Corporate Governance in Algeria: Case study on the joint ventures between British Petroleum, Statoil and Sonatrach

Gabriella Ann Wells Klev & Christian Sennesvik

Student thesis: Master thesis

Abstract

Multinational oil and gas enterprises often try to find opportunities in countries with large proven reserves and promises of future economic growth. However, these countries often find themselves lacking proper formal institutions and accordingly the environmental volatilities are high. As a result, this brings with it many challenges for international investors, including corporate governance issues pertaining to cross-national joint ventures. We have conducted a case study on the joint ventures between British Petroleum, Statoil and Sonatrach, located in southern Algeria. We have attempted to map the nature of these joint ventures and how they play into a broader context by using a corporate governance view. The thesis has been conducted with an inductive approach, using an explanatory strategy. The aim has been to explore the role of local corporate governance in a developing country and how it affects the ventures of international investors. This has led us to the following research question: “How does the institutional environment in Algeria impact the corporate governance in the joint ventures between British Petroleum, Statoil and Sonatrach and how can the foreign investors best protect their assets?” While the three companies have very different domestic cultures, they have certain cultural drivers that make them able to cooperate. However, the success of this teamwork depends on several other things. Our research has uncovered that Sonatrach and Algeria has the biggest influence in both joint ventures, even though British Petroleum and Statoil are acting as important resources from their position as international shareholders. In addition, these two foreign investors are accepting great financial and political risks when choosing to invest in Algeria. These risks emerge as a consequence of Algeria being a rentier state and consequently the country suffers from great institutional voids. These voids are one of the major reasons of why the country has yet to make the leap towards becoming a well functioning democracy. In addition to challenges related to weak institutions, they are also expected to suffer from agency problems pertaining to local workers and their Algerian management. The investment environment in Algeria is hostile towards foreign investors and foreigners are almost without exception only allowed to invest in the hydrocarbon industry. The reasons for accepting these risks and the hostility towards FDI is grounded in a potentially great return on investments as the industry in question is highly lucrative.

EducationsMSc in Business Administration and Organizational Communication, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2014
Number of pages112