Q1 Could you give as an historical overview of the presence of PETRO-CANADA in algeria? When did you establish yourself in algeria and under which circumstances?
A1 We started studying algeria as an area of investment in the early 90's, we entered in two contracts for exploration with Sonatrach in 1995. We discovered oil in the first well that we drilled and brought that field in production in 1996. I believe we were the second foreign company to actually lift oil in algeria. Our presence here precedes the trouble that algeria had during the nineties. Through that time we continued our business here. The field that came on in 1996 was producing 15,000 barrels a day. It was a small oil field but it was also somewhere interesting to demonstrate to Sonatrach how a Canadian company could bring Canadian know-how, I say know-how, not technology. In a sense with the appropriate technology it would be better, but we basically developed a field and brought it into production in less than a year, when typically oil fields would take several years to develop here. It was a smaller field and it makes it easier, but by bringing the know-how from Canada, where there are around 15,000 wells a year drilled, the business is -------- compared to algeria's business in terms of the number of wells, number of fields, number of oil companies. Of course the total volume produced is less, two million barrels a day comes from Western Canada but from some a third of a million of wells, an enormous amount of wells, so you could tell that most developments in Canada are smaller and therefore you have to be more efficient and effective in developing them because you don't have an economy of scale. So we brought to Sonatrach and algeria an example of how a small discovery can be turned into an economic exploitation project. That field has continued slowly to decline over the years, we did drilled some additional wells to try to enhance production, but apparently the field is smaller than we originally thought, so right now we are producing around 3,000 barrels a day, and we hope that it will continue so for a number of years to come yet. It is becoming more difficult to sustain the economic life of a small field. In that period we have continued to explore, our exploration licenses have three faces, five years initially, and the three years and then two years. We just entered the third face, which is up now and there are two years to run. We have drilled some known exploration wells over that period; we have made also some gas discoveries, one of them associated with one oil discovery. Those gas discoveries unlike oil which is easier to develop and ship, is very much dependant on infrastructure, so you have to have pipelines, gas contracts and at the end the sale is not as easy as when you are marketing oil. Those four gas discoveries have been subject to negotiations between Sonatrach and us for several years and at this point we still are trying to find a mean to bring them into production.
Q2 In order to have a better overview of PETRO-CANADA, could you give us some key figures of the company?
A2 Since 1993 PETRO-CANADA has invested over 150 million USD in algeria in the exploration and development. At this point we have not yet recovered this investment we have made some discoveries that have yet to be developed. Although we are having some difficulties coming to an agreement with Sonatrach on how to do that, if that is successful, that would mean that we would have results on our investment to benefit from. So that is the level of our investment. The production started at 15,000 barrels a day now is it 3,000 and we have been active here in algeria for 8 years now. The land block that we have is called Tinrhert, is our single exploration and development area. In terms of organization here, very soon after PETRO-CANADA came to algeria, the security situation developed in a way that we couldn't establish ourselves here in a way that we would have done otherwise and we would have liked to. Initially we had an office in Southern France, then we took a block in Tunisia a number of years ago then we decided to move our regional office of PETRO-CANADA North Africa to Tunis and that is still the same today. There are three Canadians who are assigned full-time to PETRO-CANADA North Africa office spending half the time in Tunis and the other half in Algiers. The office based in Algiers has been opened for 8 years now and have 12 algerian employees taking care mostly for office administration. There is also an small office in Hassi Messaoud which is opened when our staff is drilling wells, normally there is only a couple of people to expedite the movement of people and materials; and then our field office near Hounet, there we have 4 Canadians, which are in rotation from Canada, so they stay one month here and then one month back to Canada; so at any time there are two Canadians there. The number of staff in our field office is around 25. It is a small operation and we are also quite proud of the fact that we have a very efficient and effective operating staff, again somehow influenced by the fact that in Western Canada the labor costs are much higher than they are here, so it is much more critical component of cost but even here we manage to make it an efficient operation.
Q3 Even if we are talking about a small operation, what is the annual turnover?
A3 In all oil and gas companies you have always too big numbers, you got the number of how much money you are spending, which cumulatively to date is 150 million USD and our investment in wells is typically costing 4 million USD, last year we drilled one well and we are drilling one well this year so our investment is in the order of one well per year. What concerns the turnover, the field is producing 3,000 barrels a day at 25 USD the barrel that is 750,000 USD. We are in partnership with Sonatrach in a production contract so that revenue is split between the state and the investors, and the investors are us and Sonatrach in partnership. This is the formula by which the revenue gets split between us.
Q4 Is PETRO-CANADA established in other emerging countries?
A4 When we talk about our presence in other countries, we have to talk about the new PETRO-CANADA International, which is PETRO-CANADA plus the BEVA Oil & Gas (acquisition representing 2,1 billion USD). For PETOR-CANADA this was a massive purchase, but since this acquisition, PETRO-CANADA is principally involved in Libya where we are producing almost 100,000 barrels a day; secondly in Syria where production is around 3 to 5 thousand barrels a day. Then we have production in the North See, which is not an emerging country of course. The other BEVA involvement is in Venezuela and in Trinidad & Tobago.
Q5 Coming back to the algerian operation, what are the strategic guidelines? In which sector of activity do you want to develop further this operation?
