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Morocco’s Energy Industry in the midst of a massive Shakeup

When commentators touch on North African energy market hubs, most think of OPEC members Algeria, Angola, Nigeria, strife torn Libya, followed by a string of secondary prospection markets led by Egypt.

Over last decade, in fits and starts one North African economic powerhouse, a net energy importer with 1.44 billion cubic meters of proven natural gas reserves, is attempting to muscle in to the club – the Kingdom of Morocco.

With less than a tenth of its natural gas reserve potential having been realized, and the visible potential for shale oil exploration, Morocco’s government is going all out to attract foreign direct investment for its still relatively nascent oil and gas industry.

Office Nationale des Hydrocarbures et des Mines (OHNYM), the country’s central bureau for managing hydrocarbon resources, has of late offered pretty attractive operating and investment terms to oil and gas exploration and production (E&P) companies that some industry insiders describe as the equivalent of rolling out the fiscal red carpet.

For instance, during the resource exploration phase, 100% of the costs are paid by the contractor without any reimbursement from ONHYM (a 25% partner in the licenses by law), while during the exploitation period the costs are shared between the parties in accordance with their participation interest in the production concession. There is also no corporation tax for the first 10 years of production.

These are the sorts of terms and conditions E&P companies would encounter in unproven places like Ireland and Bangladesh, where exploration is done more in hope than expectation. “Except that isn’t true of Morocco when it comes to hydrocarbons in general, and natural gas in particular,” according to Aziz Rabbah, the country’s Minister of Energy, Mines and Sustainable Development.

Speaking to your correspondent at IN-VR’s recently concluded 2nd Morocco Oil & Gas Summit in Marrakech, Rabbah said that atop the country’s natural gas reserves that remain largely untapped are potential oil riches. “Morocco is ranked fifth in the world for oil shale reserves with deposits in Tarfaya and Tangier, and our continental shelf is also being assessed for shale gas.”

“ONHYM and its partners have found modest volumes of gas in our Gharb basins, the Essaouira and Tendrara region, and we remain optimistic for the near-term.”

Earlier, Rabbah told the summit that Morocco’s oil and gas industry was “open for business” with projected investment in the energy sector by the year 2030 estimated to be $40 billion, presenting significant investment opportunities.

Among those availing those opportunities are 13 largely independent E&P companies covering a total exploration area of 127,000 square kilometers, consisting of 10 exploration licenses and 70 exploration licenses. These include 42 offshore licences and one preliminary feasibility license onshore.

Most visible among those independent upstarts is London-listed SDX Energy (LON:SDX) which has an ambitious 12 well drilling campaign in Gharb that’s set to be concluded by the end of 2019, and an ultimate long-term ambition of being a 75,000 barrels of oil equivalent per day (boepd) production company in Morocco.

SDX Energy Chief Executive Officer Paul Welch says, his company – which also has sizable prospection activities in Egypt – came to Morocco because it offers “one of the best fiscal regimes in the industry.”

“We are targeting first gas at Disouq for mid-2019 and view Morocco as a key growth region, where we are logging an 87% drilling success rate in Lalla Mimouna.”

The prospect covers 857 square kilometers, and SDX recently bagged a new eight-year licence. Rubbing shoulders with SDX Energy are other independents such as Sound Energy and Chariot Oil & Gas, although oil majors such as Italy Eni are there too.

Yet, for all of that, and SDX Energy’s bragging rights aside, progress has been painfully slow. Skeptics point out that Morocco’s shale oil and gas rock formation has been known to geologists since the 1930s, and the country is unlikely to realize its potential anytime soon. Sidestepping skeptics, the pragmatists also view the country as a mainly natural gas play.

And drilling potential is not the only worry. The Moroccan government is keen on energy diversification, and with an abundance of sunlight, would be pumping billions into renewable energy projects, especially solar power, something Rabbah also alluded to in Marrakech.

Nevertheless, the minister also views natural gas as the bridging fuel in escorting his country of nearly 40 million people and Africa’s fifth largest economy down an inexorable low-carbon pathway. So the quest is underway to diversify resources beyond neighboring Algeria.

And the poster project in bringing that about is the $4.6 billion liquefied natural gas (LNG) project in Jorf Lasfar. Even though details remain sketchy for now, tenders are imminent. Moroccan state-owned power utility ONEE said has also picked HSBC Middle East as financial adviser for its plan to boost imports of LNG.

The project could help import of up to 7 billion cubic meters of gas by 2025, and includes the construction of a jetty, terminal, pipelines and gas-fired power plants. Jorf Lasfar, where the terminal will be built, is situated on the country Atlantic coast near where OCP, Morocco state-run phosphate company, and Abu Dhabi National Energy Co (TAQA) have facilities.

Tricky thing is the natural gas market is fast turning into a buyers’ market. Furthermore, arbitrage plays, direction of U.S. LNG cargoes, Algerian exports and the wider market dynamic could result in a whole host of cost competitive, if not cheap, natural gas heading Morocco’s shores.

Should that happen, domestic hydrocarbon prospectors Morocco has worked so hard to attract are likely to get jitters. A spokesperson for ONHYM says the government is aspiring for “balanced” long-term ambitions. It’ll be some balancing act indeed.

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