Morocco’s Offshore Potential Hampered by Onshore Problems

Unrest in the North African countries of Algeria and Libya, who suffer from labour and military unrest, has worked to the benefit of Morocco, as investors looking to get involved in the areas relatively untouched oil and gas sector are more attracted to the relative stability provided by the country, and the generous revenue tax system.

Hopeful that the geology off the coast of Morocco will match up to that found off the coast of Brazil (the countries were once joined before the continents pulled apart) where huge reserves have been discovered in recent years, international oil majors have begun to move into the region searching for the world’s next big find.

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Whilst small operators such as Sano Leon Energy and Longreach Oil and Gas have been operating in the country for much of the past decade, majors such as Chevron and BP have just recently taken an interest, announcing more than 10 wells to be drilled in 2014, over twice as many as drilled in the last ten years.

Morocco may seem like a great investment opportunity, mostly protected from much of the violence to the East and ripe with offshore potential, but according to Forbes it has its own problems, and the arrival of international companies may be more of a headache than a boon.

Firstly is an urgent need to restructure the energy subsidy program, as the International Monetary Fund has told Morocco’s government to raise energy prices and cut back on sector spending as it works to comply with energy subsidy reforms required by the International Monetary Fund (IMF). These cuts will now likely make it difficult for the government to justify the low tax structure offered to foreign energy investors, one of the major attractions offered at the moment.

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Then there is the more serious concern of aggravating a decades-long territorial dispute in the Western Sahara. Around 40 years ago an area of the Western Sahara was annexed by the Moroccan people, and it is feared that as oil companies move further south they will become involved in this battle, finding problems in determining which authorities they need to deal with in which areas. If any discoveries are made in the region it would add even more pressure to the situation.

Erik Hagen, head of the Western Sahara Resource Watch, warned that “what the oil companies are doing is making it impossible to solve the conflict. Morocco would have no incentive to enter into any purposeful UN peace talks with an oil find.”

By. Charles Kennedy of Oilprice.com