19 November 2014
Sector: Oil & Gas
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
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,
Corporation (Mkt Cap:
USD48b) is among the
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
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
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
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.
(HarshadBorawake@MotilalOswal.com); Tel: +91 22 3982 5432
Investors are advised to refer through disclosures made at the end of the Research Report.