Algeria: Sonatrach's latest scandal

On 30 July we reported that Sonatrach’s CEO, Abdelhamid Zerguine, had been sacked and replaced by Said Sahnoun, the former Vice President for Production. Sahnoun will be Sonatrach’s ninth CEO since President Abdelaziz Bouteflika first took office in 1999 and the fifth in the last four years.

Although no reasons have been given for this surprise move, which adds to the reputation of Sonatrach’s management instability, it had been hypothesised that the open conflict between Zerguine and Energy Minister, Youcef Yousfi, over divergent visions for the exploitation of shale gas and the marketing strategy for natural gas in Europe was the primary cause. 

Our sources in Algeria indicate, however, that Zerguine was sacked because he resisted pressure from above to conduct corrupt under-the-counter deals of the kind that gave rise to the “Sonatrach scandal” in 2010.

The key name in this new scandal appears to be Ali Haddad, an extremely wealthy and powerful businessman who is a close friend and associate of the president’s brother, Saïd Bouteflika. Ali Haddad played a key role in financing and thereby ensuring Bouteflika’s re-election for a fourth term in April 2014.  

The price for his support now appears to be that his massive construction company, Groupe ETRHB, is given more Sonatrach contracts.

It is too early to know how foreign IOCs will react to this sudden development.  If it deters them from participating in the current licensing round and Algeria’s much-trumpeted unconventional oil and gas exploration and development, the cost and damage to Algeria will be no less great than the original 2010 scandal.

For a comprehensive analysis of this emerging scandal please refer to Algeria Politics & Security – 01.08.14

New security system for Algeria oil bases

Last week’s return of foreign workers to the Tiguentourine gas facility at In Amenas is based on the implementation of new security measures at Algeria’s oil and gas fields and their various installations. The new measures are reported to cover the four regions: the In Salah-Adrar basin, Hassi R'Mel, Hassi Messaoud and the southeast area encompassing Tiafti and In Amenas.

Our understanding of the new measures is that some 80 oil installations have been linked together in a new early warning preventative warning system. This includes intensive monitoring operations over oil and gas fields by military aircraft, as well as an alarm control system operated by Sonatrach that is triggered in the event of the discovery of any infiltration into 50 and 100 km security perimeters surrounding oil fields and bases. The military presence in areas close to industrial centres, oil and gas fields, and bases that have foreign employees has also been strengthened.

In addition, considerable emphasis has been placed on recruitment, not only at the point of recruitment, but throughout the period of employment and after the departure of the employee. This is because the terrorist attackers at In Amenas are believed to have collected information from former employees at the base.

Other safety procedures will include establishing a national security database that will hold the identity and a detailed biography of all Algerian and foreign workers in the oil companies.

For more news and expert analysis about Algeria, please see Algeria Focus and Algeria Politics & Security.

© 2014 Menas Associates

Algeria awards US$4 billion of power and gas sector contracts

Sonelgaz announced on 19 February the award of contracts worth US$4 billion to South Korean and Spanish companies to build six power plants with a combined capacity of 1,200-1,600 MW. The contracts were awarded to three South Korean enterprises - a partnership of Hyundai Engineering and Daewoo International; Samsung and GS/Daelim; and Spain's Duro Felguera. 

The US$1.37 billion contract with the South Korean consortium is to build two power plants for Sonelgaz’s Société Algerienne de Production de l'Electricité (SPE) subsidiary in Biskra and Jijel wilayas. Construction is expected to be completed 39 months. 

Samsung C&T Corp said on February 20 that it had won two orders worth a combined US$1.37 billion to build two power plants for SPE in Mostaganem and Naama wilayas, worth US$763.64 million and US$608.89 million, respectively. Both contracts are expected to be completed by August 2017. 

Samsung has also been awarded a contract worth US$800 million by the Groupement Timimoun (GTIM) - a joint venture between Sonatrach (51%), Total (37.75%) and CEPSA (11.25%) – for the construction of a central processing facility and related pipelines for the Timimoun gas field in south-west Algeria. The turnkey project, to be completed by April 2017 calls for Samsung Engineering to draw up the plans, handle procurement, carry out construction, and conduct a trial run. 

