Ipic emerges as the sole winner

Ipic emerges as the sole winner in Algeria, a country with huge potential for development, but analysts critical of the nation's failure to attract investors

A drilling rig towers above the dunes of the Sahara in Algeria.

The Abu Dhabi Government-owned International Petroleum Investment Company (Ipic) has emerged as the sole foreign winner of an Algerian oil and gas licence in that country's latest bidding round, through its nearly completed takeover of the Spanish petroleum company Cepsa.
Last week Cepsa won a contract in the Rhourde Rouni area of eastern Algeria's Berkine basin in the Sahara, in which Russia's Gazprom last year discovered oil and gas.
The Rhourde Rouni contract was the only one in the licensing round to attract multiple bids, according to Al Naft, the Algerian national hydrocarbon resources agency. Cepsa beat rival offers from Oman's Petrogas and the Malaysian state-owned Petronas to find and develop oil and gas resources in the licence area.
The only other contract awarded in the bidding round for 10 oil and gas permits went to the Algerian state energy firm Sonatrach, which won the licence for the Rhourde Fares area of the Berkine basin.
The other eight contracts on offer attracted no bids, leading analysts to declare the auction a failure.
"Algeria's ninth licensing round appears to have crowned a slew of unsuccessful rounds with an almost shockingly bad result, attracting only one winning bid from a foreign investor and seeing state-owned Sonatrach intervene to make sure that at least two projects move forward," said Samuel Ciszuk, the senior energy analyst for the Mena region at IHS Global Insight. "There is little scope . for glossing over Algeria's almost complete failure to attract new foreign upstream investment."
Sonatrach, which by Algerian law must be a partner in all oil and gas development projects in the North African country, decided to bid for Rhourde Fares "because there are interesting things in this block", its chief executive Nourredine Cherouati told Reuters. He said the company's decision to bid on the uncontested block sent "a strong signal that Sonatrach can compete with other companies".
Few informed observers agreed with that assessment.
"The results of the latest bidding round must surely underline to opponents of change that something radical needs to be done if Algeria is to receive the foreign oil investment it badly needs," the Middle East Economic Survey commented in its latest issue.
"Now political uncertainty can be added to the bureaucratic difficulties, increased geological complexity and higher cost environment issues that were handicapping investment in both Algeria and Libya prior to the outbreak of major unrest in North Africa's two biggest [oil and gas] exporters."
Ipic is one of three Abu Dhabi Government-controlled companies that have been charged with investing in energy projects overseas. Throughout the recent wave of regional political unrest, which began in mid-December, all have stood by their previously established strategies, which include investing in the Mena region.
Last week, Ipic concluded a US$4.4 billion (Dh16.16bn) European bond issue to raise funds for its $4bn purchase of the 53 per cent of Cepsa it did not already own.
International oil companies were turning their backs on Algeria long before the start of the regional uprisings.
The two previous Algerian oil and gas licensing rounds, last year and in 2008, also attracted scant interest from western-based companies. Analysts blamed that on tough contract terms and long bureaucratic delays, as Algeria's government pursued increasingly resource-nationalist policies.
"The radical fall in international oil company interest in investing in Algerian oil and gas projects has meant that the project pace in Algeria has gradually fallen, a situation that the country has further worsened by existing projects being delayed by over a year," Mr Ciszuk said.
"Fluctuations in Algeria's gas output are already worrying, as well as the state of its under-financed and under-maintained midstream [gas] facilities."
Algeria, an Opec member, is the world's fourth-biggest gas exporter and eighth-biggest oil exporter. Most of its gas goes to Europe, by pipeline under the Mediterranean Sea or in tankers as liquefied natural gas.
The country has huge potential for further gas development.
Youcef Yousfi, the Algerian oil minister, has indicated Algeria will soon launch a new licensing round focusing on the country's large shale gas reserves, which he has said could rival those of the US.
Foreign participation will be essential if those resources are to be exploited. Analysts say Sonatrach lacks the technical expertise to tackle them on its own.
 
[e-mail]