African Potential Appeals to Australian Companies

Untapped oil and gas resources in Africa are proving a major attraction for Australian-based companies searching the globe for new potential.

An increasing number of Australian companies have targeted Africa for investment in recent years as opportunities dry up at home.

Despite the fiscal and political risks that have historically surrounded the African resources industry, these companies have overlooked this reputation to combine the capital and technology required to realize the promise on offer.

A successful entrant last year was Pura Vida Energy NL, a Perth-based company founded by former Tap Oil Ltd. colleagues Damon Neaves and David Ormerod.

At a time when market sentiment was poor, Pura Vida raised $3.98 million (AUD $4 million) through its initial public offering (IPO) on the Australian Securities Exchange (ASX) when it listed in January 2012.

By the end of 2012, the company was widely regarded as the exchange's top performing IPO for the year as its value spiraled on the back of promising results at its Mazagan project offshore Morocco.

Pura Vida's faith in a somewhat unproven region was cemented in January when the company secured a $229.3 million (AUD $230 million) farm-out of the permit to New York-listed Plains Exploration and Production Company.

The company targeted the Moroccan assets because it saw a lot of undeveloped potential in a region where it had expertise, Neaves, Pura Vida managing director, explained.

"There is a growing understanding in Australian capital markets of the resource potential in Africa and because of Australia's mining and resources heritage we are uniquely placed to provide the capital and technology to realize that potential," Neaves told Rigzone.

"We like Morocco as an investment destination – it is a stable democracy, has positive GDP growth with increasing foreign investment, good infrastructure and fiscal stability.

"The fiscal terms are widely recognized as being amongst the most attractive in the world and the regulator has done a great job promoting exploration in the country to majors leading onto intensive drilling activity over the next 18 months."

Following the success in Morocco, Pura Vida has expanded further into Africa through the acquisition of the Nkembe block offshore Gabon, which accompanied a $5.9 million (AUD $6 million) raising.

Pura Vida this month raised a further $7.9 million (AUD $8 million) to leave it fully funded to complete its 2013 exploration programs.

New Entrant Australian-based, unconventional gas explorer Tlou Energy Ltd. is looking for similar success following listing on the ASX with a $9.8 million (AUD $10 million) raising in April.

Tlou's key assets are in Botswana, a country it identified as having a relatively stable fiscal regime that supports a low-cost operating and regulatory environment.

The company plans to use the funds to test for commercial gas flows in the area of the Karoo Central project.

Tlou undertook a worldwide search for potential resources and identified Botswana as the "perfect destination," Anthony Gilby, managing director, told Rigzone.

This was due to the southern African nation's stable fiscal environment, high GDP for the continent and low sovereign risk.

"There is a full range of opportunities we see in African countries like Botswana that we no longer see in Australia," Gilby said.

"Not only can we drill cheaper in Botswana, but the government is very supportive and there are fewer hurdles to overcome to achieve drilling permits, while maintaining safety and environmental standards.

"Everything is cheaper for us in Botswana, it is more supportive of our objectives and the gas price is even a multiple of what it is in Australia."

Gilby explained that junior entrants into the Australian sector were having difficulty doing business in the country and there was a lack of opportunity as a result.

"With this we may continue to see more Australian companies go to all parts of Africa," he said.

Australian Difficulties The impact of Australia's high-cost operating environment has been evident this year, in particular when Woodside Petroleum Ltd. decided to scrap plans for the Browse LNG onshore development in Western Australia due to economic factors in April.

Woodside is operator and 31.3 percent owner of Browse, a joint venture which includes Royal Dutch Shell plc, BP plc, BHP Billiton Ltd. and Japan Australia LNG.

Peter Coleman, Woodside chief executive officer, directly blamed the decision on rising costs that had blown the project's forecasted price tag to beyond $43 billion.

"Unfortunately the cost escalation has been such that the total costs for Browse have resulted in the current development not being commercial," Coleman said.

"(The decision) is driven by commercial risk and reward consideration and the proposed concept doesn't provide the economic return required to proceed with the project."

The Australian Petroleum Production and Exploration Association (APPEA) have also expressed alarm at the country's high-cost environment.

APPEA pointed to rising costs, along with inefficient political regulation, as threatening factors that may stifle Australia's oil and gas industry.

David Byers, APPEA chief executive, said this year that overlapping state and federal laws with duplicative, inconsistent and often arbitrary requirements were causing unnecessary project delays and driving up costs.

"Policies that undermine the development of energy projects and curtail energy production impose real costs on Australia through lost jobs, forgone economic growth and higher energy bills," Byers said.

Wider Scope As the Australian industry contends with a high-cost environment and difficult regulatory standards, broader areas of Africa are experiencing strong foreign investment.

Growing interest is being directed towards east Africa, with Australian-based companies including Far Ltd., WHL Energy Ltd. and Range Resources Ltd. showing promise in the region.

Philip Wolfe, UBS financial services advisor, said east African countries such as Mozambique and Tanzania have "almost an embarrassment of riches" in terms of volumes of gas being discovered.

"In Mozambique, they've only just scratched the surface and have already found so much gas," Wolfe said.

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April 18, 2024 10:51 PM EDT

African Potential Appeals to Australian Companies

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