exploration began in Mozambique in 1948, when Gulf Oil was awarded an
onshore concession covering much of the southern half of the country.
Gulf drilled five
wells there during the 1950s; the Temane #1 found gas in a structure along
the Indian Ocean coast south of the Save River.
Amoco joined Gulf
in 1958, and in 1961 the partnership drilled a second successful gas well,
the Pande #1, on a structure northwest of Temane. The initial appraisal
of Pande by the Pande #2 well was successful, but the appraisal of Temane
(Temane #2) located gas only in a thin shaley interval. Temane #2 tested
at a low rate, and the Temane structure was abandoned.
Gulf and Amoco drilled
Pande #3 and #4. The #4 well blew out and flowed uncontrollably at an
estimated 1 bcf/day for 400 days before the blowout was capped.
With no market for
the discovered gas, the companies abandoned exploration in Mozambique.
In 1973 the Portuguese left Mozambique, and Mozambique erupted into civil
war. The war lasted until the United Nations brokered a cease fire in
1993 and held a UN-managed general election in 1994.
Arco's Initial Involvement
Mozambique national oil company, Empresa Nacional de Hidrocarbonetos de
Mocambique (ENH), approached Arco exploration manager Paul Willette shortly
after cessation of hostilities to try to interest Arco in entering the
country and participating in developing ENH's 40 percent of the Pande
gas. Enron was ENH's partner in the field.
Owing to the unstable
political situation in Mozambique, Willette declined to enter into serious
talks with ENH in these early encounters. Willette recognized the obvious
commercial problem — the only market for the gas was South Africa, and
Arco would be unable to do a viable gas deal in South Africa in the face
of U.S. sanctions.
In 1995 ENH arranged
a tour of the United States to drum up interest in participation in Pande.
Shukri Saleh Yayeh, chairman of Zarara Oil and Gas of Dubai, approached
Brad Sinex of Arco's Business Development and Negotiations group to look
at Pande, and also to review the Temane block, which Shukri had licensed
on his own.
The initial step
was a meeting with the minister of Mineral Resources and Energy for Mozambique,
John Kachamila, to discuss options for proceeding. A strategy was developed,
with Zarara Oil and Gasto taking a position in the upstream while also
approaching Sasol -- a large South African chemical company that could
provide an anchor project for gas commercialization -- to join the partnership.
Steve Sinclair and Jeremy Greene to meet with ENH and Zarara. Sinclair
and Greene made the key technical observations that seismic amplitude
anomalies appeared to be associated with the gas reservoirs at Pande,
and that there were seismic anomalies on the Temane Block.
The two recommended
that both areas deserved further evaluation, and the project continued.
Willette and Sinex
arranged for political risk and gas marketing studies, which showed that:
- The political risk was acceptable.
- South Africa was changing rapidly
with the election of Nelson Mandela to the South African presidency.
- The most viable gas purchaser
was the South African chemical company Sasol, which could use the gas
at Secunda about 900 kilometers southwest of Pande and Temane.
Sinclair and Greene
returned to Maputo to work the data in ENH's files, and they discovered
that the Cretaceous Grudja sands at Pande and Temane were present over
a large area -- and had outstanding reservoir properties at Pande.
They confirmed the
correlation between seismic amplitude anomalies and the gas-filled sands
at Pande, and noted that seismic amplitudes in the Temane Block appeared
to extend far beyond the limited area drilled by the first two Temane
They also saw a large
amplitude anomaly on open acreage in Sofala Bay and recognized that a
very large structure offshore northeast of Temane called M-10 had major
In 1996 Willette
presented the project to his exploration management, which included Hamid
Al-Hakeem, Tom Velleca and Marlan Downey. Downey expressed some of his
famous "tummy" twitching at the political and marketing risks.
Sinex suggested tying
up as much acreage as possible with technical evaluation agreements (TEAs)
that contained pre-negotiated production sharing agreements (PSA) terms.
The TEAs basically would commit Arco only to studies while the gas marketing
and political risk issues were further investigated. Al-Hakeem, Velleca
and Downey approved this strategy.
Sinex proceeded to
make offers on Temane, Sofala and M-10 while the exploration group continued
its technical work. The effort to tie up the Pande structure was not successful.
Personnel and organizational
changes took place in Arco's exploration leadership. Jamie Robertson and
Dodd DeCamp became the new exploration management.
with ENH were successfully concluded in November 1996 by Sinex. Arco signed
the AFC establishing 18-month TEAs on three blocks for a total gross cost
of $2.7 million. Steve Grimsley became the chief seismic interpreter on
changed dramatically once Arco had a legal position in Mozambique and
could be either a partner or a competitor. Negotiations on a Sasol farm-in
to the three TEAs were concluded in mid-1997, and Sasol agreed to take
the exploration risk on the first of the Arco/Sasol/Zarara Temane wells.
With political and
gas market risks now judged to be acceptable, Arco president Bill Wade
approved gas sales negotiations and conversion of the TEAs to production
sharing agreements (PSAs.)
From TEAs to PSAs
Dave Sutter took
the lead in negotiating the production sharing agreements and associated
operating agreements in 1997. Mike Foley took the lead in negotiating
a gas sales agreement with Sasol. Sasol was both Arco's upstream partner
and the downstream buyer of the gas, and Acro needed a Memorandum of Understanding
for gas sales prior to converting the TEAs to PSAs and committing money
to seismic and drilling.
In September 1997,
Prabodh Pathak and Janet Weimer began analyzing options for:
- The technical plan for field
- Arco's ownership in the pipeline
to South Africa.
- Participation in gas marketing
in South Africa.
- Tariffs and transfer prices.
- Reserves certification.
- A possible internal market
for Sofala gas.
- Strong differences of opinion
with Sasol's upstream unit over probable costs and project management
Arco wanted to start
drilling on Temane early in 1998 in order to avoid the rainy season in
Mozambique. Marty Ward was in charge of planning and execution of the
Steve Ross and Lee
Russell joined the project and took over some of the rising G&G workload.
Robertson and deCamp presented the Mozambique project for approval to
Arco's management group in Los Angeles on Dec. 12, 1997.
The Drilling and Discovery
The Temane Production
Sharing Agreement was signed in Maputo by Arco's Robertson and Willette
on May 15, 1998. Denny Tower arrived to be appointed Arco's resident manager
The Nabors 235 drilling
rig was waiting offshore. Twenty-four hours after signing, the drilling
rig came ashore to the site of the Temane #3 well. The well was spudded
in July, and tested 25 MCFPD on Aug. 24, 1998, from the Cretaceous Grudja
drilling (Temane #4 through Temane #7) and a 2-D seismic program delineating
the amplitude anomalies and tying the wells to the seismic have shown
that the Temane Field is a 2 TCF discovery.
And what did we learn
from this discovery?
Perhaps, that exploration
can be the guiding light -- but wise business approaches are the levers