Algeria’s Sonatrach having ‘hard time’ honouring deals
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 sq.km 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 sq.km 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.