Algeria revises energy regulations to encourage upstream foreign investment

 

The collapse in global oil prices has caused international interest in exploration and production (E&P) activities to slow down. Yet, Algeria has maintained its determination to boost its hydrocarbons sector, with plans targeting an increase in oil and gas output by 14% and 13%, respectively, by 2019. To keep up the momentum in the face of declining foreign interest, state-owned oil and gas company Sonatrach has plans to invest upwards of $50bn in E&P between 2016 and 2021.

Sluggish Interest 

The collapse in global oil prices in 2014 has affected foreign investment in Algeria’s hydrocarbons sector; however, the scarcity in interest had already manifested itself a few years prior, after a 2011 licensing round saw just two out of 10 permits on offer awarded. Similarly, in 2014, only four out of 31 contracts were awarded. Since then, no licensing round has taken place, although according to the National Agency for Hydrocarbons Resources Valorisation, the state’s oil licensing body, details of an upcoming bidding round are currently being devised.

Legal Reform 

The limited interest encountered in the country’s upstream bidding rounds can be partly attributed to the legal framework governing the hydrocarbons sector. The country’s most recent attempt to loosen regulation dates back to 2013, though the outcome has proved fruitless.

New considerations, however, are under way, with the country’s minister of energy, Mustapha Guitouni, announcing a first draft would become available in June 2018. Addressing the local media in October 2017, he asserted that there will be no changes to the 49:51 foreign ownership ceiling, but that additional tax incentives to reflect current oil prices will be brought on board. Income tax on oil revenues is also expected to be revised and determined according to profitability rather than turnover. In the face of falling foreign investment as well as declining hydrocarbons revenues, regulatory reform has become widely acknowledged as a pressing matter. The much-anticipated changes will aim primarily at making Algeria’s hydrocarbons sector more competitive for and attractive to foreign investors, especially in the field of E&P.

Consolidating Partnerships 

In the meantime, with the view of supporting production goals, as well as attracting technology and know-how, Sonatrach has sought to consolidate ties with its existing partners through bilateral agreements. In May 2017 Sonatrach and France’s Total concluded a deal to add upstream projects to their partnership, to reinforce joint activities at the Tin Fouye Tabankort gas field and review their agreement in regards to the Timimoun project.

In June 2017 Sonatrach and Italian energy firm Eni signed a number of agreements to solidify their ongoing collaboration in E&P activities and enhanced recovery methods to boost output in the country’s maturing fields. Similarly, in the same month, Sonatrach and Spain’s Repsol struck a deal underlining their continued collaboration in energy exploration. In September 2017 Sonatrach inked a deal with six historical partners, namely Anadarko, Cepsa, Eni, Maersk, Pertamina and Talisman, to consolidate upstream activities in its Ourhoud field. Lastly, in October 2017, presidential decrees were adopted allowing the conclusion of plural E&P contracts, and included an amendment binding Sonatrach and Eni extending their activities in Zemoul el Kbar by another five years.

The reform of the hydrocarbons law is expected to breathe new life into the industry and simplify investment procedures. “There are some current discussions around the offshore opportunities that Algeria offers. Two international companies have already signed agreements to use a package of data with detailed seismic analyses,” Salah Mekmouche, vice-president of E&P at Sonatrach, told OBG. “For Algeria, offshore activities should kickstart in the second semester of 2018 with the reception of the first project proposition. The national oil firm is looking forward to partnering with those that have the needed skills and knowledge.”

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The Report: Algeria 2017

Energy chapter from The Report: Algeria 2017