April 9, 2014 10:00 pm

Revenues fail to materialise as energy explorers in Mauritania keep looking

The FPSO Mauritania at its Chinguetti offshore oilfields in the Atlantic Ocean©Getty

New drill: FPSO Mauritania heads to Chinguetti oilfield

Not long after oil was first discovered in Mauritania 13 years ago, the government set up an official overseas fund to safeguard the petrodollar billions that were expected to roll in.

Today, the Paris-based account is disappointing, containing only a few tens of millions of dollars.

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Sid’Ahmed Raïss, central bank governor, says: “We created this account because we thought we would have huge oil revenues, but we haven’t. It has been very feeble.”

The underperforming output is thanks to Chinguetti – a block controversial both for its geology and its politics. Although Australia’s Woodside Petroleum started producing oil in 2006, output reached the 75,000 barrels a day capacity only for a few weeks, as the reservoir proved hard to access. Today, operated by Malaysia’s Petronas, production sits at 6,500 bpd.

Politically, it hurt the country’s image, because Woodside was unexpectedly obliged to pay a preproduction $100m bonus to the new military government after it came to power in a 2005 military coup and Woodside sold out at a loss soon after.

“It was a big mess, which impacted [investor interest],” says an oil insider.

Nonetheless, several others have undertaken exploration in deepwater offshore and remote onshore Mauritania.

Today, 10 companies are searching for oil, among them France’s Total and Spain’s Repsol, which started drilling in huge onshore blocks in the country’s remote desert southeast.

However, some government officials are privately downbeat about the likely results. Mohamed Ould Khouna, minister of oil, energy and mines, says: “We have to intensify drilling and attract more companies. Perhaps we can attract majors to blocks that have been drilled where there are already indications.” He says Mauritania will probably tender a new round of blocks in August, after the presidential elections.

“I think if they find something in Taoudeni [Basin], it will push more companies to come because Taoudeni is enormous,” he adds. US-listed Kosmos Energy is exploring offshore but does not expect to drill until next year.

“It’s not the big bonanza everyone hoped for, but everyone realises that Mauritania is vastly underexplored, so the work is still to be done,” says Kemal Mohamedou, president of Tullow Petroleum Mauritania, which also has a 22 per cent stake in Chinguetti.

The company reckons that, as Mauritania and Brazil were neighbours before they broke apart 200m years ago, Mauritania might share some of the offshore geology that contains Brazil’s presalt deposits.

“The area we have is shrinking, so it’s a race against time,” says Mr Mohamedou of Mauritania’s requirement that prospectors return a quarter of their block every three years, and all of it after nine. But, although Tullow says its work in Mauritania has opened a “new oil play” and that it is racing against the clock, things appear to be slowing down rather than speeding up.

It has delayed drilling two of its four planned deepwater offshore wells. Its first gave inconclusive results, the results of its second are due shortly and the final two – originally due this year – are on hold.

Investors may have to take comfort from gas. Two offshore blocks have yielded discoveries in the past decade, but for years they lay idle. “[Previous operators] didn’t develop the gas reserve at the time, because there was no market – there was too much for Mauritania to take but not enough for export,” explains Mr Mohamedou.

The gas reserve, at 1.1tn cubic feet, could deliver 300 megawatts over a 35-year life. An ambitious and innovative public-private partnership may be able to realise the value of the gas, although Tullow, majority shareholder in the two blocks, has yet to agree terms to build a 75km undersea pipeline to serve a gas-to-power project in Nouakchott.

An energy consortium involving the government and Kinross Gold Corporation, a Canadian miner, has stepped in as buyers, with the World Bank offering guarantees and transmission line funding, but the parties have so far been unable to agree the offtake price and give the $1bn project the go-ahead.

Kinross holds a 34 per cent stake in Société de Production d’Electricité à partir du Gaz (Speg), the consortium, whose other members are state-controlled miner Snim and state power company Somelec.

James Crossland, executive vice-president at Kinross, says: “There’s no agreement on the gas price between Tullow and Speg, nor on the transmission tariff, so it’s hard to forecast.”

The project, whose first phase will rely on power generation from heavy fuel, could eventually deliver 700MW, meaning Mauritania would need to sell it to neighbours Mali and Senegal to justify the volumes. For now, national energy demand stands at 221MW, although this is forecast to rise to 1,347MW in 10 years.

Mr Crossland says: “To shift that much power, you’ve got to put in a transmission line – Senegal is key: you don’t get the volumes unless you get Senegal.”

Kinross will not make a decision until next year. Miners First Quantum and Xstrata (now Glencore) bowed out of the project as potential energy buyers at committee steering stage. That puts Mauritania firmly back in the waiting game.

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