Total buys stake in Madagascar oil field

Total, the French oil company, on Wednesday continued its acquisition spree of oil fields, venturing into Madagascar in a deal that could eventually become the island nation’s biggest investment.

Total bought 60 per cent of the Bemolanga field from Madagascar Oil, a small Houston-based company, that acquired the licence for the field in western Madagascar in
2004.

Neither company disclosed the value of the deal, but analysts estimate the mining project to cost $5bn.

A plant to upgrade the viscous oil trapped in the clay just below the surface would cost another $5bn-$7bn. The oil – estimated to be eventually 180,000 barrels a day – is most likely to go to China, which has been aggressively seeking to secure fresh streams of supply. Total has about 30 years experience of operations in China.

Total has four years to develop the technology to extract the oil and overcome the massive soil erosion that washes away roads and makes part of Madagascar unreachable for the six months of the rainy season. The field will take at least a decade to develop.

Alex Archila, chief executive of Madagascar Oil, said: “This is an example of the new game in the world of oil, where there is a role for small, adventurous, dedicated players such as Madagascar Oil to do the technical work and the research [worldwide] while the major oil companies have their hands full with their huge portfolios.”

He admits Madagascar Oil could not have overcome financial and technical challenges of developing the field on its own.

Extra heavy oil is expensive and environmentally unsound to develop but is more attractive to big oil companies as prices rise and fields become hard to find.

The deal marks an important moment for Madagascar, one of the world’s poorest countries, which now stands to earn billions of dollars. But it is a lucky geological break that has become a resource curse in most other oil-rich countries in Africa.

Total has several extra heavy oil fields in Canada, where it acquired Synenco this summer. It also operates Joslyn and is a partner in Surmont. Total’s other extra heavy oil venture lies in Venezuela’s Orinoco belt.

By Carola Hoyos in London

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