11 July 2014

Tanzania: With Gas Already in Its Bag Tanzania's Rift System Set to Become Next Oil Frontier

IF recent geological findings are anything to go by, the East African Rift System (EARS) is poised to become the next big thing for oil companies, more so Tanzania where there are numerous areas with the possibility of striking oil. Our Staff Writer Chaby Barasa reports...

Thanks to onshore discovery of oil in Uganda's Lake Albert and Northern Kenya, the EARS is tipped as the future hotbed of exploration in the region, whose success so far had been limited to gas, which is being harnessed for power in projects such as Tanzania's Songo Songo.

Swala Oil and Gas Tanzania (latest entrant in the sector with part-Tanzania ownership), Chief Executive Officer, David Ridge, says the relevance of this is that Tanzania contains both the western arm and the eastern arm of the rift system in Lake Tanganyika and in Pangani/Eyasi.

"In addition, the 'cracking' that produced the Rift System was not an easy event and a number of smaller 'cracks' also appeared between the two main systems: Kilombero and Rukwa seem to be two such systems. "We therefore expect that the oil-prone geology that has been proven in Uganda and Kenya will continue into Tanzania.

We also know that there is other evidence that Tanzania has the working petroleum systems: for instance, oil seeps offshore, the Tundaua oil seep on Pemba Island and oil, seeps and tar balls in Lake Tanganyika," says Mr. Ridge in an email to this newspaper. He says early explorers noted in what is today Lake Albert, the presence of oil seeps.

This observation remained unknown or ignored for years before oil explorers moved into Uganda and - in due course - discovered some four billion barrels of oil. GEO ExPro, a petroleum geoscience magazine, conducted a study recently and noted that the oil seeps in the rift lakes of Lake Tanganyika, Edward and Nyasa may indicate the presence of a similar rock involving the tertiary sections, as discovered recently at Lake Albert.

Commercial hydrocarbon quantities have now been established in the Ugandan part of the Albertine Graben where the government, together with the international oil companies operating in the country, has embarked on plans to commercialise the discoveries that have been made. This will be the first commercial oil production in the East African Rift system. Plans are underway to commercialise these reserves.

Stretching from Ethiopia in the North to Lake Nyasa in the South and splitting around Lake Victoria and then continuing in two separate arms, this crack in the continent has been proven to have oil potential. The System's western arm is highlighted by a line of modernday lakes: Albert, Edward, Kivu, Tanganyika and Nyasa.

The eastern branch comes straight down through Kenya, and when it reaches Tanzania, it splits into two final branches: Pangani and Eyasi. Uganda, which has already struck oil, is a landlocked country, 1200 km from the nearest coast, Mombasa, and there is no hydrocarbon development and production infrastructure in the country. The challenge for early commercialisation of the reserves is putting up the required infrastructure.

The Uganda government hired a reputable firm (Foster Wheeler) to undertake a feasibility study on refining in the country. The feasibility study has indicated that the refinery project in Uganda is a highly profitable venture given the demand for petroleum products in the region.

Refinery development in Uganda is therefore considered by the government as the best option for development and production of petroleum in a remote basin like the Albertine Graben. "After Uganda, the exploration moved to the eastern arm of the rift system in Northern Kenya's Lokichar Basin. In 2012, oil was discovered there too when Tullow and Africa Oil drilled the Ng'amia Field.

Since then they have continued to drill and make additional discoveries," says Mr. Ridge. Tullow oil has confirmed that it has found large oil deposits at Amosing 1 and Ewoi 1 exploration wells. The British firm estimates that volumes of oil in its Turkana wells contain more than one billion barrels.

The company has moved to acquire government permission to construct infrastructure including an oil pipeline. The age of the sediments in the Ugandan and Kenyan basins is what is called 'Neogene' - sediments that are less than 23 million years old. "We knew, from earlier investigation, that we had five basins in the two licences that we had been awarded.

The first question was: what might be the age of the rocks in those basins? Ideally, you could answer that by looking at rocks that outcrop elsewhere in the area but in our case that was not possible. "Fortunately, though, rocks have a 'seismic signature': the seismic waves often travel at different speeds through rocks of given ages.

When we reviewed the results from our seismic work, the results suggested that three of the five basins were of Neogene age," commented the Swala CEO, whose oil and gas exploration company explores the East African Rift System.

The firm is operator of the Kilosa-Kilombero and Pangani licences. He added: "That alone is interesting but not enough. If you generate oil (or gas) but cannot trap it then the hydrocarbons shall simply seep to the surface and be lost. Here we had a piece of luck: two of our seismic lines intercepted what we thought could be a single structure.

We shot some more seismic over this structure and confirmed that it was robust enough to act as a trap." He says they called this structure the 'Kito Prospect' and asked an independent third party to estimate how much oil this could contain. "We now had the right age (Neogene) and the right type of structure.

When we looked at how the structure had formed, we noticed that it was the same style of structure that has been successfully drilled in Kenya. Again, the evidence gave us comfort to go further." The next step according to him is to shoot more seismic.

