Kaare Viken – Senior Vice President North Africa & Country Manager Algeria, Statoil
We have had a business in Algeria since 2003. Our first investments were the In Amenas and In Salah dry gas joint ventures with BP and Sonatrach. This has been very successful. The exciting recent news is that we were awarded the Timissit license in the 4th bidding round last year together with Shell. We are looking forward to start the on-the-ground exploration in 2016, and are throughout 2015 preparing for this. Together, our two producing assets and the new exploration acreage are areas where our abilities and priorities are best matched with the Algerian needs set out by Algeria and Sonatrach. In short, this is an exciting and vibrant period in our engagement with Algeria.
From the first of January 2014, Algiers became the head office for the North African region headed by me and includes the Libyan assets. This reflects the strategic thinking of Statoil as to the growing importance and relevance of Algeria.
One aspect that I am very keen to leverage is local competence. I am continually pleasantly surprised by the calibre of expertise in the country and we would do well to utilize that to the full. By maintaining a strong local presence we are able to achieve that. Being present in Algeria allows us a closeness of dialogue and involvement in operations that cannot be achieved from our offices in Norway.
How would you describe your core priorities, achievements and challenges since taking the reins as Statoil’s country manager in March 2013?
My own experience is 20 years in the offshore segment coupled with the responsibility of a refinery in Norway and 5 years at the forefront of technological design and advancement for the sub-sea and marine areas. Coming to Algeria therefore entails a shift of focus as we are dealing with onshore exploration and development. I had already agreed to take on the role prior to the terrorist incident at In Amenas which naturally had massive repercussions for the way IOCs and NOCs conduct oil and gas activities in the country.
Those special circumstances mean I have spent my first two years mainly preoccupied by the re-entry process and the implementation of security enhancements. The seriousness of the matter meant that it wasn’t until 2014 that we actually fully redeployed our expatriate personnel. My other main priority has been to expand and diversify our portfolio. Winning the bid for Timissit block was an important step towards realizing this objective and marks the first stage of what I am convinced is going to be a highly exciting and rewarding journey.
It’s yet to be seen how the lower oil price scenario will affect the oil and gas industry globally, but hopefully it will serve to make us much more efficient. As elsewhere the need for increased efficiency and cost reductions will be focused and felt also here in Algeria.
Algeria has long needed to optimize its exploration and production processes and must embrace tools that will enable the local industry to lower its costs. This is not an atypical situation. Exactly the same can be said for the oil industry’s operations off Norway. Simply put, ways have to be found to increase production while simultaneously cutting waste and inefficiencies. There is, however, ample cause for optimism. The fluctuation in global oil prices can actually be seen as a golden opportunity for the Algerian hydrocarbons industry to embrace structural changes and get on with enhancing efficiency of oil and gas recovery.
Strict joint venture rules requiring joint ventures with local companies in a ratio 51 to 49 percent maximum are sometimes seen as a turn-off to IOCs and NOC investing. What is your assessment of this legislatory requirement?
Statoil doesn’t see any problems with the 51/49 split. 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.
More worrying for us is the current trajectory of global oil prices. Half a year back the oil price was more than a hundred dollars a barrel and now that’s plummeted to around 50-60. Any business losing 50 percent of its direct income needs to look at possibilities make efficiency gains and maintain momentum. Under such conditions the state should be equally compelled to identify areas where the local businesses can increase their appeal to foreign investment and throughout that benefit from this investment.
What do you make of the lack of activity during the 4th Bidding round?
The 4th bidding round was conducted against a backdrop of unsteady oil prices and as a result there were a confluence of factors that apparently generated investor cautiousness. We can only hope that oil price will stabilise and that the next 5th bidding round will become even more interesting than the 4th.
You have to remember that investor attractiveness, as a country, is not just deemed on the legal system and the contractual terms, but also the overall appeal at an operational level. Algeria has a long history in gas and oil which affords lots of additional benefits that many other countries rich in natural resources lack. Firstly, there is a high level of competence in technical categories and a large labour pool of experts in drilling and sub-surface engineering. Then, on top of that, they have a good and fully functional infrastructure system in terms of transportation and production facilities.
Another benefit is the proximity to the market in Europe through existing LNG export capabilities and pipelines.
At the same time, Algeria will surely face worldwide competition to attract diminishing investment as the international investor community exercises cautiousness?
That is true. Those countries offering the best terms will be those that receive the capital. But companies such as Statoil can add something in addition to direct investments through sharing and spreading our know-how in how to optimize E&P activity. In Norway we have managed to attain average oil recovery levels of over 50 percent and are aiming at 60. As in most places, there is room for improvement also in Algeria. Enhanced oil recovery is one of our strong points as a company.
There is a window of opportunity that the country needs to exploit. Some fields are old and make it difficult to enhance. If you want to extract the full potential you have to put in place a reservoir management plan fairly early on and identify where to inject and whether to deploy gas or water. If you come in too late you will lose a potential for enhancing recovery so you effectively have a time penalty for not doing it right from beginning. It is certainly possible to get that rate up and we want to be at the forefront of that process.
Which specific areas does Algeria need to improve?
Most probably the industry and this country are moving into a new era of operations of higher standardization and industrialization.
There are some hurdles to the development process that need to be ironed out. I’m talking about speeding up the permitting process, the work approvals and customs clearance procedures.
The oilfield services sector is also an area in the value chain that could do with an upgrade. If you compare with a highly commercial market such as the US, there is a lot to learn and a way to go for the Algerian industry. From a logistics perspective, you need to be able to complete the operations swiftly using effective and competent contractors.
Statoil is primarily an offshore upstream operator. We enjoy the distinction of being the second biggest subsea operator in numbers of wells. We have signalled that being present in the country, we will be interested to assist Sonatrach with its offshore ambitions.
What are your priorities and goals looking forward?
First of all, we will continue to work closely with the authorities and our partners to ensure ever-greater security for our personnel and to realize the full potential of all joint ventures we are engaged in.
Also, the objective is to complete the work programme for the Timissit license, and hopefully with success. I look forward to the continuation and to look into the possibilities of using and deploying new technology to larger extent than so far.
Statoil is an upstream focused technology company that increasingly are taking onshore positions. If you compare with other companies, the volume produced from our onshore portfolio is high. Meanwhile we are a renowned leader in offshore operations. Operations onshore in Algeria is technically less challenging then what we are used to from the Norwegian Continental Shelf, but many of the same enhanced oil recovery methodologies still apply here. An important part of our offer is our knowledge, modelling and R&D driven measures that optimize the production process.