Introduction
Unlike some of its neighbors, Morocco is not a major producer of oil and gas. Next door, Algeria is a huge natural gas producer, the largest in Africa. It is also the continent’s second largest producer of oil. And its position on the Mediterranean provides it with great access to large markets. Through a series of pipelines, Algeria is a key supplier of natural gas to Europe, second only to Russia.
But Morocco isn’t quite as well-endowed. Instead, Morocco is actually a net energy importer. The little bit of oil and gas that the country does produce is needed for domestic consumption, leaving little for export. As of 2013, Morocco only produced 5,100 barrels of oil per day and 2 billion cubic feet of natural gas while consumption far exceeded those totals – 209,000 barrels per day and 38 BCF.
Morocco is intent on changing that, however. The country has large swathes of conventional crude oil and gas that are still unexplored, and there is also potential for sizable shale resources, perhaps as high as 20 trillion cubic feet. In order to spur development, the government has gone to great lengths to make foreign investment in upstream oil and gas exploration attractive.
Morocco – Land of the Small Players
While most of the oil majors won’t waste their time with the relatively small drilling possibilities, Morocco still has a lot to offer for some smaller companies.
Circle Oil (AIM: COP) is one driller…
Introduction
Unlike some of its neighbors, Morocco is not a major producer of oil and gas. Next door, Algeria is a huge natural gas producer, the largest in Africa. It is also the continent’s second largest producer of oil. And its position on the Mediterranean provides it with great access to large markets. Through a series of pipelines, Algeria is a key supplier of natural gas to Europe, second only to Russia.
But Morocco isn’t quite as well-endowed. Instead, Morocco is actually a net energy importer. The little bit of oil and gas that the country does produce is needed for domestic consumption, leaving little for export. As of 2013, Morocco only produced 5,100 barrels of oil per day and 2 billion cubic feet of natural gas while consumption far exceeded those totals – 209,000 barrels per day and 38 BCF.
Morocco is intent on changing that, however. The country has large swathes of conventional crude oil and gas that are still unexplored, and there is also potential for sizable shale resources, perhaps as high as 20 trillion cubic feet. In order to spur development, the government has gone to great lengths to make foreign investment in upstream oil and gas exploration attractive.
Morocco – Land of the Small Players
While most of the oil majors won’t waste their time with the relatively small drilling possibilities, Morocco still has a lot to offer for some smaller companies.
Circle Oil (AIM: COP) is one driller that could help Morocco get off the ground. Circle Oil is a small Irish company (~$50 million cap) that focuses on drilling in North Africa and the Middle East, and it is exploring the Rharb Basin in Morocco. It has the rights to the Sebou concession, located in the Rharb, holding a 75 percent stake while the Moroccan state-owned firm ONHYM controls the remaining 25 percent. Circle has plans to drill two wells in the Sebou. As of 2013, the company was producing 7 million standard cubic feet of natural gas per day.
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Similarly, Circle has the rights to a 2,211 square kilometer section in the Lalla Mimouna prospect. The geology is thought to be similar to the Sebou. The company has conducted seismic surveys for the Sebou (both 2D and 3D) and the Lalla Mimouna (3D). Circle has undertaken a 15 well drilling program, a program that has yielded some successes – 12 discoveries so far.
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On June 26 Circle reported that the LAM-1 well, located in the Lalla Mimouna, achieved promising results. The LAM-1 well was the first drilled in Lalla Minouna. Circle drilled to a total depth of 1,541 meters and it encountered prospective gas zones, with flow rates of around 1.9 MMscf/d. “We are delighted that our first well on the Lalla Mimouna Nord Block has such positive results, flowing gas at significant rates from both target intervals. The productivity of this first well is very encouraging for the expansion of Circle's portfolio of Morocco gas fields,” the company wrote in a press release. The rig was then moved on to drill another well, the ANS-2. Circle will assess its next steps, but the recent news provides reasons for optimism for investors.
Gulfsands Petroleum (LON:GPX) is another small driller operating in Morocco. The UK-based company has some holdings in Tunisia and Colombia as well, but with a market cap of just $11 million, it has a small footprint. Gulfsands has the rights to several areas east of Rabat.
In February, the company reported positive drilling results from one of its wells called DOB-1, located in the Rharb Centre drilling area. The test results had flow rates of a very promising 10 MMscf/d. “We are delighted with the results of the drilling and flow testing operations at well DOB-1. This is the third consecutive successful exploration drilling result that the Company has achieved in Morocco utilising the 3D seismic data acquired and processed in 2013-2014,” Gulfsands’ CEO Mahdi Sajjad said in a statement.
East of this area is the Moulay Bouchta section, which Gulfsands has a 75 percent stake in (the remaining stake is held by ONHYM). The Moulay Bouchta is expected to be one of the most prospective areas for Gulfsands, as there have been proven oil and gas reserves located there. In 1990, one well drilled in the area produced 2.8 million barrels of oil and 4.2 BCF of natural gas.
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For such a small company, Gulfsands offers investors a unique upside opportunity. The oil markets are not paying attention to Morocco, but Gulfsands has some interesting acreage that could provide a pop to its share price if proven to be productive. The one downside for Gulfsands that should not be overlooked is the fact that it has investments in Syria, which is, shall we say, not exactly a good place to have your money tied up in these days.
Then there is Sound Oil (LON: SOU), another UK-based company, although it has a larger cap of around $93 million. Its main assets are in Italy, up and down the peninsula. But it is making a foray into Morocco with a farm-in agreement with the Moroccan Oil and Gas Investment Fund (OGIF). The agreement is for the Tendrara license, a large natural gas discovery in Morocco’s east that Sound Oil says has a “very significant exploration upside.” The company believes that the geological characteristics could be similar to those of more productive regions in Algeria.
There have been seven wells drilled in Tendrara so far with five discoveries, and two successful test flows. Sound Oil is taking a 55 percent working interest in the prospect. Once Sound farms-in, it will pay the cost of three exploration wells. The natural gas produced from the Tendrara could be used for domestic consumption in Morocco. Alternatively, the gas could be exported through the Gazoduc Maghreb Europe (GME) gas pipeline.
Among Sound Oil’s assets, it thinks that the Tendrara is actually towards the upper end in terms of the possible reward payback, with the possibility of “multiple Tcf” potential. Sound says that it will appraise some wells by the second quarter of 2016.
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Conclusion
Morocco won’t become the next Saudi Arabia, or even the next Algeria. But given that it has produced negligible levels of oil and gas to date, there is a lot of room for growth. The main prospects in the country are being covered predominantly by smaller players.
That, of course, offers investors exposure to some upside possibilities. There is proven oil and gas in place, even if it is not the immense. It has a ready and willing domestic market for oil and gas, and even if there is excess, there are plenty of markets within close proximity. More importantly, the government is making investment attractive – even the drillers themselves say so.
There are certainly risks of drilling dry holes, a result that would not lead to favorable movements in share prices for small companies. But then again, even steady and modest production would spark huge movements on the upside.
