The Moroccan Oil & Gas Connection

The Moroccan Oil & Gas Connection

by | published July 5th, 2011

North Africa led the way into the “Arab Spring,” with unrest moving from one country to another and resulting in the only changes in rulers to date.

First, the Jasmine Revolution catapulted strongman Zine el-Abidine Ben Ali from his 23 years of police state rule in Tunisia. Hosni Mubarak was the next to go, ending almost 30 years of military-supported rule in Egypt. In Libya, Muammar Gaddafi is still holding on after 42 years, but the prognosis for continuing command is not good.

The situation with Gaddafi, along with concerns that it will spill over to renew unrest in neighboring countries, focuses attention to the Maghreb – the western section of North Africa that includes Libya, Tunisia, Algeria, and Morocco.

Algeria – currently the largest Maghreb provider of natural gas to Europe – continues to experience elements of an uprising that began, in its latest version, 18 years ago and has never really ended. Just yesterday, militants attacked police outside capital city Algiers.

However, one nation has this far bucked the trend, providing a welcome example of order and calm. And that's where I'm camped out this week.

On Friday (July 1), Morocco's referendum on constitutional change passed with an overwhelming 98% of the vote. Even with a boycott by opposition parties, more than 70% of the electorate voted.

These changes reduce the power of King Mohammed VI and increase those of the Parliament. On paper, therefore, they are certainly more democratic. The real test will come in the King's acceptance of the same reforms he himself proposed. Yet his political leverage may be limited.

In a nation where opposition to the king remains strong, the continuing moderate liberalism and openness to the West seems likely to continue, too.

That's good news for investment coming into the country.

Outside companies – from retail and construction to computers and oil/gas – are coming to regard Morocco as the preferred base in the Maghreb, as it's close to Europe and provides an entrance to the much broader African market. In fact, the Spanish (and European Union euro-based) trade zones of Ceuta and Melilla are actually located on the continent of Africa (although they are claimed by Morocco as well).

Over the last decade, potentially significant deposits of oil shale have been discovered in Morocco. Some of that is border territory (still in dispute with Algeria) that includes portions of the western Sahara – most of which is now effectively controlled by Morocco but has a nationalist independent movement recognized by Algeria.

Nonetheless, negotiations are now underway in earnest to develop the oil shale and accompanying shale gas finds.

And that is why I am here.

Meetings in Agadir, Rabat, Marrakech…

I am using the “new” coastal city of Agadir as my base of operations.

It is on the Atlantic Ocean – across from the Canary Islands and a one-hour plane ride south of Casablanca. A remarkable example of rapid development, Agadir's inviting coastline has become a target for considerable outside investment lately.

On the edge of the desert and up against the Atlas Mountains, five-star resorts have emerged to cater to a rising international tourist trade. Agadir boasts a modern airport, excellent roads and infrastructure (including the most

reliable Internet access in the region), and a genuine multilingual professional population.

For my own purposes, it is a very good location to hold some of my meetings (especially with oil companies working just south and east).

However, I also have sessions scheduled with ONHYM (the national bureau of hydrocarbons and mines) and ministry personnel in the capital city of Rabat. (See “Shale Gas Initiative Brings Morocco to My Doorstep,” December 13, 2010.) That is at least an eight-hour train ride away.

Tomorrow I have a meeting with financial interests about half that distance north. It takes place in the fabled city of Marrakech, the previous capital of Morocco. I must admit wanting to go there ever since Crosby, Stills, and Nash sang about a certain express. That I am apparently taking that same train only adds to the mystique.

Later in the week has me out at some of the fields east of here and in the desert proper. Somebody mentioned “camels,” but I do hope that is just the local Berber word for “Jeep.”

Here is what is so important about Morocco – and the reason I consented to be here in the desert in the summer.

The Field Potential Is Big (and It Could Become Vital)

The local oil and gas reserves are estimated at around 55 billion barrels of oil equivalent (BOE). Should Libyan exports remain cut off, and should the unrest intensify in Algeria, Morocco may become an immensely important source for meeting European energy needs.

That makes determining whether these fields can be developed quickly enough an essential undertaking. It is a priority for both the government in Rabat and for investors in London and Paris, with New York certain to follow closely behind.

Assessing the field potential is one matter; establishing the legislative and regulatory structure is quite another.

That has been my primary area of advising to ONHYM for the past year. Last week's constitutional reforms may now make that job somewhat easier.

But we need to finalize the recommendations to the government soon.

French oil major TOTAL (NYSE:TOT) has been working here for some time. That's hardly unexpected, since Morocco used to be a French colony.

The remaining oil companies working in the country, however, are very small and have limited working capital. So until the legal and regulatory structure is finalized, the bigger money will remain on the sidelines.