Details of the Duro Felguera contact have not yet been released. It is therefore unclear whether this is the same contract awarded to the company in December for the construction of a combined cycle plant in Djelfa, or a new contract.

For more news and expert analysis about Algeria, please see Algeria Focus and Algeria Politics & Security.

© 2014 Menas Associates

Algeria: Sonatrach exercises pre-emption rights in Petroceltic's farm-out

Petroceltic confirmed on 7 October that it has received formal notification that Sonatrach is exercising its rights under the Isarene Production-Sharing Contract ("PSC") to pre-empt the Company's proposed sale of an 18.375% interest in the PSC.

The commercial terms and proceeds of pre-emption are similar to those agreed between the Company and a potential third party purchaser and comprise a US$20 million payment on completion, a US$140 million development and two contingent payments of US$10 million each based on the achievement of certain early production and technical completion milestones. Following the completion of the transaction, Sonatrach will hold a 43.375% participating interest, Petroceltic will hold 38.25% and Enel will hold the remaining 18.375%.
 

Petroceltic CEO Brian O'Cathain said: "The decision by Sonatrach to exercise its pre-emptive right is a clear indication of the current value and long-term upside potential of the Isarene asset. Since 2005, Petroceltic has enjoyed an excellent relationship with Sonatrach and we believe that this decision represents a positive endorsement of the technical, commercial and development work undertaken over the last nine years. Sonatrach's decision to pre-empt confirms that the timely development of the Ain Tsila field is strategically important to Algeria and we look forward to working together to achieve this shared objective."
 

Sonatrach and Petroceltic are currently working to finalise all the necessary regulatory approvals to facilitate the signing of the amendment to the PSC. Petroceltic said further announcements will be made as appropriate.
 

For more news and expert analysis about Algeria, please see Algeria Focus and Algeria Politics & Security.
 

© 2013 Menas Associates

Algeria: Orascom reaches agreement on Sorfert dispute

After several years when Algeria's relationships with its actual and potential joint-venture partners in the petrochemicals sector have been strained, a deal between Sonatrach and Egypt's Orascom Construction Industries (OCI) suggests that some progress may still be possible – but the political impediments are still daunting.

On 27 May, the companies, which are jointventure partners in the 2 million tonne/year Sorfert Algérie greenfield nitrogen fertiliser complex, signed an amendment to the shareholders' agreement which OCI said had agreed “mutually beneficial arrangements, which will allow for the earliest possible start of production and commercial activities of the company”.

OCI chief executive Nassef Sawiris described the agreement as a “milestone”. There are good economic and financial reasons to allow the project to go forward and the plant to start producing as it has mostly been financed by Algerian banks and the terms of the loans are not being met.

For more news and expert analysis about Algeria, please see Algeria Focus and Algeria Politics & Security.

© 2013 Menas Associates

Algeria: Sonatrach may take stake in Mozambique gas assets

 

Sonatrach's CEO Abdelhamid Zerguine was quoted by APS on 30 April as saying that Sonatrach is in talks to farm into Mozambique's offshore gas projects operated by Eni and Anadarko.

Anadarko, which has been in Algeria since the 1980s, is the largest foreign operator there, operating three oil and gas production sites, with production approaching some 350,000 b/d. It has recently been responsible for discovering one of the world's largest gas finds in Mozambique's Offshore Area 1 of the Rovuma basin. The discovery is likely to transform the economic prospects of Mozambique and Southern Africa.

Zerguine was speaking after signing a Memorandum of Understanding with the head of Mozambique's Empresa Nacional de Hidrocarbonets (ENH), Nelson Ocuane. He said Sonatrach was interested in buying part of a minority stake held by ENH in the offshore gas fields. “We want to have a place, but on the Mozambican side,” he said.

Zerguine did not give details of the size of stake Sonatrach was seeking to acquire, but said a 5% holding would cost it around US$1 billion. The memorandum also opened the way for Sonatrach to acquire exploration blocks in Mozambique.

For more news and expert analysis about Algeria, please see Algeria Focus and Algeria Politics & Security.

