Algiers right to compromise on oil

Algeria was lauded in the past for the liberal terms it offered to international oil companies (IOCs) and the transparency of its bid rounds.

After amendments were made to the hydrocarbons laws in 2006, however, voices of dissent began to be heard. A windfall tax on any oil sold at more than $30 a barrel was particularly worrying for investors.

By the time of the 2008 licensing round - the country’s seventh - IOCs were vocal in their criticism of the harshness of the terms they were being offered and the complexity of the prequalification and bidding criteria being set.

In the event, only four of the 16 licences originally tendered were awarded. Algiers blamed the downturn. The IOCs blamed Algiers.

As project costs fall in 2009, however, a new spirit of compromise may be coming at just the right time. The $4bn El-Merk oil processing megaproject, a joint venture of state-owned Sonatrach and the US’ Anadarko, is to go ahead after being put on hold in 2008.

The developers were seen as being at loggerheads over the windfall tax, as Anadarko has the largest reserves of all the international companies operating in the country. Anadarko also accused Sonatrach of overstating its reserves.

A compromise from both on the scope of the project and on the terms offered to Anadarko will have been required to finally get the project off the ground, and if Algiers is willing to extend this spirit to other projects, it will set a positive precedent.