Neil Ritson – Non-Executive Chairman, Solo Oil, Tanzania
Solo Oil’s Neil Ritson explains what drew the portfolio investment company to Tanzania; their various projects in the country; how private companies are received by the Tanzanian government; and the bright future of Tanzanian oil and gas.
Solo has been very active in Tanzania and is staking a lot on success in the country. Could you begin by explaining what drew you Tanzania initially, as opposed to neighbouring Mozambique or other oil and gas producing nations, and why you plan to stay?
We wanted to get involved with the growth of indigenous energy projects in East Africa and based on our initial assessment, which has proved largely correct, Tanzania had the gas market that would develop most quickly. When the opportunity arose to participate in the onshore Ruvuma PSC with Aminex and Tullow Oil this was the ideal situation. Ruvuma was a large unexplored onshore block and had a good operator. The first well, Likonde-1, was encouraging and the second well made the Ntorya discovery. During the last few years gas infrastructure has been built by the Tanzanians with Chinese aid and so our original prediction that Tanzania would have the best opportunity to commercial gas to a local market has been borne out.
Your company has identified over 5tcf of prospective resources in Tanzania and is involved in the Ruvuma PSA, Kiliwani North, and Ntorya-1 projects. Could you give us the rationale behind investing in these particular assets and explain the differences between them?
The Ruvuma PSC was our first investment and is still our main involvement as it contains the potentially 1 tcf Ntorya-1 discovery and the prospective resources that you mention. We farmed in to the Aminex share of the first well, Likonde-1, which had good oil shows and discovered gas at the very bottom of the well. A second well in the Ruvuma PSC, Ntorya-1, discovered the Ntorya gas field which has now been given a separate appraisal licence. The next phase at Ntorya, following additional seismic data that has been acquired and interpreted, is to drill two appraisal wells. These are anticipated to start this year.
Our other investment at Kiliwani North was designed to give us earlier access to production and revenue. The Kiliwani North gas field was already discovered when we joined the partnership, also with Aminex as operator, and gas sales discussions were well advanced. The gas sales agreement took rather longer to finalise than we expected, but during that time the gas pipeline infrastructure was completed so once we had the agreement earlier this year the commissioning was able to start immediately.
On April 7th 2016, Kiliwani North reached the “first gas” production milestone. How significant was this for Solo and how does it affect your strategy moving forward? We noticed your intent to increase your stake to 10% on the back of new funding.
First gas is a key milestone as you say. With that comes revenue as we are paid for all the gas produced during commissioning phase and then when the commissioning on Songo Songo island is completed we will move to a standard long term take-or-pay arrangement under the gas sales agreement. When we originally acquired a 6% interest we also obtained the right to increase that to about 12% at a later stage. With the project on stream we have arranged to increase our stake progressively to 10% on the back of project performance. That level of involvement provides us with the anticipated revenue we would previously have received on 12% since the expected production rate has been increased since our original purchase.
Under the Joint Venture obligation in the Tanzania Petroleum Act 2015, private companies must partner with the TPDC, Tanzania’s National Oil Company, on oil and gas projects. How would you characterise Solo’s relationship with the Tanzanian government? Are they supportive of international investment in oil and gas in general?
TDPC and the Tanzanian government generally are very supportive of energy investments. The country has a fast growing economy and therefore a growing demand for energy. The droughts that have affected the region have severely limited the hydroelectricity generation and therefore new gas production is key to the energy mix if that growth is not to stall. We have experienced some delays with approvals, but that is understandable as the necessary experience and governance have to be put in place to allow Tanzania to transition effectively to an indigenous gas economy.
How big can Tanzania become as an oil and gas producer, especially in light of the election of President Magufuli?
Tanzania has the potential to be a very major international gas player with the massive gas reserves discovered offshore which total around 100 tcf. That is, however, quite distinct from our onshore production for the local market as much of the offshore gas will be exported as LNG. President Magufuli also promised to tackle the endless power shortages Tanzanians face, and to exploit its gas resources for the benefit of the nation, which is exactly the policies we are looking for. As Works Minister, Mr Magufuli gained the reputation for being a results-driven, no-nonsense politician. He seems ideally suited to the immediate challenges facing Tanzania as it continues its development.
Any other comments you wish to share with our readers.
Solo is a portfolio investment company and whilst we have a major investment in Tanzania we are also active in the UK at Horse Hill – the so called Gatwick Gusher – and in the Isle of Wight where we have recently obtained a new exploration licence. Horse Hill has shown incredible potential and we will continue to develop that story over the coming months. We also have investments at various stages of development in Nigeria, Canada and Morocco. The Company is continuing to look for new investment opportunities and hopes to expand its portfolio further in 2016.