet each from their respective areas of the field in "a separated but coordinated way".

It might also be able to count on the support of long-time partner Qatar Petroleum to share the burden. QP's chief executive Saad al-Kaabi said in May that the company is looking to enter Mozambique. "We will always go with one of our international partners that we have business with here in Qatar," Kaabi said of QP's global aspirations. Those partners include not only Exxon, but also its joint operator Eni in Area 4.

Another 10% stake in Area 1 could come up for sale around the time of FID. Japanese state-owned hydrocarbons development company Jogmec participated alongside Mitsui—taking a 10% stake in the consortium—and says its policy is to divest its holdings in oil and gas exploration projects "after a decision for commercial development is made". Mitsui's chief executive said recently that he believes Jogmec is planning to retain its stake, but he added that if it decides to sell there will be a queue of willing investors.

Round 5 still aground

Exxon and Eni are also waiting to begin exploration of the Angoche Basin, which they were awarded in October 2015 as part of the country's fifth licensing round. However, they're yet to sign exploration and production concession contracts (EPCC).

Despite concessions from the government over fiscal stability and changes to the foreign exchange laws, said to be at the oil companies' behest, Petroleum Economist understands that they're still not satisfied with Mozambique's foreign exchange legislation. They object to the requirement to list on the Mozambican stock exchange.

Mozambique's exchange, the Bolsa de Valores de Moçambique, is so small it's barely worth the name. However, its capitalisation is set to expand massively this year when the state-owned Cahora Bassa Hydroelectric company lists, aiming to sell a 7.5% stake to local investors.

Foreign minister Jose Pacheco said on a recent visit to Russia that the EPCCs will be signed by end-2018. But getting rid of the stock exchange requirement will likely need an act of parliament—and it was parliamentarians who inserted it in the first place.

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