OIL & GAS DEVELOPMENT IN TANZANIA

The Mnazi Bay/Msimbati Gas Fields are located in the Mtwara region of south-eastern Tanzania, bordering on Mozambique. The resource was discovered by AGIP, which drilled the discovery well on a seismic defined structure in 1982. The well was evaluated as having oil and gas in several potential reservoir zones and was drill stem tested over two zones.

These tests demonstrated the commercial potential of the discovery, although the well was suspended by AGIP due to lack of gas markets at the time. The concession was subsequently relinquished by AGIP and ultimately acquired by Artumas.

In 2003, Artumas initiated discussions with the Government of Tanzania with the objective of implementing a Gas To Power (GTP) project as a means of exploiting the potential gas resources. This involved exporting the produced gas via pipeline to a gas fired power plant coupled to the local power transmission system for local power distribution. In 2004, the Production Sharing Agreement (PSA) was executed, with the development licence being granted in 2006 clearing the way for implementation of the project. In October 2006, the Government of Tanzania issued a 25 year development license.

In 2005, Artumas initiated development of the field and GTP project, with first electricity generated in 2006, and project completion in 2007. Cove Energy has not acquired any of the business or assets relating to the GTP project and its associated infrastructure.

Mnazi Bay Partners

Company Petroleum Operations other than Exploration Operations	Exploration (%)	Operations (%)
Cove	16.38	20.475
M&P	38.22	47.775
Artumas	25.40	31.750
TPDC (Tanzania Petroleum Development Corporation)	20.00	0

There is a Gas Sales Agreement in place for the his option would likely require the participation from one of the oil majors (both in terms of investment and expertise), and it is unknown if there have been any talks at this time. We have not assigned any value to this plan and expect the principal source of revenue to be from output to the Mtwara power station in the short to medium term.

The Tanzanian government has expressed a desire to maximize the revenue generated by the country’s natural resources and other plans that could commercialize the gas including feedstock for a Fertilizer Plant in Mtwara, as well as fuel for a cement factory.

Artumas has also commissioned a Front-End Engineering & Design (“FEED”) study with TransCanada Pipelines (TCPL), to analyse the economic and logistical possibilities for the export of compressed natural gas (“CNG”) to Mombasa in neighbouring Mozambique. gas from Msimbati, whereby Artumas Gas (the operator) sells to Artumas Power which owns the Mtwara Power Station.

The power station is currently utilizing 1 mmcf/d. The gas sales agreement is limited to an annual limit of 2.03 bscf of gas and a total contractual limit of 41 bscf of gas, over the terms of the 20 year agreement. There is significant spare capacity for the power station to accept additional gas, thereby creating scope for future gas sales.

Under the terms of the farm-in, Cove & M&P will shoot a further 200km2 of 3D seismic and will drill one exploration well. In addition, Cove and M&P will carry the cost of the first two appraisal wells if Artumas elect, in return for a further 5% participating interest.

Resources estimates for the Mnazi Bay concession have unrisked mean resources of 1.2TCF with the corresponding P volumes of 2.5TCF.

The port at Mtwara is located on a deepwater harbour and the partners believe that there is potential to unlock the full value of the resources through the construction of a LNG terminal.