Øystein Michelsen – Country Manager, Statoil Tanzania
Statoil Tanzania’s Øystein Michelsen discusses the recent discovery of offshore gas in Tanzania, stakeholder relations, the country’s proposed LNG plant, and developing local content through an entrepreneurship competition for Tanzania’s youth.
Statoil has been present in Tanzania since 2007; could you begin by outlining the main developments both in your operations and in the domestic market in general over this period?
To achieve an optimal level of local content in the Tanzania Gas Project, collaborative efforts between Statoil, the suppliers and the government is imperative.
In 2007 Statoil signed a production sharing agreement (PSA) for Block 2 with Tanzania Petroleum Development Corporation (TPDC). Statoil Tanzania AS is the operator with 65% working interest with ExxonMobil Exploration and Production Limited as a partner with 35% interest. Since then Statoil and its partner have made significant gas discoveries in Block 2, which covers an area of approximately 5,500 square kilometers and lies in water depths between 1,500 to 3,000 metres. In total 14 explorations and appraisal wells have been completed through an ambitious drilling campaign with an extraordinary success rate. The total discovered gas volume in place is estimated to be approximately 22 Tcf. All the eight discoveries in Block 2 are predominantly made in high reservoir quality sandstones. The success in Block 2 is the result of Statoil’s exploration strategy in accessing high quality acreage and testing high impact potential.
How significant is Tanzania within the context of Statoil’s other offshore gas operations worldwide?
The Tanzania Gas project is regarded as an important project within Statoil and is given high priority.
The Mdalasini-1 exploration well, in which Statoil has a 100% stake, recently discovered natural gas offshore in Tanzania. This is the company’s eighth discovery in Tanzania; what is its significance?
Mdalasini gas discovery has been made in Tertiary and Cretaceous sandstones. The discovery of an additional 1.0-1.8 trillion cubic feet (tcf*) of natural gas in place in the Mdalasini-1 well, brings the total of in-place volumes up to approximately 22 tcf in Block 2. The Mdalasini-1 discovery is located at a 2,296-metre water depth at the southernmost edge of the block. Statoil has drilled the Mdalasini-1 well with a 100% working interest. The Mdalasini-1 discovery marked the completion of the first phase of an efficient and successful multi-well exploration programme offshore Tanzania. Previously Statoil and co-venturer ExxonMobil have made seven discoveries in Block 2, including the five high-impact gas discoveries Zafarani-1, Lavani-1, Tangawizi-1, Mronge-1 and Piri-1, as well as the discoveries in Lavani-2 and Gilligiliani-1.
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 characterize Statoil’s relationship with the Tanzanian government? Are they supportive of international investment in oil and gas in general?
Statoil works well with authorities in Tanzania; this includes the TPDC, Ministry of Energy and Minerals, and other central and local government stakeholders. Every country has its own way of dealing with foreign investors and what I can say is that this specific project is unique and the first in Tanzania so it has to involve a lot of government entities in the decision making process. As a company it is our responsibility to ensure that the government through TPDC and MEM understand the project so that we can have alignment as we take further steps to develop the resources found in Tanzanian deep sea.
We are still at the early stages of the project. The current task at hand is the Host Government Agreement discussions which are important in setting up the framework for the project.
LNG projects are characterized by large capital investments over many years before any income can be realized. For the investors to undertake such commitments, stable fiscal and commercial terms are important. A capital intensive strategic project like this will require a tailor-made commercial solution and stability of terms and framework conditions. This is common practice for LNG projects in many countries. Before any decision can be made on detailed planning, such arrangements need to be in place for the LNG project.
We need to jointly develop terms and framework conditions that are sustainable and balanced to ensure (1) long term benefits for Tanzania, (2) long term stability and certainty of terms and framework conditions, and (3) a commercially viable and financeable project. This is very important work ahead of us.
Are there any issues holding back its development?
We have recently been informed by the government that the team to hold the discussions with the IOCs will soon be in place, and the discussions will commence. We are looking forward for that to happen.
Is it comparable to ongoing developments in Mozambique?
The resources and the projects are similar, but these are two different countries, hence it is difficult to compare directly the processes and how this is undertaken in each country.
What real impact would a functioning LNG plant have on Tanzania?
This pioneer project may be the start of a new era in the Tanzanian gas industry and will provide significant long term benefits to Tanzania in the form of income, employment, local content, domestic gas, contribution to GDP and favourable trade balance.
The “Heroes of Tomorrow Business Competition” is an event organized by Statoil to promote entrepreneurship among young Tanzanians. What role does this event play for Statoil’s operations in Tanzania and how do you see local content developing in the future?
The aim of promoting this competition for youth in Mtwara is to recharge the entrepreneurial spirit among youth in the southern part of Tanzania where we have our operations and where the gas economy will take place in future. We think it is important to start preparing the youth on how they can benefit from the gas industry when the time comes. Through entrepreneurship, they will be able to provide different services to companies in Mtwara and Lindi during the development of the project. Knowing that gas production may start in about ten years from now, we thought it would be good to target young men and women in the regions since by the time the project develops they will be able to contribute to the project through supplying different services. The Heroes of tomorrow business competition is just part of the local content initiative of Statoil Tanzania. Local content is high on Statoil’s and the Tanzanian authorities’ agenda. To achieve an optimal level of local content in the Tanzania Gas Project, collaborative efforts between Statoil, the suppliers and the government is imperative.
How do you assess the ease of doing business in Tanzania compared to other countries in the region?
I am not in the position to compare Tanzania with other countries in the region but it is demanding to establish the framework for such a project in Tanzania. Generally, according to the world bank’s data, Tanzania is regarded as challenging for developing business placed at number 139 out of 189 countries.
Any other comments you wish to share with our readers.
Tanzania offshore gas development is at an early stage, it will take time to make Tanzania ready for the project and to develop and execute the offshore projects and the LNG plant.