Proposed Drilling Deals by Exxon and Chevron in Gas-Rich Algeria Near Finalization – WSJ

What are the Proposed Drilling Deals by Exxon and Chevron in Algeria?

After years of negotiations, Exxon Mobil Corp. and Chevron Corp. are in the final stages of securing deals with Algerian state-owned energy company Sonatrach to obtain rights to explore for shale gas in the North African nation.

The deals, worth potentially billions of dollars, would give Exxon and Chevron access to one of the world’s largest unconventional-gas reserves, located in Algeria’s southern desert. The reserves contain an estimated 20 trillion cubic meters of gas, according to the U.S. Energy Information Administration.

Exxon and Chevron are planning to drill wells in Algeria’s Illizi Basin, and the deals are said to require the companies to sign initial agreements specifying technical details before they can begin work in the country. Sonatrach will hold the right to sell the rights to develop discoveries or participate in their development.

Why is Algeria Attractive for Shale Gas Exploration and Production?

Algeria is a significant contributor to world gas production, with its oil and gas exports accounting for more than 90% of the country’s earnings. The country has vast conventional oil and gas reserves, but its ability to extract shale gas is laggard.

However, recent discoveries of vast shale-gas reserves in southern Algeria have renewed interest in the country’s unconventional-energy potential. Algeria is among the world’s largest shale-gas holders in the region, standing in the third spot behind China and Argentina.

Given its expertise in conventional drilling, Algeria is poised to leverage and apply the same technology for shale gas exploration. It could capture a sizeable portion of the global shale gas market if it can successfully commercialize shale gas at a competitive price point.

The government has been keen to try to develop shale gas to strengthen oil and gas revenues lost as exports of traditional hydrocarbons decline, and ultimately, create new opportunities to diversify its economy.

What are the Challenges Faced by the Companies?

Despite the interest, the two companies will face many challenges in the Southern Algerian Illizi Basin. The region is geologically complex with both major and minor faults, making it difficult to extract oil and gas. Initial wells have reported low yields, making the extraction of gas commercially viable in the long run challenging.

The challenging terrain of the Southern Illizi Basin means that drilling success rates will be low, with only a small fraction of drilling activities leading to the discovery of shale resources.

Furthermore, corruption and politics have traditionally hurt foreign investments in the country, raising questions about whether the deals will be executed or if there will be unforeseen delays.

Conclusion

Algeria’s government is betting on shale gas to replenish its traditional hydrocarbon output, and major oil firms are taking notice. The proposed drilling deals by Exxon and Chevron in Algeria appear to be moving forward, which will give the companies access to one of the world’s largest unconventional-gas reserves.

However, challenges such as a difficult terrain, low yield in the initial wells, and corruption and politics could hinder the success of the deals. The partnership between the companies and Sonatrach will be crucial in navigating these challenges in Algeria’s southern desert. #BUSINESS