Mauritania's oil finds could be more important than previously thought

Feb 18, 2004 01:00 AM

Crude oil reserves off Mauritania and further north along the West African coast could be much more important than previously thought. Recent discoveries could encourage the major oil companies to move into the impoverished West African state, particularly if the reserves extend into Moroccan waters. So far, medium-sized companies have been the main driving force behind the discovery and development, despite concerns over political stability.
"It is possible that the majors will show more interest in... Mauritanian crude production, in particular Shell," said Djime Diagana, the Secretary of General of the country's Ministry of Mines and Industry.

Sources familiar with the region say there could be up to 2 bn barrels in the two offshore production-sharing-contract areas A and B, where most of the proven reserves are located.
"There is a hell of a lot of oil," said one source.
Another regional expert said if the offshore discoveries extended into Morocco, it would be of far greater importance as oil majors, such as Shell, are involved in the downstream industry there and because pipeline connections to Europe already exist.

And that seems likely because the geology suggests the reserves could stretch up that section of the West African coast. Gambia has just announced the discovery of "large quantities" of oil in its waters.
"Further west from Nigeria it didn't seem there was a regional trend," said Bill Prast, an independent oil consultant. "But as you approach Dakar from the south it starts getting better again and now there's some re-evaluation."

The most recent discovery, Tiof, was in a different sand channel from the other discoveries in the area, Chinguetti and Banda.
"(Tiof) really shows the potential as it's a different sand channel -- the first sand channel opened up is not the only one -- and the whole province begins to look a lot more interesting," said Scott Spencer, a spokesman for Hardman Resources, which has a 37.38 % stake in PSC area A and a 33.23 % stakein area B.

The Chinguetti field is due to start production in the third quarter of 2005 at 70,000 bpd. It isn't yet clear exactly how much the other fields could produce. Recent exploration indicates reserves of least 550 mm barrels in Chinguetti, Tiof and Banda, but there's likely to be a lot more.
"It's a solid prospect given oil prices over $ 30 per barrel," added Prast.
Furthermore, Scotland's Dana Petroleum has made a significant gas discovery in Block 7, which could be a cap overlying an oil field. The company is now examining the potential for oil extraction.

In a 2001 report commissioned by Australia's Woodside Petroleum, the majority owner and operator of PSC areas A and B, the Dallas-based oil consultancy DeGolyer and MacNaughton assessed possible offshore reserves in PSC areas A, B and C blocks 2-6 at up to 5.8 bn barrels on a non-risk adjusted basis.
The risk-adjusted estimate was 630 mm barrels, but given the recent discoveries that figure looks certain to be surpassed. Woodsideis 34 % owned by Shell.
"Given the success we have had, we can see no reason why the other majors would not continue to show interest," said Woodside's Africa business unit director Ian Jackson.

Total is currently the only major involved in the country, except for Shell's involvement with Woodside. Total has a license to prospect for oil in the onshore Taoudeni basin and isn't involved in any of the offshore consortia. A Shell spokesman said Mauritania was an interesting prospect and the company was "party to a number of recent discussions as a major shareholder in Woodside."
ENI was involved in the West African state, but it looks like it got out of Mauritania at the wrong time, selling its holdings to Woodside and its other joint venture partners in areas A and B -- Hardman, Fusion Oil & Gas and Roc Oil -- for a total $ 77 mm plus adjustments.

That price was set before the Tiof discovery and "given the recent exploration results in Area B, the price that Woodside has paid for ENI's holdings looks like something of a steal," said Norval Scott, an analyst with London-based World Markets Research Centre.
"Now that commercially-viable findings have been made, the country can expect to be the subject of far more potential investor interest -- including from supermajors," Scott added.

The threat from political unrest is partly mitigated by the fact that the most discoveries are expected to be offshore. The last attempted coup in Mauritania was just seven months ago. The Central Intelligence Agency says there's ethnic tension between a minority black population and the dominant Maurs, or Arab-Berbers, in the country.
"It's another piece of the growing West African pie (of oil)," Jamal Qureshi, an analyst with US-based PFC Energy. "It's well positioned to load on to a VLCC (very large crude carrier) to take wherever the price is best."

Source: Dow Jones
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