Algeria's Political Turmoil Casts Doubt on Oil and Gas Deals
March 18 2019 - 8:48AM
Dow Jones News
By Benoit Faucon
A contentious political transition in Algeria is creating
uncertainty around a number of foreign investment deals in Africa's
largest natural gas-producing country.
In recent weeks, Exxon Mobil Corp. has held off on signing a
preliminary deal with Algeria's state-run Sonatrach, and companies
including BP PLC and Norway's Equinor ASA have expressed concern
about how Algeria's political turmoil might affect oil and gas
production.
Algeria relies heavily on oil and gas production and needs an
infusion of outside investment to reverse the production declines
that have resulted from punitive contractual terms and heavy
bureaucracy. Betting on tax incentives and pledges of reform from
the administration of longtime President Abdelaziz Bouteflika,
companies including Exxon Mobil, Anadarko Petroleum Corp. and
Italy's Eni SpA are in talks to sign agreements that tap the
country's reserves of shale gas, the third-largest outside the
U.S.
But after a 20-year rule, the 82-year-old president has agreed
not to stand for re-election in Algeria's next presidential
contest. The head of state has also postponed the date of the
contest indefinitely, sparking accusations from the opposition that
he and his backers intend to cling in power without electoral
challenge. Protesters had been pushing for a new leader independent
from Mr. Bouteflika's influence and are now seeking a loosening of
media restrictions to ensure that presidential elections are free
and fair. The government has yet to reach an understanding with the
opposition about the timing of the next elections, and they haven't
agreed on a possible successor.
Amid the uncertainty, many foreign investors have delayed their
commitments to new investment. Exxon Mobil was close to clinching
an early shale exploration deal in Algeria with Sonatrach, but the
U.S. oil giant didn't sign a preliminary agreement as planned when
they met with Sonatrach officials in Houston about a week ago,
according to an Algerian oil official and another person familiar
with the discussions.
A spokeswoman for Exxon Mobil and a Sonatrach press official
declined to comment.
The U.S. oil giant has been looking at the sprawling Tinrhert
oil-field complex in southeastern Algeria, where the government
wants 128 wells to be drilled, the Sonatrach official said.
The negotiations are making good progress, Sonatrach Chief
Executive Abdelmoumen Ould Kaddour told state news agency APS last
week.
Another Western exploration and production company that was
supposed to travel to Algeria to renegotiate the terms of its
contacts early March canceled the trip, citing security risks amid
the protests, according to a consultant working with that
company.
Sonatrach has stepped up efforts to lock down deals amid the
uncertainty. On Wednesday, a joint-venture it operates with the
U.K.'s Petroceltic International PLC and Italy's Enel SpA awarded a
$1 billion engineering contract to develop a natural-gas project in
southeastern Algeria. The deal had been delayed for months because
of differences over the contractual terms, according to a person
familiar with the deal.
In recent weeks, Sonatrach has also begun talks with Chevron
Corp. to develop Algerian oil and gas fields, the company said.
Chevron "continues to be interested in pursuing opportunities that
meet (its) investment criteria," a spokesman for the U.S. company
said.
Energy majors, including BP and Equinor, have asked consultants
about the possibility of disruptions at their production facilities
and sought insight into whether Mr. Bouteflika's reforms aimed at
easing energy investment might be delayed or abandoned, according
to people familiar with the matter.
A spokeswoman for BP declined to comment and an Equinor
spokesman said the company always reviews political situations in
countries where it operates.
Algeria's crude production capacity has declined by 400,000
barrels a day in the past decade, following years of mismanagement,
according to foreign companies and Sonatrach managers. Many energy
investors worry that Algeria's oil production of about 1 million
barrels a day could diminish significantly after strikes aimed at
forcing Mr. Bouteflika out of power spread to Sonatrach.
Opposition politicians and oil-industry employees are ruling out
that option. They say it would hurt Algeria's main source of
revenue. "Petroleum is the wealth of the people," said Sonatrach
trade-unionist Abdellah Medjkane.
The political uncertainty surrounding Algeria's president also
casts doubt on the chief executive of the state oil company.
President Bouteflika appointed Mr. Kaddour as Sonatrach's CEO in
2017, hoping to revive the company's flagging fortunes. The CEO has
set up a restructuring and investment program that promised $67
billion of additional revenue, thanks to cost savings and boosted
output over the next decade.
Mr. Kaddour is so closely tied to the Bouteflika presidency that
he would likely be forced out in the case of change of
administration, said an official at the company and consultants who
work with oil companies in the country. That would complicate
matters for foreign investors seeking attractive contractual terms
while trying to navigate the country's arcane power circles.
"Sonatrach is the State and the State is Sonatrach," said Denis
Florin, of Lavoisier Conseil, a management consulting firm that
advises French companies in the Middle East. "We are entering a
period of uncertainty in the decision-making networks."
A rising assertiveness of civic movements could impact shale
projects, which use hydraulic fracturing to draw oil and gas out of
the ground. Protesters have called the projects as environmentally
damaging. They also have complained that the country's oil and gas
revenue trickles down in a way that rewards the richest citizens
and the poorest get less, said Sofiane Djilali, the coordinator of
protest movement Mouwatana. "The current system is opaque and feeds
a carnivorous administration."
He said the oil sector would be run more transparently if the
opposition takes over.
Write to Benoit Faucon at benoit.faucon@wsj.com
(END) Dow Jones Newswires
March 18, 2019 08:33 ET (12:33 GMT)
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