East Africa has become synonymous with natural gas as developers flock to the region in hopes of capitalizing on what could become a robust LNG trade scene to meet the world’s growing energy needs.

The region is believed to have a substantial amount of proved natural gas reserves. But it is the approximately 7.5 Bbbl of proved crude oil reserves, according to U.S. Energy Information Administration estimates, that oil-driven Tullow Oil is seeking as the U.K.-based company leads exploration efforts in frontier areas that include Kenya.

Not too long ago, East Africa’s energy sector lived in the shadow of other, more prolific oil and gas producers in places such as Nigeria, Algeria, Angola, Egypt and Libya. But times are changing as risks—political turmoil, security concerns, theft and other negatives—mount for some of Africa’s top hydrocarbon-producing nations and push developers elsewhere.

Presently, E&P activity in Africa is mainly driven out of East Africa, according to Elias Pungong, Africa oil and gas sector leader for Ernst & Young.

“There is a lot of challenge still ahead like infrastructure [and] getting regulatory framework in place in Kenya and Uganda. But I think the governments are doing all they can to encourage the sector, and I think it is promising looking forward,” Pungong said. “In terms of trends that we are seeing—yes, of course, you’ve heard about a lot of gas around the Rovuma Basin in Mozambique, which goes into Tanzania. We all know that, but we’ve seen discoveries in Uganda and Kenya. The prospects there are really encouraging with a lot of drilling this year.”

Drilling is expected to continue in Tanzania and Mozambique to firm up and increase reserves as companies look to make final investment decisions for LNG and make sure there is enough gas in place, he said. But there is also plenty of activity in Kenya, Ethiopia and Madagascar as the entire East African region continues to attract interest from abroad with potential for both oil and gas.

“You cannot discount Mozambique for the gas and maybe Kenya for the oil just for the sheer amount of activity and exploration. Tullow drilled seven wells that were successful. That is unprecedented for the industry by any statistics that you look at,” Pungong added. “It’s a prolific province, and the prospects there are very, very high.”

Targeting oil

Tullow highlighted its drilling success in Northern Kenya’s South Lokichar Basin during an April 2014 interim management report, saying “the campaign in the first basin has delivered seven successful discoveries from eight wells drilled to date.” The finds have increased discovered resources for the basin to more than 600 MMbbl.

“As a company we focus on oil. Our exploration strategy in East Africa is focused on Kenya and Ethiopia. In Kenya alone, Tullow is undertaking a significant program of 40 exploration and appraisal wells over the next two years,” George Cazenove, head of media relations for Tullow Oil, told E&P. “This will assess the South Lokichar Basin and a further six separate Tertiary rift basins across our Kenyan acreage.”

Additionally, Tullow and its partner have agreed with the Kenyan government to start development studies and are involved in a pre-FEED study for an export pipeline proposed to travel, mostly underground, 850 km (528 miles) from the basin to a marine terminal near Lamu, Cazenove said. But “as this project is in its early stages, it is too early to suggest production targets.”

In 2013, Tullow directed about $515 million toward its East African operations, but that is expected to grow as the company accelerates its parallel exploration, appraisal and development programs.

In Uganda, work is progressing on a commercialization plan approved by the Ugandan government in February.

“The concept of the MoU [memorandum of understanding] involves an integrated development of the upstream, an export pipeline and a refinery of 60,000 barrels of oil per day to be developed in a modular manner starting with 30,000 barrels of oil per day,” Cazenove explained. “A lead investor in the refinery is expected to be chosen by the government of Uganda soon. Meanwhile, the partnership is progressing [with] a comprehensive pre-FEED study for the crude oil export pipeline.”

Aside from Uganda and Kenya, Tullow has pursued hydrocarbons in Ethiopia, Madagascar, Mozambique, Namibia and Tanzania. But “it’s clear that Kenya and Uganda have the most commercial potential,” Cazenove said. Last year alone, 15 of 17 exploration and appraisal wells drilled in Uganda discovered hydrocarbons. Tullow hopes to replicate the success of Uganda in the rift basins of Kenya and Ethiopia.

“There are differences between these basins,” Cazenove said of the South Lokichar and Turkana rift basins, “but the fact that they are all rift basins is the key geological analogy.”

