Algeria & Norway Work Together to Compete with Big Oil

For some time, we have looked at the trend of state-owned energy giants to increasingly join forces to expand internationally, a worrying sign for Western oil companies already besieged by the global stampede to find new reserves. As the Wall Street journal reported today, a prime example how state-backed national giants are competing more aggressively with Big Oil is the relationship between Sonatrach of Algeria, the biggest company in Africa by revenue, and Norway’s StatoilHydro ASA. The Norwegians are offering Sonatrach technology transfers, asset swaps and access to the lucrative U.S. energy market. In exchange, StatoilHydro is angling for rights to drill for oil and gas in huge untapped swathes of the Algerian Sahara. As the article notes:

“…Algerian officials now say only those Western oil companies that take the StatoilHydro approach — helping Sonatrach achieve its international ambitions — can expect preferential treatment in Algeria. With oil hovering at $90 a barrel, and Algeria sitting on the world’s seventh-largest natural-gas reserves, no one is in much of a position to argue…

“..We [international oil companies]have learned to make our living on the geographical and technical frontiers of the industry,” Mr. Hayward said. But those frontiers are getting more crowded. Some of the national companies, especially the partially privatized ones, are almost as technologically advanced as the majors. Petróleo Brasileiro SA is a world leader in ultradeepwater exploration. StatoilHydro, in which the Norwegian state has a 62.5% stake, is considered a leader in Arctic offshore operations and subsea production technology.

Some national oil companies “bring capital and technology, others bring political access,” says Robin West, head of PFC Energy. “Together it can be a very strong combination.”

On the other hand, some cases of cooperation between state-backed giants are politically driven. Venezuelan President Hugo Chávez says he will shun Western majors in favor of partnerships with state-owned companies from politically friendly countries to develop new resources like the heavy-oil deposits of Venezuela’s Orinoco Belt.

Some petrostates simply prefer working with government-owned companies. The deal last October to bring StatoilHydro into OAO Gazprom’s massive Shtokman gas-field project in the Barents Sea was clinched during a friendly phone call between President Vladimir Putin of Russia and the Norwegian prime minister, Jens Stoltenberg, and was first announced on the Kremlin’s Web site.

The Sonatrach-StatoilHydro alliance grew from a confluence of interests. Both were created by the state as custodians of their respective countries’ natural-resource wealth.

Now, both companies face the same challenge: how to deal with the prospect of declining reserves at home. Both have responded by seeking to diversify away from their domestic base — Statoil into countries like Angola, Canada and Azerbaijan; Sonatrach into Peru, Mali, Mauritania and Libya…

…Sonatrach’s “objective is to get at least 30% of its production from its international operations by 2015,” Mr. Khelil says.

Statoil first came to Algeria in 2003 when it partnered with BP and Sonatrach to develop two huge natural-gas fields in the Sahara desert. A year later it outbid the majors to win a huge exploration bloc, Hassi Mouina, in the center of the country, where it is drilling for gas together with Sonatrach.

Meanwhile, Statoil has deepened its relationship with the host country. It bought a 10% stake in IAP, Algeria’s prestigious Petroleum Institute, which trains engineers. It set up a program to train Algerians in Western health and safety standards: 6,000 Sonatrach employees have been through it.

StatoilHydro has offered Sonatrach equity in one of its North Sea gas fields, as well as capacity at a liquefied-natural-gas import terminal in Cove Point, Md. Those moves would allow Sonatrach to break into the lucrative northern European and U.S. natural-gas markets, where it has little presence. Last year, Sonatrach and StatoilHydro launched a successful joint bid to develop two offshore gas deposits in Egypt.

StatoilHydro is hoping these steps will give it an advantage when Algeria offers up licenses for some new exploration blocs later this year, the first such bidding round in three years. Some wonder whether that optimism is justified.

“StatoilHydro’s relationship with Sonatrach certainly seems to have blossomed over the last couple of years,” says Craig McMahon, a specialist in North Africa at oil consultancy Wood Mackenzie. “But when it comes to negotiations, the vast majority of countries, including Algeria, will do whatever deal is in their best interests.”



This entry was posted on Monday, January 28th, 2008 at 10:50 am and is filed under Algeria, Norway, Sonatrach, StatoilHydro.  You can follow any responses to this entry through the RSS 2.0 feed.  You can leave a response, or trackback from your own site. 

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Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.