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Mozambique Gas Riches Near as $25 Billion LNG Plant Approved

Bloomberg logo Bloomberg 6/19/2019 Matthew Hill and Paul Burkhardt

(Bloomberg) -- Anadarko Petroleum Corp. approved a $25 billion liquefied natural gas project in Mozambique that could help transform the economy of one of the world’s poorest countries.

Chief Executive Officer Al Walker signed off on what he called the biggest ever foreign investment in Africa. Anadarko sees potential for Mozambique to become one of the largest LNG suppliers in the world, and the project -- expected to export the fuel to countries in Asia and Europe -- will play a big part. It will be funded with $11 billion of equity and $14 billion of debt.

“Over time this project will double this country’s GDP,” Walker said at the signing ceremony in Maputo with Mozambique President Filipe Nyusi.

It’s taken the American company almost a decade to green-light the development after discovering gas in Mozambican waters in 2010. The country had to draft new regulations for its nascent oil and gas industry, even as uncertain global demand for LNG slowed plans. The government expects $95 billion of revenue over 25 years from this project and others led by Exxon Mobil Corp. and Eni SpA.

“It is the start of a new era for Mozambique,” said Darias Jonker, a London-based director at consultants Eurasia Group Ltd. The size of these projects “will bring tens of billions of dollars of investment” and revenue to the government, he said.

a close up of a map: Mozambique’s Liquefied Natural Gas Ambitions © Bloomberg Mozambique’s Liquefied Natural Gas Ambitions

Developing the hydrocarbon resources is crucial for the southern African nation, which has struggled to service its debt in the past. Nyusi could use Anadarko’s planned investment in the project, called Mozambique LNG, to showcase his achievements ahead of elections in October, and hope to compensate for problems with borrowings, according to Jonker.

Mozambique LNG is at the center of a new restructuring deal the government reached with a core group of Eurobond holders last month. While investors will no longer have access to future revenue from the project, the in-principle agreement allows the administration to pay a lower interest rate until after the country’s gas production begins in 2023.

“Both Mozambique’s long-term economic outlook and its ability to reestablish credibility with lenders depend entirely on future gas revenues,” said Anne Fruhauf, vice president at New York-based risk adviser Teneo. Without the investment decision, the situation would look “infinitely bleaker,” she said.

Total’s Deal

Occidental Petroleum Corp. agreed to buy Anadarko earlier this year. Once that deal is completed, Total SA has an arrangement with Occidental to acquire all of Anadarko’s African assets for $8.8 billion, including Mozambique LNG.

The project will have the capacity to produce 12.9 million tons a year in the first phase, with scope to expand to as much as 50 million tons. It has contracts with key global importers in Asia and Europe, and Mozambique’s location between the Pacific and Atlantic basins is an advantage that will help the country compete with a booming number of LNG suppliers.

Flexible commercial arrangements, including an innovative co-purchase agreement with Tokyo Gas Co. and Centrica Plc, have helped the project secure “high-quality customers in a crowded LNG market,” Frank Harris, head of LNG consulting at Wood Mackenzie Ltd., said in a note.

Gas from the Anadarko-operated offshore field will be sent to a processing plant on land, where it will be liquefied and then exported. The onshore plant is being built in the northern Cabo Delgado province, an area where a suspected Islamic insurgency began in 2017. While the company says it hasn’t been targeted, one of its convoys was attacked and a contractor beheaded in February.

Anadarko has implemented a resettlement program in the area, and is building roads and an airport. The company has said it will continue to develop the infrastructure until Total takes over.

Exxon’s Rovuma LNG venture is planning a 15.2 million-ton-a-year facility adjacent to Anadarko’s and expects to reach a final investment decision by the end of the year. Eni approved a $7 billion project in 2017.

(Updates with Anadarko CEO comment in second paragraph.)

--With assistance from Hannah Recht, Anna Shiryaevskaya, Helen Robertson, Rachel Adams-Heard and Borges Nhamire.

To contact the reporters on this story: Matthew Hill in Maputo at mhill58@bloomberg.net;Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Amanda Jordan, Rakteem Katakey

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.

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