Theme: The extraordinary increase in oil exploration in the area between Spain and the Maghreb highlights the risks associated with the lack of bilateral delimitation treaties with Morocco and Algeria.

Summary: Two years ago there were no companies exploring for oil in Spanish waters bordering on, or near, Moroccan waters. Today, five oil companies are operating along the Spanish/Moroccan maritime border in three different areas: the Atlantic side of Gibraltar, the Alboran Sea and the coast of the Canary Islands. In two cases, the same company holds exploration rights on both sides of the maritime limit. This unusual activity has awakened the interest of the Algerian government, which has called for tenders for the exploration of what it considers its territorial waters in East Alboran, directly on the north-south line with La Manga del Mar Menor. This includes an area that has traditionally been considered to belong to Spain.

The large rise in exploration very substantially increases the likelihood of hydrocarbons being found in at least one of these zones and also, that extracting them will be economically viable. In this case, Spain will be faced with one of the most delicate and complex issues in international relations: delimiting maritime jurisdictions where hydrocarbon deposits lie beneath the seabed, something that has led, with alarming frequency, to conflicts of varying intensity.

Analysis: Repsol takes control of the Atlantic side of Gibraltar

The Spanish oil company Repsol YPF has recently obtained permission to explore three zones along the Atlantic coast of Morocco, from Tangiers south to Larache. The area covers 6,000 km² (about the size of the province of Gerona), which the company will explore for eight years. This agreement is similar to another dozen that Morocco has signed with other oil companies. The particularity of this agreement is that it affects Moroccan waters bordering on Spanish ones. Also, it turns out that Repsol also holds exploration rights on the Spanish side, off the province of Cadiz, where it has seven exploration licences adjacent to those it has just received from Morocco.

To determine Repsol’s possible interest in the Tangiers-Larache zone, it must be kept in mind that in January 2002 Repsol received nine licences from the Spanish government for hydrocarbon exploration between the coast of Morocco and the islands of Lanzarote and Fuerteventura. Rabat reacted harshly to this concession, sending the Spanish embassy a diplomatic note that labelled this action as ‘unfriendly and unacceptable’. The Moroccan Foreign Minister, Mr Benaissa, claimed that Spain had unilaterally determined the limit between the areas of interest off the Canary Islands and Morocco. The note ended ‘insistently inviting Spain to suspend its application’ (see Petróleo: ¿el próximo conflicto hispanomarroquí?, by Íñigo Moré, http://www.realinstitutoelcano.org/analisis/60.asp). It is true that the Moroccan protest made no reference to Repsol. However, it can also be assumed that it in no way motivated Repsol executives to visit Rabat.

Given these precedents, the only reasonable conclusion is that Repsol approached Morocco with a clear goal in mind and weighty arguments to back it up. These arguments are the seven oil concessions that Repsol operates on the Spanish side of the Atlantic coast of Gibraltar. All together, these licences located on the Spanish side of Gibraltar come to 275,410 hectares or 2,754 km² (larger than the province of Vizcaya). More importantly, these concessions are the most fertile in Spain: 90% of domestic natural gas is extracted from them.

Repsol acquired the Poseidón Norte and Poseidón Sur concessions in 1995. Both are located in open seas 30 km south of Huelva. These concessions turned out to be the most successful ever drilled on the Spanish coast and in 2002 produced 503 million m³ of gas. This volume represented 90% of all the gas extracted that year in Spain.

In light of this success, Repsol continued southward along the coast. In 1997, it requested the Hércules Norte and Sur maritime concessions, adjacent to Poseidón, but in the province of Cádiz. These zones turned out to be sterile, so in 2001 Repsol continued southward and in December acquired the Calypso Este and Oeste, on the maritime perimeters. These are adjoining and centred on the Bay of Cádiz. Both licences form a rectangle whose short side runs north to south, approximately from Chipiona to Conil. Repsol immediately began preliminary work, which according to the terms of the concession includes 3-dimensional seismic studies of an area of 600 km², geochemical studies and others, all worth a total of at least €4.1 million.

