To the jaundiced industry observer, exploring for oil and gas in Madagascar might seem foolishly optimistic. After all, the country has never produced a drop of oil despite the fact that almost 70 wells have been drilled there over the years.

That doesn’t stop Madagascar Oil from being bullish on its future prospects. Founded in 2003, the company has obtained licenses to several fields and is evaluating how best to develop them. Why? In a word, reserves.

“We have a report from DeGolyer and McNaughton, and they have assigned probable and

Figure 1. A lack of infrastructure makes Madagascar a challenging environment for operations. (Photos courtesy of Madagascar Oil)
possible reserves of about 10 Bbbl recoverable in our Bemolanga field,” said Alex Archila, chief executive officer. “The proven reserves of Chevron Corp. is somewhere between 5 Bbbl and 6 Bbbl. That gives you some idea of how much oil there is.”

There could be even more. The western part of that field is still undefined — “The place where they stopped calculating reserves is where we didn’t have wells and cores,” Archila said. Add to that the company’s Tsimiroro block, with more than a billion barrels of oil in place and 611 MMbo recoverable, and additional exploration blocks, and Madagascar Oil seems well-positioned for the future.

The issues
Why have these riches not been exploited in the past? There are several reasons. Geologists at Madagascar Oil offered an explanation for past exploration failures.
First of all, the source rock is not ubiquitous, and the trap timing is not uniform. An inversion event during the Cretaceous period, which destroyed or modified some traps, was not previously recognized. And poor seismic data and interpretation led to some igneous events being misidentified as anticlines, faults, turbidites and carbonate reefs.

Lack of infrastructure may be an even more serious problem. “Madagascar is the fourth poorest country in the world,” Archila said. “There is absolutely nothing there — no roads, no power lines, no ports.”

He added that most of the previous exploration was done in the 1960s and 1970s with older technology and lower commodity prices.

Thirdly, Madagascar Oil’s Bemolanga field is bitumen, and Tsimiroro is heavy oil. Archila is no
Figure 2. Madagascar Oil has undertaken a massive transportation operation in anticipation of first production from its Tsimiroro field later in 2007.
stranger to these challenges — before joining Madagascar Oil he was president of Chevron Canada and oversaw that company’s Athabasca Oil Sands Project. But undertaking a major bitumen mining project in a country lacking infrastructure is not a simple task.

Still, Madagascar Oil is in good company when it comes to targeting the region. Archila said that ExxonMobil, which will not go into an exploration area if it doesn’t offer the potential for a core operation, has taken a large acreage position offshore Madagascar.

“They are one of the most technical companies in the world,” he said. “They do a tremendous amount of basin and regional geologic studies. Before they make drilling commitments, they study the area with whatever data is available — they buy the seismic, the cores, the samples, anything they can get their hands on.

“They’ve done that in Madagascar
and have taken the largest position of acreage that anybody has in the island.”
Madagascar Oil is doing its own study and has acquired a coring rig to further appraise these two fields. In addition to the bitumen and heavy oil reserves, there is potential for lighter oil and gas in deeper horizons. Archila said that the availability of natural gas could be very helpful to the operations of its heavy oil and bitumen projects.

“There are no power lines, so we’ll need to generate power,” he said. “Gas is the cleanest way to generate electricity. The other element is that in the Tsimiroro field, the oil will flow under steam, and gas can be used to generate the steam.”

The plan is to begin producing from that field later in 2007. Archila said that the company has already spent about US $50 million on equipment, including storage tanks, a drilling rig, casing, drill pipe, consumables to drill 10 wells, trucks and cranes. It also bought four portable steam generators.

At Bemolanga, Madagascar Oil is considering bringing in an industry partner, while coring operations continue to help delineate the field and study the lower intervals. “What we need to do urgently is understand how big the reservoir is. Then we can put our engineers to work estimating the cost and type of facilities we will need to produce the field.”

It’s possible that the company will need to install an upgrader to render the bitumen light
Figure 3. Workers move some of the drilling equipment ashore.
enough to send to a refinery. Even without that the project will not be inexpensive — Archila said that none of the mining projects in Canada represent less than a $5 billion investment.
Despite a lack of infrastructure, Madagascar does offer a couple of advantages over Canada. For one thing, Canadian bitumen tends to have high levels of sulfur and metals, which the Madagascar bitumen does not. The fields in Madagascar are also much closer to the coast, making transportation easier. And with growing markets in nearby India and China, marketing the finished product should not be an issue.

Its other advantages include an attractive fiscal regime and a supportive government.
In addition to these two fields, the company has a 100% interest in four other exploration blocks, all of which have wells with oil and gas shows or existing light oil and gas discoveries, and a 50% interest in a fifth. It has been conducting aeromagnetic surveys over these blocks, a helpful technology due to the presence of volcanic rocks amongst the sediments. It also has undertaken geochemical analysis and plans a seismic acquisition program soon.

For Archila, the challenges are obvious, but the upside is enormous. Having seen the ramp-up of activity in Canada first-hand, he views Madagascar as the right spot for a potential repeat of that success.

“We are going to produce the first oil from Tsimiroro later this year,” he said. “That is probably the single most important milestone for the Madagascar government this year.”