A5 Since the acquisition of BEVA it is fair to say that PETRO-CANADA is going to reexamine its international strategy. At that point I do not have anything to offer you in terms of what would be a new strategy going further because this is the subject we are debating right now. We just absorbed the acquisition. This acquisition was very much PETRO-CANADA's strategy to meet a major league partner to an international oil and gas exploration development arena. The acquisition itself was the strategy, now that it is in place, the company will be reassessing its strategy in this area. Having said that, the company was driven to look at the cause of its presence in North Africa. We have since then made a number of statements that reinforce our interests in North Africa, I think it is safe to say that is a significant part of our strategy. Where does algeria fit within our North African strategy? Obviously algeria is a major component of the North African oil and gas business and we have been here since 1992-1993 so we understand algeria very well. At the same time we are still finding it very difficult to find return on investment here in algeria.
| Q6 Anyhow, right now the country is under heavy reforms, Sonatarch has still a monopole, but in the future it is going to privatize. You have been here for ten years and you have some insights on algeria. How are you going to adapt to this future with privatized companies?
A6 One of the things we have seen in the time we have been here are the several promises of change. We really are waiting for the changes to happen. For example the new hydrocarbon law, which is going to be good for algeria. We are still looking for those changes to manifest themselves in truly changes at a contractual level in doing business. There have been some changes in the forms of the contract, but as I said before, we still believe there is an opportunity to make algeria more attractive to investors. I think maybe that relates to the risk. We feel there is a too heavy amount of risk without sufficient reward. Our companies are in the risk business for sure they understand, when you conduct an exploration for four million USD with a 5% chance of success, you are in the risk business, and you understand that. But when you take risk you have to have also a chance of reward. We will be happy to see that in the nature of the contract that we can enter into here. Our position at the moment is a continued presence in algeria but I have to say that our investments are going to be cautious until we see the changes take place.
Q7 So when those changes take place you will have a good position to start…
A7 We hope so, with the technical knowledge and the understanding of doing business in algeria, yes we will be very happy to be here.
Q8 In the oil industry strategic partnerships are one of the key factors to succeed. Are you expecting to have partnerships with national or international companies when this changes come?
A8 When we entered into the contract with Sonatrach in Tinrhert we did it independently, since then we have considered additional exploration permits and have chosen not to bet in the previous runs. At the moment we are having a limited participation in the current exploration run. We continue to do that as PETRO-CANADA, unlike some companies who are trying to bring groups together. To this point PETRO-CANADA has not done that. Equally we are involved in the development ---------- which will be awarded in July 1st if the timetable is maintained, then we will have the opportunity to bit on those projects and at this point we will be still doing it as PETRO-CANADA, we are not entering into partnerships with other companies, but again, because of the changes taking place and the number of opportunities available to PETRO-CANADA International now, perhaps we will see more strategic partnerships. The only partner we have now in algeria is Sonatrach.
Q9 The opinion of international companies already established in algeria is very important to our readers. Can you tell us about the advantages of being present in this market?
A9 The market itself is still a very attractive prospect; there are still opportunities for significant discoveries. algeria is also a vast country, it is not only the prospect, it is also the vast area that it covers. There are a number of companies that have been here for a number of years and they have the advantage of being familiar on how business is done, being familiar with Sonatrach and there is always the relationships which are a part of success in business. There is an advantage in the familiarity. But at the same time we applaud the fact that the algerian government is putting all its new offers for exploration development in international --------- through a transparency so you are betting alongside the other companies. That is the way business is and you are betting against the other companies and somebody wins and everyone else loses. Some people find that tough but that is the way it should be. So there is no specific natural advantage that we have just because we have been here for a number of years, we have knowledge of algeria. This knowledge within our technical people and of course another company can find people around the world to develop that technical capability. So the familiarity and the knowledge of the country, that gives the company another kind of risk profile. But basically it is a free and open betting process the government is adopting and that is absolutely the way it should have to be.
Q10 That shows that government is trying to adapt to the world economy….
A10 Yes that is right. It is good for them because they get the best offer and it is good for the companies because it forces us to sharpen the pencils and take a look at what should cost us to develop a field.
Q11 As last question, we would like you to tell us about your professional career and your biggest satisfaction since you are in the North African region
A11 I am a petroleum engineer. I worked in Holland and UK, in Shell and --------- Corporation, before moving to Canada in 1981 to work for PETRO-CANADA. I spent 17 years working for PETRO-CANADA. Then left the company and worked as a consultant during which time I moved to Tunis to open an engineering office for a company there. That was two years ago and also my introduction to North Africa. That first year I guess I learned a lot about doing business in North Africa and like any different country or culture in the world it is fascinating having differences and getting the things done it can be very frustrating sometimes and other times it can be very rewarding but it never fails to amaze me how such subtle differences can make such fundamental differences and how you conduct the day to day business. Building an understanding of how business is done as I thought in North Africa was my greatest satisfaction. And then last year when I rejoined PETRO-CANADA as resident manager and started working in algeria I found that one thing is Tunisia and the other is algeria and both are quite different. You can come from Canada and think that if you know how to do business in Tunisia, you know how to do business in North Africa. But it is not the case and that is probably the most fascinating thing, understanding those very subtle differences that make a big difference, and I think this is one of the keys to be a successful international gas company, it is not just having good technical people who can pursue and find gas, but is understanding how you do business.
Q12 What would be the final message you would give to foreign investors about algeria?
A12 The oil and gas industry in algeria has a massive potential. Maybe there will not be large fields discoveries anymore, but there will be more modest size discoveries with an enormous potential and we really welcome the changes taking place. |
