Algeria is going global

Sep 30, 2005 02:00 AM

With Algeria's national oil and gas company now converted into a purely commercial entity, Sonatrach has been looking abroad to boost its production -- and with other African countries as its prime target.
Following the new hydrocarbon law, which made the company into a commercial concern, Mohamed Meziane, the chairman and CEO, announced that Algeria's still state-owned giant plans to invest $ 500 mm in exploration for hydrocarbons in Mali, Libya, Niger and Tunisia.
"Algeria will seek exploration contracts in Africa where oil reserves are under-explored," Meziane said in a speech at the 18th World Petroleum Congress (WPC), held in Johannesburg between September 25 and 29.

Although Africa is a growing source of hydrocarbons for the world market, the global oil and gas congress has been organised on the continent for the first time in 72 years. The First Southern African Oil and Gas Exhibition 2005 (SAIOGE 2005), the largest oil and gas exhibition ever to take place in Africa, is running adjacent to the congress.
Algeria, which currently holds 11.8 bn barrels of proven oil reserves, remains largely unexplored and may have as much as 43 bn barrels of oil, according to the US Energy Department. It wants to increase crude oil production to 2 mm bpd by 2010, from 1.36 mm now. To achieve this, Algeria knows it will need to entice more foreign companies to come and invest in exploration and production.

With the new hydrocarbons law aiming to boost foreign investment by creating a level-playing field for Sonatrach and foreign exploration and production companies, the Algerian giant will henceforth have to compete against the internationals in order to get new exploration licences. Under the previous law, foreign companies had to perform exploration work on the blocks they had acquired on their own, but Sonatrach retained at least 51 % in any production project.
The state-owned company's share of Algerian output is thus set to decrease as foreign companies increase their presence in the country, even though the new law grants Sonatrach a pre-emptive right to take a share of 20-30 % in any new discovery.

Last year, the quantities produced by Sonatrach in association with foreign firms bypassed the output produced by Sonatrach itself for the first time since the company was established in 1964.
Against this backdrop, Sonatrach knows it will need to develop its reserves and production abroad if it is to maintain its impressive growth rate beyond the current oil price surge. It is the 12th-largest oil and gas company in the world, according to Petroleum Intelligence Weekly's 2004 rankings, and saw its export revenue skyrocket 32 % to $ 31.5 bn in 2004, while hoping to top $ 40 bn in 2005.

This is why Sonatrach is now looking at obtaining exploration blocks abroad. The Algerian monopoly is particularly keen on establishing a strong presence in neighbouring Libya, which holds the world's ninth-largest proven oil reserves -- some 39 bn barrels -- and features easily exploitable deposits while being dramatically under-explored.
In this regard, Sonatrach proudly announced in February 2005 that it had won an exploration block in Libya's latest oil licensing round, in which European giants such as BP, Shell and Total failed to secure blocks. Sonatrach has pledged to invest a minimum of $ 13 mm in exploration work in this block over five years.

Then in June, Sonatrach -- Africa's largest company -- announced that it had signed an exploration contract with Niger. The firm is committed to investing $ 29.5 mm in exploration works over 12 years.
Analysts now expect Sonatrach to become a regular competitor in the battle for new exploration licences throughout Africa, while it has also hinted it might extend its international reach to Asia in the years to come. Overall, this amounts to an ambitious plan. Meziane told recently that by 2015, Sonatrach hopes to hold proven reserves of 600 mm barrels and to produce 100,000 to 150,000 bpd abroad.

Besides exploration, Sonatrach has also steppedup its activities abroad in a variety of domains, ranging from production to transport, re-gasification and petrochemicals. In transport, Algeria is deeply involved in two major pipeline projects linking Algeria to Europe -- Medgaz to Spain and Galsi to Italy. More tentative is the plan for a 4,550-km pipeline connecting Nigeria to Algeria via Niger, which would rely on financing from NEPAD.
Meanwhile, Sonatrach is currently involved in Peru. The company acquired a 10 % share in the Camisea gas development project in October 2003, in addition to the 21 % it already held in the project's transport section. Camisea started producing in June 2004.

Sonatrach is also stepping up its presence in liquefied natural gas (LNG) -- a domain in which it boasts extensive experience. Indeed, in 1964, Algeria became the first country to produce LNG, and 40 years later, it is ranked second in the world table, with roughly one-sixth of all LNG exports.
Sonatrach recently teamed up with super-major BP to buy up the entire capacity of National Grid Transco's LNG receiving terminal at the UK's Isle of Grain, which started operations a few months ago. The 20-year contract will enable BP and Sonatrach to pump 3.3 mm tons of LNG into Britain. In addition, the Reganosa terminal in Spain, in which Sonatrach holds a 10 % stake, started production in 2004.

Meanwhile, last year, the national drilling company Enafor, a Sonatrach subsidiary, carried off a five-year $ 50 mm contract from Oman's Sahel Rawel field, ahead of 10 international drilling companies, most of them from the US. Finally, Sonatrach holds 51 % in a petrochemicals joint venture with BASF in Spain, and is also active in oil and gas marketing through its London and Singapore offices.
With Algeria's new hydrocarbon law now allowing it to focus on its core activities, Sonatrach has embarked upon a process of deep transformation, with a view to competing with the world's most efficient oil and gas companies -- both at home and abroad. Only time will tell whetherit will prove able to keep up with the ever-accelerating pace of competition in the sector.

Source: AFP
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