With street battles being fought in Libya, uncertainty in Algeria and a conflict raging in Iraq, an increasing number of oil companies are taking refuge in the relative peace of Morocco.

“Companies… have acquired Moroccan acreage, speculating that its geology matches that of… Nova Scotia”

Geoff Porter, North Africa Risk Consulting

A decade ago, only a handful of contrarian oil companies were exploring the country, but in recent years welcoming fiscal conditions, political stability and promising geology have led to dozens of companies snapping up acreage.

More than 30 firms now operate in the country, and it is not just small explorers getting involved in the latest rush for Moroccan oil. In the past two years, both UK oil major BP and the US’ Chevron have moved in.

Chevron is currently gathering seismic data in three deep-water, offshore blocks to the west of Agadir and Essaouira after signing an agreement in January 2013 with Morocco’s Office National des Hydrocarbures et des Mines (Onhym).

BP bought into Morocco nine months later, striking a deal with Texas-based Kosmos Energy interested in the exploration of three other offshore blocks in the area.

Moroccan appeal

Part of the appeal is the geology. Some geologists speculate that the deep waters off Morocco could mirror strips of Canadian coastline where there have been significant discoveries and intense activity by oil companies including the UK/Dutch Shell and Norway’s Statoil.

“Companies… have acquired Moroccan acreage, speculating that its geology matches that of the Gulf of Guinea or perhaps Nova Scotia,” says Geoff Porter, head of North Africa Risk Consulting.

In addition to the geology, the investment environment is extremely favourable. Onhym describes its offer conditions as “the most attractive in the world”. The state only demands a 25 per cent stake in oil projects, compared with 51 per cent in countries such as Algeria and Libya.

Exploration companies also enjoy exemptions from customs duties and value added tax during the exploration phase, and if the exploration leads to production the company is granted a tax exemption for the first 10 years.

Stable security

In contrast to most North African oil producting countries, security concerns for explorers in Morocco are minimal.

During the Arab Uprisings of 2011, Morocco stayed relatively calm. Protests were appeased with constitutional reforms and the promise that the languages of the country’s Berbers and Saharawi tribes would be officially recognised.

“Depending on one’s perspective, Morocco is either on a path toward gradual democratisation, taking baby steps every several years, or it is politically stagnant with a strong monarchy stage-managing an elaborate democratic performance,” says Porter.

Importantly for oil companies, even if the democratisation process does stall, the country still looks set to remain politically and economically stable, even if nearby nations such as Mali and Libya descend deeper into chaos.

Muted attraction

Terms may be good and the environment may be stable, but that will do little to help oil firms’ profits if there are no viable deposits.

Morocco was first explored for hydrocarbons in 1912 and even after more than a hundred years of exploration, and more than 300 wells, no commercially viable oil deposits have been found.

In the latest wave of exploration, four offshore wells have been drilled. All four have failed.

The first was drilled then abandoned in December 2013 by Ireland’s Cairn Energy. This was followed by another dry well for Cairn in March. Kosmos Energy failed to find oil in its first offshore drilling attempt in May. And, most recently, Australia-based explorer Tangiers Petroleum saw its shares plunge by almost 70 per cent in one week as it announced a failed well on 4 August.

Kosmos Energy is unperturbed by the string of bad results. “That’s the nature of our game. A dry hole doesn’t send you back to the locker room to take your uniform off says William Hayes, senior vice-president of government affairs at Kosmos Energy.

He says new deep-water equipment and three-dimensional seismic technologies developed over the past decade mean vast swathes of unexplored acreage are now accessible, some of which could hold up to 1 billion barrels of oil in a single basin.

Disputed territory

Another factor hindering Moroccan oil exploration is that some of its most exciting acreage is an offshore concession in the disputed Western Sahara region.

The area is claimed by both the government of Morocco and the Algeria-backed indigenous Saharawi group, the Polisario Front. While most of the region is controlled by Morocco, neither entity’s sovereignty is recognised by the UN.

After a 15-year war, a ceasefire between the Moroccan army and the Polisario Front was brokered by the UN in 1991 ahead of a planned referendum on independence in 1992.

While the ceasefire has held, the referendum never took place, leaving the region a militarised zone and the last UN-designated “non-self-governing territory” in Africa.

Due to the disputed nature of the territory the most recent well drilling off the shores of Western Sahara occurred in the mid-1970s and its waters hold the last unexplored cretaceous basin in the Atlantic Ocean.

Undeterred by the possible legal complications, Kosmos Energy is due to start drilling into the basin in 2014 and says it has the potential to be a gargantuan find comparable with the discovery of oil in the Niger Delta in 1956.

“A river came off Africa in Paelio times and dumped a lot of sand out there,” says Hayes. “The question is: did all that create an oil and gas environment? We won’t know until we find a drill bit and punch it open.”

That drill bit is due to arrive in November 2014 in the form of a $100m drill ship, Atwood Achiever, and while it could reveal an oil find worth tens of billions of dollars, its impending arrival is already ramping up tensions in the region.

Legal battle

“Kosmos Energy’s operation is severely undermining the UN peace efforts for the occupied territory,” says Erik Hagen, chair of the activist group Western Sahara Resource Watch, who believes the drilling violates international law.

The argument centres on a UN legal opinion issued in 2002, which states that exploitation of resources in the region would be illegal if they go ahead “in disregard of the interests and wishes of the people of Western Sahara”.

This ambiguous wording means that an end to 100 years of failed Moroccan oil exploration may mark the beginning of a long and fiercely fought legal battle.

Key fact

Since oil exploration in Morocco began in 1912, no commercially viable oil deposits have been found

Source: MEED