ALGERIA may be mired in a civil war but its oil and gas industry has largely escaped the excesses. Indeed, while much of the country is virtually closed to foreigners, international investment in oil and gas development shows no signs of receding.

Algeria was the first Arab member of OPEC to overhaul its investment terms in a bid to attract foreign capital and it is now reaping the rewards. By the turn of the century, crude oil production is expected to rise by a third to 1 million barrels a day (b/d), after years of decline. State energy company Sonatrach is expanding its upstream activity but the bulk of the new oil production will come from private operators. In a similar vein, the gas sector is due to see its first production sharing agreement before the end of the year.

‘Their terms are right up there with the best in the world. And we are proud to be there,’ says Paul Taylor, spokesman for the US’ Anadarko, which is in the final stages of negotiating a major production sharing agreement with Sonatrach. Since the declaration of martial law in February 1992, Sonatrach has concluded 17 such agreements, securing foreign investment in exploration of $590 million.

After two decades of a state monopoly on hydrocarbon production, the first private project came on stream this summer when Italy’s Agip began pumping oil from its Bir Rebaa field. It was the first new project to go into production after a wave of discoveries since the start of the 1990s.

‘There have been successes in the past couple of years, after contracts were opened up for foreign investment in the late 1980s. The time in between is what was needed for negotiations, seismic and exploration drilling,’ says Michael Welland, general manager in Algeria for the UK’s LASMO. Foreign companies brought in the vital investment capital, and Algeria’s geology has delivered the expected treasure.

The results have been startling. Although the oil sectors of other OPEC countries outside the Arab world have been open to foreign investment for longer, few can match Algeria’s recent record of new discoveries. In a recent study, Geneva-based Petroconsultants showed that more oil and condensate was found in Algeria in 1994 than in any other country in the world. Some 1,130 million barrels were discovered, almost twice the volume found in Norway, which ranked second in the survey.

The investors are wasting no time before exploiting their finds:

p Agip’s production facility at Bir Rebaa North started up with 3,000 b/d on 12 June, and is due to rise to 50,000 b/d by the end of the year, when facilities at Bir Rebaa West and Southwest start operating.

p Next in line is the Tinrhert field, where operator Petro-Canada is to start producing some 15,000 b/d in late 1995 or early 1996. Development work has just started on the field, which only needs a short spur line to an existing pipeline. Sonatrach has exercised its option of taking a 30 per cent equity stake in the field and is covering part of the investment cost.

p Spain’s Cepsa is to start pumping between 5,000 and 10,000 b/d in the Rhourde Yacoub acreage. Negotiations are still going on, Cepsa says.

p The US’ Anadarko is finalising an agreement with Sonatrach to develop finds of over 1,000 million barrels of oil, plus condensate and gas, in Hassi Berkine and neighbouring areas. Plans are understood to call for an early development scheme to produce some 30,000 b/d in the second half of 1996, with further development to be discussed later. Anadarko says it hopes to finalise the deal by November. Analysis of its drilling results points to a potential production of up to 250,000 b/d. This would involve investment of an estimated $1,000 million, and the drilling of 50 wells. A new 36-inch pipeline from the fields to Hassi Messaoud will be required, as the existing line can only carry an additional 50,000 b/d. Sonatrach is responsible for providing the new line, but Anadarko and its partners are understood to be ready to contribute to the cost in order to speed up the construction.

p Arco is negotiating to gain access to a producing field, Rhourde el- Baguel, which is the first developed field that Sontrach has opened up to private participation. Arco plans to use enhanced oil recovery technology to increase production from the present 20,000 b/d to an eventual 100,000 b/d. The scheme also involves building a liquefied petroleum gas (LPG) recovery plant with a capacity of 800 million cubic feet of gas a day. The deal is understood to involve production sharing over 25 years, with Sonatrach taking 51 per cent of the output, and Arco 49 per cent. Arco is to provide an estimated $1,400 million in financing. It will also pay a $300 million cash bonus when the contract is finalised. However, the final signature has been delayed since the initial agreement in June 1994. Local oil sources say Arco is reluctant to complete before the current security situation has improved.

The largest investment prospect is in the gas sector. The British Petroleum Company (BP) is negotiating with Sonatrach to open up district 3, a gas- bearing area in the southwest, at a cost of $2,000 million-3,000 million. Sonatrach has drilled 100 exploration wells in the district, an area the size of England, and found gas in 40 of them. BP will appraise seven fields discovered just north of the zone, and explore new areas further south. It will produce around 9,000 million cubic metres a year (870 million cubic feet a day) of gas and market it jointly with Sonatrach. The area is remote and the project will involve installing all the infrastructure, including a pipeline to Hassi R’Mel of some 800 kilometres, which alone could cost an estimated $800 million. Negotiations are at an advanced stage and the agreement is expected to be finalised later this year or in early 1996.

An agreement with BP would be the first gas production sharing contract signed since Sonatrach opened up the gas sector to foreign investors in 1991. BP had started to discuss gas projects with Sonatrach as early as 1990, and had a head start on potential rivals. France’s Total and other companies are understood to be waiting for BP to sign before they go ahead with their own negotiations for other gas projects. Whatever the outcome of those talks, the attractions of Algeria’s open invitation to international energy companies – if judged by the quantity and quality of the responses – seem to be beyond dispute.