Algeria is aggressively courting foreign investment in its upstream sector to support ambitious targets for oil and gas exports through the turn of the century.
Algeria hopes to maintain its hydrocarbon exports through the medium term at about 1.7 million bbl of oil equivalent (BOE)/day and increase that to 2.4 BOE/day by 2000.
Underpinning those goals are efforts to boost recovery of liquids from existing wet gas fields, further development and enhanced recovery programs in existing oil and gas fields, and exploration for new oil and gas fields.
Critical to those efforts is the role of foreign oil and gas companies. Algeria urgently needs an infusion of capital and technology if it is to sustain current levels of oil and gas exports, much less meet ambitious production targets.
Algeria, has recently undertaken controversial economic reform efforts designed to improve the climate for foreign investment in its petroleum sector.
The government at yearend 1991 announced a new hydrocarbon law designed to spur exploration, development, and enhanced recovery activity in Algeria.
Undeterred by political turmoil in Algeria earlier this year, foreign companies participated in an international tender on development and EOR projects in the North African nation (OGJ, Apr. 20, p. 38).
In addition, Algeria's government has implemented new exploration incentives with an eye to signing as many as 100 production sharing contracts (PSCs). And the government plans to offer foreign companies the right to share in natural gas discoveries previously reserved for state owned petroleum company Sonatrach.
Sonatrach also plans to speed procedures for acquiring new acreage with a new bidding system. The state company recently announced its first international onshore exploration licensing round, with first bids due Nov. 30 (OGJ, Aug. 17, p. 100).
It raised the stakes for foreign investors earlier this month when it announced plans to offer foreign companies pursuing field development/EOR projects in Algeria an equity stake in some of those fields.
PETROLEUM SECTOR CROSSROADS
Former Algerian Minister of Energy Nordine Ait-Laoussine recently noted his country's petroleum sector is at an historic crossroads.
In a talk at a Madrid conference earlier this year, he cited projections of explosive growth in European gas demand, particularly in southern and eastern Europe. Ait-Laoussine also noted Algeria is nearing a point of having committed as much gas as it can prudently contract to supply with the existing infrastructure.
"I want to make it clear that Algeria does not intend this time to miss this historic opportunity," he said. "Our ambition is to become western Europe's major gas supplier.
"We have demonstrated this commitment by our decision to expand and perhaps double the capacity of the Trans-Mediterranean pipeline and by our deep involvement in the Trans-Maghreb pipeline. This, together with our plans to refurbish existing underutilized liquefied natural gas capacity, demonstrates our strong determination to plan a leading role in meeting the challenge of supplying Europe's growing appetite for natural gas."
NEW INCENTIVES
Algeria is negotiating bids on development/EOR projects covering 10 oil fields with 15 companies, among them firms from Canada, France, Italy, Japan, and the U.S.
Initially, Sonatrach offered participation only in the form of production sharing terms. Under a first round of talks, the foreign companies proposed simpler, less costly projects that could be implemented more quickly than the 15-20 year programs Sonatrach had envisioned.
Sonatrach then offered the companies the option of entering into partnerships by taking equity interests of as much as 49% in the fields, with the state company retaining the majority interest.
Ait-Laoussine's successor, current Energy Minister Hacene Mefti, expects the first agreements to be concluded by yearend.
Current capacity in Algeria's 10 producing oil fields is 800,000 b/d. Plans call for boosting that output by 25% at first and a further 25% later, with start-up of incremental production occurring within 4 years.
Following that will be a second round of bidding covering 10 smaller fields and a third round covering marginal fields undeveloped or shut in after the 1986 oil price collapse.
OIL POTENTIAL
Algeria plans to boost its oil productive capacity by 50% by 2000.
Remaining crude oil reserves currently under development total 5.11 billion bbl, offering a reserves life of 20 years at current production rates. With available technology and current oil prices, Sonatrach estimates additional proved reserves at 3.3 billion bbl, adding 12 years to Algeria's oil reserves life.
If oil prices rise, that estimate would increase by 1.64 billion bbl, Sonatrach Deputy General Manager Mustapha K. Faid told a symposium in Paris held earlier this year by the Franco-Arab Chamber of Commerce and the Arab Petroleum Research Center.
Faid estimated Algeria's total hydrocarbon reserves at 30.66 billion bbl of oil equivalent (BOE), with natural gas accounting for 69%, crude oil 17%, condensate 10%, and natural gas liquids 4%.
FOUR PRIORITIES
Faid noted the Algerian government has outlined these priorities in the petroleum sector:
- Accelerating exploration work.
