Britons are among eight workers kidnapped by Islamist militants from Mali in an attack on a natural gas field partly operated by BP in southern Algeria.
A security guard was killed in the raid and seven others wounded, but Algerian forces caught up with and surrounded the kidnappers and negotiations for the release of the hostages are continuing, an Algerian security official said.
He said Britons, Japanese and Norwegians were among the hostages.
The Foreign Office confirmed "a terrorist incident is ongoing" near the facility in Ain Amenas, 60 miles from the Libyan border and 800 miles from the capital in Algeria's vast desert south.
BP, together with Norwegian company Statoil and the Algerian state oil company, Sonatrach, operate the gas field. A Japanese company, JGC, provides services for the facility as well.
Statoil also confirmed an attack had taken place, adding that it has 20 employees in the facility.
BP confirmed there had been a "security incident this morning" at the Ain Amenas field.
Al Qaida's North Africa branch has long been active in northern Algeria and occasionally in the desert south, but it has never before attacked the country's many oil and gas facilities.