Algeria’s Sonatrach having ‘hard time’ honouring deals

October 22, 2017
In trouble. Sonatrach’s CEO Abdelmoumen Ould Kaddour (C) talks to employees at a gas site in Hassi R’mel, last July. (Reuters)

Tunis - Algerian oil and gas monopoly Sonatrach is having a hard time honouring deals with foreign clients because of leadership instability, red tape and dwindling foreign invest­ment, its chief executive officer said.

Sonatrach, which controls the production, transport and export of Algeria’s oil and gas, has been described as the lifeblood of Alge­ria, where oil and gas revenue ac­counts for 60% of the state budget and 95% of foreign currency earn­ings.

However, the government-owned company, which has 57,000 employees and 154 busi­ness affiliates, has run into finan­cial trouble and is unlikely to de­liver its target output.

“The situation of Sonatrach is not very good,” CEO Abdel­moumen Ould Kaddour said at a conference earlier this month at­tended by top Sonatrach officials. “The current circumstances of the hydrocarbons market make the tasks of the company more dif­ficult. Sonatrach has a hard time honouring its commitments and contracts.”

Ould Kaddour noted that the company, which encountered “multiple difficulties in produc­tion, selling and financing of in­vestment projects” over the past several years, “must revise its whole strategy to optimise the management and functioning of the company and increase out­put.”

Algeria is reliant on Sonatrach to keep its economy afloat as its plans to tap into shale gas re­serves are not estimated to bear fruit for at least five years. The country also hopes that altering its hydrocarbon legislation next April will draw foreign investors and expand oil and gas produc­tion.

Sonatrach has been jolted by unstable leadership, going through six CEOs in seven years. The company is under the direct control of the Energy Ministry, making the top position vulner­able to a changing political atmos­phere.

Successive governments have blamed any economic difficul­ties on Sonatrach officials. Sev­eral company officials have been sacked over allegations of graft or claims of incompetence.

Experts said the instability was a hindrance to foreign invest­ment when many are wondering whether ailing Algerian President Abdelaziz Bouteflika will soon be replaced.

Kaddour, an oil expert, previ­ously acted as CEO of Sonatrach’s joint venture with US company Brown and Root-Condor. He has close ties to former Energy Min­ister Chakib Khelil, also a close friend of Bouteflika, and is backed by top military officers, who see him as key to drawing in more US investors.

Foreign technology and money are crucial to boosting Algeria’s conventional reserves and tap­ping into shale gas but the country has not attracted significant inter­est. During its last three licensing tenders, Algeria received bids for only 25% of concessions on offer.

“Agents of change within Sonatrach are called upon to bring forward their creativity and spirit of commitment and responsibil­ity to implement our project of change to improve Sonatrach’s performance,” Kaddour said.

For all its troubles, Sonatrach remains an energy giant. The company was behind 32 of the last 33 oil and gas discoveries in 2016 in Algeria and carried out seismic studies over nearly 11,000 last year. Of the 191 million tonnes of equivalent oil produced in Al­geria in 2015, Sonatrach produced 144 million tonnes. The rest was produced with foreign partners.

Sonatrach, however, risks financial exhaustion if it con­tinues exploring the 1.5 million of potentially oil-rich land, mostly in difficult areas of the country’s vast desert, alone, ex­perts said.

Algeria’s oil-and-gas output stayed nearly flat for a decade be­fore 2016 when it inched up due to a rise in gas output. Algeria’s oil reserves total 12.2 billion barrels of oil, making it one of Africa’s top three oil producers.

Its production output and re­serves are being depleted at a faster rate than Saudi Arabia’s, however. At its current rate of production, Algeria’s reserves will last 36 years, estimates stated.

Algeria’s crude oil output is 1.3 million barrels per day (bpd), down from 1.33 million bpd a year ago.