Sonatrach Looks to Restructure in Face of Oil Crisis

Source: Reuters 10/16/2015, Location: Africa

Algeria's state energy firm Sonatrach has begun a restructuring aimed at saving money and coping with the dramatic slide in global oil prices, an internal document seen by Reuters shows.

The measure is the latest attempt by the Algerian energy giant to help the North African OPEC state manage a sharp fall in its energy revenues and weak foreign investor interest in helping develop new fields to push up production.

The new charter gives newly appointed Sonatrach boss Amine Mazouzi four new assistants in charge respectively of its downstream, upstream, transport and pipelines, and commercial sectors.

"The evolving domestic and external environment obliges us to adapt our organisation ... so we can meet our goals that are to increase production and reserves," Mazouzi said in the document dated Oct. 12.

In the same document, Mazouzi said Sonatrach should base its work on a "strategy to reduce costs".

The restructuring of its state energy company comes at a sensitive time for Algeria as the slump in oil prices is expected to slash its energy revenues by 50 percent this year.

Oil and gas account for 97 percent of Algeria's state revenues, and the price drop has forced the government to put on hold some infrastructure projects and cut back on budget spending next year.

Algeria has already announced it will not launch a bidding round for oil and gas exploration rights this year, a clear signal that Sonatrach is putting its house in order before moving forward, energy analysts say.

Thirty foreign energy firms are present in Algeria, but its energy bidding round last year only placed four deals. Oil companies have complained about offer terms and bureaucratic red tape in the country.

"The new charter will enable a focus on core business ... an efficient management, and will favour visibility and transparency," oil and gas development consultant Mohamed Said Beghoul said.

In a major shake-up in May, Sonatrach picked a new chief executive to replace an interim head appointed less than a year ago and has also replaced more than 20 other managers.

It expects a 4.1 percent rise in oil and gas exports this year, after achieving increased yields at its already existing fields Hassi Rmel, Hassi Messaoud, Berkine and El Merk.

But with domestic energy needs on the rise, and oil prices low, Algeria needs more foreign investment help to pick up new output, analysts said.

Algeria, emerging from more than a decade of a civil strife, remains a key U.S. ally in its fight against Islamist militancy in the Sahel region, and it is a top gas supplier to Europe.

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


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