Riveting rifts

Rifts have given rise to oil and gas finds and prospects in East Africa. These include the Tertiary rifts leading to oil finds in Uganda and hydrocarbon potential in Kenya as well as the Permo-Triassic rifts bringing heavy oil prospects in Madagascar and gas hopefuls in Ethiopia.

However, despite having proven prolific in some areas, it is a domain that is not well known and as a result presents a need to search for analogues for certain sedimentary models and appropriate seismic acquisition, Dominique Janodet, vice president of new business for Total E&P, said during Offshore Technology Conference (OTC) 2014. The company has operatorship in the EA-1 and EA-1A licenses in Uganda, where it estimates oil and gas resources are more than 1 Bboe.

“It can be challenging because some of those rifts are covered by natural troughs,” he said. Moreover, “East African rifts are situated in remote areas. You need to think about your crude export scheme. So definitely there is some potential still to be unveiled in the rifts.”

But the path from model to concept to data acquisition to evaluation of reserves and discoveries for frontier plays such as those in East Africa demands certain technologies for exploration progress. The most critical one remains seismic—both for data acquisition and appropriate imaging of what has been recorded to make the subsurface understandable, Janodet said. Technology has helped put countries in the oil business that weren’t on the agenda 10 years ago, he said. These include Mozambique, where “a huge amount of gas has been discovered in a province that was not considered as very attractive for exploration,” Janodet said. “Definitely, it’s not the end of exploration. We see new petroleum provinces emerging all around the world in new plays.”

Emerging plays

Exploration is warming up in Ethiopia, but it is too early to tell whether efforts will pay off. Cazenove admits that while Tullow has found oil in Kenya and Uganda, it has not been successful in Ethiopia yet.

In the meantime, drilling continues in the Chew Bahir Basin.

Marathon Oil also recently signaled interest in the area after signing a deal with Africa Oil to acquire a 50% interest in Ethiopia’s Rift Basin area.

Covering 42,519 sq km (16,417 sq miles), the Rift Basin area extends northeast of highly prospective blocks in the Tertiary rift valley that include the South Omo Block and Kenyan Blocks 10BA, 10BB, 13T and 12A, according to Africa Oil, which anticipates acquiring a 1,200-km (746-mile) 2-D seismic survey in the second half of 2014.

“Currently we have seven rigs running, and after releasing one in midyear will have at least six rigs running full time through the remainder of the year,” Africa Oil CEO Keith Hill said in a news release. “Our program has three objectives: to appraise the existing key discoveries, to drill out the remaining prospects in the South Lokichar Basin and to open at least one of the four new basins being tested along trend.

“Additionally, we are pushing hard to move the development studies along with the aim of sanctioning a pipeline development for the South Lokichar Basin by the end of 2015 or early 2016,” he continued.

Hopes also are high for Madagascar. The same geology that is present onshore and offshore the East African countries is thought to carry through the channel to Madagascar, which has been gaining attention lately.

Seismic companies are assessing the area’s potential with plans for new multiclient surveys. TGS announced this year its pursuit of two 2-D surveys covering a total of 8,847 km (5,497 miles) offshore Madagascar, with the final data scheduled to be available to clients in fourth-quarter 2014.

The waters offshore the island as well as onshore are attracting operators. The latest farm-in deals include an agreement between Tullow and OMV Group, which acquired a 35% participating interest in Block 3109 (Mandabe) and Block 3111 (Berenty) onshore Madagascar. The first well in the Berenty Block is set for first-quarter 2015. The deal allows OMV to expand to onshore acreage of more than 14,000 sq km (5,405 sq miles), adding to its Madagascar portfolio that includes a 40% stake in the offshore Grand Prix Block.

The majors also maintain interest. ExxonMobil, operator of three production-sharing contract licenses offshore Madagascar, anticipates deepwater drilling will begin in 2015 and 2016, according to the company’s website.

“There is quite a bit of opportunity,” Pungong said of Madagascar. “It’s a country that you should keep an eye on in East Africa.”

Remaining challenges

Venturing into frontier areas typically brings myriad challenges both above ground and below ground. East Africa is no exception. For Tullow, the most common obstacle has been the lack of infrastructure.

