Algeria state oil firm Sonatrach's tax compromise shows progress

13 March 2012

Resolving an oil profit-sharing dispute could earn the state more interest from foreign investors

Sonatrach’s new compromise on oil profit-sharing could boost foreign investment in Algeria. The end of a long-running dispute over oil revenues could provide the impetus for progress in the nation’s hydrocarbons industries, which have been dogged by a corruption scandal over the past two years.

US-based Anadarko Petroleum Corporation, the largest foreign oil company operating in Algeria, has settled a six-year disagreement with Sonatrach over an exceptional profits tax law. The deal is worth $1.8bn in additional crude volumes over a 12-month period to Anardarko, as well as an extra $2.6bn share in the present net value of the El-Merk megaproject being jointly developed by the two firms.

Sonatrach struck a similar deal with Denmark’s Maersk for $920m in crude volumes. Both companies claimed that the profits tax breached the contracts they had signed when first entering Algeria’s oil market.

In addition to that dispute, Sonatrach was embroiled in a corruption investigation over contract awards in 2010, which resulted in the axing of its chief executive officer and several senior managers. The corruption allegations still continue to affect the firm.

But the new compromise could smoothen Algeria’s relationship with Anadarko, which had launched arbitration proceedings against Sonatrach on the profits tax, thus delaying the 100,000-barrels-a-day El-Merk project.

The agreement comes at a key time for Anadarko as it will reap a greater share of the revenues from El-Merk, which is expected to start operations later this year.

Algeria’s new willingness to compromise on profit sharing could also draw more interest from overseas investors and help it reach its full potential as an oil producer.

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