This will allow them to investigate the entire Kilosa-Kilombero basin, whose licence covers an area of 17,675 square Kilometres across a portion of the East African Rift System that has remained largely unexplored. The Pangani Licence on the other hand, covers an area of 17,156km2 To date no wells have been drilled but seismic data acquisition has been conducted over the licence areas.

"We won't re-investigate Kito but we saw evidence of more similar structures potentially being present along the edges of the basin, extending to the South West, and we shall investigate those. "At the end of the 2014 seismic programme, we shall end up with a list of prospects and leads that will form the basis for our drilling programme in 2015."

(For clarity, a 'prospect' is a structure that is sufficiently defined that you could go ahead and drill it; a 'lead' is a structure that needs a bit more work before it can be classed as a 'prospect'). "So whilst it is too early to celebrate, what we are seeing in Kilombero and Pangani is sufficiently interesting for us to continue to invest in these two licences," he observes.

Having been granted the green light by the National Environment Management Council (NEMC) to conduct seismic survey activities last year, Swala has since awarded the contract to carry out the seismic acquisition programme over the Kilosa- Kilombero and Pangani licences to Polaris (Tanzania) Limited ("Polaris").

The contract has been awarded on the basis of an extension to its 2013 contract. A NEMC official said the ongoing activities do not interfere with the Kilombero flood plain ecology, protected by the Ramsar Convention -- an international treaty for the conservation and sustainable utilisation of wetlands.

According to the overseer of the industry in the country Tanzania Petroleum Development Corporation (TPDC), other oil exploration activities that are ongoing on the rift system include on Lake Tanganyika, where the work is being undertaken by Lake Tanganyika South Beach (T) Limited.

Others are Rukwa Basin (Heritage Rukwa (T) Ltd),Kyela Basin (Heritage Rukwa (T) Ltd. TPDC's Senior Principal Petroleum Geologist, Mr. Sebastian Shana, says the exploration activities are at different stages of implementation, but cautioned that it was too early to start rejoicing.

"We are closely monitoring whatever progress is made, but we are also aware that as a nation we need to be patient until we can confirm that we have indeed struck enough oil," Mr. Shana notes. The draft National Petroleum Policy 2014 outlines that petroleum exploration activities in the country are conducted in sedimentary basins located onshore, in shallow waters, in deep offshore and within inland rift valleys.

"The country's sedimentary basins cover an area of approximately 543,000 square meters. Over 172,280km of 2D seismic data and 25,631 square kilometres of 3D seismic data have been acquired. "More than 70 exploration and development wells have been drilled, of which 53 wells are in onshore basins and 17 in the offshore basins. The well density is equivalent to 1 well per 7,870 square meters.

This indicates that the country is still underexplored," the draft document reads in part. Amid hopes of the country striking the black gold, Muleba North legislator who is also an oil expert, Mr. Charles Mwijage underscores the need to manage expectations among the population, and cautions against raising false hopes.

He says with exploration and seismic survey taking place in various parts of the country, politicians, the media and other stakeholders have to be careful with their statements so that the public understands that such processes may take a long time before the resource is finally exploited.

"Conflicts may arise between communities where explorations take place and the government or exploration firms if expectations are not managed properly," observed the legislator. The Executive Director of Lawyers Environmental Action Team (LEAT), Dr Rugemeleza Nshala stresses the need to first put in place an effective legal, regulatory and institutional framework to monitor and administer the sector.

"We need to carefully study and adopt best practices from countries that have excelled in making the sector improve the lives of the majority," noted Dr Nshala. He also called for a national dialogue to chart the way forward for the industry. The Harvard University schooled don punches holes into the current legal framework in the extractive industry in general, saying, "it isn't effective in addressing issues like price transfer and having cases involving locally registered foreign firms arbitrated abroad."

In Tanzania, petroleum exploration and development is governed by among others the Petroleum (Exploration and Production) Act 1980. The Act permits the government to enter into Production Sharing Agreements (PSAs) under which an oil company is given a contract to explore for and produce petroleum. Resources are owned by the State and licences are granted to TPDC.

Other legislations are The Model Production Sharing Agreement, 2008 (MPSA) between the Government, TPDC and the Oil Company, Income Tax Act, 2004 and The Environmental Management Act, 2004. The Deloitte Guide to Oil and Gas in East Africa report (2013) observes the fact that until the last few years, the East African Region had been a sleepy backwater for the upstream industry.

"But the discovery of significant quantities of oil in Uganda in 2006 has ushered in a bonanza; indeed one senior oil company executive informed me recently that more hydrocarbons have been discovered in East Africa in the last two years than anywhere else in the world.

"Onshore oil discoveries in Uganda have been followed by discoveries in Kenya. Offshore we have seen world-class discoveries of gas in Tanzania and Mozambique. Now every potential hydrocarbon basin across East Africa is the subject of intensive interest. We have also seen an influx of majors, super-majors and big independents," writes Bill Page in the Report.


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