WATCHING THE WORLD BP wins Algerian gas megadeal

Dec. 25, 1995
With David Knott from London BP Exploration Operating Co. Ltd. expects soon to sign a groundbreaking deal to develop gas fields in Algeria. BP agreed with Algerian state firm Sonatrach on a $3.5 billion development of discoveries in the Sahara Desert, 1,200 km south of Algiers. The deal involves exploration and potential development of the 25,000 sq km In Salah sector of District 3. Sonatrach found 40 gas reservoirs in District 3 during the 1950s, when about 100 wells were drilled.

BP Exploration Operating Co. Ltd. expects soon to sign a groundbreaking deal to develop gas fields in Algeria.

BP agreed with Algerian state firm Sonatrach on a $3.5 billion development of discoveries in the Sahara Desert, 1,200 km south of Algiers.

The deal involves exploration and potential development of the 25,000 sq km In Salah sector of District 3. Sonatrach found 40 gas reservoirs in District 3 during the 1950s, when about 100 wells were drilled.

The discoveries were not developed because Sonatrach found supergiant Hassi RMel field 520 km to the north during the 1970s, with reserves estimated at 1 billion bbl of oil and 90 tcf of gas.

Seven significant gas discoveries have been made near In Salah. Three lie within the exploration license area, while four are outside but included in the development plan.

BP and Sonatrach reckon the seven existing finds have 5 tcf total gas reserves, while prospects in the In Salah license have been assigned an estimated 5 tcf of total reserves.

Project phases

The first phase of the project will involve a $100 million exploration and appraisal program by BP expected to take 2 years. This will include acquisition of 2D and 3D seismic data and drilling of nine wells.

A development decision is not straightforward. For one thing, the In Salah discoveries are technically challenging, with some of the reservoirs of very poor quality and all quite shallow and covering large areas.

A 5 year development program is expected to call for drilling of about 200 production wells, installation of surface flow lines, and construction of a 48 in. gas export pipeline to Hassi RMel field. First gas is slated for 2002 or 2003.

The development program will be financed 65% by BP and 35% by Sonatrach. Overall profits from the project are expected to accrue one third to BP and two thirds to Sonatrach.

From Hassi RMel, gas is expected to be exported to Italy via the existing Transmed line to the growing markets of Italy, Spain, and Portugal.

The partners expect growth in all sectors of southern Europes gas market, particularly gas fired electrical power generation, and aim to export 350 bcf/year.

Blueprint

While exploration is under way, BP and Sonatrach will get busy on the other vital element for a gas development: lining up customers.

They will do this through a 50-50 gas marketing company, thought to be the worlds first large scale joint venture between an oil major and a state firm.

The development has big benefits for both sides: BPs net production will be comparable to its current North Sea gas output, and Sonatrach will have access to BPs technical expertise andjust as importantits cash.

The deal also may prove to be an oil industry milestone. Algeria is a member of the Organization of Petroleum Exporting Countries, and OPEC countries are cash starved.

Maybe the BP-Sonatrach deal will become a blueprint for future deals between majors and OPEC state firms, enabling development of reserves that OPEC governments find either technically difficult or too costly. Copyright 1995 Oil & Gas Journal. All Rights Reserved.