Pressure grows for Algiers to ease oil exploration terms

01 January 2010

Seven out of 10 licences offered fail to attract bids from international firms

Algeria is to face renewed pressure from international oil companies (IOCs) to ease the terms of any future oil and gas exploration licences, after just three out of the 10 licences on offer in December drew bids from energy majors.

Algeria’s bid round on 20 December 2009 was only a little more successful than its auction in December 2008, when just four out of 16 licences were awarded.

This time, a consortium led by France’s Total won the Ahnet concession in the southwest of the country, which was widely seen as the most attractive permit on offer.

A second consortium, led by Spain’s Repsol, took the licence for the Southeast Illizi basin on the border with Libya. China National Offshore Oil Corporation (CNOOC) was the low bidder for the third deal, covering the Hassi Bir Rekaiz area in eastern Algeria.

“We are happy with the result, although we wished to award all 10 permits on offer,” said Energy Minister Chakib Khelil on 20 December. “It is possible that foreign firms are undergoing special circumstances linked to the global downturn and the international gas market.”

Sources at IOCs working in the country say the remaining seven licences failed to attract any bids because of a combination of the tough contract terms on offer and uncertainty about the global economy, which has constrained their budgets.

“We would have to look at the conditions in any new bid round before we decided whether to bid”

Kristian Rix, spokesman, Repsol

While none of the groups involved was prepared to say which terms put them off bidding, the problems are thought to include the minimum 51 per cent stake for state oil company Sonatrach in each development, the distribution of all output by Sonatrach, and the insistence on using Algerian banks to finance projects.

IOC executives say they are only interested in working in Algeria if the terms are right. “Algeria is very interesting to us and we like to participate in what is going on,” says Kristian Rix, a spokesman for Repsol. “But we would definitely have to look at the conditions in any new bid round before we decided whether to bid or not.”

Many IOCs slashed their exploration and production budgets in 2009, reducing interest in all but the most attractive assets.

“Each company was and is restricted in their investment resources,” says Sergey Panfyorov, Algeria representative for Russia’s Gazprom, which was a winner in the December 2008 bid round. “We selected only one area to bid for [in the latest round], and maybe the other companies did the same, which maybe was not the right strategy.”

Even before the latest bids were submitted, senior IOC executives had complained to MEED that the contract terms were little altered from those on offer in 2008.

With widespread uncertainty over the level of growth in major economies in the year ahead, it was difficult to reconcile the returns on offer with the risks involved, the head of the Algeria office of one IOC tells MEED. “I think everyone is in the same situation, wondering what is happening with the economy,” he says.

The winners of the new licences declined to comment on the terms they had agreed to during the auction. One senior IOC executive describes competing with CNOOC in particular as “impossible”.

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