While vast hydrocarbon reserves have long driven neighbouring Algeria's economy, Morocco has been heavily reliant on imported crude and gas to fuel growth. However, investors are increasingly turning their attention to Morocco's largely unexplored offshore hydrocarbons assets. The interest has been driven by a number of factors, including promising results from seismic studies and favourable investment terms. With 10 new wells planned in 2013-14, the North African country could see a boost in its oil and gas production in the medium term, reducing its energy imports and providing some relief to its growing trade deficit. Resource scramble
There has been a flurry of corporate activity over the past two years, as oil and gas players have looked to pick up the remaining available acreage. Five oil companies were awarded new blocks, and there has been a series of acquisitions and other agreements as international oil companies (IOCs), such as Chevron, Total and Galp, and independents including Genel Energy, Cairn Energy and Kosmos Energy, have moved to increase their offshore coverage.
According to Morocco's National Office for Hydrocarbons and Mines (Office National des Hydrocarbures et des Mines, ONHYM), up to 10 offshore exploratory wells are planned for 2013-14, twice what was drilled in the past decade. Since 1968, just 34 wells have been sunk; of them, 28 were drilled before 2003 and at relatively shallow depths.
UK-based independent Cairn Energy gained a presence through its acquisition of Nautical Petroleum in June 2012, taking over a 37.5% stake in the Juby Maritime licence, which includes the Cap Juby heavy oil discovery, Morocco's first major offshore find. Cairn then purchased an interest in the Foum Draa block in August 2012, obtaining a 50% position and operatorship in exchange for an investment of €44.1m toward the drilling of an exploration well.
The Anglo-Turkish independent Genel Energy obtained a 37.5% stake in the Juby Maritime licence in mid-2012 through its acquisition of Barrus Petroleum. While Cap Juby has not produced commercial deposits, the ONHYM reports that recent testing confirms the presence of oil and gas systems on the block, and Cairn and Genel are expected to launch exploratory wells starting in 2014. Genel also plans to drill wells in 2014 on its Sidi Moussa block, in which it purchased a 60% interest in late 2012 for a reported €36.8m, and Mir Left block, which it was awarded in November 2012.
The offshore Mazagan licence has generated optimism for potential resource holds. In September 2012, the independent group DeGoyler & MacNaughton announced that the area could hold 7bn barrels based on new seismic data, a considerable increase on the previous estimate of 2.4bn barrels. Plains Exploration acquired a 52% working interest in the Mazagan permit from the previous operator Pura Vida in January 2013 and is slated to begin exploratory drilling in 2014.
The region has seen increased activity from major IOCs as they seek to expand their frontier exploration. Chevron was awarded licences for three blocks in the deep-water Doukkala basin in January 2013, and Galp acquired a 50% stake in the Tarfaya offshore block from Tangiers Petroleum in 2012. A previous test well, MO-2, in Tarfaya indicated potential flow of more than 2300 barrels per day (bpd).
Attracting investmentExcessive enthusiasm for discoveries in Morocco may be premature, as the country has yet to produce a large-scale commercial deposit. Emboldened in part by the increase in output from non-traditional producers elsewhere on the continent, including Uganda and Ghana, investors are nonetheless showing interest, in part due to the government's attractive investment terms.
Under the 2000 Hydrocarbons Law, ONHYM's stake in all exploration and production ventures is limited to 25%, one of the lower levels in the region and far below Algeria's 51% participation for all domestic ventures. Royalties are also relatively modest, at 10% for oil production and 5% for gas, which ensures that the government's take does not exceed 35% of any venture. In addition, companies benefit from a 10-year tax exemption for all new discoveries. According to UK-based Longreach Oil & Gas, the profit value for the production of one barrel of oil in Morocco is equivalent to 13 barrels in Algeria, seven barrels in Nigeria, and two barrels in Egypt.
Morocco's efforts to encourage exploration are critical to its objective of reducing the growing trade deficit. Spending on oil and gas imports climbed 17.9% year-on-year to reach Dh106.5bn (€9.49bn) in 2012. Energy accounted for 27.6% of total imports in 2012, up from 25.3% in 2011, and contributed to a record trade deficit of Dh197.2bn (€17.57bn) in 2012. Foreign oil and gas firms are increasingly picking up on Morocco's potential, and the next 18 months should be a telling period as operators accelerate drilling projects in search of a discovery that will propel the sector forwards and the deficit backwards.
© Oxford Business Group 2013
