Chevron-Anadarko: the overlooked jewel

As Chevron swallows up its USD50 billion acquisition of Anadarko, OGInsights turns its focus away form the heavily covered synergies in the Permian, DJ Basin and Gulf of Mexico, and towards its LNG portfolio as Chevron strives to join the ranks of the supermajors in LNG.

Chevron has a Australasia-centric LNG business, but Anadarko's 27% operated interest in Mozambique Area 1 now broadens the former's reach. The Mozambique position is a low cost, integrated LNG project in an ideal geography with reach into the European and Asian markets.

Area 1 is close to FID with c.9.5mtpa of its 12.88mtpa capacity already signed up. The stepping in of Chevron into Anadarko's shoes adds further weight behind the project. 

In February, it was noted that Anadarko had signed a 2.6mtpa LNG SPA with Tokyo Gas/Centrica
joint agreement with implicit destination flexibility which will help broaden Chevron's LNG marketing portfolio, although it is yet to fully launch its own trading portfolio like the Shells and Totals of this world.

The Area 1 LNG joint venture in Mozambique comprises Anadarko, Mitsui, ONGC, ENH (Mozambique NOC), Bharat PetroResources, PTTEP and Oil India. In addition to the Area 1 development, the Area 4 joint venture between Exxon and Eni is on track for sanctioning later in 2019.

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Understanding Mozambique's fiscal regime (Part I)

Government take across countries in East Africa are generally below the Sub Saharan Africa average of 62%. This reflects the relative infancy of the E&P industry in the region with high exploration risk and uncertainties on the path to commericialising discovered resources. A lower fiscal take is required to attract investment.

Mozambique’s government take lies in the middle of its East African neighbours - lower than Uganda where significant oil reserves have been proved up, and Tanzania where fiscal terms are less attractive. Mozambique's fiscal take is uncompetitive relative to Kenya and Ethiopia, which are considered to be important E&P players in due course.

It is also important to note that Mozambique's resources are gas and hence deemed significantly less attractive than oil. Such large scale gas discoveries are expensive to monetise but clearly LNG is becoming an increasing focus by global IOCs and there has been enough momentum over the years to fianlly get Mozambique LNG off the ground.

Mozambique operates a standard PSC regime with an R-factor based on cumulative income/cumulative costs.

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Anadarko signs SPAs for Mozambique LNG

Anadarko has signed three gas Sale and Purchase Agreements (“SPAs”) with Tokyo Gas/Centrica (2.6mtpa), Shell (2mtpa) and CNOOC (1.5mtpa) for its Mozambique LNG Area 1 development. This total 6.1mtpa of the planned 12.88mtpa ahead of FID expected in mid-2019. The LNG development will challenge upcoming projects given its fortunate location in between the Asian and European markets and will compete with Australian, Middle Eastern and North American suppliers.

These SPAs are conversions of existing Heads to Terms and there could be more SPA announcements on the way. Anadarko has made clear that it expects to debt finance c.USD12 billion of the USD20 billion Phase 1 development and these SPAs will help to support that financing.

The owners of Mozambique LNG Area 1 are:

Separately, the Area 4 LNG JV between ExxonMobil and Eni is also on track for sanctioning later in 2019.

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Anadarko close to Mozambique Area 1 FID and raising USD12 billion debt financing

On 26^th April, Anadarko had "in principle" secured sufficient offtake to enable FID of the first phase of Mozambique LNG on Area 1 offshore Mozambique. The huge resource of 75 tcf is planned to be initially developed via two trains with capacity of 12.88 mtpa. In time, this could eventually be expanded to eight trains producing 50 mtpa.

Since the announcement, Anadarko has also made clear that it expects to debt finance ~USD12 billion of the USD20 billion Phase 1 development, mainly from export credit agencies or ECAs.

In March, Anadarko noted that it had secured 5.1 mtpa of offtake and was close to achieving the 8.5 mtpa needed for FID. It is clear that the company is now very close or has surpassed that threshold with remaining efforts on converting heads of terms and discussions into signed SPA contracts.

Offtakers include a range of Chinese, Japanese and other NOC buyers as well as utilities. It has been reported that deals include France’s EdF, Thailand’s state-run PTT and Japanese utility Tohoku Electric.

This is a good piece of news for Mozambique LNG which is finally showing signs of moving ahead and follows finalisation of development concessions with the Mozambique government last year. The Area 1 FID could potentially overtake ExxonMobil's Area 4 project, in which ExxonMobil acquired a 25% from Eni in 2017 (the deal closed in December 2017).

Area 1 ownership stakes
Source: Bloomberg, Mozambique LNG

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Mozambique LNG moves one step closer to FID

On 31^st July, Anadarko finalised two agreements with the Mozambique government (the marine concessions) which pave the way for FID of the LNG project. The agreements would allow Anadarko as operator to progress with the design, building and operation of the marine facilities for the project and could see FID in 2018. The next step is to begin with resettlement plans, the completion of which would allow construction to commence.

Separately, the partners continue with efforts to secure long-term offtake contracts and the high proportion of offtake by equity holders of the licence reduces the risk surrounding the project. Asian players Mitsui (20%) and PTTEP (8.5%) have a need to source long term gas supply, as do the Indian participants ONGC (16%), Oil India (4%) and Bharat (10%). The remaining Area 1 licence holders are Anadarko (26.5%) and ENH (15%).

Area 1 is estimated to hold c.75tcf of recoverable gas and will initially have two LNG trains at the proposed onshore processing plant with 12mtpa capacity for the Golfinho/Atum field. The scale of the resources does pose a threat to upcoming global LNG developments, particularly Australian projects which also target the Asian gas markets, and could see a glut in the 2020s particularly with Qatar also looking to up its LNG exports.

Earlier this month saw Petronas cancel its large Pacific NorthWest LNG project on the west coast of Canada.

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