BMI View: Swala Energy's bid for acreage in Zambia shows that interest in unlocking the hydrocarbons potential of the East Africa Rift System (EARS) is moving further south. Indeed, Swala is not the only firm eyeing the frontier hydrocarbons country's prospects. However, the distribution of licences does not appear to have led to greater on-the-ground exploration activity, suggesting that more may need to be done to encourage holders to act on their licensed acreage.
Australia-listed Swala Energy has been aggressively looking to expand its interests in the East African Rift System (EARS) . Following an earlier announcement in June that it is in talks for the onshore Eyasi licence in Tanzania, it has now seeking three exploration permits in Zambia. These permits are for Block 31, Block 42 and Block 44. Block 31 lies in Lake Tanganyika in the proven East African Rift System, while 42 and 22 are in 'significant tracts' in the underexplored Luangwa Basin and Kariba Basin , according to Swala.
These licences, if granted by the respective governments of Tanzania and Zambia, will add to existing acreage that the East Africa-focused firm holds. It currently has two onshore licences in Tanzania - Pangani and Kilosa-Kilombero - and Block 12B in Kenya.
Moving Down South Of EARS
Oil discoveries in Uganda and Kenya have increased interest in the underexplored East Africa Rift System. Tanzania and Mozambique have also become exploration hotspots. The move of Swala's attention to Zambia suggests that the hydrocarbons search is moving further to the south of the EARS system.
|Moving Further Down The East African Rift System|
|Map of South East Africa|
Swala is not alone in eyeing Zambia's prospects. This oil and gas frontier has seen growing attention to its potential in recent years. The first exploration licences were given to local companies Barotse Petroleum and Majetu, and South Africa and Middle East-focused Frontier Resources in conjunction with local company Metprosol.
Other companies that have since entered Zambia include US independent Glint Energy and Oando Energy Resources. In February 2013, Bloomberg reported that Zambian majority state-owned ZCCM Investment Holdings (MLZAM) had been approached by African and Saudi companies regarding joint venture opportunities in four of the exploration permits MLZAM owns. During the 3 rd Zambia International Mining and Energy Conference held in June, permanent secretary Kelvin Mutambo of the mines and energy ministry revealed that four 'reputable multinational oil firms' have made offers to explore for oil and gas in Zambia. On the surface, this interest appears to be a boon for the country, which does not produce any oil or gas.
|Oil Search Could Raise Production Prospects|
|Zambia Oil Production & Consumption ('000b/d)|
Slow To Advance
Although licences have been given, there are few reports of exploration results from either seismic surveys or actual drilling. No discoveries have been made to date. The government insinuated that this is not for Zambia's lack of potential; rather it is a result of holders sitting idle on their licences. Since 2012, officials have repeatedly threatened to revoke the licences of firms that 'don't give us results', according to mines and energy minister Yamfwa Mukanga. The latest threat was issued in June. Yet no concrete action has been taken by the government.
Zambia has also stated its keenness to rectify the problem of idle licences in order to speed up exploration efforts. Mukanga suggested to the Zambian Daily Mail that 'loopholes' - namely the lack of transparency - in the old system of licensing had given rise to this issue. According to Mukanga, licensing under the old system 'was just a matter of a phone call', but he is seeking for a 'new transparent and accountable system' to be put in place. Part of this revamp will include the establishment of a technical team to evaluate the credentials of firms before licences are given. This change will be much welcomed, though there are no details available on other ways in which Zambia's licensing system will be overhauled.
However there could be other reasons, such as the lack of oilfield services available to support exploration, that account for the lack of activity on the ground in Zambia. For example, the country's physical infrastructure is in need of serious investment - it has fewer roads per 100 square kilometres than the average in the southern African region. Although it has a relatively welcoming foreign investment regime, the World Economic Forum's Executive Opinion Survey notes that the business environment is plagued by the difficulty of accessing finance and corruption. These could be the larger obstacles standing in the way of exploration in Zambia.