Aug 15 | 2017
Part two of our Market Watch series takes us to Morocco for an in-depth look at the nation's hydrocarbon potential.
Comparatively, Morocco has enjoyed far greater political stability than the rest of North Africa, which has undergone major implications and set-backs since the Arab Spring began in Tunisia, in December 2010.
Morocco operates under a constitutional monarchy, with a democratically elected government. In addition to the country’s relatively low levels of political and security risk, it has a hugely attractive investment environment and remains vastly under-explored within the oil and gas sector; being r regularly referred to as of one the last remaining frontiers in North Africa.
Oil exploration began in 1890 and the first discovery was made in 1923 at the onshore Ain Hamra field in the Rharb Basin. To date, only 338 onshore and offshore exploration wells have been drilled. Several viable petroleum systems, with good hydrocarbon potential, exist in Moroccan sedimentary basins, and this alongside a growing domestic demand for power — which is currently reliant on imported oil and gas — make Morocco a highly attractive investment opportunity.
Since 2000 — when the government amended the Hydrocarbons law to incentivise investors and IOCs into entering the country — Morocco has been an incredibly attractive fiscal environment.
The Hydrocarbons Code includes such advantages as:
>> A 10-year exemption from the national corporate income tax rate of 30% when IOCs start
>> Only 25% state participation within contract terms through Morocco’s Office National des Hydrocarbures et des Mines (ONHYM)
>> Low onshore and offshore royalties of 10% on oil production and 5% on gas in waters shallower than 200 metres
>> Well-developed infrastructure across the country, which supports exploration and production, and includes major pipelines located near core cities
Investor overview and outlook
Morocco’s expanding oil and gas potential has been reinforced by a number of discoveries in recent years. This has led to an ever increasing number of indigenous and international companies operating in Morocco, with the latter including Cairn Energy, Chariot Oil & Gas, Eni, Kosmos Energy, Gulfsands Petroleum, Sound Energy, and Woodside.
As of the end of September 2016, it was reported that 28 oil companies were involved in the country, and with new entrants expected to join the growing market over the coming years.
Some of the most promising discoveries for the country have been made by Sound Energy, at its operations in the north east situated near the Algerian border, proving that Algerian gas fields do extend across the border into Morocco.
In August 2016 it tapped into a significant gas discovery at its TE-6 onshore well in the Tendrara Licence, which flowed at a rate of 17.5MMCFD. Sound Energy then completed drilling of the Tendara Licence TE-8 well, in March 2017, and confirmed the existence of a significant gas column. TE-8 is Sound Energy’s third successful well, bolstering enthusiasm throughout the investment community, and transforming the company.
In January 2017, the transfer of the Rabat Deep Offshore permits I-VI operatorship to Eni was approved. The Italian oil major acquired a 40% equity interest from Chariot in return for a capped carry on drilling the JP-1 prospect and other geological and administrative costs. The partners now in the license are: Eni (40%), Woodside (25%), Chariot Oil & Gas (10%), and ONHYM (25% carried interest).
Morocco has also attracted regional players. In January 2017 Qatar Petroleum (QP) took a 30% stake in three Chevron (45%) operated deep water blocks — ONHYM holds the remaining 25% — as the licence was extended for a further two years. QP’s interest has stemmed from both sluggish domestic growth, and its special relationship with its fellow monarchy.
For companies looking to expand their exploration activities in Morocco, one issue we believe you should be aware of is the long running, and continuing, territorial disputes over Western Sahara. IOCs currently operating in those areas annexed by Morocco in the 1970s are vigorously reminded by Polisario that two international courts have determined that Morocco has no basis for its territorial claims.