Monday, 19 November 2012

East Africa bracing for M&As in oil sector

An oil pipeline: Critical infrastructure in oil marketing
THE FLURRY OF discoveries of hydrocarbons in the eastern Africa coast has changed the game for explorers. It is no longer a juniors market. The countries are no longer pleading with explorers to explore for hydrocarbons in the territory. The existence of viable quantities is a confirmed fact and therefore the rules of engagement are changing.
                                                                    
The discoveries have spawned demand for infrastructure that does not exist in the region. Yet the infrastructure is a necessary component in oil marketing.  We are talking about export terminals, pipelines, marine terminals and offshore mooring facilities. Such investments require deep pockets, a preserve of the seniors in the sector.

In Mozambique, LNG refining and transport infrastructure will require around $20 billion in investment. In Madagascar, reports oilprice.com, the same infrastructure requires US$1.5 billion. South Sudan estimates that  a 2000KM pipeline from its wells to the Lamu Port in Kenya will cost some US$4 billion. Uganda, it is estimated, will invest an estimated US$10 billion on the same infrastructure.

Tanzania will invest some US$1.1 billion to build a gas transportation pipeline from Songo Songo wells to Dar-Es-salaam, the capital city. Kenya on the other hand will invest US$8.1 billion to construct a standard gauge Railway line from the Port of Lamu to Juba in South Sudan.
An offshore Oil rig

However, to the relief of South Sudan and her neighbours Uganda and Kenya, Toyota Tsusho, the investment arm of the Toyota Corporation, has bid US$3 billion to build the Juba-Lamu Port pipeline which could be upgraded to US$5 billion if it is extended to Uganda and Ethiopia. 

These increased demands place the juniors between a rock and a hard place. They do not have the financial muscle to meet these demands and yet they want to benefit from their sweat. Oil juniors, reports the oil intelligence, Oilprice.com www.oilprice.com , are finding difficult meeting   their contractual obligation.

These developments point to only one direction, Mergers and Acquisitions in the sector. The first volley in this direction was shot by Thailand’s PTT E&P. The firm paid some US$1.9 billion to takeover of Cove Energy Plc. PTTE&P had outbid Shell/BP by more than $300 million.  But it is expected that Shell/BP will seek another suitor.

This acquisition gave PTT Exploration and Production exposure to the giant offshore discoveries made in East Africa in the past year. The region is emerging as a future LNG and crude oil giant and is well-situated to export into Asia.

Cove owns an 8.5 percent stake in a Mozambique license in the Rovuma offshore basin containing gas discoveries that could be a major provider of liquefied natural gas (LNG) to energy-starved Asia. She also has a 10 per cent stake in Ruvuma offshore. In Kenya, Cove Energy Plc. has a 10 per cent in offshore area 1.5; 10 per cent in 17; 25 per cent in 1.10A; 15 per cent in1.10B and a 10 per cent in 1.11A.


Apart from demand for infrastructure, governments are looking to gain from their resources thus raising fees. They are also looking to attract the seniors who have the financial muscle to invest in upstream and downstream infrastructure.




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