Total/Mozambique: insurgents leave gas project stranded

The oil industry is riddled with reserves that climate change renders valueless. Total of France has a different kind of stranded asset: a huge gas project where the lives of employees are endangered. It has suspended payments to its Mozambique liquefied natural gas project suppliers citing force majeure and is withdrawing staff. Attacks on nearby coastal town Palma by Islamist insurgents have forced thousands of refugees to flee.

Total paid $3.9bn for control of the Cabo Delgado LNG project less than two years ago. But the suspension will hurt Mozambique’s economy more than the French oil major.

The LNG project was set to bring $20bn of investment to Mozambique. Even a small portion of that would make a difference to a nation with about $15bn of gross domestic product. These fields could produce for two decades, generating perhaps $40bn of revenue, according to South Africa’s Rand Merchant Bank.

Total jumped in during Occidental Petroleum’s ill-fated bid for Anadarko in 2019. Vendor Occidental wanted to cover some of the huge costs on its $56bn takeover of the US-listed oil and gas explorer. While Total has operational control with 26.5 per cent of the Cabo Delgado project, smaller partners including Mozambique’s state energy group have the rest.

Suppliers to Total could suffer badly. Oil service companies have had it tough in the past five years. Customers have squeezed them on costs. Saipem, McDermott International and Chiyoda were overseeing this project. McDermott only exited bankruptcy last year. Saipem’s and Chiyoda’s market values have collapsed over the past decade.

Total has a good reputation with shareholders as a well-managed oil producer. The group did not cut dividends last year. Shares fell only slightly on Monday, though they had been sliding for a month as conditions in Mozambique deteriorated.

The insurgency — and Total’s response — are further deterrents to foreign investors already unsettled by the 2016 “tuna bonds” scandal involving Credit Suisse.

Already the conflict is escalating. Multiple mercenary groups have stepped in to support government forces. That hardly sounds like the beginning of a peace process.

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