© 2013 Menas Associates

Algeria: El Merk 'mega project'

Following the announcement of the settlement of its tax dispute Anadarko issued a statement, ahead of its investor conference last week, saying that the El Merk mega project, in which Anadarko is the leading foreign shareholder, is approximately 90 per cent complete and expected production of significant volumes by the end of this year. The El Merk in the Berkine Basin is approximately 300 kms south-east of Hassi Messaoud. It was established to design and construct the surface facilities required for the exploitation of hydrocarbon liquid reserves of six reservoirs in Blocks 208, 405a and 212. It will also accommodate the processing of additional fluids from the Sonatrach/Anadarko and Sonatrach/Eni existing HBNS/HBN facilities (Block 403a/404a), approximately 80 Km north of the proposed El Merk development.

The US$4 billion El Merk Oil Field Development project is under the management of the Groupement Berkine whose shareholders are Sonatrach (37.70%), Anadarko (18.10 %), ConocoPhillips (16.90%), Maersk (9.10%), Eni (9.10%) and Talisman (9.10%) A considerable number of other foreign companies are involved in various aspects of the massive project. These include Petrofac for the central processing facilities; the ABB/SARPI/Petrojet consortium for the support networks; Kahrif for the transmission lines; and Siemens (for the armoured post package. The original design contract was awarded to KBR in 2006.

For more news and expert analysis about Algeria, please see Algeria Focus and Algeria Politics & Security.

© 2012 Menas Associates

Algeria: Survey reveals Sonatrach disatisfaction

In May, Sonatrach PDG Nordine Cherouati ordered a survey of the social climate within Sonatrach which discovered a general malaise in some 20 industrial centres around the whole country. The 50-page document describes “anger” and “general discontent” which it said was more to do with “a long term bad situation” rather than any specific problem of the moment. It blamed the company's management for neglecting the “human factor” so that “kindness and consideration have given place to a tense and stressful environment”. The authors of the report described encounters with “people bullied and suffering from injustices who deplored the lack of any dynamism and momentum to unite their efforts and to stimulate them”.

Sonatrach workers are, of course, oppressed by the high cost of living combined with low salaries and uncertain bonuses and other benefits. Other grievances include poor working conditions, with a lack of spare parts and necessary tools. The health and safety regime is inadequate; protective equipment and safety standards are not in place. Much of this is blamed on centralised and outdated management and a tendering process which favours the very lowest offers.

Another structural inadequacy brought out by the report is the control which the Union Générale des Travailleurs Algériens (UGTA) national trade union has over decisions and social life within the company, which it says has only “fosterered subjectivism and non-professionalism.”

The precise meaning of this criticism is hard to define. However, it appears to be related to the fact that the UGTA is less a channel for expression of genuine workers' demands as a mechanism to help management keep the workforce in check. Cherouati's survey has landed him with a list of demands. Workers want the system of remuneration introduced in 2008 to be scrapped, base salaries to be increased and bonuses and allowances to be reorganised. Other demands include reforms to promotion schemes, retirement allowances, healthcare and training.

For more news and expert analysis about Algeria, please see Algeria Focus and Algeria Politics & Security.

© 2011 Menas Associates

Sonatrach's former CEO Mohamed Meziane jailed

Sonatrach's former CEO, Mohamed Meziane, has been sentenced to two years in prison - one of which was suspended - and ordered to pay a fine of around $7,000, for embezzlement of public funds. Meziane was suspended from his job in January 2010 while being investigated for corruption.

Several other top Sonatrach officials were also investigated and later fired along with Meziane. Four other defendants in the case, including Abdelhafid Feghouli, Benamar Touati, Mekki Henni and Nechnech Tidjini, were also sentenced to one year in jail. All five men pleaded innocence.

Meziane was appointed in September 2003 to oversee the running of Algeria's biggest firm which employs 125,000 people and has reportedly made $9.2 billion profit in 2008 for an annual turnover of $80.8 billion.

The ruling came amid rising unrest over lack of progress with reforms as promised by Algeria's President Abdelaziz Bouteflika.

Sources: WSJ, AFP, Bloomberg, Reuters

For more news and expert analysis about Algeria, please see Algeria Focus and Algeria Politics & Security.

