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Some six months ago I wrote about how Anadarko (APC), ENI (E) and GALP (GLPEF.PK) were making world class gas discoveries in the waters offshore Mozambique. Those discoveries have now had further appraisal drilling and as I set out below, all three companies are on the brink of increasing the reserves discovered to date in Mozambique's Rovuma Basin. My intention in this article is to give an update on offshore Mozambique and then to follow through with subsequent articles on Tanzania, Kenya, Ethiopia and so on. The territory extends from Mozambique in the south to Ethiopia and Sudan in the north; and not only are the significant finds offshore, but also onshore.

Mozambique: offshore. Drilling to date has been focused on Areas 1 & 4, where Anadarko is the operator of Area 1, and ENI of Italy is the operator of Area 4. The two blocks mark the northern boundary of Mozambique's marine territory and are side by side. During the course of 2010/11 Anadarko (36% working interest) has made six gas discoveries in its "Area 1" block and has publicly estimated the recoverable gas reserves to be potentially 15-30 tcf (i.e.up to 5Bn boe). Recently the operator wound up the appraisal of what is now called the Prosperidade field, upping the estimated recoverable resources to 17-30 tcf of gas, and has moved to the northwest of this field to a new prospect, where it is set to spud its first well shortly. As can be seen in the picture below, the Prosperidade field is tight up against the boundary of the adjoining block. Anadarko has now completed nine wells on the site and the recent proof of connectivity between Lagosta and Barquentine, plus the high porosity of the sands, suggests that once detailed flow testing has been carried out, we are likely to see a further upgrade to recoverable resources. Anadarko
(Click to enlarge)

The block top the east (right) is ENI's offshore Area 4, where it has now completed three exploration wells: Mamba South, Mamba North and Mamba Northeast. Not only has this drilling proven that the same sands run through from one block to the other, but that porosity his high and the gas quality is excellent. Its first well, Mamba South is estimated to have recoverable reserves of 22.5 tcf; the second well (Mamba North) brought the estimate up to 30tcf and the last well added another 10tcf to the total. Thus after just three wells ENI is showing that the Properidade field is likely to finally come in somewhere between 70-100Mn tcf - which suggests that it will become a top ten gas field globally. The quality of the map below is poor but the intention is to show the two fields side by side.

Mozanbique Areas 1&4: a golbal top-ten gas play.

Anadarko has two rigs drilling: the Belford Dolphin will continue exploration drilling, whilst the Millennium will conduct flow tests across the nine wells of Prosperidade. ENI has the Saipem 10000 busy with at least three more wells this year in Area 4 and is actively looking for a second deepwater rig to increase its activity in the field. During the second half of the year Anadarko intends to drill the Black Pearl prospect in the south of the block - where hopes are high for an oil find. If oil is discovered in Area 1, it will be a game changer for the country.

Anadarko's junior partner in Area is the London quoted Cover Energy, which put itself up for sale earlier this year: to date there are two formal bids, one from Royal Dutch Shell (RDS.A) at 195p in late February and higher bid then came in two days later at 220p from the Thai group PTTEP. Other groups are known to be studying the possibility of bidding, but the likely key to a successful bid will be which of the suitors manages to convince the Mozambique Government as to their plans. Initial talks have started between the two operators to unify the two fields, but clearly much has yet to be done to fully ascertain the size of the Prosperidade field and to find out whether the other multiple prospects in both fields are fertile.

In terms of investment objectives, clearly the key question is who is set to make the most in relative terms versus their current NPV's and share prices. Clearly the gain for the two operators will be very significant - more so for ENI which has a 70% working interest of what is clearly the larger part of the gas field: but little Cove (quoted on London's AIM market) has 100% of its assets focused in acreage offshore East Africa (Tanzania and Kenya, as well as Mozambique). One of ENI's junior partners is GALP with a 10% working interest of Area 4. Being a Portuguese stock, with all that goes with the trials and tribulations of being in the eye of the hurricane when it comes to the Euro's problems, the stock has been hammered for various reasons, and is currently back down at a twelve month low of €11 vs. what most sell-side analysts see as a net present value of €19.

In the next article I will focus on Kenya, where it seems Tullow Oil (OTCPK:TUWLF) has announced indications of an oil discovery in the northwest of the country, which suggest that it may have a repeat of the Ugandan Lake Albert finds. From there on to Tanzania, where British Gas or BG Group (BRGYY.PK) and Ophir Energy of London have had a number of significant successes over the past months, and continue with an aggressive drilling campaign. These articles will be interspersed with company specific updates.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: East Africa - The Next Great Game In Oil And Gas