Algiers' oil terms are still too harsh

27 October 2009

Under Algeria’s 2006 Hydrocarbons Law, Sonatrach takes a 51 per cent stake in all upstream developments

When Algeria’s last oil and gas bid round ended in near disaster in 2008, Algiers blamed the global economic downturn as the major factor behind its lack of success.

Only four of the 16 exploration and production licences offered by Agence Nationale pour la Valorisation des Ressources en Hydrocarbures (Alnaft) were awarded on 13 December 2008. At the time, the US’ West Texas Intermediate (WTI) crude oil contract was trading at $46 a barrel, less than a third of the $147-a-barrel peak it reached in July that year. On 1 December, stock markets across the globe suffered their largest one-day falls in 20 years.

Algiers could be forgiven for expecting a better result in its December 2009 round, when it will offer only 10 concessions, which it says were picked by the international oil companies (IOCs) it has invited to bid for licences. As MEED went to press, WTI was trading at about $75 a barrel – $23 a barrel above the average price this decade.

But senior IOC executives say they need further concessions from the Algerians. While Algiers blamed the financial crisis for the failure of the 2008 bid round, the bidders said that Algiers’ harsh terms were the real problem.

Under Algeria’s revised 2006 Hydrocarbons Law, state energy firm Sonatrach takes a 51 per cent stake in all upstream developments and a tax is levied on every barrel of oil sold at more than $30. In the 2008 bid round, Alnaft also demanded that IOCs offer assets abroad as part of any deal.

This time around, the demand for asset swaps has gone, but little else has changed. Oil prices have almost doubled, but IOCs’ profits have not followed suit and the future of the global economy is far from certain. Removing the tax on oil sold for more than $30 a barrel could make the 2009 bid round avoid the fate of last year’s competition.

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