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Mozambique to Get Most Gas Royalties After Costs, Group Says

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April 15 (Bloomberg) -- Mozambique, location of the world’s largest gas discoveries in the past decade, will get most of its royalties after explorers recover costs, according to the Center for Public Integrity, a group advocating on transparency.

“The government will receive its portion of the overall revenue far down the production timeline,” the Maputo-based group said in a report, citing contracts it obtained.

Eni SpA, Anadarko Petroleum Corp., Petroliam Nasional Bhd. and Statoil ASA are among companies that have won exploration and production contracts in the country’s offshore Rovuma Basin. Eni has discovered 75 trillion cubic feet of gas in Area 4’s offshore fields, more than Norway’s current reserves.

“There is one crucial element yet to be negotiated: the price of gas,” Adriano Nuvunga, editor of the CPI report, said in an e-mailed response to questions. “The price of gas may put the entire Mozambique take into jeopardy if poorly negotiated.”

Royalties from gross output depend on how deep companies drill to extract gas. With all the finds in waters deeper than 500 meters (1,600 feet), only the lowest rates are applied, the organization said. Anadarko, Eni and Statoil concession rates are 2 percent of the gas, and Petronas 6 percent, it said.

Until companies have earned back as much as they’ve spent, their portion of so-called profit gas will be higher, according to the report. Eni’s take will be 85 percent until then, falling to 75 percent when it recoups twice the level of its investment, with the remainder going to Mozambique, according to the CPI.

Capital Gains

“This is another reason why the capital-gains issue is so important to the government; it’s one of the only ways it can get revenue now from the gas play,” Mark Rosenberg, an analyst at Eurasia Group, said by e-mail. “Almost all other significant revenue streams will have to wait for production.”

Companies selling stakes in Mozambique gas assets will pay 12.8 percent to 32 percent in capital gains, Eurasia Group analysts said in a report to investors on April 2.

The price of the fuel before entering a liquefied natural gas plant for export will probably be determined by taking the price in a long-term sales agreement and reducing that by the cost of production and transport, according to the report.

A Statoil official didn’t immediately respond to an e-mail and call to his mobile phone after normal office hours. Eni officials weren’t immediately available for comment and Anadarko didn’t immediately respond to an e-mail seeking comment.

“Natural gas is a transformational opportunity for the future of Mozambique, where 52 percent of the population is under 18,” Lisa Kurbiel, a senior social policy specialist at the United Nations Children’s Fund, said by e-mail from Maputo.

The CPI is an independent group promoting transparency and ethics in Mozambique using methods including academic research and investigative journalism, according to the group’s website.

To contact the reporter on this story: Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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