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Algeria Seeks Damages for Spain Gas Deal 'Fiasco'

Reuters
Wednesday, 5 Sep 2007 | 1:00 PM ET

Algeria's Sonatrach, decrying a "major industrial fiasco," said on Wednesday it was claiming substantial damages from Spain's Repsol and Gas Natural for their failure to meet the terms of a gas project.

Repsol, Gas Natural Lose Algeria Project
Repsol's shares were down slightly on Tuesday after Algerian state oil company Sonatrach dismissed the Spanish utility and Gas Natural from a 5 billion euro project to develop natural gas in the country. CNBC's Guy Johnson talks to William Powell, Managing Editor for Gas at Platts, for more.

The Algerian state energy giant confirmed in a statement it had terminated a 2004 agreement with the firms to develop the Gassi Touil gas field and wanted reparations for what it called substantial damage due to delays and cost overruns.

Sonatrach said the decision was taken in accordance with the contract's provisions and was due to the fact that the two companies had not carried out their obligations "which has resulted in massive delays and cost overruns."

Repsol and Gas Natural had not been able to redress the situation, despite repeated warnings by Sonatrach, it said.

"Sonatrach has commenced an arbitration against Repsol and Gas Natural, claiming substantial damages for losses flowing from the failure of Repsol and Gas Natural to respect their contractual obligations," Sonatrach said.

"The current dispute is a dispute among joint venture partners and results from a major industrial fiasco. It is a purely commercial dispute and is confined to the Gassi Touil project," Sonatrach said.

Algeria awarded the contract to a Spanish consortium formed by Repsol-YPF and Gas Natural with an exploration, extraction and processing concession of 30 years, and with Repsol as project operator.

The venture, in the Berkine basin in the Sahara, was on a production sharing basis and was set to go on stream in 2009.

Repsol has said that the tightening of the market for services had not been predicted when the contract was first awarded. When it was launched it was one of the 10 largest exploration and production projects in the world.

In addition to exploration and production, it included construction of a liquefaction terminal to process 4 million tonnes, or metric tons, of liquefied natural gas (LNG) per year. The venture aimed to send LNG to North America.

Arbitration

The Sonatrach statement was its first comment on the move, which was first reported by Repsol, an oil firm, and Gas Natural, a utility company, in separate statements on Monday.

The two companies said they regretted Sonatrach's decision to take exclusive control of the Algerian project to explore the field and produce, liquefy and market the gas. They said they would fight the decision through international arbitration.

Sonatrach said it had had no word of any request for arbitration from Repsol or Gas Natural regarding Gassi Touil.

"Sonatrach deeply regrets the unwarranted political overtone of Repsol and Gas Natural's recent press releases, as well as their attempt unjustifiably to attribute the decision to terminate the contract to the Algerian state," Sonatrach said.

Sonatrach said that according to Repsol and Gas Natural's latest estimates, completion of the venture could not be expected before the end of 2012 at the earliest.

The North African country said in April the Spanish firms would have to compensate it for any delays in the project.

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