As Morocco continues to rely on imports of coal, gas and oil to satisfy its energy requirements, the need to reduce its dependence on imports has long been a priority. To this end, the country has sought to develop its renewable energy capacity, alongside new hydrocarbons exploration projects. A combination of favourable regulatory conditions and successful investment promotion has helped attract international interest in recent years, expanding the country’s potential resource base.
Commercially viable discoveries of oil and gas reserves could have a significant impact on the economy. According to the most recent figures from the Ministry of Energy, Mining and the Environment, the country relied on imports for 91.7% of its energy supply in 2018. However, the country spent Dh76.4bn ($8bn) on energy imports in 2019, down 7.2% from Dh82.3bn ($8.6bn) the previous year.
Although sizeable hydrocarbons reserves have yet to be found in Morocco, it remains one of the most underexplored countries in the MENA region. The Atlantic coast and vast tracks of desert hold considerable potential for both onshore and offshore discoveries. However, as of 2019 only 44 offshore wells and 310 onshore wells had been drilled. According to the National Office of Hydrocarbons and Mines, Morocco has approximately 0.04 wells per 100 sq km, but the authorities hope that increased exploration efforts will result in sizeable discoveries in the years ahead.
Morocco is known to have vast non-conventional reserves, with studies in the 1980s and 1990s estimating a combined 57bn barrels of shale oil reserves located in the Atlas Mountains, the Rif region and the south of the country. This includes 15bn barrels of shale oil in the Timhadit field and 23bn barrels of shale oil at Tarfaya. Despite this potential, there were no specific plans for the commercial development of non-conventional reserves as of February 2020.
In recent years the country has prioritised developing conventional reserves. The regulatory framework for Morocco’s upstream segment is governed by the National Office of Hydrocarbons and Mines (Office Nationale des Hydrocarbures et des Mines, ONHYM). The state entity was established in 2005 following the merger of two other sector bodies – the Bureau of Research and Mining Investment, and the National Office for Research and Petroleum Exploration – and is responsible for overseeing the exploration and development of mineral and hydrocarbons reserves across the country. ONHYM collects data about subsoil and geological features related to hydrocarbons and mineral reserves, supports in the negotiation of contracts between the state and investors, and takes part in upstream activities as a shareholder in exploration and development projects.
Increased interest in hydrocarbons projects has helped boost investment levels in recent years. Total investment in hydrocarbons exploration and production grew from $128.1m in 2017 to $197.4m in 2018, according to the most recent ONHYM figures. The majority of this funding was provided by international operators, with ONHYM contributing 3% and 1.7% of annual investment in 2017 and 2018, respectively. According to the Ministry of Economy and Finance, in the third quarter of 2019 extractive industries, including oil and gas exploration, generated Dh3.8bn ($397m), up 6% compared to Dh3.6m ($375m) the previous quarter.
Investment has been partly encouraged by a favourable regulatory and fiscal environment. The Hydrocarbons Law was modified in 2000 in order to create more attractive conditions for investors. Under the current law, the state – through ONHYM – must hold a stake of no more than 25% in upstream contracts. In addition, intangible assets and costs of exploration can be amortised for periods of between two and 10 years. Other incentives include exemptions on Customs duties and value-added tax on materials, equipment and services imported for exploration and development operations, as well as 10-year corporate tax exemption starting on the day that commercial production of hydrocarbons commences. Additionally, operators are exempt from paying royalties on the first 300-500 tonnes of oil produced, and the first 300m-500m cu metres of natural gas. Profit, dividend and capital transfers are also free of additional taxes or limitations.
These incentives, coupled with gradual increases in international oil prices, have contributed to growing investor interest. In 2016 UK upstream developer Chariot Oil and Gas won a 75% stake in three exploration plots near Mohammedia in partnership with ONHYM, which controls the remaining 25%. The concession area covers 4600 sq km at a depth of up to 500 metres. In 2019 the firm also won a 75% stake in the Lixus offshore concession, covering an area of around 2400 sq km. Furthermore, in September 2019 Chariot announced that Lixus could potentially contain recoverable resources of up to 56bn cu metres of gas over five different wells in the concession, although further assessment studies were still in progress as of February 2020.
Italian upstream operator Eni inaugurated its subsidiary Eni Morocco in 2016 and has since been investing in the country’s upstream potential. The operator first entered Morocco through a 40% stake in four Rabat deep offshore permits acquired from Chariot. Its presence in the country has increased in recent years with an agreement to hold a 75% share in the offshore exploration concession in the Tarfaya area, which comprises 12 offshore blocks. ONHYM holds the remaining 25%. The concession covers roughly 23,900 sq km with a maximum depth of 1000 metres. However, in March 2019 Eni reduced its presence in the concession by signing a farm-out agreement with Qatar Petroleum (QP), allocating it a 30% participating interest in Tarfaya. The deal changed the ownership structure of the project, leaving ENI with a 45% stake, QP with 30% and the remaining 25% controlled by ONHYM.
Meanwhile, the prospect of sizeable gas reserves was announced by UK firm Sound Energy in 2018 at its onshore Tendrara concession in the east of the country. The company operates concessions in Tendrara, Greater Tendrara and the Anoual Permit, in partnership with US-headquartered Schlumberger and ONHYM. However, inconclusive results for two of its latest wells led Sound Energy to look for a potential buyer for some of its stake in May 2019, with the firm claiming that assessing the real potential of Tendrara’s natural gas reserves would require further exploration efforts.
In late 2019 Sound Energy announced it was in negotiations with an undisclosed buyer to sell part of its 47.5% stake in the Tendrara project for $113m as a means of obtaining financing for future exploration and development projects. The company planned to reduce its involvement in the project to 23.3% following the sale. In October 2019 the firm signed an agreement to sell its gas output from Tendrara to the state-owned National Office for Electricity and Drinking Water, which is responsible for electricity production, transmission and distribution. The output is set to be channelled towards electricity production at the utility’s gas-powered thermal plants at Ain Beni Mahtar and Tahaddart. Although the plants are currently supplied with natural gas imported from Algeria, the deal between the two countries is set to end in 2021, with the prospects of a renegotiation still uncertain as of February 2020.
Despite selling part of its share in the Tendara project, in January 2020 Sound Energy received approval from the government to build and operate a 120-km gas pipeline connecting a proposed gas treatment plant to the Maghreb-Europe pipeline, which runs from Algeria to Spain.
Another UK-based company, SDX Energy, is active in five onshore concessions in the Gharb Basin, where it has been producing gas since 2018. In October 2019 local media reported that the firm was in the process of conducting an exploration campaign, with plans to drill an additional 12 wells by the end of the first quarter of 2020.
Although sizeable hydrocarbons reserves have yet to be located in Morocco, favourable regulatory conditions and rising oil prices continue to attract investor attention. This will prove crucial in the coming years as the country seeks to reduce its reliance on energy imports.
As new licences are being issued, the segment’s momentum is likely to continue. For example, in September 2019 Europa Oil & Gas secured an eight-year exploration licence for the 11,228-sq-km Inezgane Offshore Permit near Agadir. Europa holds 75% of the concession and ONHYM owns the remaining 25%.
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