Jun. 29, 2015


John W. Peffer

Mozambique

John W. Peffer

President, Anadarko

TBY talks to John W. Peffer, President of Anadarko, on managing gas finds that are set to notably impact Mozambique's economy, with positive socioeconomic consequences.

BIO

John W. Peffer holds Bachelor’s and Master’s degrees in Petroleum Engineering from the University of Texas and has 27 years of oil and natural gas industry experience, all with Anadarko and its affiliates. Prior to his current position as General Manager of Anadarko in Mozambique, he spent three years working as Middle East Business Development Manager in London.

What is the status of the drilling and exploration activities in Area 1?

We continued to have one rig active during 2014, both exploring our acreage in the Offshore Area 1 and delineating the incredible natural gas fields already discovered. Our exploration contract with the government of Mozambique began on February 1st, 2007, and when it expires on January 31st, 2015, we will have met all of the objectives we set out to achieve. Since the first drillship arrived in November 2009, we have been drilling continuously and have discovered an estimated 50–70tcf of recoverable natural gas in the Offshore Area 1, which is extraordinary for deepwater exploration anywhere in the world. We continue to advance these world-class discoveries we have made here and are transitioning toward the development phase of this exciting LNG project. As we move ahead in 2015, we may drill some additional wells, although we won't need another contract for that—we have defined discovery areas inside Offshore Area 1, and have the right to continue appraising and developing those areas beyond the exploration period once we have an approved development plan. Just prior to the end of 2014, a Decree Law took an important step toward establishing a project-wide legal and contractual framework that is expected to deliver a level of stability enabling continued equity investments by the partnership and potential access to significant, limited recourse to project finance capital. We also have an approved environmental impact assessment for the onshore and offshore portions of the development, having completed the resettlement action plan for the Afungi site, which was submitted to the government prior to the end of 2014. Once approved, we will receive the environmental license for the project. The engineering design for both the offshore project and the onshore liquefaction facilities is nearing completion and we expect to be in a position to award those projects in the near future. Marketing is making good progress as we have more than 8 million tons per annum of non-binding LNG off-take agreements in place with customers in premium markets in the Pacific Basin, and we are working on financing packages to that end.

How would you describe the Palma Park investment?

We secured the land and have done some site improvements. It's mainly been a matter of geotechnical work to design the plant, including the offshore and near-shore approach of the pipeline routing and the marine facilities that we need to construct there, as well as a liquefaction facility. We have a fairly large camp today operated by about 150 people. We have approval to start building an airstrip and have focused on the resettlement activities and working with local communities and the government concerning the location of the resettlement sites and issues such as housing design. Our stakeholder engagement efforts in the region have progressed well as our team meets regularly with local villages and leaders to ensure we are openly communicating with the communities, listening to concerns and working to address any issues. We have also established training programs to ensure local communities share in the work opportunities and have the skills necessary to play a role in the development of this project.

What will the production capacity be in the early years?

Currently, the initial phase is for 10 million tons per annum of LNG production from two trains. That requires roughly 14tcf of gas to open the 20-year production life of the project. We can replicate that 3-4 times in size at least given the tremendous scale of resources discovered in Offshore Area 1.

What export markets are you targeting?

We are continuing to secure non-binding agreements in premium markets in the Far East—there is huge demand and growth potential. The substantial projected long-term growth in global demand will probably be focused on China and India in the near future.

As mentioned previously, we have non-binding HOAs for more than 8 million tons. They will be buying energy security for their nations for decades to come; the resources here are such that they can continue signing repeat contracts involving Mozambican LNG. The big players today are Qatar, Australia, and North America—mainly the US—and meanwhile, this project alone is expected to elevate Mozambique to the status of a major global player of notable potential.

How can Mozambique compete efficiently with those markets?

One of the first important steps was the new Decree Law—secondly come the related costs. We think that we have a cost-competitive project here, that competes well with any LNG project in the world. The Decree Law is expected to help with this. Looking at offshore, Anadarko is one of the top two or three most experienced deepwater developers in the world. The quality and production capacity, or deliverability, of the wells is such that a minimal number of wells will produce a significant volume of natural gas for the LNG facilities. The natural gas fields are close to shore, at around a 20-40 kilometers distance, whereby long pipelines are not necessary. The natural gas is high-quality, or sweet, meaning that is contains no H2S, and just minor traces of CO2, whereby the metallurgy is not exotic. This means that the design of the pipelines of the onshore facilities is simpler. Less pre-preparation of gas is required before it goes to the liquefaction plant, reducing costs. We consider the project cost-competitive and a premium asset, which we will send to premium markets, maintaining our cost-competitiveness. This differentiates us from our competitors. And, then there is the sheer scale of the project to consider.

What role can Anadarko play in the socioeconomic development of Mozambique?

Standard Bank's socioeconomic study of our project reveals that it will bring tremendous benefits to the country in terms of GDP, job growth, foreign investment and education, among others. The study found that we directly employ around 15,000 people, as construction requires a large workforce. In contrast, the operation of any oil and natural gas facility is not manpower-driven. It takes a high skill-level, but not many people. The EPC contractors will bring in 10,000 or so people, but the real benefits come in indirect and induced labor. The government has plans for power generation and other industrial projects that are directly tied to job growth and so on. The government is committed to maximizing project revenue for the benefit of the Mozambican state. We can help by developing this project and selling to premium markets—mainly in the Far East—paying our taxes to the Government and training Mozambicans to a high skill-level to work on these projects and in the industry as a whole. Our facility in Pemba has resulted in an incredible amount of new economic activity. The port set to be built there will bring in additional investment, and we will manage our drilling activities from there.

When will the first cargo be ready for export?

We are well advanced in marketing and have started on the financing, having encountered significant interest. Our project team is ready to move forward. The pace of development will largely be dependent upon continued alignment with the Government of Mozambique, and the speed at which the Government provides remaining permits and approvals. We are confident that the progress made to date will provide momentum to continue moving this important project forward. The view in the marketplace is that it would genuinely increase the international credibility of Mozambique.

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