* East Africa's huge gas reserves a big lure; proximity to
* Smaller explorers set to kick start development
* Majors cut investments as margins squeezed
By Nina Chestney
LONDON, June 10 Smaller oil explorers willing to
take financial and operational risks will lead the development
of East Africa's oil and gas industry as majors ditch riskier
projects as margins fall, executives from several oil and gas
firms said on Tuesday.
The region has emerged as a significant prospect for the
export of liquefied natural gas (LNG) because of the size of
natural gas discoveries there and its proximity to Asia's major
The U.S. Geological Survey has estimated that more gas lies
off the shores of Kenya, Tanzania and Mozambique than off
Nigeria, Africa's biggest energy producer.
However, high development costs and low profit margins in
the gas sector worldwide have made large oil and gas companies
more hesitant to commit to risky and expensive investments.
This reluctance paves the way for smaller explorers, such as
Tullow Oil and Ophir Energy, who typically
focus their efforts on one region or country in the hope of
maximising any returns.
"The oil and gas industry is worried about costs. Oil
companies are reducing their investments and putting projects on
hold," Willy Olsen, former advisor to Statoil, said at
the East Africa Oil and Gas conference in London.
"If they make oil and gas discoveries in East Africa it will
be 10 to 15 years before they see revenues ... so the focus will
be on small and medium-sized companies and few big players," he
RACE FOR GAS
Mozambique and Tanzania are racing to be first to export gas
from Africa's eastern seaboard to transform their economies but
have substantial challenges to overcome.
Both countries lack infrastructure and technical know-how.
Both lack clear oil and gas policies and legislation of the
sector is uncertain. Debate continues over how much gas should
be sold to foreign investors and how much should be kept for
Around 180 trillion cubic feet of gas has been found in
Mozambique's Rovuma Basin, according to Jose Branquinho,
resource assessment director at Mozambique's National Petroleum
Institute. This would be enough to supply, Germany, Britain,
France and Italy for some 18 years.
"The Mozambique discoveries have changed the world - that's
why people are still interested in East Africa," Miles Donnelly,
commercial director at oil and gas exploration firm Bahari
Resources, said on the sidelines of the conference.
"They are on a scale which could be comparable to Qatar," he
said, referring to the world's top LNG exporter.
Companies currently exploring for gas in the region include
a mix of smaller and larger players. In Mozambique Anadarko
, Buzi Hydrocarbon, Eni, Petronas and
Sasol are active. In Tanzania, Britain's BG Group
and Ophir Energy, have been at the forefront of
exploration, while Exxon Mobil and Statoil have also
But it will be the smaller companies that get production off
the ground in earnest in places such as Mozambique, executives
Taipan Resources, an oil exploration company
focused on Africa with a $50 million market capitalisation,
hopes to start drilling for oil in northeast Kenya next year.
"Smaller companies get on with things and have a big role to
play. We bring in the medium companies, who draw in the large
companies" said Max Birley, chief executive of Taipan Resources,
which is based in Kenya and listed in Canada.
"We may not have big pockets but we employ bright people who
are aggressive about exploration and we drill wells which some
of the majors won't drill," he added.
(Editing by Louise Heavens)