Time to Shine for Morocco
By Amy McLellan
When it came to the distribution of oil and gas riches, it seemed Morocco had been overlooked in favor of its North African neighbors.
Organisation of Petroleum Exporting Countries’ members Algeria and Libya are flush with oil and gas, Egypt is now a liquefied natural gas exporter, and even southern neighbor Mauritania, a relative newcomer to the drill bit, has yielded some significant discoveries, with a major offshore gas field under development.
Morocco, however, is having its own small-scale oil and gas resurgence, with major oil companies snapping up licenses, drilling activity on the up and a material gas field under development.
Indeed, at the time of writing, the drill bit was again busily grinding its way through the rocks in the east of the country near the border with Algeria on the hunt for more gas. The kingdom depends on imports for 90 percent of its energy needs, so every well counts if it is to push domestic production higher and increase the share of cleaner-burning gas in the energy mix.
The operator of the latest drilling project, London-listed Sound Energy, has already found enough gas on its Tendrara project in eastern Morocco to be pushing ahead with a development that could be flowing 60 million cubic feet per day of gas in the coming years. It is described by CEO James Parsons, a former Shell executive, as the country’s “first significant scale indigenous gas production.” The Kent-based company has enjoyed a run of success targeting a proven gas play in the Triassic TAGI reservoir. As Sound’s executives like to highlight, this is an extension of Algeria’s proven geology but in a much more fiscally attractive regime.
Making Preparations
Earlier this year Sound awarded a consortium led by Enagás the front-end engineering design, or FEED, for the project, with a final investment decision expected towards the end of 2018 with a view to funding the US$184 million development on a build-own-operate-transfer (BOOT) basis for the pipeline and central processing facility. The development envisages five new horizontal production wells, a new 20-inch, 120-kilometer pipeline to connect the gas field, which has independently certified in-place resource of 0.65 trillion cubic feet, or TCF, to the Gazoduc Maghreb Europe pipeline, with the gas used either for domestic gas-fired power or for export to Southern Europe.
Sound farmed into the permit in 2015 and drilled the breakthrough wells in 2016 and 2017 when TE-6 found 28 meters of net pay and flowed 17 million cubic feet per day, or cf/d, following stimulation, and the TE-7 generated 32 million cf/d on an extended well test. The wells flowed from the TAGI reservoir, which is predominately generated from a carbonate-rich marine source rock, but the company believes there’s also significant potential in the deeper but untested Paleozoic, which was confirmed in the play-opening TE-8 appraisal well of May 2017.
Sound thinks this is just the beginning, however, and is on the hunt for more gas. It believes this 14,500-square-kilometer tract of desert could have as much as a 34 TCF resource, and its latest three-well drilling program is testing new plays that will calibrate these numbers.The follow-up program designed to explore three non-related play concepts on the Tendrara permit got off to a shaky start when the TE-9 well, drilled to target the TAGI and the Paleozoic, was a duster in late November, knocking almost 40 percent off the stock price. The well, having encountered poor reservoir quality rocks in the TAGI and just missing the Paleozoic at this location, was plugged and abandoned without testing. By early December, however, the company was drilling on its second well, TE-10, designed to test a TAGI structural-stratigraphic play with a mid-case gas-in-place estimate of 2.6 TCF (and a high case of 5 TCF) as well as probing the Paleozoic. This will be followed up by TE-11, which is expected to spud in March 2019.
Oil Majors Move In
Project cargo players should be watching closely: some big hitters are starting to pay attention to Morocco. In early 2018 Shell and Repsol signed up to explore the 9,990-square-kilometer Tanfit exploration permit while a number of industry heavyweights, among them Eni, Woodside and Kosmos Energy, are scoping out prospects offshore where they hope to have the kind of success seen in other Atlantic Margin plays, such as Mauritania, Namibia and Brazil. Some companies believe the offshore could yield the same oil finds as Nova Scotia, which was once a neighbor before the continents drifted apart. This theory was tested earlier in 2018 when the Saipem 12000 drillship sank the Rabat Deep 1 wildcat offshore northern Morocco. Led by operator Eni (40 percent) on behalf of a consortium comprising Woodside Energy (25 percent), Chariot Oil & Gas (10 percent) and Morocco’s state oil company ONHYM (25 percent), the well was testing the JP-1 prospect with a prospective resource of 768 million barrels, but came back empty-handed after the Jurassic carbonate reservoir was found to be tight. The consortium will now go back to the drawing board, and calibrate the well results with their seismic findings.
