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Interview

Omar Mithá – Chairman and CEO, National Hydrocarbons Company (ENH), Mozambique (Part I)

In the first part of an exclusive two-part interview, Omar Mithá, chairman and CEO of Mozambique’s national oil company, the National Hydrocarbons Company (ENH), introduces the organization, its major projects, East Africa’s gas potential, and the next steps for developing Mozambique’s upstream sector. Click here to read Part II of the interview.

Could you begin by introducing ENH?

“The East coast of Africa has the potential to become the locus for the next wave of liquefied natural gas (LNG) globally”

Empresa Nacional de Hidrocarbonetos (ENH) is the national oil company of Mozambique and was formed in 1981. When Mozambique declared independence from Portugal in 1975 a planned economy was put in place, with all sectors in the hands of the state. Within this system Mozambique had a Secretariat of Hydrocarbons under the Ministry of Mineral Resources, which was the precursor to ENH, and acted as the commercial venture, the regulator and the policy-maker for oil and gas in the country. As a State-Owned Enterprise (SOE), ENH represents the Mozambican state in commercial ventures in oil and gas all over the country. ENH became a public enterprise in 1997 and ceased to be the industry regulator in 2004. ENH has the mandate to be totally integrated along the entire oil and gas value chain, even though we have not yet reached the stage where we are able to fill the entire value chain with independent businesses.

What are ENH’s main projects?

Historically, we started with one field, in the Southern part of Mozambique, operated by Sasol. At the beginning we talked to Enron, which later collapsed. We were also looking to create an iron and steel factory in the vicinity of Maputo sponsored by Tata, but this also collapsed. We then had to resort to using a company that was willing to take up the development risk and that was Sasol.

This project has now been ongoing for almost 14 years. Up to now we have had good dividends and we have learned better how to manage contracts and how to discuss the provisions in the contracts, as well as heightening our interest in domestic gas. One third of the power in Mozambique is being supplied by natural gas generated from this field. Despite the success of this flagship project, we feel that it could have done much better and provided even more natural gas.

During the colonial times efforts were made in exploration, but there was a failure to commercialize the discoveries that were made. Exploration resumed in the 1980s with Exxon, but they came up with nothing. It was not until 2006/7 and 2010 when a new bidding round took place that Anadarko and ENI came up with massive discoveries. Mozambique then became known as one of the best gas reserves in the world.

What potential does Mozambique and East Africa more broadly hold in terms of gas?

The East coast of Africa has the potential to become the locus for the next wave of liquefied natural gas (LNG) globally. We need to work hard and be flexible in order to take advantage of the window of opportunity that is currently open, but which is swinging on almost a daily basis. The high speed of our competitors – ranging from the US to Australia and Qatar, as well as other African nations such as Angola, Equatorial Guinea and Nigeria – means that we need to increase the speed with which we are able to supply LNG to the world.

ENH is a small company with around 250 employees, even in terms of revenues. However, we constitute a shareholder in large-scale projects, such as the Rovuma Basin Area 4 operated by ENI, of which we own 10 percent, which will produce around 3.3 million tons per annum. Under very weak and stringent market conditions, this project was structured to have a single off-taker, namely BP. We think that we got the best deal we could secure given those weak market conditions.

“The most important thing was to establish Mozambique as a new player in the world of energy supply”

In addition to that, the most important thing was to establish Mozambique as a new player in the world of energy supply. We wanted to provide confidence to the marketplace and ensure that Mozambique is seen as a magnet for foreign direct investment (FDI) and is a good place for foreign investment in general. That confidence has directly translated to big players such as ExxonMobil plugging into the Rovuma Basin – where it has purchased a 25 percent share in Area 4. That is very good news because now Exxon is fully committed to two large trains onshore. At Area 1, we have Anadarko as an operator and other players such as PTTEP from Thailand. ENH owns 15 percent and then there is a block of three Indian companies that possess 30 percent of the shareholding, and finally Mitsui has 20 percent. As you can see, it is a highly diversified shareholding.

When we look at E&P activity in Mozambique, the withdrawal of actors like Statoil, Total and Delonex, would appear to have been counterbalanced in a big way by ExxonMobil’s $2.7billion bet on the Rovuma Basin. How would you characterize current investor confidence in Mozambique’s upstream plays?

There are mixed signs, but regarding the exit of some of the major players, my belief is that they are balancing their portfolios in terms of investments at a time when the market was weaker and because of liquidity constraints, they could not allocate huge portions of their capital to risky ventures. They had to drill more wells to make more discoveries and the probability of success could range from zero to 99 percent – we never know what will happen in exploration. The exit of those companies is partly explained by a desire to rebalance their portfolios and concentrate on the areas in which they can be more certain of providing value to their shareholders.

Specifically for Total – which purchased a good portion of a major play in the Great Lakes in Uganda – they are going to build a huge pipeline from Uganda into Tanzania and all the way to the Indian Ocean. Because of that, it is very likely that they would change their strategy in relation to the East Coast of Africa. Areas 3 and 6 – the areas relinquished by Total – had Petronas from Malaysia that also relinquished the area. It is a good prospect and we will still go though another bidding round to attract investors to put more money into exploration there. This is massive and unprecedented for Mozambique and for Sub-Saharan Africa. We are talking about investments to the tune of USD 60 billion over the course of the next ten years. The fact that we are talking about energy is new to our country.

Meanwhile, it is not the first time that Statoil has relinquished an area, they failed to make discoveries in Area 2, next to the area where Anadarko and ENI did. It is a matter of strategic choice and maybe they might prefer to go first into areas where discoveries have already been made – despite having to pay a huge premium.

There is, nonetheless, much cause for optimism with some heavyweight newcomers, isn’t there?

“Although certain companies are exiting, they are being replaced by new stakeholders and the interest is maintained and in a better shape”

Absolutely. The positive thing is that, although certain companies are exiting, they are being replaced by new stakeholders and the interest is maintained and in a better shape. Players such as ExxonMobil, which has a very strong balance sheet and very good experience across all continents, mean a lot to our market. It is a sign of great confidence in the marketplace. Once people learn that a project is being developed by an iconic entity like ExxonMobil, that has played such a big role with Qatar Petroleum, it is obviously a boon for the Mozambican oil and gas sector.

We also have Rosneft from Russia, which is another country playing an increasingly significant role in global oil and gas. Most majors are looking for two things. The first is a desire to diversify. The second, is that they want to shore up the share prices by developing new resources. Putting two and two together, Mozambique – along with the entire East Coast of Africa – is well-placed to capitalize. We have massive reserves of good quality which are very competitive in terms of the numbers being produced. We are also well placed to cater to the premium Asian markets of Japan, China and South Korea as we offer diversity of supply compared to the risky geopolitical situation in the Middle East.

What will be the next steps for developing the upstream?

We have launched the fifth bidding and agreements are close to being signed with the operators selected. ExxonMobil and ENI and Rosneft will be the main players. At the same time that we have projects that are at the maturity stage, we also have projects that are at an exploration stage. We also have projects in development, such as Rovuma Area 1 and 4.

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