Exxon, Chevron Near Deals to Drill in Gas-Rich Algeria

Algeria has been eager for Western investment after passing a 2019 law that offers more generous terms to foreign energy companies.
Algeria has been eager for Western investment after passing a 2019 law that offers more generous terms to foreign energy companies.


  • North African nation’s vast reserves, proximity to Europe make it attractive to the U.S. drillers that have cash to invest

Exxon Mobil and Chevron are in advanced negotiations with Algeria on a deal that would allow the U.S. energy giants to drill for the first time in the gas-rich North African nation, according to the Algerian energy minister and people familiar with the discussions.

The deals, which the energy minister said could be complete by the end of the year, would give the companies a foothold in a country that is an increasingly important supplier of natural gas to Europe following Russia’s invasion of Ukraine.

Sonatrach, the Algerian state oil-and-gas company, is negotiating agreements with the two companies that would focus on conventional gas and Algeria’s enormous reserves of shale gas, believed to be the third largest in the world.

“I am pushing Sonatrach," said Energy Minister Mohamed Arkab, “because we need to increase our volumes."

Europe has sharply cut its purchases of Russian gas over the past year, and the sabotage of the Nord Stream pipelines in September means the continent may never again buy large volumes from Russia. Algeria, one of the world’s largest producers of natural gas, has three pipeline connections to Europe that give it a competitive advantage over distant suppliers, such as the U.S. and Qatar, that ship liquefied natural gas to Europe.

Exxon and Chevron are looking to put huge cash piles to work, after reaping record profits last year as they rode surging oil prices. The companies have mostly heeded shareholders’ calls for austerity and investor payouts through buybacks and dividends, but are once more on the hunt for new sources of production.

The industry’s investment options have narrowed, heightening Algeria’s attractiveness. The U.S. shale patch has begun to show growth limitations, and some costly frontier-drilling projects haven’t panned out, including in Brazil, where Exxon ended a multibillion-dollar drilling campaign after a series of disappointing wells.

Energy companies are also betting that demand for natural gas will continue to rise in the coming years as nations use it rather than coal to generate electricity as part of their plans to cut greenhouse-gas emissions.

Arkab met with Chevron Chief Executive Mike Wirth at a global energy conference in Houston earlier this year, while executives from Sonatrach met with counterparts from Exxon, Arkab said.

“We have many basins, we’re not going to put them in the same one," he said.

A spokeswoman for Exxon said the company has been in talks with Sonatrach and declined to discuss additional details. Chevron said it has signed an agreement with Algerian authorities that allows it to access data about three oil-and-gas basins: Ahnet in the south, Gourara in the center of the country and Berkine in the east next to the borders with Libya and Tunisia.

Energy companies have been hunting for gas production with easy access to European markets since the war began. Italian oil-and-gas company Eni has been investing in Algeria and fields offshore Egypt and Cyprus to produce gas that can be delivered to Europe; in January, it announced an $8 billion deal with Libya’s national oil company to produce gas from offshore fields in the Mediterranean.

Chevron has partnered with Eni in Egypt and is working to start up the Leviathan project in the Mediterranean near Israel. It has teamed up with Shell to develop the Aphrodite gas field offshore Cyprus.

Algeria’s territory with proven oil and gas reserves stretches across 1.5 million square kilometers, Arkab said, an area roughly the size of Alaska. The heart of the country’s gas industry is Hassi R’Mel, a field around 340 miles south of Algiers that is one of the largest in the world.

That field, however, has been producing since the early 1960s, and analysts question whether it can increase output significantly. Algeria needs to start producing in large areas of the country that haven’t been exploited and increase recovery rates on fields that are currently in production, Algerian officials say. There are plenty of opportunities: Only 47% of the 1.5 million square kilometers are being exploited, Arkab said.

“We still have 53% to develop in conventional gas," he said. “That will dramatically increase our production."

Algeria has been eager for Western companies to invest after passing a law in 2019 that offers more generous terms to foreign oil-and-gas producers. In addition to the U.S. companies, Arkab wants more European oil-and-gas producers to invest in Algeria. Eni has made major investments in the country but TotalEnergies, which has long produced in the country, appears to be wavering, Arkab said.

“Apart from Eni and Total, we have few European companies, and Total is starting to withdraw a bit," he said.

Total said its assets in Algeria—oil fields in the Berkine basin and two gas fields elsewhere—represent more than $4 billion of investment. Total extended its contract in the Berkine last year for 25 years.

“The company is committed to continuing to invest in Algeria and strengthening its presence in the country," Total said.

Algeria is also seeking the expertise of Chevron and Exxon to develop its shale-gas resources. The country’s recoverable shale resources total 707 trillion cubic feet, the third-largest in the world, according to the U.S. Energy Information Administration. That is behind China and Argentina but bigger than the U.S.’s 623 trillion cubic feet.

Arkab said the government’s priority is to develop its conventional gas resources. The authorities set off a protest movement in 2014 when they drilled a few shale gas wells near the desert town of Ain Salah, deep in the Sahara. Local residents feared the shale-gas production would contaminate the region’s water supplies, which come from vast aquifers beneath the desert.

Arkab said the few wells drilled were extremely productive, but authorities at the time hadn’t taken the time to build support in the population.

“That was very badly done. We went looking for problems," he said. “Our people are not yet ready for shale gas, and we want to prepare them. Because they are afraid."

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