Algeria & Libya must soften energy terms-industry

Algeria and Libya must improve the terms they offer international energy companies or risk them taking their capital and expertise elsewhere, industry executives operating in North Africa said on Wednesday.

Algeria and Libya tightened the terms on production and exploration contracts they offer to foreign majors when oil prices were high, but these look less attractive now that world prices are half the level they were at their peak last year.

"In the next two or three years we are going to see companies moving away to other areas," if the terms on offer in North Africa are not improved, said Felix Castaneda, Libya General Manager for Spain's Respol.

"If the oil price goes up to $140 that is a different matter. We are talking about the current market conditions," he told an Energy Exchange North Africa Oil and Gas summit in the Tunisian capital.

In Algeria, the world's fourth biggest gas exporter, a 2006 law gave state energy firm Sonatrach a minimum 51 percent in every oil and gas exploration contract awarded to foreign companies. Taxes levied on foreign firms have also gone up.
Libya, home to Africa's biggest proven oil reserves, has negotiated tough terms with foreign oil majors, including large bonuses.

"We will certainly complete and fulfil what we have on our plate," said Arno Dettlinger, vice president for North-West Europe, North Africa and Latin America with the Exploration and Production arm of OMV , which has projects in Libya.
"But ... on new ventures everything has to be evaluated on its merits," he told the conference.

"Very certainly no more kind of gold rush sentiment in our company and these days I think we would be very critically looking at any new opportunity under those circumstances."

Italy's ENI, which has major projects in both Algeria and Libya, was slightly more bullish.

"This situation has to be evaluated, each and every agreement on its own merit," said Abdurahman Benyezza, the company's vice president for Algeria, Tunisia, Mali and Morocco.

"For the time being we are maintaining our business plans and we are not planning to do anything drastic," he said.

ALGERIA'S GAS

Algeria faces particular challenges because it is committed to increasing gas production to supply new pipeline capacity to Europe in the next few years.
European Union states are looking to Algeria as one way of reducing reliance on gas supplies from Russia following this year's dispute between Moscow and Kiev which disrupted supplies.

In Algeria's last licensing round in December only four out of 11 contract areas were awarded because of slack interest from international companies. A fresh round has been launched, but would-be bidders say the fiscal terms are unchanged.
"We see little reason that this round will be any more successful than the previous," said Craig McMahon, Middle East and North Africa lead analyst with consultancy Wood Mackenzie.

"The current strategy is not promoting exploration, and without a change is likely to lead to a shortfall in new projects by 2015," he said.

He said the global financial crisis and the fall in oil prices had made international energy companies more selective about where and how they invest their capital. "In this environment, maintaining the attention of investors is key."

Source: Reuters