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Madagascar Oil suspends share trading

Madagascar Oil suspends share trading

Madagascar Oil declares it would 'robustly defend its position' after the Madagascar government said it wants to acquire its licences

* Tim Webb
* guardian.co.uk, Friday 17 December 2010

The flotation of Madagascar Oil must go down as this year's most unfortunate. In a move which will be hailed as victory for the world's lemur-lovers, the oil sands developer, which listed on Aim a little more than two weeks ago, announced this morning that it had suspended trading in its shares.

Late on Thursday night, the government of the impoverished African island, famed for its fauna and flora, told executives it was planning to seize Madagascar Oil's assets.

The company said it would "robustly defend its position" but the prospects of a successful outcome appear slight. The World Bank ranks Madagascar as 138th out of 193 countries in its "ease of doing business" ranking and is notoriously unstable. The government came to power in a coup last year which overthrew the democratically elected leader and itself faced down another coup attempt days before Madagascar Oil's flotation.

The company's statement said: "Following a meeting between the Ministry of Mines and Hydrocarbons and Madagascar Oil in Antananarivo late on 16 December, the Ministry has indicated that it is interested in acquiring from the Company all of its licences excluding Bemolanga. There can be no guarantee that any price agreed for such an acquisition will be representative of the fair value of such assets."

Madagascar Oil wholly owns these numbered blocks. It is telling that Bemolanga, the giant oil sands block which would be operated by French company Total with Madagascar Oil holding a minority stake, has not been targeted, indicating that the government did not want to take on its much larger partner.

Acknowledging the political and technical risks involved, Madagascar Oil's chief executive Laurie Hunter told the Guardian last month that the company was an "execution not exploration play" but was relentlessly upbeat about its future. If things had gone to plan – and it is not inconceivable that the company could yet salvage the situation – the company would certainly have reaped the rewards.

The Guardian reported last month that Madagascar Oil had negotiated an extremely generous contract to develop the country's oil sands, which are likely to be the world's most polluting. This arrangement would allow operators to receive 99% of the revenue during the first ten years while they recouped their significant upfront costs of about $9bn (£5.8bn). This would then ratchet down to a 80-20% split for the second decade. Industry sources argue that the terms are justified given the investment required in such an unstable environment – as an embarrassed Madagascar Oil has discovered to its cost all too soon. Negotiations between Madagascar Oil and the government are continuing and the company is expected to warn that foreign investment would take a hit if its assets are seized.


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