Kenya will need to focus on providing a competitive and stable fiscal environment if it is to fully exploit its offshore gas industry and attract investors ahead of Mozambique and Tanzania, says an analyst with research and consulting firm GlobalData.
Reece Straker, GlobalData’s Upstream Oil & Gas Analyst, states that while Kenya is currently behind Tanzania and Mozambique in terms of discoveries, exploration interest has increased since Tullow’s first offshore discovery at Block L8, announced in September 2012.
Straker explains: “East Africa has become a hotbed of activity for offshore exploration in recent years, driven by huge deepwater gas discoveries.
“For example, GlobalData’s upstream economics model for Mozambique’s Rovuma Block 4 shows recoverable reserves of over 43Tcf and a full-cycle net present value of US$20.8 billion. While the largest discoveries have been limited to northern Mozambique and southern Tanzania, similar geological features in neighboring offshore Kenya and Madagascar are generating interest.”
The analyst notes that, based on the Rovuma model, Tanzania has a substantially higher fiscal take than Mozambique, with 75% compared to 57.3%. Despite maintaining a profitable environment for the development of deepwater assets, Mozambique could be missing out on significant revenue.
“It’s clear from the terms that the Tanzanian regime is hardest on investors. The profit sharing has been improved for deepwater contracts, but a much greater cut is reserved for the state than in Mozambique," Straker says. “Tanzania still has a comparable income tax and royalty rate, as well as a windfall tax; however, the latter tax is much less significant than in Kenya, which currently has a fiscal take of 67.8%.
It is important to note that the cost recovery limits and state participation for each country are very similar, but are negotiable in each case.”
The analyst concludes that while Mozambique’s negotiable regime points to stiffer future terms as commercial viability in the region is proven, Kenya still has time to observe the markets in Tanzania and Mozambique before adjusting its regulations.
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