Who Owns Morocco’s Oil and Gas Industry?

Rabat – More than MAD 1.2 billion was spent on Moroccan oil and gas exploration in 2016. The sector is mainly monopolized by the country’s international E&P partners, who invest ten times more in the sector compared to Morocco’s National Hydrocarbons Office (ONHYM).

In a rather gloomy international context, following the fall of oil prices, ONHYM’s international partners were the one to save Morocco’s oil and gas exploration industry.

In terms of investments, 2016 has certainly not been a conducive year. In its 2016 annual report, the ONHYM revealed that Morocco hardly allocated a MAD 117 million budget to the sector, while its foreign partners invested ten times more, with a MAD 1.117 billion budget.

The ONHYM’s strategic approach is simplistic  and to the point. Instead of funding the sector itself, the office “continues to redouble its efforts to attract other partners and to ensure regular monitoring of its partners as part of the implementation of their commitments,” explains the report.

To date, Morocco counts more than twenty E&P companies which explore the country’s soil in partnership with the ONHYM. Among these international firms are British giants SDX Energy and Sound Energy in the gas exploration sector, and Italian ENI and American Chevron in the oil industry.

So why are the big names of the oil and gas industry after Morocco? And why are they more than willing to make such colossal investments? The answer is crystal clear.

In addition to its politically stable climate, attractive legal framework and possibly important gas fields, in Morocco, the distribution of interest in exploration permits allocated to these international firms allows them sometimes more than 75 percent of the oil and gas’ wells revenues.

However, the exploration permits allocated by the ONHYM come sometimes with a high cost. The national office maintains a tight and regular monitoring of its partners as part of the implementation of the companies’ commitments. In case of the transgression of these commitments, the sanctions are quite heavy.

Sound Energy, one of the leading E&P firms present in Morocco, experienced first hand the backlash of the ONHYM.

The Company, through its wholly-owned subsidiary Longreach Oil and Gas Ventures Limited, is a party to a petroleum agreement dated June 18, 2009 between the ONHYM and San Leon Morocco Limited, Morocco’s operator.

As a result of the minimum work commitment under the Petroleum Agreement not being fulfilled, ONHYM has seized funds posted as a bank guarantee, including USD 600,000 lodged by Sound Energy.

In addition, ONHYM has demanded that Sound Energy pays a further USD 600,000, being the company’s share of the residual penalty, bringing the total sum to USD 1.2 million.

Sound Energy had notified ONHYM that a “force majeure” has occurred pursuant to the Petroleum Agreement due to financial, commercial and operational challenges on the licence over a number of years.

The Company will seek to work with ONHYM and the Operator to expedite a mutually agreed resolution; however, Sound Energy may be required to proceed to legal arbitration to preserve its rights.