Chinese Firm to Pay U.S.$200 Million for Ethiopian Gas Concession

A Chinese company based in Hong Kong, whose name Ethiopian authorities have not disclosed, agreed to pay over 200 million dollars to the Ethiopian government last week for concessions on Calub Gas Reserve, located in Somali Regional State, sources have said.

The Ministry of Mines (MoM) floated an international tender in March, 2011, inviting petroleum companies interested in developing the Calub Gas Reserve, which was first discovered during the reign of Emperor Haile Selassie.

This is the largest amount that has been invested in the area. The second largest was made by Petronas from Malaysia, which paid 80 million Br in pre development costs on Calub and Hilala gas fields, according to an expert close to the industry. However, the expert argued that the amount is not high in comparison with the total previous investments made in the area by the government.

“The amount might be in consideration for the cost of the past operations (pre development costs) the country incurred,” an industry player speculated.

The Calub Gas Reserve was first discovered in 1972 by Tenneco, a United States (US) based company, 42 years after it was discovered. It drilled 3,700 metres in the Calub area, located 1,200km from the capital.

Several oil companies have since been attracted by Calub, which has an estimated total gas reserve of 76 billion cubic metres.

Gas exploration was mainly conducted in five sedimentary basins: Ogaden, Blue Nile, Mekelle, Gambella, and Omo Valley.

However, more detailed studies are conducted in the Ogaden Basin in southern Ethiopia, which has attracted several oil companies for extensive exploration works on the area.

The major work that demands huge investments has been already done by different oil companies that did not enter production stage.

However, the newly awarded company is in a more advantageous position, according to the expert.

Around 10 international companies have been involved in the exploration process, since its discovery in the 1930s. Soviet Petroleum Exploration (SPE) confirmed the gas reserves by drilling seven wells, including in Hilala, 80km from Calub, during the Derg regime. Zhoungyan Petroleum Exploration Bureau (ZPEB), a Chinese company, has also been commissioned by the current government for well completion.

“As the field is almost ready for production, the new company would be expected only to establish a plant with all the machinery necessary for Production,” the expert said.

Calub Gas SC, a local private company that was established with an initial capital of 102 million Br in 1995, was also involved in the exploration of the area, after commissioning the technical and economical feasibility studies to two French firms. A total of 95pc of its shares were owned by the government

The company was liquidated in 2005 primarily because its majority shares are owned by the gov’t, such as the former Ministry of Finance (MoF) with 88,043 shares

After the dissolution of Calub Gas, the ministry put the exploration up for international bidding, which Petronas had won.

Nevertheless, the company failed to achieve its ambitious goals.

Petronas, which was established in 1974 and has around 110 subsidiary companies in Africa, stopped its exploration work in Ethiopia over management decisions last year, surrendering all property to the government.

“Petronas left the area for its own reasons,” the expert said. “The fact that the area has huge potential is unquestionable.”

A few months later, the ministry floated a new tender for the area. A total of seven international companies answered the tender, tying up MoM in the evaluation of the technical proposals and financial offers for about a month.

MoM has completed the evaluation and signed an agreement with the Chinese company on Tuesday, June 7, 2011, sources claimed.

However, higher officials at the ministry have given assurances that they are still finalising the evaluation of the proposals and will only announce the result in two weeks.

The government has projected to increase operations on Calub and Hilala gas projects to 100pc by the end of 2014/15, from its 20pc now. It intends to increase annually by 20pc, according to the GTP.