IN the 1920s, Morocco was something of a trailblazer, being the first oil producing country in Africa. Its fortunes have declined steadily since then, however, as international oil companies (IOCs) shunned its marginal fields in favour of much more attractive prospects elsewhere in North Africa.

Now, in line with the government's programme to encourage foreign investment, the state hydrocarbons company Office Nationale de Recherches & d'Exploitations Petroliers (ONAREP) is on a major drive to revive exploration activity. The incentive for intensifying the search for oil is strong. Morocco's current crude oil output is negligible, while consumption is close to 145,000 barrels a day (b/d). Dependence on energy imports comes at a considerable cost, particularly with rising oil prices, and the import bill for 1999 is estimated at around $1,300 million.

ONAREP's new campaign started in earnest in September 1999, with industry presentations in London and Houston. But the main thrust was the amendment earlier in the year of the 1992 hydrocarbons code. This aims to offer IOCs more attractive terms and a transparent legal framework for reconnaissance and exploration. The new legislation reduces to 25 per cent the maximum state participation in any concession from a previous minimum of 35 per cent. Royalties are fixed at 10 per cent for onshore production and 7 per cent for deepwater fields, with the first 300,000 and 500,000 tonnes respectively of crude oil exempted. In addition, the new law eliminates corporate income tax for the first 10 years of production.

If companies are surprised by the apparent generosity of the new provisions, the justification is simple: 'Such terms may not be beneficial for other countries but are profitable for Morocco,' an ONAREP official declared to an industry conferencein London in February. It is clear that Morocco is exceptionally keen to attract new business.

Taking note of Morocco's location to the north of West Africa's oil producing areas, IOCs are looking at Morocco's offshore potential, and its deepwater prospects in particular. Morocco has the largest offshore exploration area of any Maghreb country and it has barely been touched. There are some 300,000 square kilometres (sq/km) of virgin sedimentary basins and coastal waters to 2,000 metres. Moreover, its proponents say, Morocco's deepwater area is similar to oil-rich sedimentary basins in Brazil, the Gulf of Mexico and Nova Scotia. Its proximity to European consumer markets, political and social stability and a government that favours pro-market reforms all add to the attractiveness.

One of the most enthusiastic advocates of Morocco's potential is Houston- based Vanco Energy which, with operations in Gabon, Cote d'Ivoire and Senegal, holds more deepwater acreage in West Africa than any other company. 'Morocco will be a major oil producer and it's got fantastic potential' Vanco's president Gene Van Dyke says.

In September 1998, Vanco was awarded an exclusive reconnaissance permit for the 18,700-sq/km Safi Haute Mer block. A 2-D seismic survey at the end of that year increased interest in the Essaouira basin and, as a result, in September 1999, Vanco entered into a farm-in agreement with the UK's Lasmo which held a reconnaissance permit for the adjacent Ras Tafelney block. Lasmo retains a 40 per cent interest in Ras Tafelney, which is thought to be one of Morocco's most significant fields, and will continue to be the concession's operator until the reconnaissance permit expires in October 2000.

According to Vanco, the licence holders will then have the right to convert both blocks into fully-fledged exploration permits. Vanco has announced that when this occurs, the company will assume operatorship of Lasmo's block as well as retaining that of Safi Haute Mer. 'We're only two years away from drilling in Morocco,' Van Dyke said.

Societe Shell du Maroc, the local branch of the Royal Dutch/Shell Group, is understood to be even closer to spudding its first well. Shell's reconnaissance permits on its two deepwater offshore blocks, Cap Ghir and Anza, expired earlier this year, but industry sources say the company is in the advanced stages of negotiating an exploration agreement with ONAREP. The results of the first exploration wells will be watched with great interest. If the first holes turn out to be dry, analysts say that interest in Morocco could easily evaporate and IOCs would be unlikely to seek other exploration agreements with ONAREP.

Further south are three more blocks in which IOCs have reconnaissance permits. Australia's ROC Oil secured a permit in March 1998, which is due to expire imminently, for the 6,000-sq/km Foum Draa Haute Mer. Reconnaissance permits for the two other southern blocks, the 6,000-sq/km Tiznit Offshore and the 12,478-sq/km Cap Draa Haute Mer, are held by Sweden's Taurus Petroleum and the UK's Enterprise Oil respectively. Both companies have renewed their reconnaissance permits at least once and have collected plenty of seismic data. 'It is reaching serious decision time for us now,' says Enterprise Oil's exploration director Andrew Armour. 'We are currently evaluating our information and expect to make a decision on whether to apply for an exploration licence by year-end, if not before.'

While all the above blocks are in Morocco's Atlantic acreage, the most recent permit awarded has been for theAl-Hoceima-Nador Offshore block, which stretches along the length of Morocco's Mediterranean coast. The 12-month agreement, awarded in February, authorises Houston-based Conoco to conduct geological and geophysical studies and acquire 2-D seismic data for the 26,400-sq/km block.

IOCs have shown less interest in the onshore opportunities, and to date only a handful of foreign companies have onshore blocks. Canada's Cabre Exploration is currently the only foreign company to have an exploration agreement with ONAREP, having taken three northeastern blocks in May 1997. Exploration investment, to be fully financed by Cabre, was expected to amount to around $16.5 million over the agreed eight-year period. Three years into the agreement, Cabre is about to start production from a well drilled in 1998. 'The gas we discovered there is sub-commercial, but we will start producing relatively small amounts in June, partly to recoup some expenses but also to test the capability of local infrastructure,' says Jock Graham, general manager at Cabre Maroc.

In June 1999, the US' Skidmore Energy signed a one-year reconnaissance agreement with the state for the Ounara block in the Essaouira region. The firm previously held other reconnaissance permits in Morocco both offshore and onshore.

Morocco's two refineries were among the early beneficiaries of the country's privatisation programme. Since 1997, the Saudi-owned, Stockholm-based Corral Petroleum Holdings has owned a majority stake in both Societe Anonyme de l'Industrie de Raffinage (Samir), which owns the Mohammedia refinery, and Societe Cherifienne des Petroles (SCP), which owns the Sidi Karcem refinery. With a combined capacity of some 156,000 b/d, the two refiners merged in July 1999, effectively creating a local monopoly under the Samir name. Under the terms of the privatisation, the government assured the refiners of a protection period during which the refineries could be upgraded to be more competitive. Samir is expected to receive 100 per cent government protection until 2002, when the customs duties on imports will be progressively reduced.

Samir's throughput is roughly equivalent to total domestic consumption of refined products. However, industry sources say the product mix of the refineries is not best suited to consumer demands. There are particular shortfalls of liquefied petroleum gas (LPG) and jet fuel which will have to be addressed before the market is opened up to competition. No changes at the refineries have been made yet; the first modifications to some production units are expected to begin in 2001.