My brief is to assist in ending that indecision. Because both Moroccan development and European energy needs may well hang in the balance.

One final piece of advice…

You will find a vacation in Agadir a very pleasant experience. But I suggest you fly directly into the city, changing planes in Europe and flying a major like Air France.

Marina and I flew the national Royal Air Maroc (RAM) from New York to Casablanca.

That was a mistake.

There is a significant rolling RAM labor action. It led to a two-hour delay at JFK for no reason and a riot in Casablanca, when a crowd attempted to board the Agadir flight after more than a three-hour delay. There were no RAM gate personnel present until the police had to be bought in.

Given that you pass through passport control only at your final destination (Agadir), there is no reason to experience the indifference and physical inconvenience of traveling through Casablanca.

Rent the movie instead.



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  1. July 5th, 2011 at 10:07 | #1

    Is the implication that TOTAL is a good future investment?

  2. John Gregory
    July 5th, 2011 at 10:35 | #2

    Great story. Would be better accompanied by maps.

  3. Tib Csabai
    July 5th, 2011 at 10:39 | #3

    One of the most important issues is to establish the sanctity of contracts. Most underdeveloped countries do this through low level treaties between the host country and the country of the developer company. For example, TOTAL can be kicked out in one afternoon, but France can’t be.

    Secondly, there needs to be an understanding of how many years an oil company may use foreign staff exclusively. Many foreign countries insist on dumping a load of unemployed on a project, slowing it to a snail’s pace.

    Thirdly, given the above, operations can be developed in parallel … well drilling while oil/gas handling facilities are being built. This is from personal experience in this, taking a major development from nothing to full production in four years. If there is minimal “outside” interruption, it can be done in three years … not the 10 years typically quoted by those who have never been involved in field development.

  4. Glen
    July 5th, 2011 at 11:29 | #4

    Dr. Moors,

    Thanks for all the insight into not only the energy sector but the world situation in general. I think much of the political developments over the next decades will center around energy (and water) and you are in a great position to evaluate it. Keep those reports coming! Thanks again.

  5. Javier Alonso
    July 5th, 2011 at 12:13 | #5

    Spanish trade zones are Ceuta and MELILLA. Manila, even if it was spanish long time ago, sits in Philipine Islands and was lost as Spanish colony at the end of 19th century.-
    In fact, Melilla is spanish for as long as 520 years, when there was not even a kingdom down there.

  6. July 5th, 2011 at 12:30 | #6

    Javier, we do our best to verify Kent’s work, but with him traveling, it’s not always easy!

    Thank you very much for the correction.

  7. July 5th, 2011 at 12:45 | #7

    From an outside observation, Mohammed VI seems to have made significant progress in resetting Morocco on a much more western style of government. As as Kent points out, in making the transition from authoritarian regime to a representative form of government, Morocco’s progress stands head and shoulders above their neighbors.

    However, Democracy and representative government in itself is not a solution to bringing a stable legal base for business. The generally accepted practices of bribes, favoritism, and skimming at all levels of business continues because those who do not operate that way do not prosper in the current system.

    Changing the general climate of underdeveloped countries towards an ethical business environment requires that both business and government put some real meat into programs that can educate and enable small business in the country. For instance, the mass dumping of unemployed that Tib points to might be replaced by programs to raise up local contractors who own and operate their own business, and are trained in generally accepted accounting and ethical business practices. These companies have special contracting status with the oil companies for services. They are audited and measured on a regular basis and must meet performance and ethical standards goals. Over time, competition is created, not around your ability to bribe but your ability to compete with quality.

    Breaking down generations of corrupt “business as usual” practices has to be done with a carrot – there must be a tangible reward for operating a different way. If the incoming oil companies could spend a very small percentage of their huge investments on these types of targeted business development programs, they may be able to create a stable in-country contract labor force that demonstrates excellence and a new model for business practices. McDonalds has done this successfully worldwide where they have created their own farms, transportation, and processing centers that are operated under McDonalds best practices using local labor.

  8. Dusty
    July 5th, 2011 at 12:49 | #8

    TOT is one of the non-USD possibilities often mentioned in investment blogs. I think that a careful look at the fundamentals and at the ticker history via would be highly desirable. Be aware of the French income tax you would pay on dividends, also.

  9. Walter (Jock) Mitchell
    July 5th, 2011 at 13:40 | #9

    It does not matter where the field, potential or flowing, is. Your breakdown is factual and interesting and fully worth our time for your knowledge and expertise.
    I live in Costa Rica. Mallon Oil is in discussions with the government to explore. I am sure more people than just I would like to have your explanation of the possible results.
    The new Tee shirt is one that says No Petrolero. Spanish is spoken.

