Third oil and gas licensing round to boost Algerian energy sector

14 September 2010

Analysts believe terms will not change from previous two bidding rounds in North African state

Algeria’s National Agency for the Valorisation of Hydrocarbon Resources (Alnaft) has announced a third oil and gas licence bidding round in the North African state.

The licencing round is the first auction and first major hydrocarbons development since Youcef Yousfi replaced Chakib Khelil as Algeria’s energy minister and the senior management of the state-owned oil company Sonatrach were removed due to corruption allegations (MEED 9:4:10)

To change [the fiscal terms] the government would have to change the oil law and change the laws on taxes

Samuel Ciszuk, IHS

The third bid round coupled with the change in the top level management of Algeria’s hydrocarbons sector should see the country’s oil and gas industry rise from its current malaise, says IHS senior Middle East energy analyst, Samuel Ciszuk.

“The purge of top level officials led to a paralysis in the decision making process at Sonatrach and the oil ministry and now that a change has occurred it is hoped that this paralysis will ease,” Ciszuk tells MEED.   

A UK-based analyst familiar with Algeria admitted he was surprised at the speed that the licencing round was announced.

“I am surprised at how quickly the new management at Sonatrach and the energy ministry announced this licencing round,” the analyst says. “This is a positive sign because it shows they realise that they need to get acreage out there and make it available.”

The previous bidding rounds held by Alnaft in 2008 and 2009 were not a success with international oil companies (IOCs) not bidding for many of the blocs (MEED 30:10:09). Algerian officials blamed the global economic downturn for the lack of interest, but many officials from the international oil companies blamed the harsh terms set by Sonatrach. 

”There has been a lot of exasperation [in Algeria],” Ciszuk says. “The situation was seen as pretty gloomy in Algeria even before the corruption scandal broke. Companies working in Algeria were downbeat about doing business under the existing terms offered by Sonatrach.”

This time around Alnaft is offering the rights to develop 10 areas in Algeria and has scheduled a meeting for interested parties on 30 September in Algiers to discuss main contractual provisions of the licences. However, both Ciszuk and the UK-based analyst believe that there will not be any significant changes made to the terms being offered by Algeria to the IOCs.

“I am not expecting fundamental changes to the fiscal terms, but that is my gut feeling,” the UK-based analyst says. “All of my sources on the ground in Algeria say that there has been zero confirmation one way or the other on how this can play out.”

“It’s great they have got the round out, but I don’t think the terms are going to change,” he adds.

“To change [the fiscal terms] the government would have to change the oil law and change the laws on taxes,” Ciszuk says. “They would never get parliamentary approval for this kind of thing.”

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. That was later discarded following complaints from IOCs.

After the initial meeting in Algiers on 30 September, clarification meetings are due to take place between October and December with bid submissions and subsequent public opening of the bids taking place on 3 March. The UK-based analyst says that the success of the whole licencing round depends on the first meeting.

“The date when everything will become clear is 30 September,” the analyst says. “This is when Alnaft is going to tell the IOCs the fiscal terms on offer. This is when a solid judgement can be made on the outcome.

“However, if those blocks on offer are not prospective then it doesn’t matter what the fiscal terms are because no-one will be interested.”

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