Algerias seventh upstream licensing round was concluded on 13 December, attracting subdued interest from foreign firms. Just nine bids were submitted, with only four out of the 16 blocks on offer being awarded, to Eni, BG, Eon Ruhrgas and Gazprom. The Ministry of Energy had already decided in late November to withdraw Ahnet, the most coveted acreage on offer, from the bid round because the asset swaps that the interested companies proposed, as required for this particular permit, did not meet Sonatrachs expectations.
Algerian officials blamed the global economic crisis for the disappointing results, and there is good reason to think that this ultimately discouraged many companies from participating. But as the countrys Minister of Energy and Mines Chakib Khelil himself said, the bid round was the first action of importance in the framework of the application of the new hydrocarbons law. As such, the results also represent a blow to the ministers reform efforts, and to his strategy of developing the countrys oil and gas reserves with the help of international partners. Dr Khelil drafted the hydrocarbons law, which was passed in 2005, in the face of considerable opposition. But the amendments that were approved by parliament the following year in his absence effectively reversed its goal of opening up the Algerian energy sector to international investment, by guaranteeing Sonatrach a minimum equity share in future upstream contracts of 51% and imposing a windfall tax on foreign producers (MEES, 17 July 2006).
Its no great surprise, said a North Africa energy analyst. Youve just got to look at the attractiveness of the fiscal terms, in combination with the attractiveness of the acreage, (even) without considering the negative regulatory changes that were seeing in Algeria and the concerns about the sanctity of contracts being respectedTheres enough there to dissuade companies from bidding.
Gazprom Growth
The bid round, organized by the new regulatory authority Alnaft, marks the entry of Russian energy giant Gazprom into the Algerian upstream sector, and is another step on its path to establishing a strong presence in North Africa. Gazprom and German energy group Eon Ruhrgaz, which also acquired Algerian acreage for the first time, were awarded the El Assel and Rhourde Yakoub blocks respectively, both in the prolific Berkine Basin in southeast Algeria and both operated by Sonatrach (see table).
Meanwhile, BG and Eni picked up the Guern Guessa block and the Kerzaz block respectively, both in the Gourara Basin in southwest Algeria, and neither of them operated by Sonatrach. BG is a relative newcomer to Algeria, farming in to the Hassi Ba Hamou (HBH) license, located just next to Guern Guessa, in 2006. It has made a number of gas discoveries there since. Eni on the other hand expanded its well-established position in Algeria, where it completed the acquisition just three months ago of several gas and condensate fields being developed in the Berkine Basin, when it bought Canadas First Calgary Petroleums (FCP). The Italian firm says its equity production in Algeria stands at 84,000 b/d and that it holds interests in 24 producing licenses and in eight licenses under development. FCP said in July that it aimed to produce 3 bcm/y of gas from its Menzel Ledjmet East project by 2013 (MEES, 7 July).
Of the winning bidders, only Gazprom has so far given details of its work commitment, saying that it will spend $120mn on its exploration program, with the acquisition of 2,500 sq km of 3D seismic and the drilling of four exploration wells, adding that recoverable oil reserves in the El Assel area were provisionally estimated at around 30mn tons (235mn barrels). As one observer commented, Gazprom entering Algeria is long overdue. Lets see. Their ambitions will be more than just an exploration block. Indeed, on 11 December, Reuters quoted Enis CEO Paolo Scaroni as saying that Libya had approved Gazproms proposed acquisition of half of Enis 33% stake in the 125,000-150,000 b/d Elephant oil field, as part of a major asset swap between the two firms (MEES, 6 October).
Delaying Algerias Gas Developments
Despite the arrival of the Russian firm in Algeria, the ministry will have hoped for stronger participation in the bid round to help it achieve its production targets, especially of gas. Algeria is in the process of constructing five large infrastructure projects that are set to boost its piped gas and LNG export capacity by some 34 bcm/year by 2013, according to MEES estimates, from 62 bcm/y now. But finding and developing the extra gas needed to supply them and Algerias growing local demand is perhaps the biggest challenge facing the Algerian energy sector. In a report published earlier this month, Algerias Commission of Electricity and Gas Regulation (CREG) said it expected domestic gas consumption to rise from an estimated 27.4 bcm this year to between 49.6 bcm and 67.1 bcm in 2017, according to different scenarios.
Alnaft Chairman Sid 'Ali Betata was quoted by Algerias official daily El Moudjahid as saying that the 12 unawarded permits would be reoffered in 2009, in a separate public bid round. But he also referred to the challenges involved in organizing these bid rounds for his understaffed agency. It seems unlikely that Sonatrach will abandon its quest for international partners in the Ahnet block, even though the Algerian firm is very active there. Ahnet has estimated gas reserves of more than 5 tcf, but it is tight gas that needs advanced technology to develop. Seven IOCs are thought to have made proposals, among them ExxonMobil, Total, Shell, Eni, StatoilHydro and Repsol-YPF. But Sonatrach is clearly very protective of Ahnets large gas reserves, demanding asset swaps from those companies wishing to access them. The Algerian firm may now be waiting for market conditions to improve, say analysts, and looking to negotiate partnerships bilaterally.
All eyes now are on the sanctioning of the southwest gas development project, which comprises the Total-operated Timimoun block, GDF-Suezs Touat concession and the Reggane Nord permit operated by Repsol-YPF. Their development is expected to commercialize around 9bcm/y of natural gas in the next 4-5 years, but negotiations with Sonatrach to proceed have been held up partly by a dispute over gas prices. A Sonatrach official was quoted by Algerian media last week saying the projects would be approved in three or four months. But even then, without developing Ahnet it is difficult to see how Algeria can reach the 20 bcm/y gas production that Sonatrachs upstream chief Belkacem Boumediene told MEES in Algiers last month the company was targeting for the whole southwest region (MEES, 24 November).
Results Of Algerias Seventh Exploration Bid Round
Basin | Area | Blocks | Surface (sq ms) | Winner |
Benoud | El Ouabed * | 103, 313 | 15,377 | Unbid |
Hodna | Hodna Ouest | 104a, 118a, 137a, 119a, 117a | 6,670 | Unbid |
Berkine | El Aricha Tahtania * | 407 | 4,392 | Unbid |
El Assel * | 236b, 404a1 | 3,083 | Gazprom | |
Rhourde Yakoub * | 406a | 1,091 | Eon Ruhrgas | |
R Rouni / H Guelta | 401c, 444s, 443b, 432 | 5,510 | Unbid | |
Timissit Ouest | 211, 208b | 6,240 | Unbid | |
Illizi | Boukhechba | 219b, 224a, 225a, 220b, 238b | 7,954 | Unbid |
Gara Tesselit / O-Ohanet | 245s, 239b, 234c | 6,665 | Unbid | |
Oudoume Est * | 244b | 1,174 | Unbid | |
Melrhir | Melrhir * | 412, 413 | 11,620 | Unbid |
Sba | Belrhazi | 354 | 14,140 | Unbid |
Gourara | Kerzaz | 316b, 319a, 321a | 16,042 | Eni |
Guern Guessa | 317a, 316a | 12,166 | BG | |
Ahnet | Ahnet * | 337b, 338b, 339a2, 339b, 340a, 341b, 341a2 | 17,358 | Withdrawn |
Bechar | Bechar * | 309b1, 301b1, 311b1, 319b1 | 13,775 | Unbid |
* Areas operated by Sonatrach.
Source: Alnaft, MEES.
Copyright MEES 2008.
