Algiers is abandoning its practice of requiring international oil companies (IOCs) to hand over stakes in their overseas energy projects in exchange for exploration and production licences.

Senior international oil company sources tell MEED Algiers has dropped the requirement for its next oil and gas licensing round, to be held in December, to avoid a repeat of its disastrous auction for similar licences in December 2008.

“It has simplified the process,” says the Algeria head of one international firm. “[In 2008], it asked for the companies to propose some assets to exchange in foreign countries, and that was very complicated. This time it is asking for a commercial price.”

In the 2008 field auction, IOCs bid for licences on just four of the 16 exploration and production blocks on offer, complaining that Algiers’ licensing terms were too harsh.

The auction was Algeria’s first since the introduction of a strict new Hydrocarbons Law in 2006. Under the law, state-run energy firm Sonatrach takes a 51 per cent stake in all projects, and IOCs have to pay a windfall tax on oil that sells for more than $30 a barrel.

Algiers’ demand for asset swaps in the December 2008 bid round was the “final straw” for many would-be bidders, according to a second senior IOC executive.

Agence Nationale pour la Valorisation des Ressources en Hydrocarbures (Alnaft), which oversees the allocation of oil and gas concessions in Algeria, plans to auction 10 exploration and production licences in December this year.

As part of the new bid round, Alnaft asked IOCs which blocks they would consider the most attractive and what had prevented them from bidding in the 2008 licensing round.

The state agency released information on the concessions on offer on 15 August, and started a period of consultation with the IOCs on 2 September. Consultation ended on 26 October, and Alnaft plans to have contracts for the deals prepared by 9 November. Alnaft will hold a formal bid round for the licences on 20 December.

The IOC executives say that although Algiers has dropped its demand for stakes in overseas oil and gas assets, it has made few other changes to ease the terms of the exploration and production licences on offer.

Licensing round, 2008

  • 16 – Number of exploration and production blocks on offer
  • 4 – The number of blocks attracting bids from international firms
  • 51 per cent – Stake held by state-run oil firm Sonatrach in concessions