Investors Make a Move on Madagascar’s Oil Reserves

Recent discoveries of oil and natural gas in East Africa have all eyes looking to this region. From major gas finds in Mozambique and Tanzania, to optimism over oil production and future exploration in Uganda and Kenya, the potential of the East African oil industry is vast and still relatively untapped.

In particular, experts are predicting a rush on Madagascar; a nation that has been sitting on some 20 billion barrels in oil reserves for quite some time.

If East Africa is Hot, then Madagascar is on Fire

Madagascar has 225 offshore exploration blocks, plus a number of onshore blocks.

The small Indian Ocean Island has five basins, totaling 320,000 square kilometres (123,550 miles). The most important of these onshore basins, Ambilobe, Majunga and Morondava, are located along the western coast. All three share a common geological history, with structures similar to those off Angola and Nigeria.

The largest fields, Bemolanga and Tsimiroro, are in the Morondova basin – most of which remains unexplored.

It is only recently that unconventional oil deposits in Madagascar have attracted the attention of investors.

Why the delay?

Investors have traditionally seen Madagascar as somewhat complicated. For starters, extraction is not easy and requires a great deal of technological investment. Infrastructure is also a challenge, as Madagascar currently has no refineries. Another sticking point for investors has been political stability. The country is still under a transitional authority following a coup in 2009. And though elections are scheduled for next year, investors are proceeding with caution.

Why the interest?

The rising price of oil on world markets, coupled with new technologies, have brought marginal producers and unconventional oil sources, like Madagascar, back into the game. Seventeen oil companies and joint ventures are currently exploring on the island.

Oil and gas company, Madagascar Oil (headquartered in Texas), has realised the most significant returns to date. Madagascar Oil holds the largest amount of onshore exploration and productions licenses in the country, and boasts 100% interest in two significant heavy oil fields in Northwest Madagascar.

Last week, it announced a pilot project at its major Tsimiroro onshore field, with production expected to begin early next year.

The Tsimiroro field, south of the town of Morafenobe, has proven reserves of 1.7 billion barrels of heavy oil, buried some 100m to 200m beneath the mountainous region. Madagascar Oil has oil concessions totaling 30,000 sq km in the region.

However, unlike light crude oil, the hydro carbon in Tsimiroro is hard to extract. Madagascar Oil is therefore employing new extraction technology that injects steam into the ground to soften the oil.

“The steam flood pilot will…[begin] in the first quarter of next year, and it will probably peak some time toward the end of 2013 or early 2014 at around a thousand barrels a day,” said Mark Weller, Madagascar Chief Operating Officer.

The firm expects to produce a daily average of 1,000 barrels from next January and 250,000 barrels per day beyond 2014 using the steam flood technique.

To achieve these goals, Madagascar Oil will also need to invest in new infrastructure, including a new export terminal, pipeline, marine terminal and offshore mooring facility, estimated to cost around $1.5 billion in total. However, it hopes that the Tsimiroro pilot project will refine this estimate and lower it.

But Madagascar Oil’s pilot project is only scratching the surface of Madagascar’s potential. While Tisimiroro holds around 1.7 billion barrels of Original-Oil-in-Place, with potential for light oil and natural gas, Bemolanga is an ultra-heavy field with potential resources of 16.6 billion barrels (about 9.8 billion barrels of recoverable reserves).

Other oil and gas companies are still conducting seismic analyses before moving towards the drilling process. And while commercial exploitation of Madagascar’s natural resources is still probably more than five years away, the prospects of oil being produced in this country is quickly gaining investor interest.

Debbie Stephenson

Debbie Stephenson is a former Content Marketing Manager at Firmex.