Algeria: Development contracts progress slowly

On 3rd February, the Algerian Council of Ministers reviewed a host of measures related both to the recent unrest in the country and also to economic development. Among dozens of other decisions, the approval of four presidential decrees on oil and gas exploration inched forwards developments in the strategic south west and in the Berkine Basin. Amendments were approved for contracts governing BG Group's Hassi Bahamou permit, Repsol's Reggane and for a development at Rhourde Messaoud Nord involving Eni. Six of Sonatrach's own exploration deals also got the go-ahead.

An amendment to Sonatrach's July 2002 agreement with Repsol and its partners to develop the Reggane field has confirmed the balance of shareholdings in the joint venture. Sonatrach holds 40 per cent, Repsol YPF 29.25 per cent, RWE Dea 19.5 per cent and Edison International 11.25 per cent. The partners have been awaiting approval of this development for more than a year.

BG Group's contract with Sonatrach for exploration and development of the Hassi BaHamou perimeter has also been amended to extend its exploration period until 2012. BG North Sea Holdings is also awaiting approval of its February 2010 deal to buy its partner Gulf Keystone Petroleum's 38.35 per cent interest in permit for $9.9 million, giving BG a 75.1 per cent stake.

A third decision approved a minority stake for Eni Algeria Exploration in the Rhourde Messaoud Nord perimeter through an amendment to a July 2009 agreement between Sonatrach and Alnaft). According to Eni, it signed a framework agreement with Sonatrach in 2008 “setting out the common contractual ground” and extending the duration of the Rhourde Messaoud development licence and one other for a further 10 years. No details were released about Sonatrach's six exploration contracts agreed with Alnaft in June 2010, which have also now been approved.

For more news and expert analysis about Algeria, please see Algeria Focus and Algeria Politics & Security.

© 2011 Menas Associates

Algeria to intensify oil and gas exploration efforts

Algeria's Energy Minister Youcef Yousfi has said that the country will intensify its oil and gas exploration efforts in order to increase its hydrocarbon reserves and "guarantee the country's energy security in the very long term”.

"The Permanent Mission of our industry is to ensure the country's energy security in the very long term and ensure sufficient revenue for its development," said Yousfi in an interview. The minister added that Algeria, whose economy derives around 98 per cent of its revenue from oil, will also increase "its national capacity of oil and oilfield services."

Yousfi said that despite the current downturn in oil and gas markets, Sonatrach maintains its long-term investments plans. The state-owned company intends to invest around $63 billion to expand its capacity for gas exports.

Presently, Algeria supplies the EU with 12 per cent of its natural gas via two pipelines in Italy and Spain. A third pipeline is to be commissioned shortly and will be expected to deliver around 8 billion cubic metres of gas to various European destinations. Yousfi concluded by saying that Algerian gas exports are expected to reach approximately 100 billion cubic metres by 2015.

Source: Ennahar Online

For more news and expert analysis about Algeria please see Algeria Focus and Algeria Politics & Security.

Algeria: More flexibility promised as licensing round opens

Nearly 80 companies have prequalified in terms of financial resources and technical aptitude for the forthcoming licensing round. Agence Nationale pour la Valorisation des Ressources en Hydrocarbures (Alnaft) received three new demands for prequalification.

In total 45 companies took part in the opening meeting of the round at the Hotel Sheraton in Algiers in late September. Energy and mines minister Youcef Yousfi set an optimistic tone at the meeting. He said the process of discussion with Sonatrach's partners had “permitted the identification of a certain number of points which could be improved” in the licensing round procedures.

Several suggestions from IOCs had been adopted, for example the selection of areas to be included in the round, he added, encouraging interested companies to maintain the process of dialogue which he said was fundamental to Sonatrach's relationship with its partners.

For more news and expert analysis about Algeria please see Algeria Focus and Algeria Politics & Security.

© 2010 Menas Associates

Many IOC's unsure whether or not to stay in Libya

Chevron is reported to have indicated its intention to withdraw from Libya at the end of its existing five-year exploration licences. Speaking at a press conference on 2nd October, National Oil Company's (NOC) Exploration Director Haj Fitouri stated that other IOCs who were not expected to extend their stay included Australia's Woodside Petroleum and Abu Dhabi's Liwa Energy.

