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Africa's oil and gas exploration has never looked healthier, especially in East Africa, driven by high oil prices, improved technology and recent success with the drill bit.

Italy's Eni and the US' Anadarko Petroleum both have made large natural gas discoveries offshore Mozambique, increasing the likelihood the country will become a significant LNG producer toward the end of this decade.

Drilling also is progressing in nearby Tanzania, Kenya and Madagascar, and operators expect more significant gas finds, lifting hopes East Africa could become a major gas exporter. The total potential gas reserves in the region could amount to at least 100 Tcf, according to Michael Blaha, chairman of UK-listed Cove Energy, one of the more active independent companies in East Africa.

Along with the Mozambique finds, the UK's BG Group with partner Ophir Energy have discovered gas with all three exploration wells drilled offshore Tanzania. Ophir's executive deputy chairman, Alan Stein, told delegates at a conference in Cape Town this month the discoveries have the capacity to sustain the development of at least a two-train LNG plant, though more exploration needs to be done.

As East Africa continues to yield major finds, other countries want to get a piece of the action. The government in Kenya is confident exploration in its offshore might produce similar results. Tullow Oil, the London-based explorer, plans to sink two wells this year and early 2012, representing the beginning of a much larger drilling campaign over five licenses in northern Kenya and one in Ethiopia.

Canadian explorer Africa Oil plans to drill up to eight exploration wells in blocks it holds with partners in Kenya, Ethiopia, Mali and Somalia's semi-autonomous Puntland region. Africa Oil CEO Keith Hill this month said a rig has been leased and the partners plan to spud the first of two wells on the Dharoor block in Puntland before the end of the year. In early 2012, the rig will move to Ethiopia to drill in the Ogaden Basin in the west of the country, Hill said.

The company's total gross acreage is in excess of 300,000 sq km and Hill said he has no plans to expand in more countries. "Our land grab is over. I am not looking to do any more ventures. The acquisition part is over, we are more in the execution phase," he said.

Another major focus of late in East Africa is Uganda, where Tullow has discovered billions of barrels in oil reserves. And there is no sign of interest falling away. No fewer than 82 companies have indicated they will apply for exploration rights in the Albertine Graben when Uganda launches a licensing round as soon as the new petroleum law is passed by Parliament.

Bernard Ongodia, chief geophysicist at the Ugandan energy ministry's petroleum and exploration department, said the round would include over 10,000 sq km of relinquished acreage as well as yet to be defined new areas.

The country suspended licensing in 2007 to amend oil sector regulation after the discovery of more than 2.5 billion barrels of oil in the 40% of the Albertine Graben explored by that time.

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While much of the exploration of late in East Africa has been carried out by small independents, the majors have been taking note. As well as Eni and BG Group, Total and Shell are looking to expand their footprint in the East African frontier play, reinforcing the belief in the region's potential.

In October, Shell acquired a 50% interest in the Petrobras-operated blocks 5 and 6 in Tanzania. A month earlier, Total announced its acquisition of a 40% interest in five exploration blocks in Kenya.

But as East African countries come to terms with their newfound promise of riches, experts warn the resource could be a curse if not managed properly. Nigeria's vast hydrocarbon wealth has led to social and political unrest, particularly in the Niger Delta, which produces the bulk of the country's oil. Uganda and the Democratic Republic of Congo already have clashed over the oil reserves in Lake Albert, and Ghana and Cote d'Ivoire have still to resolve a simmering border dispute.

One of the biggest concerns facing oil companies in Africa are current and planned developments in the regulatory environments. Some of these include the much delayed Petroleum Industry Bill in Nigeria, the issue of sanctity of contracts as demonstrated by the delay in the completion of Tullow's farm-outs to Total and CNOOC in Uganda, and the promotion of local content policies.

Efforts to boost local content have been gathering pace in Nigeria and Angola for many years and recent discoveries in Uganda and Ghana are again bringing indigenous capacity issues to the forefront. Foreign companies hoping to bid for new African projects ignore this development at their peril.

But governments must set realistic goals, putting the right local content strategies in place by engaging with the companies and communities. In short, governments should promise only what they can realistically deliver.-- Jacinta Moran in Cape Town

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