  10. Vince DiGiambattista
    July 5th, 2011 at 15:36 | #10

    Dr. Kent, I love you like a brother, and I also think your bongers”. About twenty some odd years ago me and some steel execs made a trip to Canada, to examine Titanium oxide deposits and Uranium deposits.It didn’t fly then and it won’t fly now, with American. I follow your advice most of the time, but I didn’t sell Cheniere. I have an international rep. in the field of Metallurgy and well published, however I’m staying in the oil, shale and transporting business, and doing just fine. Thanks and Good Luck, in Italian “Buona Fortuna”.

  11. Sailor Jo
    July 6th, 2011 at 01:38 | #11

    Agadir is a modern city because it was the scene of one of the most devastating earthquakes in modern history.

    Casablanca is highly overrated because of the movie.

    Business is poorly organised. I had made a reservation for a minivan in Casablanca by internet. I had a hard time finding the agency and ended up cancelling the reservation. The minivan would have cost me $300 for a day. I ended up (with my friends) taking a stretched Mercedes for the same price and had a driver (and somewhat of a tour guide) and no additional cost.

    Over the years I was in Ceuta, Melilla, Rabat, and other places in Morocco and found the Moroccans pleasant, despite the custom of bribery. Hopefully they will change to a straight forward business attitude.

  12. Nelson Chenaur
    July 6th, 2011 at 05:09 | #12

    I’m reading the are other large pools of oil along to east coast of Africa. Specificaly a large field in the Mediterranean called the Leviathon that Noble and a smaller company are working for Isreal and other fields further south that include Kenya.

    Would you please comment if you have the time?

    Thank you

  13. July 6th, 2011 at 13:54 | #13

    Great article.

    I had been tracking the Moroccan constitutional vote for other reasons. Chiefly to see if this brings some stability in the burgeoning phosphate rock trade with origination Morocco and destination anywhere.

    As the largest exporter of Phosphate this little country matters to world agriculture and food supply. Not just energy. Nobody wants these supplies to be disrupted. Particularly countries with large populations and no phosphates such as India.

    The Moroccan state phosphate monopoly OCP (Office Cherifien des Phosphates) has plans to boost its phosphate rock output from 28 million tons to 50 million tons and beneficiation will quadruple. Beneficiation means that OCP and its chosen partners will produce more DAP in the future in Morocco and ship finished product to the world. Finished fertilizer product. Jacobs Engineering is contractor with OCP on some projects. Chinese interests are working on JV. Bunge Ltd is also in a JV with OCP on DAP.

    Bunge is traded in US and gives some exposure, aside from being an incredibly cheap agri-processing and trading biz.

    For direct Morocco phosphate exposure I highlight Phosphate Holdings (PHOS) which is a company that runs a single DAP manufacturing plant in MS that is fed exclusively with Moroccan phosphate rock. they get about 1 million tons of phos rock per annum from Morocco. The only other significant importer of phos rock into US is Potash Corp. They have some phosphate mines of their own in North Carolina. Mosaic only sources very small amount of phos rock from Morocco. Something like 200,000 tons. PHOS business will continue from the Morocco connection because of strategically located manufacturing facilities at deepwater port close to Mississippi River providing strategic access to up river states and to South America. As Florida phosphate mines get slowly depleted, the US could become more import dependent. 30 years ago the US didnt import much phos rock. In fact the US Moroccan phos rock trade has only been going on since 1991/2. I think it is generally here to stay. Mosaic has had huge troubles with some permitting of its Florida phosphate mines. For these and other reasons, PHOS could turn out to be an interesting longer term call option. It trades at just around 1.5x book. It trades at 1x peak period EBITDA. It has had some troubles with sulfuric acid plants and flood related disruptions of supply in Morocco earlier this year. Things seem to have calmed down in Morocco politically. This removes some major overhang on the stock that had lead to a 35% selloff in recent months. It is probably worth to be put on an Morocco biz watch list. PHOS is a post bankrupt entity and was spun off to creditors of Mississippi Chemical. It languishes in some obscurity on pink sheets but has good disclosures. Under the right circumstances this one could get lots of institutional interest. During the last cycle this one has been slammed from 30 dollars all the way to 6 and it hasnt recovered very much since. Part of this is the issues they have had with sulfuric acid plants and phos rock supply which reportedly is resolved. Political stability in Morocco certainly will help.

  14. July 6th, 2011 at 14:06 | #14

    On the Moroccan oil front:

    Kosmos Energy (NYSE: KOS) has entered on July 5 into a petroleum agreement with ONHYM covering the Foum Assaka area offshore the Kingdom of Morocco. The area covers 6500 square kilometers and is located in the Atlantic Ocean’s Agadir Basin about 43 kilometers west of the port city of Agadir. Kosmos will be block operator and will have 37.5% participating interest. ONHYM will have 25% interest. Pathfinder Hydrocarbon Ventures Limited will hold 37.5%.

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