Sources
- OP boots on the ground in Libya
- Western diplomat in Algeria
Billionaires Fall in Algeria: Here's Why Sonatrach Is Less Worried Than Others
Algeria's clientelist patronage system just took its first major hit, and this is now officially elite clan warfare: the presidential clan versus the military clan. The military clan now has the advantage, and Sonatrach will be their primary cash cow.
In the fallout of the Algerian political crisis, five billionaires have so far been targeted with arrest in relation to an anti-corruption investigation put in motion under pressure from mass protests. So far, the purge has netted Issad Rebrab, chairman of Cevital, the biggest privately held company in Algeria. The influential Kouninef family was also targeted, with four brothers arrested. Earlier this month, Ali Haddad, another prominent businessman, was also arrested attempting to flee to Tunisia. Former Prime Minister Ahmed Ouyahia and current Finance Minister Mohamed Loukal have also been summoned to court in relation to an investigation into abuse of public funds. Now, the CEO of Sonatrach has been sacked.
These are all influential businessmen who served as tools of the regime to pacify the population during times of protest or "crisis". In fact, this is the presidential clan - and right now, it's a clan that is paranoid. It's important to understand the General Ahmed Gaid Salah is the military wing of this clan whose members he is now hanging…
Sources
- OP boots on the ground in Libya
- Western diplomat in Algeria
Billionaires Fall in Algeria: Here's Why Sonatrach Is Less Worried Than Others
Algeria's clientelist patronage system just took its first major hit, and this is now officially elite clan warfare: the presidential clan versus the military clan. The military clan now has the advantage, and Sonatrach will be their primary cash cow.
In the fallout of the Algerian political crisis, five billionaires have so far been targeted with arrest in relation to an anti-corruption investigation put in motion under pressure from mass protests. So far, the purge has netted Issad Rebrab, chairman of Cevital, the biggest privately held company in Algeria. The influential Kouninef family was also targeted, with four brothers arrested. Earlier this month, Ali Haddad, another prominent businessman, was also arrested attempting to flee to Tunisia. Former Prime Minister Ahmed Ouyahia and current Finance Minister Mohamed Loukal have also been summoned to court in relation to an investigation into abuse of public funds. Now, the CEO of Sonatrach has been sacked.
These are all influential businessmen who served as tools of the regime to pacify the population during times of protest or "crisis". In fact, this is the presidential clan - and right now, it's a clan that is paranoid. It's important to understand the General Ahmed Gaid Salah is the military wing of this clan whose members he is now hanging out to dry, including the very powerful Kouninef family. Salah is attacking the non-military wing of this clan, while the military itself enjoys its own share of Algeria's oil wealth.
Where does this leave Sonatrach? We're talking about a state-run oil company that has been funneling billions of dollars into the pockets of the elite in an exorbitant system of corruption. Here's one indication of how things will trace back to Sonatrach based on who has been arrested so far: Reda Kouninef owns a company called Secur Group, which managed to secure itself a massive contract from the National Company of Large Petroleum Works (ENGTP), a subsidiary of Sonatrach. And that's just one deal that will lead to significant scrutiny as the patronage system unravels - or, more precisely, is potentially restructured to better serve the military.
Sonatrach CEO Abdelmoumen Ould Kaddour (a US-trained CEO hired in 2017 to revamp the state-run oil company) was dismissed by the President on 23 April and replaced by another senior company figure, Rachid Hachichi. This is exactly why Exxon called off talks about entering Algeria's shale patch in March: They were afraid the CEO would end up being replaced, putting any deal in jeopardy.
Rachid Lachichni became Sonatrach's director of production and exploration in late 2017. He is either a temporary figure in the shakeup, or he is someone the military thinks it will be able to use to regain more advantage over oil revenues in the political vacuum. After all, the Sonatrach CEO was part of the presidential clan.
