Harsh Algerian contract conditions deter oil majors

If Algeria's plans to increase its oil and gas exports are to have any chance of coming to fruition, it will have to rethink the terms it offers to international partners. The lack of interest from international oil companies (IOCs) in the country's latest licensing round is a clear demonstration of this. Only one quarter of the concessions originally planned for the round attracted bids in mid-December. One year earlier, the picture was very different. After expressions of interest were invited at the end of 2007, more than 70 IOCs came forward.

Algiers claims the dearth of bids is due to the global economic downturn, but the evidence points to IOCs being deterred by the harsh contract conditions on offer. IOC interest waned thanks to the complexity of the prequalification and bidding criteria for some of the acreage. The contract terms were drawn up at a time when oil prices were very high, but the lower prices of today have exposed the relatively high risks and low rewards that the government was offering.

It seems Algiers' contract conditions have driven companies to invest elsewhere. With Russian gas supplies to Europe being partially cut off in recent days, Algeria has a great opportunity to become the preferred supplier of gas to its energy-hungry neighbours. But it needs IOCs to help it make the most of this. If the country wants IOCs to return, it will have to significantly adapt what it offers.