Oil majors to bid despite reduced terms

17 July 2008
Observers predict less generous oil and gas deals following 2006 Hydrocarbons Law will still attract interest.

Algeria’s first oil and gas licensing round under the controversial 2006 Hydrocarbons Law will still attract international oil companies (IOCs), say industry observers, despite the terms of any deals being less generous than in previous auctions.

The Energy & Mines Ministry and Agence National pour la Valorisation des Resources en Hydrocarbures (Alnaft) launched the licensing round on 13 July, inviting IOCs to bid by December for a total of 45 onshore blocks in 16 zones across nine basins (MEED 13:7:08).

“I think there will be a good level of interest [in the licensing round], although some companies may think their exposure to the Algerian market is already sufficient,” says Craig McMahon, North Africa analyst at UK oil consultant Wood Mackenzie.

Unlike previous licensing rounds, the majority stake in each block will be retained by state energy company Sonatrach in line with the hydrocarbons law. Production terms and potential sales revenues will also be more limited. This has led to fears that the IOCs would shun the auction.

However, while the precise commercial terms will not be known until Alnaft holds clarification meetings on 23 July, McMahon is confident that oil majors will still be keen to compete.

“The regulatory changes were negative from a foreign investment point of view,” says McMahon. “But this has to be weighed up against the limited opportunities elsewhere, the general global environment for the oil industry and the current high oil price.”

Oil majors already active in Algeria include the UK’s BP, the UK/ Dutch Shell Group and France’s Total.

Alnaft has not said how many IOCs have been prequalified for the bid round, but at least three dozen are likely to have been shortlisted in keeping with the experience of previous auctions.

The blocks are all onshore. “Effectively there are two different offerings,” says McMahone. “In the west it is primarily frontier acreage, which may have some good gas potential but are clearly exploration plays. The blocks in the east and southeast are more well-known and more oil prone.”

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