19 November 2014
Sector: Oil & Gas
Expert Speak
Mozambique LNG project economics competitive with similar
new projects, including that in US
FID to take 6 months after approval of Decree Law; expect reserve update in
annual results
We hosted a conference call with the US-based Anadarko Petroleum to get an operational
update and outlook on its JV E&P blocks with BPCL, ONGC and OINL. Key takeaways:
2/3rd volume of the first two LNG trains (10mmt) in Mozambique is fully subscribed.
Production to start in ~4 years from FID, which in turn will be finalized within 6 months of
passage of Decree Law that is currently under negotiation.
Mozambique LNG economics comparable to new LNG projects.
Mr Jeremy Smith,
Director,
Investor Relations,
Anadarko Petroleum
Corporation
Anadarko Petroleum
Corporation (Mkt Cap:
USD48b) is among the
world's largest
independent E&P
company with 2.8bboe of
proven reserves by end-
2013. It is a JV partner
and Operator of the key
E&P blocks in
Mozambique and Brazil
held by BPCL, ONGC and
Oil India.
Mozambique Decree Law negotiations on; production in 4 years post FID
Mozambique's parliament passed an enabling legislation in Aug 2014 empowering
the Mozambique government and E&P operators to negotiate the Decree Law.
The Decree Law is critical to establish legal, governmental and contractual support
for the LNG project. Currently, the Decree Law draft/negotiations are with the Ministry
of Energy, then will go to the council of ministers and finally to the Parliament for
ratification. The language of the Decree Law is expected to be finalized by Dec 2014
and parliament's approval after that.
Early passage of the Law is also Mozambique government's objective, given the huge
economic benefits.
Anadarko expects to achieve FID (Final Investment Decision) within six months from
the Decree Law's approval and expects ~4 years development period, implying the
first gas by 2019.
2/3rd of initial 2 trains subscribed, project competitive to new LNG facilities
While the full scale Mozambique project will be of >50mmt with 10 trains, initial
development will be with two trains of 10mmt.
It has signed non-binding 20-year agreements with Asian buyers for 2/3rd (7mmt) of
the initial train capacity and is targeting to get Japanese buyers on board for the
remaining capacity. Asian buyers find the location convenient and Mozambique gives
them an opportunity to diversify their sourcing.
The LNG pricing discussions are based on liquid equivalent pricing, and in terms of
economics, Anadarko indicated that the production cost will be similar to other
projects in the world, including the US.
Expect further reserve update in 2014 Anadarko annual results
Current work program is focused on covering maximum acreage and establishing a
resource base to delineate the acreage before the exploration period ends in Jan
2015.
Anadarko has established 70+tcf of recoverable gas resources and expects further
reserve update from the appraisal at Orca (and later Tubarao Tigre next year) when
Anadarko announces its 2014 annual results.
Harshad Borawake
(HarshadBorawake@MotilalOswal.com); Tel: +91 22 3982 5432
Investors are advised to refer through disclosures made at the end of the Research Report.
1

Expert Speak
Development update: Mozambique a priority over Wahoo
Gross exploration spend in Mozambique by Anadarko till date stands at ~USD3b
and development capex is estimated at USD13-16b.
Cost savings will accrue due to (a) high well deliverability of 2.5-5.5mmscmd and
necessitating only 6 wells per train, (b) lower process equipment and operating
costs due to dry gas and low sulphur and liquid content and (c) flexibility to use
some of the existing wells.
JV partners have (a) 70,000 acres of land approved for LNG facilities, (b)
environmental impact assessment, including all public consultations are complete
and approved, (c) are progressing well on engineering and construction planning
for early works like marine facilities, airstrip, construction camps and
infrastructure improvement.
Critical issues include (a) expedition of customs processes to bring in long lead
equipment into the country, (b) bringing in thousands of workers due to lack of
ready local talent and (c) ability to contract in other than Mozambique currency.
On Wahoo (the discovery in Campos basin in Brazil), Anadarko indicated that it is
currently conducting the pre-feed and feed studies to evaluate multiple
development options. However, management's focus is more on the Mozambique
development.
Valuation and view
Key events to watch are (1) approval of an acceptable Decree Law, (2) signing of
gas sales agreement with price decision and (3) FID.
We currently value ONGC and Oil India's stake at purchase price (~USD5b for 20%
stake) and value BPCL's 10% stake in Mozambique at INR211/sh based on 60tcf
(average of indicative reserve range of 50-70 tcf) valued at USD4/boe.
We value BPCL's 12.5% stake in Anadarko operated (only Campos - Wahoo, assumed
gross reserves of 200mmboe) block at INR12/sh.
Exhibit 1: Earnings and valuation summary
19 November 2014
2

Expert Speak
Exhibit 2: Area 1 (operated by Anadarko) and Area 4 (Operated by ENI) blocks in Rovuma Basin,
established resources ~200tcf of natural gas resources with further upside potential
Source: EIA, ENI, Anadarko, MOSL
Exhibit 3: Mozambique, led by Anadarko and ENI LNG projects, to emerge as a largest LNG
supplier country
Source: Anadarko, MOSL
19 November 2014
3

Expert Speak
Exhibit 4: Mozambique to emerge as one of the largest proven natural gas reserve holder
*Mozambique reserve size is estimated
Source: BP Statistical Review 2014, MOSL
Exhibit 5: Mozambique is uniquely located with access to all the key customers
Mozam-
bique
Source: Oxford Energy, MOSL
Exhibit 6: Anadarko LNG project to benefit from quality reserve and proximity to Asia
Source: Anadarko, MOSL
19 November 2014
4

