Economic Analysis - Hopes Of Oil Boon Misplaced - JUNE 2015

BMI View: Political and regulatory uncertainty allied to a harsher climate for frontier oil exploration will weigh heavily on Madagascar's efforts to develop its nascent oil sector.

Sitting on vast, unexploited hydrocarbon reserves, Madagascar's embryonic petroleum industry is one of a number sectors being targeted by the government in its efforts to generate much-needed fiscal revenue and inward investment following years of economic stagnation. London-based petroleum firm Madagascar Oil has finally been given the green light by the Malagasy government to develop the country's Tsimiroro oil field, with a view to beginning commercial production by 2018. While certainly a milestone for the sector following years of uncertainty, for a number of reasons we believe that recent optimism is overdone.

On April 15, the government granted Madagascar Oil a 25-year title to develop Block 3104 of the Tsimiroro field which contains oil reserves of some 1.7bn barrels. Work is scheduled to begin in late 2015 with the firm targeting production by 2018, expected to be in the region of 10,000 barrels per day (bpd). Having spent over ten years and several hundred million dollars exploring and drilling in the country, the news will have come as a relief for the AIM-listed company and its shareholders.

An Overreaction
Madagascar Oil Share Price (GBp)

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