Morocco Offers Up Incentives for First Wave E&P

Dismissed by oil and gas majors for the last decade, Morocco is working to renew interest in their hydrocarbon potential through incentive and tax programs aimed at smaller operators in hopes of laying a foundation for future energy development.

The country’s efforts are driven by Morocco’s traditionally heavy dependence on outside energy resources, making the development of local production energy efforts all the more important for the country’s economic stability. Morocco is currently dependent on imports for 97 percent of its energy needs and has long aimed to reduce its dependence on foreign sources through the development of domestic projects, including exploring newly-found traditional reserves, shale projects and more recently, alternative energy plans.

Last week, Zac Philips, an oil and gas analyst at Fox Davies noted that while the country had largely been ignored by large capital operators in the past, Morocco’s incentives had provided significant opportunities for smaller firms like Circle, Longreach Oil and Gas, San Leon and Pura Vida to stake out claims in the Northwest African nation.

According to reports from companies active in the country, the Moroccan energy efforts have helped create one of the most hospitable in the region for outside firms, includes rules dictating that the state receive just 25 percent of any project, with a 5 percent royalty for a gas discovery and 10 percent for an oil find. Furthermore, the government offers a 10-year corporate tax holiday following a discovery. Compared to countries like Algeria, which can claim up to 92 percent of energy production efforts, the Moroccan experience has proven favorable to small capital firms in search of new frontiers.

While these incentives mean little without actual reserves, these openings have allowed the more modest operations to introduce both traditional and novel E&P strategies to blocks located on and off shore in what Philips believes to be an opportunity to clear the way for larger capital interest down the road.

Much of the renewed interest in Morocco’s oil and gas potential stems from shale potential and reports suggesting offshore similarities between the east and west Atlantic. Based on the fact that the continents were connected millions of years ago, the assumption is that they share similar natural resource reserves.

That potential has allowed a certain degree of confidence among firms active in the country, including Pura Vida who revised their resource estimates at the offshore Mazagan permit at the end of April, increasing from 2.6 to 3.2 billion barrels of oil following further analysis of the site.

Meanwhile, onshore, San Leon has worked to expand on its shale efforts in Poland with efforts in Morocco’s Zag and Tarfaya Basin licenses, reporting substantial potential reserves and an eagerness to seek out production partners for expansion, according to a January company release. Longreach Oil and Gas also reported strong progress this spring, with efforts at their Sidi Mokhtar licenses at the fore of their expanding presence in the country.

Despite the progress allowed by the country’s incentive and tax programs, it is unclear how long the country’s incentive and tax schemes will allow smaller capital firms to hold leadership positions in Morocco. Eventually, strong production levels will invite increased interest from majors like BP and Shell, casting companies like Longreach and Pura Vida as a first wave of progress rather than long-term partners.

A Broader Approach

The efforts also reflect a broader, more far-reaching approach to domestic energy production in Morocco that also entails substantial support for both traditional hydrocarbons and renewable energy, placing them at the forefront of such alternative sources in the region. As southern Europe’s green energy sector continues to slip under the pressure of the economic crisis and spending cuts, Morocco has worked to etch out a leadership position amid growing interest in solar and wind development, including a flagship 500MW solar plant, scheduled to begin construction this year.

In addition to encouraging energy production efforts, the Moroccan government has worked to increase their transport role in North Africa in hopes of establishing a stronger leadership role in the region. In February of this year, Morocco opened the country’s second oil terminal in the northern coastal town of Tangiers, increasing domestic storage and allowing greater access to busy shipping lines at the mouth of the Mediterranean.

The effort was the product of a group put together by Emirati Horizon Terminals Ltd., Moroccan company Afriquia SMDC and Kuwaiti firm Independent Petroleum Group, the $180 million terminal will hold 3.2 million barrels, with 53 percent dedicated to gas and diesel and 43 percent set aside for fuel oil and fuel additives, according to a Reuters report.

The country plans to further expand its importing reach with the development of a LNG terminal near Jorf Lasfar. The project has been under discussion since 2007, but was recently mentioned in remarks by the newly appointed Minister of Energy, Mines, Water and the Environment, Fouad Douiri.

One region, this energy focus is unlikely to reach is the contested Western Sahara, home to large potential oil and gas reserves, as well as a 36-year old dispute over authority. Despite reported progress earlier this years related to talks between Morocco and the Algeria-backed Polisario Front, this week saw Rabat dismiss United Nations efforts after losing confidence in envoy Christopher Ross, according to a Reuters report.

Image: Proactive Investors

Originally Published in Newsbase Afroil. All Rights Reserved

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