Wentworth Strategy Weathers the Crisis
At a time when nearly all oil and gas producers are in defence mode, one exception is Wentworth Resources which produces gas in Tanzania. It is junior partner in an onshore joint venture operated by Indonesian Maurel & Prom. Reasons for Wentworth's success include its asymmetrical gas sales contract underpinned by steady demand growth.
Dogged by non-payment problems with the Tanzania Petroleum Development Corp – which is also a partner in the project – for some years, the company is now receiving monthly payments for gas, up to date as of early March. The company was able to clear its debts this year, leaving it $14.2mn cash. While other companies are scrapping dividends this year, it said it would pay shareholders the equivalent to a 7.2% yield.
CEO Katherine Roe told NGW in an interview early April that it had been a "roller-coaster six years, but we are now operationally and financially stronger than ever. We are in a lot better than merely survival mode. Unlike nearly every other company, we have no commodity price risk; we have cash in the bank; we are still paying dividends; and we have no debt. And we are operating in a country that is going the right way: the president is overseeing infrastructure projects as the economy grows and he is absolutely taking the country forward.
"Payment risk has been eliminated. We did have problems with receivables but now we are fully up to date with our main offtaker, TPDC. It is a robust, resilient business.
"Maurel & Prom is the operator of our Mnazi Bay asset and manages staff rotation: the Mnazi Bay operational staff live in a compound which has everything needed including medical supplies. But staff are staying in-country, with no rotation, as a precaution against infection. There are three French managers who would have a month at home every other month; the other staff are Tanzanian. So far the contingency planning has not cost the joint venture.
"We have brought what was stranded gas into production and gas demand is going up. Last year saw exceptionally heavy rain, and Tanzania uses hydro which displaces gas from the power mix; but the reservoirs have silted up and are shallow so they can only run at about 20% or 30% of capacity. We are assessing if last year’s rain was exceptional or the consequences of global warming, but it is not something we worry about, especially given the growth in gas demand.
Gas demand though is of little consequence as the gas supply contract puts all the burden of risk on the buyer, once the annual supply volume has been agreed. Conventionally the buyer can penalise the seller for under-delivery, but that clause is missing from this one.
Roe said: "We have a one-sided take or pay gas sales agreement which is now fully functioning: our finishing of testing and commissioning technically was only concluded in September last year, after five years. The buyer, TPDC has to pay for at least 80% of our minimum daily quantity, which the two of us agree at the start of each year. TPDC sells the gas on to the state generator, Tanesco.
"We sell nearly all the gas at a fixed price of $3.24/mn Btu but we also have a much smaller agreement with Tanesco for about 2.5mn ft³/d (5% of 70) for a higher price of $5.36/mn Btu.
"And TPDC is also a partner on the upstream side – ours is the only concession in the country with the potential national champion to be participating. It is acquiring the skills it needs but is capital constrained. There are some low-hanging prospects and leads in Mnazi Bay, and Wentworth could expand organically or make an acquisition. There might be opportunities for one, but we are not in talks at the moment.
"We share the gasline to the capital Dar es Salaam with the operator of the Songo Songo field; they produce about 20mn ft³ /day and we produce between 70mn and 80mn ft³. But as the pipeline can carry 780mn ft³/day there is no problem with capacity. When China built the pipeline it over-scaled it. Our processing plant at Madminba in Mtwara can take up to 210mn ft³/d, so when output nears 200mn ft³/d, we will need to expand.
"The only other company near Mnazi Bay is Aminex, which has discovered gas but is not yet producing gas at Rovuma [Tanzania, not Mozambique] but its licence has expired and a farm-in has not happened which will likely delay their work programme. Our licence runs until 2031. No Mozambique gas is going to flow into the pipeline.
"Our operations are all on shore, except for one well which is in shallow tide water in the bay. The shelf falls away very quickly offshore and only bigger companies have the operational know-how for that sort of depth.