Summary
PetroVietnam's $85MM investment should be viewed as purchasing an option, rather than characterized as a capital investment.
Analysis
PetroVietnam's willingness to enter into a virgin market such as Mozambique is interesting from a number of perspectives.
The gentlest comment to offer is that the opportunities discussed in the article are economically challenged. While Pande - discovered in 1960's by Gulf (CVX) - is a significant gas field in terms of both recoverable volumes and potential production rates, the lack of market has relegated this to a 'stranded gas' designation for years.
Prior to its demise, Enron devoted a serious effort to monetize Pande, and even with all their financial wizardry and willingness to bend accounting rules could not see a path forward. SASOL is operating Pande and neighboring Temane, but focusing on their proprietary gas-to-liquids technology and relying only superficially on gas sales. It is doubtful that this program provides sufficient return to offset the risk perceived by a more commercially driven entity.
Equally important, the Rovuma basin, while highly prospective for gas as evidenced by Esso's (XOM) 1986 well and the recent wells across the Rovuma River in Tanzania by Artumas, suffers even more so from a lack of visible market. Extrapolating a very high resource volume is relatively easy. Translating this into reserves is an entirely different matter.
Developing a viable gas market for Mozambique onshore gas fields is likely to be a daunting challenge for even the most sophisticated E&P player. $85MM is a drop in the bucket more akin to purchasing an option than to a capital investment.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