Among those expected by NOC to remain are Occidental, which has a continuing link as a partner in the Zuetina Oil Company, and also Hess, Petrobrás, Medco Energy, Oil India and Sonatrach. NOC saw the withdrawal of this significant number of major companies as “expected” because no commercial oil had been discovered during their exploration programmes. Head of NOC Dr Shukri Ghanem has been very quick to indicate that Occidental retains an interest and is an NOC partner for the longer term.

While NOC's prognosis of a decline in the overall number of IOCs which will remain in Libya is undoubtedly correct, it is less certain which of the companies will stay and which will remain in some capacity. With the licenses from the first EPSA IV licensing round due to end in the near future – and very little new oil having been found in the past five years - many IOCs will be weighing up their options about whether to extend their licenses, leave the country or remain in the hope of negotiating a separate bilateral deal outside any licensing round. They will obviously be taking other factors into consideration, including their existing world-wide portfolio; more attractive opportunities elsewhere; the very onerous fiscal terms imposed by NOC; the way in which the goal-posts are always being moved by NOC; local content demands; etc.

Given Ghanem's insistence that he is prepared to be flexible when negotiating new terms for the IOCs, it is, therefore, possible that Chevron, which has already downsized its Libyan operation very considerably, will decide to stay and negotiate bilaterally with NOC.

For more news and expert analysis about Libya, please see Libya Focus and Libya Politics & Security.

© 2010 Menas Associates

Algerian press smears 'foreign owned' gold mine

Two vicious and seemingly libellous smears appeared in two of Algeria's leading newspapers on 2nd August, namely El Watan and El Khabar. The subject of the smears was the London-registered company GMA Resources PLC, which owns 52 of ENOR Spa, the Algerian operating company of the Amessmessa-Tirek Gold Mine in Tamanrasset wilaya.

El Watan's headline (02.08.10) exposed what it called 'the shocking hidden side of the GMA-Sonatrach partnership', while El Khabar headlined the fact that the Algerian government was opposing the participation (27 per cent holding in GMA) of Sahara Gold Limited, a subsidiary of the Egyptian-based ASEC Company for Mining (ASCOM) SAE.

Both reports are testimony to the appalling standards of Algeria's media. We will not repeat the libels, merely to say that they gave the impression that the company was under judicial investigation on the instruction of either, or both, the Attorney-General at the Court of Algiers and the DRS; that the company was in breach of various regulations and that these investigations might uncover a whole range of 'shocking' revelations relating to the company's past performance, its relations with Chakib Khalil, Sonatrach and Tassili Airlines; all of which were under investigation for corruption, etc.

Fortunately, we know the companies and the mining operation concerned well and are able to confirm that the two press reports are entirely false. The company directors have also fully rebutted the press reports, confirming that neither GMA nor ENOR has received or been informed by any of the Algerian Mining Agencies of a breach of GMA's licensing arrangements; that both companies maintain good relationships with the Algerian Mining Agencies through their respective compliance with the Algerian mining code; that neither company has been informed of or has had knowledge of the reported investigation(s); and that the information in the El Watan and El Khaber articles has no basis.

The tenor and content of the articles suggested a DRS attack. Indeed, given Mediene's personal financial interests in both the oil and gas sector and gold prospecting, the conclusion that might be drawn from the articles was that the DRS was using the new 'Soviet-style' economic regulations to get its hands on the mine.

However, if either Mediène or the DRS, or another party was wanting to acquire the gold mine, rather like the analogy with the General's nephew wanting to expand production at Beni Messous (above), there are easier, more straightforward and probably cheaper (in the long run) ways of doing it – like buying GMA shares on the open market!

So, if the articles were not the customary DRS smear, what were they about? From our enquiries, it appears that the two newspapers were being used to manipulate the company's market share price. Within a matter of hours of the press articles becoming available, about two per cent of GMA's shares were traded on London's AIM market. That is a significant number considering that there had been scarcely any trades of GMA shares in the preceding two months! We do not yet know who was buying.

For more news and expert analysis about Algeria please see Algeria Focus, Sahara Focus and Algeria Politics & Security.

© 2010 Menas Associates