The company must have found something interesting because on March 21, 2003, it was able to sell the German company RWE Dea AG 25% of the perimeters, with an option to acquire up to 30%. This means that the German company will take on part of the investment, but only as a minority shareholder, remaining subordinate to the Spanish company’s management decisions.

The consortium immediately drilled appraisal well CO-1 on the Calypso Oeste licence. It finished drilling on April 27, having reached a depth of 1,900 m. The next day, April 28, it began appraisal well CO-2, set to reach a depth of 1,900 m. One day after finishing this, drilling was begun on CE-1, on the Calypso Este licence. Like the others, 1,900 m was the targeted depth.

Repsol has not provided any information on the results of these tests, but they would seem to be positive, perhaps even very positive. On May 30, 2003, the company obtained the Circe licence, which implies extending Calypso to the west. This suggests that wells CO-1 and CO-2 indicate the existence of reserves extending to the adjacent zone.

This set of activities by Repsol in the zone suggests that the company was hoping the success of Poseidón could be extended to the south, first with the Hércules licences, then with Calypso and finally with Circe. The Olympian origin of the names of the concessions suggests that Repsol considers them part of the same group and, therefore, of a similar geology. Also, the Olympian connotations clearly suggest the magnitude of Repsol’s expectations, already confirmed in the case of Poseidón, the main Spanish gas reservoir. As part of this strategy , it seems logical for Repsol to study the adjacent zone to the south; in other words, to apply to Morocco for concessions. This is not to rule out the possibility that these reservoirs could also extend to Portugal, where Repsol YPF is already operating (Offshore Algarve, Portugal: A Prospective Extension of the Spanish Gulf of Cadiz Miocene Play, by J. Cakebread-Brown, C. Garcia-Mojonero, R. Bortz, L. Cortes, W. Schwarzhans and W. Martínez del Olmo).

From the Moroccan point of view, it also seems natural to grant the oil concession for its north shore to the company already operating on the Spanish side. Repsol has inestimable experience in the zone, knows its geology and has explored it successfully. This guarantees that the Spanish company has a precise idea of what could lie below the seabed on the north coast of Morocco, putting it in the best position to find hydrocarbons, if any are to be found. This argument could be solid enough to eclipse other issues, particularly Morocco’s dramatic interpretation of the Repsol concessions between the Canary Islands and Morocco.

