Drilling in Mozambique
Sasol joint president and CEO Stephen Cornell has described the group’s relations with the Mozambique government as being in a “good space”, despite the country’s current fiscal difficulties, as well as periodic criticism that the country is not benefiting fully from the South African energy and chemicals group’s investment activities.
Cornell says that, besides ongoing investment activities, Sasol is also part of efforts to support the Mozambican authorities navigate their way through the prevailing financial challenges.
Mozambique has confirmed the deterioration of its macroeconomic and fiscal positions, as well as government’s capacity to make debt payments being under strain. The country’s total public debt, which is mostly denominated in foreign currency, increased to what the International Monetary Fund described as “distressed levels” in 2016, owing to the addition of previously undisclosed loans worth $1.4-billion, the equivalent of 10.7% of gross domestic product.
Sasol is nevertheless pushing ahead with a $1.4-billion investment programme in support of a Production Sharing Agreement (PSA), granted in early 2016. The programme covers oil and gas development areas in southern Mozambique.
The JSE-listed company drilled four gas and oil wells – two in Temane and two in Inhassoro – during the six months to December 31, 2016, and subsequently issued a notice of discovery after finding oil (together with gas) while drilling for gas in the Temane permit area.
The current focus of the 13-well campaign, comprising five gas wells, seven oil wells and a water well, is on oil prospects; Sasol is confident of adding oil production to its gas-dominated Mozambique portfolio in the coming two to three years.
“Our feeling is that we are in a good space – we want to do more, they are critical to us and, I believe, we are very important to them. And, from our standpoint, [the relationship] hasn’t really changed at all in the last few years,” Cornell says.
“All the feedback we have from the government of Mozambique is very supportive.”
His statement follows after the re-emergence of reports suggesting that Sasol’s initial contract to mine Mozambican gas and transport it to South Africa, primarily for conversion to fuel and chemicals at its Secunda and Sasolburg facilities, was too heavily skewed in favour of the company.
Countering this argument, Sasol joint president and CEO Bongani Nqwababa reports that, since 2004, more than $2-billion has been invested in developing gas fields, a central processing facility in Temane, as well as the gas pipeline to South Africa, which was recently expanded through a project known as Loop Line 2.
From 2004 to 2016, more than $1-billion was delivered to in taxes, royalties and social investments, as well as through profit sharing and dividends paid to State-owned entities, he adds. Further, goods and services worth $831-million were procured from Mozambican suppliers.
“We remain committed to our growth plans . . . and we will continue to partner with the country's government and other stakeholders on projects that will help stimulate growth,” Nqwababa states, while adding that Sasol is confident that the economics to develop the PSA licence area remain positive.
Sasol expects to complete its 13-well drilling programme by the end of 2018.