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In the near-term, however, it’s the onshore opportunities that are gaining traction. AIM-quoted SDX Energy, for example, is tendering for a rig for a 12-well program starting in the second half of 2019 in a bid to grow volumes on its acreage in the onshore Rharb Basin. The London-headquartered company is producing 8 million cubic feet of gas per day but its pipeline has the capacity to take 24 million cf/d. “We have the capacity to triple our production and that’s our next objective,” CEO Paul Welch said.
Unusually for a small cap company, SDX Energy is a full-service gas company, owning the gas from wellhead to burner-tip and supplying local industrial users, including carmaker Peugeot. It’s an unusual model, and one forced on the company because the country, as yet, lacks a gas distribution network.
LNG on the Cards
This could change should Morocco realize its plan to become a liquefied natural gas, or LNG, importer, with the kingdom keen to increase its gas consumption for power generation to 3.5 BCM in 2025 and to develop a downstream gas market. This US$4.6 billion gas-to-power project envisages the construction of a maritime jetty to the north of the existing port of Jorf Lasfar near Casablanca for the reception and unloading of LNG tankers, an onshore LNG regasification unit with the capacity to import up to 7 billion cubic meters of gas, more than 400 kilometers of gas pipelines to connect the LNG terminal to the existing Maghreb-Europe pipeline and to deliver natural gas to two combined-cycle gas turbine power plants with a combined capacity of 2.4 gigawatts located in Jorf Lasfar and Dhar Doum. The hope is the jetty, regasification terminal and 400-kilometer pipeline will be built by 2025.Press reports suggest ministers have yet to decide whether to build an onshore terminal or to take the cheaper – and quicker – alternative of renting a floating storage and regasification unit, or FSRU. “That is being debated now, whether we should opt for FSRUs instead of an onshore facility,” Energy and Mines Minister Aziz Rabbah told reporters earlier in 2018.
Existing producers don’t fear Morocco’s transition to an LNG importer. Indeed, Welch of SDX Energy believed LNG imports could bring positive changes.
“We don’t see LNG landed 200 kilometers south of us as being a competitive force on price,” Welch said, pointing out that SDX Energy’s gas sells for between US$10 and US$12 per MCF. “Rather we see it being generally positive because associated with landed LNG is the infrastructure that will have to be built, the trunkline to the major cities and the smaller lines to distribute to industrial customers and residential networks. That’s the real positive of the LNG story for us.”
Pro-Business Mentality
Morocco is certainly keen to make itself a good partner for business in a bid to attract investment and create jobs. It continues its upward journey on the World Economic Forum’s global competitiveness index, ranked 75th in 2018, up two notches since 2017, and has one of the most attractive oil and gas fiscal regimes in the world. Those working in the kingdom are fulsome in their praise of the regulatory authorities and government officials.
“ONHYM has run oil and gas operations themselves and that gives them a perspective and understanding of what we’re trying to achieve,” SDX Energy’s Welch said. “They’re also very good stewards of industry data, which means you can access data to provide context and background to your operations and that can be critical to helping on the exploration and development side.”
And while Morocco’s service industry is, as yet, still quite small, there are few obstacles to importing the essential equipment, from chemicals to rigs, that are required to support a drilling campaign. “Last time we needed a drilling rig we had to mobilize one from Romania and it was relatively straightforward to bring it in,” Welch said. “Typically moving equipment around Africa is not easy, but in Morocco the time from offloading to having the rig onsite was just four to five days, which is really quite efficient and a real credit to them.”
This is echoed by others. “For paperwork, as long as everything is checked on both sides, usually it is a quick clearance,” said Harry Croome of Hemisphere Freight Services Ltd. “Morocco operate with EUR1s from the UK, so if paperwork is all in order before arrival, and good partners are utilized at both ends then there is no special paperwork that is required.”
Some specialist oil-and-gas cargoes may need an inspection and re-evaluation of cargo value and this is where having the right partners with local knowledge is key. “The work we have done with our partners in Morocco has been a pleasure with absolutely no issues or hardships based on the destination,” Croome said. He lists Casablanca and El Jadida as the best ports for project cargo compared with the slower customs operations of Port of Tangiers where priority is given to roll-on, roll-off vessels and truck ferries.
Morocco may be a small player compared with its North African neighbors but, as those already working in the kingdom can attest, small can be beautiful.
Freelance journalist Amy McLellan has been reporting on the upstream oil and gas and maritime industries for 20 years.
Photo: Sound Energy
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