- Improving recovery and increasing production in fields currently under development.
- Proceeding with development of marginal and/or other undeveloped fields.
- Increasing natural gas export capacities.
Algeria in 1991 produced 1.17 billion BOE of hydrocarbons, broken out as 64% natural gas, 21% oil, 12% condensate, and 3% NGL. That production occurred under the aegis of 19 contracts with foreign companies that cover only 170,000 sq km, or 11%, of the total prospective acreage in Algeria.
NEED FOR FOREIGN PARTNERS
Sonatrach, drills on average only about 15% of the wells required each year to replace production.
That has led to the state company kicking off the international tender for projects to boost production and sweetening terms to hike exploration spending by foreign companies.
Before the offer of equity stakes was made, Sonatrach planned to form production sharing agreements with foreign companies, requiring a "right of access" payment to finance EOR/drilling investments.
Foreign companies also would be given a share of incremental production from investments made or projected by Sonatrach in exchange for a cash bonus.
Faid said other bids involving other fields are being prepared and soon will be announced.
The tender process would result in more than 80% of Algeria's proved reserves being developed under such partnerships, he said.
WHAT'S INVOLVED
Bidding on EOR projects covers an initial 10 fields, including giant Hassi Messaoud oil field.
Development of nonproducing fields includes a string of gas fields southeast of supergiant Hassi R'Mel gas field.
Sonatrach's goals are to:
- Sustain liquids exports by boosting recovery of condensate and NGL in wet gas fields to help offset declining crude oil production.
- Meet longer term increasing demand for natural gas exports.
- Balance total gas production to reduce reliance on Hassi R'Mel, the main source of Algeria's gas exports.
Sonatrach estimates incremental production from the foreign partnership projects in 1995-2010 at 584 million bbl of condensate, 620.5 million bbl of NGL, and 8.6 tcf of natural gas.
It estimates capital investment for the partnership projects at $5 billion, of which foreign exchange would account for 60%.
Faid said the partnerships would have to be formed in the framework of forward NGL and condensate sales contracts. Sonatrach has implemented such a formula with France's Total in developing Hamra field.
Some development projects also could proceed strictly under traditional PSCs currently under discussion with a number of companies.
Excepting Hassi R'Mel, all natural gas fields will be developed in association with foreign partners.
PRODUCTION, EXPORTS
Algeria is focusing on increased production of gas and liquids and an expanded gas export capacity to continue its trend toward growing hydrocarbon exports.
Last year total exports of hydrocarbons exceeded 1.68 million BOE/day, up 2% from 1990's level and valued at $12 billion. Those exports broke out as condensate 23%, LNG 22%, refined products, crude oil, and pipeline natural gas each about 16%, and NGL about 6%.
Sonatrach estimates hydrocarbon exports this year at 1.7 million BOE/ day.
Implementing EOR projects in oil fields and boosting recovery of condensate and NGL would enable Algeria to meet its goal of having sustainable oil productive capacity of 1.2 million b/d.
At the same time, Algeria is expanding its gas export capacity in LNG and pipeline operations.
With the revamp of the Arzew and Skikda liquefaction units, LNG capacity is expected to jump to 2.97 bcfd after 1995 from the current 1.9 bcfd.
The Transmed pipeline, which supplies Tunisia, Italy, and Slovenia, will see its capacity boosted to 2.3 bcfd from 1.5 bcfd as early as 1995. With addition of one to three compression units, that capacity could reach as much as 2.9 bcfd.
The West Maghreb/Europe gas line, intended to link Hassi R'Mel to Seville in Spain through Morocco and the Straits of Gibraltar, is scheduled for completion by yearend 1995. Its first stage capacity will be 767 MMcfd. If demand materializes as projected, plans call for a second stage capacity of 1.5 bcfd with deliveries north of the Pyrenees by the end of the decade.
Spain, Algeria, and Morocco agreed to the $1.5 billion first phase earlier this year (OGJ, June 1, p. 38).
Planned expansions call for a minimum export supply commitment of more than 5.75 bcfd, Faid pointed out. To date, Algeria has signed supply contracts covering 5.37 bcfd for the second half of the decade, with 53% via pipeline and the balance via LNG exports.
Underlying the expansion push, said Faid, is increased demand from existing markets in France, Italy, and Spain and from newcomers to the regional gas market in Turkey, Greece, Portugal, and Morocco, expansion of the region's gas pipeline infrastructure, and the need to diversify markets. After 1995, Algeria's gas customers will total 14 in 11 countries.
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