Low prices could undermine bid round

While Mozambique’s previous two oil and gas licensing rounds have had limited success, the country will be hoping that recent discoveries and its revised fiscal environment will create an investment boost during its latest bid round, says GlobalData. Revisions to Mozambique’s upstream fiscal and regulatory regime include introducing new petroleum and petroleum tax laws in 2014 and renegotiating the fiscal terms for the Rovuma Areas 1 and 4 LNG projects, which are operated by Eni and Anadarko, respectively.

According to Reece Straker, GlobalData’s Upstream Fiscal Analyst, the competitiveness of bidding will test the attractiveness of the updated regime during Mozambique’s fifth and latest bid round, which is scheduled to end on April 30. ‘By providing fiscal stability to new and existing licence holders, as well as the influential Rovuma projects, Mozambique has increased investor confidence. Not only will this stability directly encourage potential bidders, it will provide greater belief in the future development of LNG facilities associated with the huge Rovuma fields. Interest in the bid round has also been bolstered by the large number of discoveries made since the fourth round and the fact that these include major gas discoveries in the Rovuma Basin. To fully exploit this interest, Mozambique has significantly increased the number of blocks on offer.’

The analyst notes that alongside these positive factors, there are also influences that may limit the attractiveness of the opportunities on offer in the fifth licensing round and restrict the number of bids. ‘The recent decline in oil and LNG prices is a substantial obstacle to investment and will have tempered expectations. Potential bidders are likely to be much more cautious with new investments, not least because many of the blocks on offer in this licensing round are in high-cost, ultra-deepwater areas. If the current challenges to ultra-deepwater development prove too large for investors in this round, Mozambique may need to further amend its fiscal terms to kick-start development in promising areas. However, the government will be hoping to achieve some moderate success by providing a variety of areas as part of the round.