The Canary Islands and Morocco The coast of the Canary Islands has been studied by Repsol since the company received nine adjacent concessions between the Canary Islands and Morocco. Under the terms of the concession, Repsol was obliged to invest €10 million in two and three-dimensional geological, geochemical and seismic-stratigraphic studies. These studies have already been carried out and are reason for some optimism. They have been sufficient to lead the Australian company Woodside to buy 30% of the concessions from Repsol in 2003, while the German company RWE Dea AG bought another 20%. Both companies will cover their share of the costs, while accepting Repsol’s management decisions. Woodside’s participation is very significant, since it is the main foreign operator on the coast of Mauritania, where it has five concessions along the central coast of the country. It has drilled three wells there, locating significant amounts of oil (Chinguetti-1, Chinguetti-4-2 and Chinguetti-4-3), leading to hopes for the first hydrocarbon operation in Mauritanian waters. To date, the Australian company is the only one that has been successful on the Mauritanian coast and its entry into the Repsol consortium could be interpreted as the result of speculation that the Mauritanian reservoir could extend northward. Much more important is the fact that the entry of these two companies into the consortium led by Repsol backs the legitimacy of the concessions, which Morocco has questioned with unusual harshness. In the early months of 2004, Repsol will drill its first well in the zone.   To the south of this concession, on the shores of the Sahara, are the controversial concessions granted by Morocco in 2001, dividing the Saharan coast between the US company Kerr Macgee and TotalFina. Since then, Rabat has been annually renewing this ‘reconnaissance licence’ which does not grant drilling rights.   Responding to these concessions, the Polisario Front contracted the Australian company Fusion Oil to assess Saharan oil resources. This small Australian company has sold an option to 35% of its ‘technical assistance contract’ with the RASD to Premier Oil, a British oil company. The agreement forces Fusion to provide a free report on oil prospects on the Saharan coast. As remuneration, it has received a promise of three oil concessions in the zone, each one up to 20,000 km², once the Sahara becomes independent. The modest Australian company was once thought to believe that the future of the Sahara would take the same course as that of East Timor, near Australia. It now appears that a much larger British company with significantly greater experience shares its vision. To make use of its option, Premier Oil will pay 70% of the costs already incurred, taking 35% of any concession that Fusion may acquire. It must be kept in mind that this transaction is part of a ‘general association’ through which the British company has taken stakes in its Australian counterpart’s concessions on several occasions.   In early October, two representatives of Fusion and Premier presented the technical study to the Polisario at a formal event. Fusion claims that ‘it provides reasons for cautious optimism on the oil geology of the zone’. Premier Oil, for its part, says that ‘regional studies undertaken by Premier and Fusion indicate that the area has exciting oil potential’. Fusion has announced that in November it will request that the Polisario grant three drilling licences, though it says that concession of these will have to be ratified by the UN.   It seems, therefore, that the Polisario has increased support for its pretensions in the zone, though this will not likely be enough for the conflict to be resolved in its favour. Repsol puts Alborán under Spanish influence and awakens Algerian interest This unusual interest in the limits between Spain and the Maghreb heightened with Repsol’s arrival in the Alboran Sea, an area where the US company Conoco operates. This company holds negotiating rights to a ‘research contract’ that covers the Moroccan side of Alborán, though its concept of territorial waters is very broad, since it apparently covers waters that surround Ceuta, Melilla and even the island of Alborán itself (see Petróleo: ¿el próximo conflicto hispanomarroquí?, by Iñigo Moré, http://www.realinstitutoelcano.org/analisis/60.asp). In a demonstration of fair play, in 2001 Spain granted this company oil rights in the Spanish part of Alborán, near the province of Malaga. However, last July, Repsol applied for Siroco A, B and C licenses, all adjacent to one another and located in the Alboran Sea in line with the province of Malaga. These three concessions surround those held by Conoco in Spanish waters, literally blocking off its concessions on the northwest side.   Although there is healthy competition in the Spanish hydrocarbon exploration sector, there have been a few cases of similar actions, in which one company requests the perimeter surrounding another. Obviously, this means that Repsol considers it likely that there are hydrocarbons in the same zone that Conoco does. Also, this movement could be considered unfriendly since it partially closes the American company’s access to land. This could cause operational difficulties to Conoco, though it adds a Spanish presence to a situation in which the American company was benefiting from a monopoly in the Alboran Sea.

In light of all this interest, Algeria has played its ace by calling for tenders for oil exploration in what it considers its territorial waters on a north-south line between Oran and Cartagena. In the framework of the fourth round of oil concessions, which will close on December 1 of this year, Algeria has invited tenders for exploration zones in 12 areas of the country, with different blocks. Among the most important of these are 143-2 and 145-1, both located along the Algerian shore. 143-2 makes a 8,794 km² rectangle at the easternmost end of the Alboran Sea, ending opposite what would be Spanish territorial waters. The other marine block, 145-1, covers 6,924 km² along the Algerian shoreline near Bejaia, approximately on the 5º E parallel, south of Minorca. In this case, the end of the block is about 200 km from Minorca and also facing Spanish waters. Both blocks are shown in yellow on the following map prepared by Sonatrach.

For the moment, the Algerian coast has hardly received attention and has only been drilled on two occasions (see The Petroleum Prospectivity of the Deep-Water Margin of Algeria, by Michael J. Cope). So far, Sonatrach had preserved its coastline, which was shown on maps of the Algerian ‘mining domain’ as a ‘research zone’ reserved for the state-owned company. This research has consisted of a geological study of the seabed, which in the Cartagena-Oran corridor reaches depths of up to 2 km. The fact that Sonatrach has invited tenders for the zone could mean that it has found reasonable signs of the presence of hydrocarbons. This likelihood is proportional to Sonatrach’s capacities: as the 11^th biggest oil company in the world, its technical expertise must be very high. Also, with a business volume of US$18.1 billion in 2002, Sonatrach is Africa’s main business group, the world’s second largest exporter of LNG and the third largest exporter of natural gas.