The military will undoubtedly be angling to find its own advantage in the investigation into Sonatrach that has been promised. Individuals will fall, but Sonatrach will be preserved nicely for the military. What happened in Egypt could easily happen in Algeria. But Egypt is different: It's reforms under a government led by a military general have been real and have transformed the oil and gas industry: In Algeria, this is elite clan warfare and it's only just begun. Chevron - emboldened by a massive deal to acquire Anadarko - is jumping the gun with plans to sit down with the Algerians now that Exxon has bowed out.
Elsewhere on the Oil Patch Geopolitical Front …
Why the Oil Industry Cares What Happens Next in Egypt
Keep a close eye on Egypt's controversial referendum to extend Al-Sisi's presidency to 2030. This is an important referendum for the energy industry. Results of the referendum will be announced by April 27th. For the energy industry, al-Sisi represents stability, but there is cause for concern given the spiral of coup activity across the region, including in Libya, Algeria and Sudan. All three venues seem to be following Egypt years later, and what happens with Al-Sisi could affect what happens in the wider region as the military attempts to take power in the name of stability. This is a critical time for the energy industry as Egypt works towards becoming a net gas exporter.
And the energy industry has every reason to support al-Sisi: Egypt's newfound gas fame is precisely because of the military government which has conducted serious reforms on this level. It is fair to say that prior to al-Sisi, Egypt's oil and gas was highly inefficient and there were no incentives for exploration, while production was declining, infrastructure being decimated and projects falling by the wayside - not to mention billions of dollars in unpaid bills to international oil companies. That all changed when al-Sisi took over, and now Egypt stands to become one of the most important oil and gas hubs in the world. The key venues to watch are the Zohr offshore gas field (Italian Eni), and the up-and-coming Nour field, which could potentially even outdo Zohr.
That said, the general has ruled Egypt with a strong arm, escalating attacks on the Sinai Peninsula and pursuing a highly controversial path of massive human rights violations. But this is the era of military coups and generals in charge - and they tend to have the support of the West because they pursue energy reforms that lead to major new discoveries and keep the oil and gas flowing. They also happen to control access to the Suez Canal and have been playing nice with Israel on the energy front.
Haftar Still Only Knocking on Tripoli's Door
Media reports invariably say that Haftar is either gaining ground in his assault on the Libyan capital, or that he is being pushed back. Oilprice.com is on the ground in Tripoli, and the situation is one that can best be described as Haftar knocking on Tripoli's door. The general has not succeeded in getting past the capital city's outskirts. Daily, his forces manage to make advances forwarded, but are then pushed back. In the meantime, external forces continue to line up in support of Haftar - even when that support is not directly implied. The European Commission has condemned the advance on Tripoli, but because of France and oil giant Total SA's interests in the country and in having Haftar stabilize the oil flow, Brussels refrained from actually mentioning Haftar's name in the condemnation. As we stated previously, Trump has directly voiced support for the General's push. There is a deeper reason for Trump's support of Haftar, and unlike France's support, it's not about the oil interests implicitly. It's about Iran, and it's about Qatar and Iran being on the "wrong" side of this conflict. Haftar, of course, is using Trump's recent targeting of Iran through sanctions and its labeling of the Revolutionary Guards as a 'terrorist group' to buy more external political capital. On Wednesday, Haftar's LNA said it had spotted a ship tied to the Iranian Revolutionary Guards off the coast of Misrata, in western Libya, saying the "vessel is involved in suspicious activities". This statement is meant to garner additional support from Washington in the offensive on Tripoli.
At the same time, we have pointed out in recent briefings that Haftar needs to take Tripoli in order to get his hands on oil revenues to continue buying the local support he requires. The UN had earlier called for an audit of the country's two rival central banks, but the potential auditors (all the big 4 accounting firms) have withdrawn from the bidding process. The winning bid was meant to be chosen by the end of this month. That audit would have been a first step in uniting the two rival central banks, and then potentially the National Oil Company and the Libyan Investment Authority. The key to following this conflict is following the money, and right now the oil money isn't in Haftar's hands.
