Canada to Sign Gas Marketing Agreement with Algeria

Petroleums Ltd. announced a long-term natural gas marketing agreement with Algeria's national oil company Tuesday - a major move towards developing its US$800-million natural gas project in North Africa.

Under the deal, state-owned Sonatrach Petroleum Corp. will market gas from the block 405b property that First Calgary is developing in Algeria's Berkine Basin. The price is to be linked to European oil prices, the company said.

The deal essentially transforms the Calgary-based international junior energy company from a pure exploration business to a natural gas producer.

"Without this agreement, First Calgary would not be able to sell a molecule of gas or generate any revenue," said analyst Memet Kont of UBS Research.

"We see this as a major stepping stone towards commercialization and should remove a substantial part of the risk the market was assigning to the project," said Kont, adding he expects to see a steady stream of updates from First Calgary in the coming weeks.


The low cost of production in Algeria should allow First Calgary to command "substantial netbacks" in its natural gas sales, Kont said.


The company holds rights to wide areas of the North African country, and aims to finalize engineering and construction contracts next year and have its MLE gas project functioning by 2009. The design, estimated to cost between US$800 million and $1 billion, includes new export pipelines which must travel 140 kilometres to tie into a national grid.


Tuesday's deal drastically reduces the project risk and makes First Calgary a potential takeover candidate.