Hess to Sell One Stake in Algeria to Cepsa

Source: Reuters 4/17/2013, Location: Africa

Hess Corp will sell one of its only two Algerian oil stakes to Spain's Cepsa, already heavily involved there, due to poor return potential, a source close to the deal said.

Foreign oil companies have long complained of Algeria's production sharing terms, which led to the freezing up of major investments and a decline in oil and gas output over the last few years.

Sparse interest in the last upstream licensing round spurred the government to pass an amended hydrocarbon law in January, but the changes may not be sufficient to counter the prospect of greater security costs after the In Amenas plant attack that month.

Cepsa will be taking over Hess' stake in the Bir el Msana field, the source said, while the U.S. company will focus on its production at the Gassi El Agreb complex. Cepsa was the only foreign winner in the last licensing round.

Hess has a 45 percent stake in the block, shared with Algeria's state company Sonatrach, with first oil not expected until 2014. Both Hess and Cepsa declined to comment on the deal.

Cepsa, owned by International Petroleum Investment Company (IPIC), is already involved in Algeria's major Ourhoud oilfield, the Timimoun gas exploration project and the Medgaz gas pipeline to Spain, which started exports in 2011.

Hess will focus its efforts on Gassi el Agreb, in which it has a 49 percent stake through a joint venture with Sonatrach. The fields produce around 35,000 to 40,000 barrels per day.

The company is planning to invest over $1 billion in the producing block but this hinges in part on whether the company can renegotiate better terms. "It's not unreasonable to assume that (Hess) wants better terms," the source said.

Britain's BG Group is also leaving Algeria, several sources said. Its licence for the Hassi Ba Hamou block expired in September and negotiations have stalled.

"For the last 12-18 months there has been no one present on the ground," a BG spokesman said, "We do have a permit and are in discussions with the Algerians."

Algeria's main priority is to secure its domestic energy supplies and most new reservoir potential are in tight formations, Algerian Oil Minister Youcef Yousfi said on Monday in London on an official visit to Britain.

Oil and gas accounts for 60 percent of its revenues and most crucially, Algeria is dependent on hydrocarbons for its domestic energy needs.

Yousfi said Algeria does not have other options like hydro-electric power or coal and nuclear is too long term. While it is also looking into solar, it must re-ignite interest in exploration to avoid an energy shortage and losing even more of its export capabilities.

"We have to double our electricity capacity in five years," Yousfi said, which will entail a greater pull on oil and gas production.

Should some of the country's ambitious refinery plans come to fruition, even more oil will be diverted for feedstock, eating away at exports.

A new licensing round for 20 blocks was due to be announced in the first half of the year but was pushed back to the second half after the January attack at BP and Statoil's In Amenas plant, industry sources said.

Bureaucracy also weighs on dealings in Algeria, and approvals on large investments drag on for years. The situation is unlikely to improve with a young and better educated population seeking jobs.

For more information about related Opportunities and Key Players visit Algeria Oil and Gas Projects

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