$10M Reward for Information on Hezbollah Financing
The US is offering a $10-million reward for information that could help break down Hezbollah's financing chain, but one avenue of this has already been circulating around Washington, strategically distributed by our favorite lobbyists from Saudi Arabia and the UAE. This information is in the form of data retrieved from Qatar's central bank in a black-ops hack job by the UAE. The hackers appear to have held on to this data for future leverage, but we have seen some of the documents, which provide names and trace accounts to figures who are known to serve as Hezbollah financing conduits.
Saudis are under ISIS threat
The Saudis may have successfully thwarted the Islamic State attack over the weekend on a state security building north of the capital, Riyadh, and will be downplaying the level of the threat--but it is very real. Now that ISIS has been largely decimated in Syria, we expect it to start nit-picking more at Saudi targets. It has the funding still in place because it's funding system is just as mobile as its entire operation.
Global Oil & Gas Playbook
Markets & Trading
- Hedge funds are getting a boost from Trump's market-tightening move to end waivers for Iran oil sanctions, increasing net long positions on an extended bull run for oil and gas. It's not yet quite as bullish as bets were in September, but significantly higher than January. Goldman chimed in Tuesday to say that they expected limited price impact from the removal of sanctions waivers, despite the abruptness of the decision. As a result of the move, Goldman foresees Iranian production declining by 900,000 bpd against global spare capacity of 2 million bpd - and rising. It is also important to note that in Trump's targeting of Iran and sanctions against the Iranian Revolutionary Guards, he has actually exempted some foreign governments, companies and non-governmental organizations. In other words, it's only a terrorist organization if you're not on the list of groups that will not face sanctions for dealing with the Revolutionary Guards. What it means is that Washington understands that sanctioning a massive economic force such as the Revolutionary Guards is virtually impossible, including for Western businessmen doing any business whatsoever in Iran, where the Guards control a vast portion of the economy. The Guards are part of the Iranian government, not a non-state terrorist group, so Washington's designation is unprecedented and will add layers of confusion to business dealings.
Deals in Motion
- Qatar Petroleum has secured a 10-year deal to supply 3 million metric tons of light naphtha to Thailand's SCG Chemicals, beginning this month. But that's only one big deal to be on the lookout for Qatar as it rolls out extensive LNG plans. The company has also opened up the tender process for the construction of up to 100 new LNG carrier vessels for its North Field Expansion project over the next 10 years. This would represent a nearly 20% increase in the entire global LNG fleet. Look to Exxon to benefit here, as well because the tender includes shipping requirements for LNG purchased from the Golden Pass LNG export project in Texas, which is set to being operations in 2024. This is through a JV called Ocean LNG, owned by Qatar Petroleum and Exxon (30%). Overall, Qatar's NFE project will increase its LNG production capacity to 110 million tonnes/year beginning in 2024.
- Saudi Aramco will acquire Shell's 50% stake in the joint venture SASREF (Saudi Aramco Shell Refinery Co)--a refining company--for around $630 million. The refinery has a 350,000 bpd capacity.
- Also on the Saudi front, Arabian Drilling Company (ADC) will acquire Schlumberger's drilling business in Saudi Arabia. ADC is also ready a join Saudi-Schlumberger operation.
- A third LNG export terminal is apparently in the plans in Louisiana, courtesy of Venture Global LNG Inc, which has requested the launch of a pre-filing process for an environmental review through FERC. This project, if approved, would include a liquefaction facility, a pipeline system and a 24 mmty capacity. Earlier this month, Venture Global won approval to begin construction at its Louisiana Calcasieu LNG plant, which will have a capacity to produce around 10 million tons per annum of LNG.
- A subsidiary of Murphy Oil Corporation (MUR) has agreed to acquired the Gulf of Mexico deepwater assets of LLOG, which currently produce 38,000 boepd and to add 66 million boe of proven reserves to Murphy's portfolio. The deal is expected to close in this quarter. In line with this deal, Murphy will pay $1.375 billion in cash, with additional contingents.