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    Tanzania Puts Orca Sale on Hold

Summary

Tanzania has put on hold Canada-based Orca Exploration's planned sale of a 40% stake in its Tanzanian gas producing subsidiary to local firm Swala Oil and Gas, raising fears of political interference in the natural resources sector.

by: Thulani Mpofu

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Natural Gas & LNG News, Africa, Corporate, Mergers & Acquisitions, Exploration & Production, Political, Regulation, News By Country, Canada, Tanzania

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Tanzania Puts Orca Sale on Hold

The Tanzanian government has put on hold Canada-based Orca Exploration's planned sale of a 40% stake in its Tanzanian gas producing subsidiary to local firm Swala Oil and Gas, raising fears of more political interference in the country's natural resources sector. 
 
Orca's Mauritius based subsidiary PanAfrican Energy Corp. (PAEM) said January 2 2018  it planned to sell 40% of its Tanzania subsidiary, PanAfrica Energy Tanzania (PAET).
 
 
PAET was Tanzania's first natural gas producer and has operated the small offshore Songo Songo gas field for over a decade, having done so under a production share agreement (PSA) with state-owned Tanzania Petroleum Development Corporation (TPDC).  Songo Songo produced on average 42.7mn ft3/d in January-September 2017 but there are plans to boost its production.

However, PAEM's proposed $130mn sale of its 40% PAET stake to Swala Oil and Gas Tanzania was halted after TPDC raised concerns over PAET's tax obligations and valuation of capital recovery for its upstream investments. TPDC legally is exclusive owner of all petroleum licences in the country.

"As licence holder for Songo Songo, we ought to be informed on any development which may affect implementation of the PSA between TPDC and PanAfrican Energy.  The transaction process should be put on hold until the government is satisfied with the deal," TPDC acting managing director Kapuulya Musomba told a news conference in the capital Dar es Salaam February 19. It follows a parliamentary probe into the planned sale announced a month ago.

Tanzania enacted two laws in June last year which assert the country's sovereignty over its natural resources. Swala first acquired a 7.9% stake in PAET worth $17mn in December 2017 and now wants to scale up its stake to 40%. 

Musomba said that, as TPDC is the sole owner of all natural gas assets in the country, Swala had to negotiate directly with TDPC and not with PAEM: "There are issues to sort out between TPDC and PAET, among others, we contest the figures released by the company on recovery of its capital in upstream operations as per the PSA. Another issue is computation of charges and taxes for gas sold in Dar es Salaam; the PSA provides different computation for upstream and downstream operations."

Both Swala and PAEM have argued that the transaction is legitimate so must be allowed to go ahead. Swala chairman Abdullah Mwinyi told the media February 22 that his company was ready engage the government on the proposed deal.

"We involved stakeholders, and all are aware of the transaction.  We are ready to sit with the TPDC for explanation and we hope it will be soon solved," he said.    PAEM said in a statement February 26 that the deal will not affect operations at PAET.

"When the transaction is complete, the shareholders, directors and management team of PAET will be the same as they are now and no contracts that PAET has with the government of Tanzania or TPDC will be affected," said Orca-owned PAEM.

Last year Tanzania’s government issued a swingeing demand for $190bn for 'unpaid back-taxes' against Canadian Barrick Gold-run mining subsidiary Acacia, prompting Shell CEO Ben van Beurden to say that Tanzania's "fiscal environment that needs to be conducive; I think there’s a bit of work to do there." Barrick later reached a much less damaging settlement with the government but continued to deny the government's allegations. Shell operates massive gas reserves offshore Tanzania which the government wants developed quickly. However Shell is expected to launch a development of the reserves as an LNG export project only when costs and the global market work in its favour, which may not be for several years.

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