“Although Tullow has introduced much of the infrastructure currently in place in our areas of operation in Kenya and Uganda, significant upgrades will be required to transport oil from both regions, still largely inaccessible by roads and rail, once production begins,” Cazenove said, before turning to other foreseen challenges—access to a wide range of skills as well as competitive, high-quality goods and services.

“Many of these skills are still scarce in new oil provinces such as these, but we are committed to bridging the existing skills gap to ensure that the emerging oil and gas industry in East Africa brings real, lasting benefits to the people of the region. We are constantly looking at development opportunities for graduates and experienced personnel to drive our localization programs both nationally and with respect to the area of operation,” Cazenove continued.

Stakeholder concerns, specifically in Kenya, also have impacted operations. In October 2013, for example, community concerns about local employment and business opportunities forced the temporary shutdown of drilling operations there after a disturbance. In wake of the incident, Tullow worked with national and local governments as well as others in the community on an MoU that made way for new community resource offices in the Lodwar, Lokori and Lokichar areas.

“These offices are staffed by dedicated teams who work closely with our mobile field-based stakeholder engagement teams to facilitate dialogue between Tullow and our stakeholders,” Cazenove said. “This means we are able to manage our impacts more effectively and bring greater benefits to local communities.”

Developing gas

In the meantime, natural gas production plans continue to move forward as companies work to develop huge gas fields offshore Mozambique and Tanzania while representatives of these countries continue luring more investors.

“Don’t fear that once you’ve invested there you will come out empty-handed. It is not possible,” Ana Maria Raquel Alberto, senior commercial counselor for the Embassy of Mozambique, told a crowd during a session at OTC.

Anadarko and its partners have discovered an estimated 1.3 Tcm to 2.1 Tcm (45 Tcf to 70 Tcf) of recoverable natural gas after drilling more than 20 deepwater wells in Offshore Area 1 Block since 2010, the company said on its website.

McDermott, an EPC offshore contractor, supports Anadarko on FEED studies, particularly Offshore Area 1 subsea production systems for the Prosperidade complex. Speaking during OTC, Scott Munro, senior vice president and general manager, North Sea and Africa, McDermott, spoke about the challenges of the region and how to make the projects sustainable.

“We’re currently working on how we are going to execute those projects, and it’s a challenge. The infrastructure isn’t there yet. The capacity isn’t there yet,” Munro said. “What we need to do is decide how we will develop that capacity and infrastructure over the course of the project and how we can make it sustainable. We’ll deploy and use tactics we’ve used in other megaprojects in other parts of the world.”

That means forming partnerships and developing talent.

Anadarko and its partners also are moving forward with plans for a commercial LNG facility onshore with first cargoes expected in 2018, preparing Mozambique to become one of the world’s major LNG exporters.

But they aren’t alone. Statoil, which is the operator for blocks 2 and 5 in the Rovuma Basin offshore Mozambique and has additional assets offshore Tanzania with partner ExxonMobil, is also in the game.

However, where East Africa will fit into the future global LNG trade picture—given the abundance of resources in North America and massive LNG projects underway in Australia—remains to be seen.

“East Africa is strategically placed not far from the Far East. They are very, very well poised. Overall, it will depend on what we see with the global economy,” Pungong said. “With the amount of gas involved, you really can’t write them off. But today we haven’t had a firm decision on LNG, when it’s going to happen. Some people talk of Mozambique 2018. You have all of the FLNG [floating LNG] options that they have. Until they make a firm decision, we’re not going to know. But my view is that it depends a lot on other global economic factors.”

It also depends on the area’s ability to maintain its attractiveness to investors. Although Alberta pointed out Mozambique’s infrastructure is being improved, she admitted that challenges—such as construction of gas pipeline and LNG facilities, local processing of natural gas and guarantees for competitive prices for natural gas in the local market—remain.

“Mozambique needs to improve its economic competitiveness,” she said, later noting the country is working to lower its 17% VAT. “Otherwise, we will fall behind other countries.”

But it goes beyond the fiscal tax regime, according to Pungong. Oil and gas companies want to know that laws are stable, he said, noting Kenya keeps postponing its oil and gas regulations, bringing uncertainty.

“Uncertainty causes a big problem, [and] I’m finding skills, qualified local human resources, is always a challenge,” Pungong said. “Those challenges are there, but they are not insurmountable. As you have seen with other areas in Africa at times, oil companies always find remedies to these challenges.”

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