Mozambique publishes law enabling Eni, Anadarko gas investments

By TOM BOWKER and PAUL BURKHARDT
Bloomberg

Mozambique published a law enabling groups led by Anadarko Petroleum and Eni to proceed with multi-billion dollar gas projects, setting financial and legal terms and allowing much of the revenue to be kept offshore.

The southern African nation’s council of ministers approved the law on Nov. 25 and included it in the Bulletin of the Republic dated Dec. 2, which was published yesterday in the capital, Maputo.

Eni and The Woodlands, Texas-based Anadarko are considering whether to develop offshore fields that are estimated by Mozambique’s national oil company to hold 250 trillion cubic feet of gas. That’s enough to meet world consumption for more than two years.

The country may become the world’s largest exporter of liquefied natural gas (LNG) after Qatar and Australia.

The law “gives both sides considerable certainty and sets out clear parameters for future revisions, Anne Fruhauf, senior vice president and Africa energy analyst at Teneo Intelligence, said in an e-mailed response to questions.

The groups will have the legal and fiscal framework guaranteed for the 30-year duration of their exploration and production concessions, subject to meeting with the government 10 years and 20 years after the delivery of the first gas cargoes to revise the levels of taxation, it said. If no agreement is reached, they will pay a 4% production tax, or royalties, for years 10-20, and then 6% from years 20-30.

Royalty Rates

The normal royalty rate for gas projects in Mozambique is 6%, but earlier deals with Anadarko and Eni had put it at 2%, Fruhauf said. Lower tariffs for the first 10 years of production are important for cost recovery, she said. ‘‘The government can seek to improve its take after 10 and 20 years, respectively, but within clear boundaries set out within the decree law,’’ Fruhauf said.

Another key provision is that companies involved with the projects will be allowed to keep gas revenue in bank accounts outside Mozambique, using a local account only to pay taxes, buying goods and services in the country, and paying local workers. Expatriate employees will also be able to be paid in foreign currency into foreign bank accounts.

The groups now have six months to submit a joint plan on how to develop gas reserves that straddle the two areas they are licensed to exploit in the Rovuma Basin on Mozambique’s Indian Ocean coast. The decree law says 12 trillion cubic feet of gas should be developed from these areas, either by the groups separately or working together.

Foreign Workers

The decree law also sets out specific regulation regarding the project companies’ use of foreign workers, and the building of a gas liquefaction facility onshore.

Passing the decree law was necessary ‘‘to provide the legal and contractual framework to progress the project towards final investment decision,” John Peffer, Anadarko’s country manager for Mozambique, said in October.

Mozambique’s revenue may reach as much as $212 billion over the life of the project, based on 45 trillion cubic feet from Anadarko’s Area 1, Standard Bank Group said in a July 31 study. That’s less than half of the total estimated resource.

Area 1 and Eni’s Area 4 combined hold technically recoverable reserves of 120 trillion cubic feet, according to industry consultant Wood Mackenzie.

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