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Algeria: Navigating in Sonatrach’s Gravity

02.02.2016 / Energyboardroom

Sonatrach dominates Algeria’s hydrocarbon sector, owning roughly 80 percent of all hydrocarbons production and over 90 percent of the country’s natural gas supply, as well as all refining and fuels distribution activities. By law, Sonatrach is afforded majority ownership of all oil and natural gas projects in Algeria. Sonatrach also has an extensive number of subsidiaries, which operate in a number of different areas across the value chain. “As an NOC, we already have a good reputation internationally and the task will be to use those solid foundations as a launch pad to attain new heights,” the company emphasizes. Sonatrach has launched an ambitious USD 90 billion investment plan to plug the gaps in its upstream and downstream capabilities: USD 50 billion has been earmarked for upstream exploration and development, with USD 10 billion set aside for investment in new refineries.

“The bulk of this spending will actually take place over the first three years of the investment plan: USD 15.5 billion allocated for 2015, USD 22 billion for 2016 and USD 23 billion for 2017,” the company explains. “A significant portion of these funds will also be channeled towards upstream development. With expenditure on exploration kept above USD 3 billion per year, our expectation is to drill an average of 125 exploration wells per year. This year, we are proud to say that we managed to cross that frontier for the first time in Sonatrach’s history and we now enjoy the highest concentration of rigs ever: some 93 rigs in total shared between our exploration and development activities.”

“It has been a huge learning experience for us in Algeria. There have been many obstacles during this first year that we’ve had to overcome” – Eko Rukmono, Pertamina Algeria

In order to complete this ambitious investment plan, Sonatrach will rely on its own capital, not borrowing a penny from international markets and only taking a small percentage of the total investment from foreign partners. “USD 11 billion of the overall USD 90 billion investment plan will be sourced from our international partners,” explains a representative from the management. “The rest will come from both our own coffers and alternative domestic financing channels.” IOC involvement in Algeria is extensive, and although changes in the contracting system over the 2000s decreased investor appetite a little, there is still very strong support for the country from a wide range of players under the current contracting system. “Statoil doesn’t see any problems with the 51/49 split,” says Statoil’s Viken. “We believe it’s possible to make good business in the country under the administrative and legal frameworks in force and that’s why we’ve been scaling up our activities. The Algerian state has the right to redistribute the wealth accrued from natural resource endowments in local business and we respect that approach. It is important to be reinvesting the proceeds of oil and gas growth back into the local communities.”

Pertamina, Indonesia’s NOC, is new in Algeria, having purchased the assets of ConocoPhillips in 2014. The move came as part of the NOC’s recent drive to diversify its asset base outside of Indonesia, and was the company’s first asset purchase in Africa or the Middle East. “It has been a huge learning experience for us in Algeria. There have been many obstacles during this first year that we’ve had to overcome,” says Eko Rukmono, VP of operations for Pertamina and country manager for the company in Algeria. “With the support of Sonatrach we have learned a lot and we know much better how to go about projects such as this. Our projects in Indonesia and Algeria are not very similar so we’ve had to overcome this in order to be successful in Algeria. This year, we successfully passed the critical transition period of the first year, handing over from ConocoPhillips to Pertamina.”

Adapting to local ways of doing business can also be a precursor to a shift in strategy. The demand for distribution transformers was growing and our prices were not competitive,” explains Tarek El Gani, country managing director of ABB Algeria. “Therefore we decided to build a factory for producing distribution transformers to be competitive and provide fast delivery times. Besides this, the government is trying to reduce imports and reinforce their investment in industry. Algeria trends towards national tenders for products where local OEMs exist, such as DTR, to motivate foreign companies to invest in Algeria and support local companies. Before coming here, I was the general manager for the Gulf region for the low voltage products division, where we made significant growth. Having prior experience in corporate strategies for product sales go-to-market, I was moved here to see how to further develop the business in our product divisions.”

Click here to read more articles and interviews from Algeria, and to download the latest free oil and gas report on the country. 

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