A new era: TPDC’s ongoing operational transition

Tanzania

Michael Mwanda, chairman of the board of directors of the Tanzania Petroleum Development Corporation (TPDC), the country’s national oil company, talks to TOGY about the company’s ongoing operational transition, in addition to wider industry demands, both social and economic. TPDC is making moves into operational projects of its own after decades of playing a supervisory role over the industry.

What is the rationale behind TPDC’s move towards oil and gas production?

Over the past decade, the Tanzanian economy has undergone liberalisation and the private sector has begun to play a pivotal role. In this period, the efforts of TPDC have been directed towards supervisory functions.

However, in order to have a vibrant and sound national oil company, the government has decided that TPDC should now pursue a more active stance in commercial activities.

It is important for TPDC to be able to develop its own assets to contribute to the growth of the domestic oil and gas industry, and thereby to the broader economy. Even from a financial point of view, the engagement of TPDC in commercial activities will provide an opportunity for the further participation of Tanzanians in the industry through the acquisition of shares and interests.

TPDC has interests in every licence in the country, and these require injections of capital. Through TPDC, Tanzanians will be able to team up to mobilise the necessary funding for investments. Our approach now is to look for a partner with financial resources, technology and expertise to join with in exploring in the country’s offshore blocks 4/1B and 4/1C.

What moves have been made to adapt the company to the role of operator?

During the initial period of exploration in Tanzania, natural gas was discovered onshore in 1974 and 1982 at Songo Songo and Mnazi Bay, respectively. The first deepwater discovery was made in 2010 by UK-headquartered BG Group and Ophir Energy, increasing the region’s hydrocarbons potential.

In order for the country to optimise the benefits from its resources, it is important for TPDC to develop the capacity to explore and operate as a commercial entity.

To this end, TPDC has pursued human capital development in all fields, including technicians. Universities, colleges and vocational training institutes are adjusting their curricula to accommodate this new wave of demand.

TPDC is preparing itself financially and technologically, as well as through human capital development, to become an operator in the country’s challenging deepwater environment in the near future.

What criteria does TPDC expect to use to select the partner or partners for its operations in blocks 4/1B and 4/1C?

In order to develop these blocks, TPDC must have adequate financial resources and the necessary technology, skills and experience, and these are the criteria that will be expected of a partner in these operations.

To supplement the efforts of TPDC and ensure that the exploration and development proceed in a timely manner, a strategic partner is of paramount importance.

This is especially important when exploring in water depths ranging from 1,000-4,000 metres. The challenges are considerable, not only on the technical side, but also in terms of logistics, infrastructure and monetisation.

TPDC also has to be cautious, since its finances come from the government. We have considerable assets to develop, but do not want to commit to them without a clear understanding of what we are financing.

At this point, the company will only invest at the development stage after the prospect has been de-risked. We simply cannot justify devoting millions of dollars of tax money to a potentially failed enterprise.

What can be done to manage the expectations of the Tanzanian population regarding the country’s oil and gas potential?

When I joined TDPC, the first thing I said was that the company needs to have a strong publicity department that can communicate with the people. This principle also applies to actors in the government, who need to provide a clear and transparent view of the industry.

The contractual exploratory period in Tanzania lasts for 11 years. The initial exploration period is four years, and can be extended twice, first for another four years, and then for three more years with TPDC approval if the company manages to provide a sufficient operational justification for the delay.

Developing these resources requires time to put up the necessary infrastructure and secure markets before commencing production. The wider public expects the country to develop quickly based on these resources immediately following the discovery.

This is not always what happens. This industry requires patience. We are continually raising awareness about industry practices so the Tanzanian people will have reasonable expectations of our oil and gas potential.

What are the specific hurdles that make gas discoveries so time-intensive?

You can immediately commercialise oil after you discover it. Gas, on the other hand, is more difficult, because the market and pricing regime have not been standardised worldwide.

The commercialisation of deepwater gas requires particular patience, as it takes quite a long time. For instance, the Tanzania LNG plant project, which is under discussion by the government, TPDC, Norway’s Statoil, the UK’s BG Group and other partners, will take at least eight years to bear results.

The general public should bear in mind that the exploration expenses are being borne by the upstream companies. Therefore, a big share of the sale proceeds in the beginning is going to be used for cost recovery.

To minimise any public outcry, we are preparing Tanzanians to see and take advantage of opportunities brought about by the resources that have been discovered. The provision of services to exploration companies translates to employment in different projects, catering services, transportation, logistics, equipment distribution and manufacturing.

This is important as the benefits that accrue from the industry will not necessarily be direct. Everyone can benefit from this development, but people need to be prepared to take advantage of the opportunities it presents.

Is the local supply chain prepared to take advantage of the ongoing growth of the oil and gas industry in Tanzania?

The local services sector must be able to support itself if it is going to serve the hydrocarbons industry. It is all well and good to make money from gas, but there has to be an economic dynamic that allows the local population to get something out of it. This can be through selling products and services or developing manufacturing industries.

At this point, the industry is moving in the right direction, but we are not moving fast enough. It is important that we make more of an effort to help our people through a local content policy. It is also essential that we promote education in the sectors that will be necessary for this industry.

In order to speed up the process, we need to start building capacity for local entrepreneurs. They should be provided financing and opportunities from the industry so that they can establish themselves as key players.

In terms of supplying services to operators, local companies have to be empowered by strong legislation for them to effectively compete with foreign companies.

Services that are available within the country ought to be sourced domestically as long as local suppliers meet the required standards and offer services or products at prices that are internationally competitive. Tanzania still needs to do much more to get to this point.

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