This is not bad news for Spain, since geology knows no political boundaries and the same signs could extend into Spanish waters. Spain could thus reduce its energy dependence on Algeria (see España profundiza su dependencia energética de Argelia, by Iñigo Moré, http://www.realinstitutoelcano.org/analisis/86.asp).

Finally, it must be noted that Algeria is not the only party interested in Spanish hydrocarbons. In 2003, the prestigious American Association of Petroleum Geologists held its international conference in Barcelona. In nearly two hundred presentations, it exhaustively studied Spain’s oil potential, and specifically regional geology at the main session of the conference.

Risks and opportunities It must be emphasized that the existence of hydrocarbons has not been proven in any of the three zones, though there are well-founded hopes based on previous experiences such as Poseidón and the exploration on the Mauritanian coast. Even in the absence of these precedents, the large amount of exploration on the limits between Spain and the Mahgreb substantially raises the likelihood of finding hydrocarbons at one or more of these sites.   If hydrocarbons are found, and if they spread across both jurisdictions, negotiations on the exploitation of the resources located would begin between the holders of rights on either side. The problem is that Spain would start off on the worst possible footing in this process, since it has not signed any treaties delimiting its maritime boundaries with Morocco or Algeria which, as we have seen, do not always seem to coincide. Spain, meanwhile, has signed this kind of treaties with countries as unlikely as Italy. Spain has tried to compensate for this situation by having one of the working groups created to re-launch Spanish/Moroccan relations focus on this issue. The group, however, limits its activities to maritime boundaries in the Canary Islands area. To date, there has been no public announcement of any agreement, though it does seem clear that the parties have the will to reach points of agreement. At least, Rabat has not repeated its protest. One expression of this goodwill is the successive awards of concessions to Repsol in Gibraltar-Atlántico.   On the other hand, these concessions are almost obligatory, given the record of the Spanish oil company in the zone, and the special circumstances of their location. The limit between Spanish and Moroccan jurisdiction on the Atlantic side of Gibraltar coincides with the narrowest point in the Strait, where heavy sea-going traffic would make the installation of oil rigs unadvisable, even if hydrocarbons were to be found there. Although modern technology makes it possible to face all kinds of technical difficulties, deposits in the Strait, right in front of Gibraltar, would likely present insurmountable obstacles. Considering that Repsol is the title-holder on both sides and that deposits in the middle would be more difficult than attractive, the zone would seem to present little potential for conflict in this respect.   The situation on the Saharan coast is more complex, since in addition to the problem of there being no delimitation of waters, there is the well-known dispute over the region’s sovereignty. On this issue, two oil companies have accepted Rabat’s arguments and two others have sided with the Polisario Front. After several years of investigation, those working for the Polisario have now completed their preliminary studies; this is most likely also the case of those working in Morocco. All of them have no doubt defined their goals in the zone and are technically prepared to move on to the drilling stage. The area’s low level of economic development and its energy dependence are an incentive for this. However, the companies working with the Polisario lack the economic resources to undertake activities on their own. In June 2003, Fusion Oil had assets of only AUS$16.2 million, while at the end of 2002, Premier Oil had assets of £101 million. By contrast, the companies with licences in Morocco are international giants with more than sufficient economic capacity. A unilateral decision to drill would cause tensions that could affect Spain; especially considering that the southern limit of the Canary Islands jurisdiction would be adjacent to the Sahara, to say nothing of its effect in the general context of the Saharan conflict.   In this area, it seems that an orderly exploitation of the eventual riches of the zone, in accordance with international law, is in the interests only of Spain.   