Tullow Sees Oil Find in Madagascar as Drilling Set to Start

Tullow Oil Plc, a U.K. explorer with most of its licenses in Africa, expects to find oil in Madagascar when it begins drilling in the south of the Indian Ocean island next year, a company official said.

Work will begin in the first half on a 9,000 square-kilometer (3,475-mile) block in the Morondava basin and an 11,000 square-kilometer block near Berenty in the south of the island, said Marcelle J. Dane, head of Tullow’s operations in the country. The blocks were previously surveyed by Amoco Corp., which merged with BP Plc in 1998, and Occidental Petroleum Corp. New technologies have enabled companies to reprocess seismic data, raising the possibility of finding oil, he said.

“We have a very good ratio of oil discovery, 74 percent,” Dane said. “As oil has been found in Mozambique and Kenya, and Madagascar used to be attached to these countries, there is a big chance it’s here also.”

Explorers have found no commercially viable deposits of light crude in Madagascar since the search for the fuel began in 1909. Madagascar Oil, based in Houston, Texas, estimates the country has 1.7 billion barrels of heavy crude reserves that it plans to extract with the use of steam. Light crude yields more gasoline than heavier types during refining.

Tullow found oil in Uganda in 2006 and made a discovery in Kenya last year. Gas finds in Tanzania and Mozambique, on Africa’s eastern seaboard, have shown the two countries have enough of the fuel to supply the global market for a decade. Madagascar became an island 88 million years ago after splitting from Africa and the Indian subcontinent.

Remote Area

Tullow, based in London, began operating in Madagascar in 2006. Since then, it has spent $30 million surveying the remote area, which in some cases can only be accessed by helicopter.

“We did more seismic surveys than required, because the geologists thought it would be better to have a good overview of the location,” Dane said. “But of course, you can never really tell until you drill.”

At least 17 oil companies currently are active in Madagascar, including Exxon Mobil Corp. and Total SA. The French company and Madagascar Oil surveyed the country’s estimated 2 billion of bitumen reserves in the central Bemolanga area before concluding in 2009 that extracting it would not be economically viable, according to the U.S. Energy Information Administration.

Because of the remoteness of the area and a lack of supporting infrastructure, the company has to import 95 percent of its exploration and production tools. Shipments have been hampered by delays at customs, Dane said.

Rain Delays

“We can only work five months a year, because of the rainy season in the country, so we need to make sure our goods are cleared quickly,” said Dane, who heads the Upstream Association of Oil Companies in Madagascar.

Tullow is also in talks with the government about a new requirement to pay 20 percent value added tax.

“We are currently discussing the tax problem with the authorities here,” Dane said. “They want us to pay 20 percent VAT, something we never did before 2006 and not required in other countries where oil exploration is undergoing.”

Shares in Tullow gained 3.4 percent to 1,078 pence by 12:46 p.m. in London, heading for the highest close in two months.

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