Expert Speak
Mozambique Government press release to authorize government to negotiate
Decree Law (translated version)
Published on Friday, August 15, 2014 13:15
The National Assembly approved on Thursday, 14/08/14, the Project Authorization Act
regard to the Special Legislative Projects Scheme relating to Natural Gas Liquefaction Areas
1 and 4 of the Rovuma Basin. It is a device that will enable the Government to approve a
Decree establishing a special legal regime for contractual projects of the Rovuma Basin,
introducing changes or exemptions and conclude contractual agreements.
This Draft Law aims to facilitate the design, construction, installation, ownership, financing,
operation, maintenance, use of wells, facilities and related equipment, whether on land or
at sea, for the production, including but not limited to units of LNG, multipurpose pier,
wharf unloading of materials, basic construction of the surface equipment, installation
and modifications for maritime operations, including without limitation the optimization
of capacity and their expansions necessary for production, processing, liquefaction, storage,
transportation and delivery of gas natural deposits of oil in Areas 1 and / or 4 of the
Rovuma Basin and the sale of it.
Concessionaires of concession contracts for research and production of Areas 1 and 4;
entities specific subject, directly or indirectly established by the concessionaire (s), according
to point a) for the purposes of any project of the Rovuma Basin; people who enter into
contracts with the dealership (s), in accordance with subparagraph a), or with the specific
purpose entities referred to in point b) for the purposes of any project of the Rovuma Basin;
and subcontractors and any other persons directly involved in any of the Rovuma Basin
Project, are the people who, in accordance with Article 2 of this Draft Law, "the terms and
conditions of the special legal and contractual arrangements apply established by Decree
law, including contractual agreements related to one of the Rovuma Basin Project to be
specified in Decree-Law. "
According to the reasoning of the Council of Ministers, under the grant of exploration and
production of oil (hereinafter "CCPP" contracts, approved by Decree No. 67/2006 and No.
68/2006, both of 26 December, awarded in 2006 for areas located in the Rovuma Basin,
research work that resulted in discovery of large quantities of natural gas in Areas 1 and 4,
which are operators and representatives of utilities, Anadarko Mozambique Area 1 Lda
and Eni SpA Eat Africa were conducted , respectively.
"The volume of natural gas reserves available in discovered deposits is estimated at about
200 trillion cubic feet (200 tef in English acronym). About the discovered reserves are located
in oil deposits that are covered by both areas 1 and 4, designated "Common Oil Deposits",
Facilities / Property / Mamba ", explains the reasoning of the Council of Ministers, adding
that" other deposits are fully understood within each area of the concession contract. "
Also according to that reasoning, "taking into account the size of the investment to be
made, about 50 billion dollars a horizon of 10 years, there is an urgent need for the
development of these projects be approved by a Decree establishing the legal, regulatory,
contractual and fiscal regime to be agreed and set incentives, as well as the necessary
safeguards for investors and financiers in force during the life of the enterprise ".
Source: www.parlamento.mz
19 November 2014
5

Expert Speak
Exhibit 7: Indian companies (BPCL, OINL and ONGC) have the largest share in Mozambique Area
1 block in Rovuma
Source: Company, MOSL
Exhibit 8: Mozambique Area 1 block in Rovuma basin has reported 13 discoveries (values in metre) ...
No
1
2
3
4
5
6
7
8
9
10
11
12
13
Discovery/
Appraisal
Windjammer
Barquentine
Lagosta
Tubarao
Barquentine-2 (Appraisal)
Camarao
Barquentine-3 (Appraisal)
Lagosta-2 (Appraisal)
Lagosta - 3 (Appraisal)
Barquentine-4 (Appraisal)
Golfinho
Atum
Orca
RESERVE UPGRADE
RESERVE UPGRADE
Date
Mar-10
Oct-10
Nov-10
Feb-11
Aug-11
Oct-11
Nov-11
Jan-12
Feb-12
Apr-12
May-12
Jun-12
Apr-13
Mar-14
May-14
Oil/Gas
Gas
Gas
Gas
Gas
Gas
Gas
Gas
Gas
Gas
Gas
Gas
Gas
Gas
Pay
Zone
365
126
168
34
70
73
202
237
176
160
59
92
58
Water
Depth
1,465
1,576
1,539
900
1,650
1,441
1,575
1,467
1,404
1,650
1,027
1,000
1,061
Depth
4,250
5,115
4,221
3,337
2,450
2,409
2,509
2,868
4,180
NA
4,537
3,860
4,996
Comments
No resource number available yet
No resource number available yet
Recoverable reserves - 3-4 tcf (indicative)
Recoverable reserves - 3-4 tcf (indicative)
Recoverable reserves - 6 tcf
Recoverable reserves - 10 tcf
Recoverable resource range - 15-30tcf
Recoverable resource range - 15-30tcf
Recoverable resource range - 15-30tcf
Recoverable resource range - 17-30+tcf
Prosperiade - 17-30 tcf, Other - 7-20+tcf
Prosperiade - 17-30 tcf, Other - 10-30+tcf
Prosperiade - 17-30 tcf, Golfinho-Atum -15-35+tcf
Upgraded reserves from 30-65+tcf to 45-70+tcf
Upgraded reserves from 45-70+tcf to 50-70+tcf
Source: Company, MOSL
Exhibit 9: …leading to significant recoverable reserve addition (tcf)
Source: Company, MOSL
19 November 2014
6

Expert Speak
Exhibit 10: Anadarko work program targeting new areas as well as reserve accretion through appraisals
Source: Anadarko, MOSL
19 November 2014
7

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