The case of the Moroccan and Algerian sides of the Alboran Sea involves other considerations. Repsol’s arrival, surrounding Conoco in the zone, would seem to end the monopoly that the US company has enjoyed until now. Since the areas requested by Repsol in the zone are far from the Spanish/Moroccan limit, this situation is unlikely to lead to any immediate tensions, unless the company’s endorsement of Conoco’s strategy arouses Moroccan interest in the zone. It must be borne in mind that Rabat has negotiated a ‘reconnaissance contract’ with Conoco that affects the entire Mediterranean shore of Morocco, in a broad interpretation of its jurisdiction in the zone. At any time, Rabat could raise this contract to an ‘exploration licence’ to allow drilling.   For its part, Algeria could contribute to arousing this interest with its decision to invite tenders for the exploration of two maritime zones, especially the one located in East Alboran, on the Cartagena/Oran line. It is important to highlight that the Algerian decision implies the delimitation of its jurisdiction in the zone: it sets the northern limit at 36º 55’ latitude and 0º 30’ W longitude, approximately in line with La Manga del Mar Menor. A superficial analysis does not necessarily lead to the conclusion that this point corresponds to the natural line between the two countries. At this longitude, Spain ends at Cabo de Palos at 37º 37’ latitude, while the extreme north of Algeria at that longitude is approximately 35º 55’. The mid-point, therefore, would be about 10’ to the south of where Algeria sets the limit of this block. For the moment, the Spanish Ministry of Foreign Affairs has not reacted publicly, which does not mean it has accepted this. Technically, it would be necessary for Algeria to officially grant exploitation rights to the zone to a specific company. This may never happen. Given the current good relations between Madrid and Algiers, the most likely cause of this situation could be a simple cartographic error –a situation also influenced by a lack of care on the part of Spain, which does not have an official map of what are, or what it considers to be, its waters. This situation could well be solved by a simple conversation. It is significant that Spain, in late 2001, made the strategic decision to strengthen its already close energy relations with Algeria. This country is Spain’s main energy supplier, providing 15% of the total. Thanks to this decision, this could reach 30% by 2010 (see España profundiza su dependencia energética de Algeria, by Iñigo Moré, http://www.realinstitutoelcano.org/analisis/86.asp).   Apart from territorial questions, and whether or not there are hydrocarbons in the zone, the proximity of the Algerian and Moroccan coasts could lead to environmental problems, aggravated by the fact that opposite some of the exploration zones there are tourist centres such as La Manga del Mar Menor, the Costa del Sol and the coast of Cádiz.   Such environmental risk is almost non-existent in Spain thanks to strict regulations. Before drilling, oil companies must inform the Ministry of the Environment of their plans, opening a transparent process of public consultation before any authorization is granted. In this way, problems can be avoided which could otherwise be irreparable. However, in countries such as Algeria and Morocco environmental questions are not given the priority they receive in Spain and their environmental regulations are nominal compared to Spain’s, which applies European standards. Without doubt, Repsol will operate in Tangiers-Larache with the same diligence as in Cadiz, but it is impossible to know who will obtain the Algerian licence across from La Manga or if environmental commitment will be included in their corporate mission statement.

Conclusions: All this encourages the Spanish government to continue its efforts to delimit jurisdictions with Morocco and to extend this process to Algeria. This will not always be up to Madrid to decide, since it takes two to tango. For this reason, it could be useful to establish one or more Spanish-Mahgreb institutional forums on environmental and oil-related issues. It would even be interesting to broaden their scope of action to energy issues in general, given the electrical connections and gas lines between Spain and the Maghreb. These institutions would enable information to be shared and would serve as a basis for purely technical initiatives such as training or professional practices. They would even serve to coordinate efforts in emergency situations. A possible model is the group of cross-border institutions between the US and Mexico, such as the US-Mexico Environment Commission or the US-Mexico Border Health Commission (see El escalón económico entre vecinos. El caso España-Morocco, by Íñigo Moré, http://www.realinstitutoelcano.org/documentos/44.asp).

Iñigo Moré

Consultora Mercados Emergentes

mercadosemergentes@hotmail.com