ALGERIA - Confusing E&P Regime & Tax.

International oil companies (IOCs) are calling for further clarification of Algeria's hydrocarbons regime, with continued confusion about a new windfall profits tax. A new hydrocarbons law was passed in July 2005, but key changes were made a year later, including a proposal for the new tax. The tax applies to the profits of IOCs at the price of $30/b of dated BFO or more. Companies remain uncertain of its effects, despite the government's efforts to clarify the situation in December 2006 by outlining how the tax would be applied.

Gerry Peereboom, local head of BP, was on Jan. 26 quoted by MEED as saying: "We still have questions for Sonatrach and are looking for further clarification of the system. The system will need to be made clearer before any new acreage can be licensed. People are still wondering what is happening with the seventh international oil and gas round [originally planned for late 2005]".

The tax applies to contracts signed under the previous hydrocarbons law of 1986 and is levied on a sliding scale according to a company's daily production and the type of contract originally signed. Peereboom said: "Companies whose contracts do not already contain price cap clauses will be hit pretty hard".

The charges will be back-dated to Aug. 1, 2006, but it is still unclear when they will first be levied. Anadarko Petroleum Corp of the US, the largest foreign oil producer in the country, is expected to be particularly hard-hit. Craig McMahon of UK energy consultancy Wood Mackenzie was quoted by MEED as saying: "People are calling it the Anadarko tax. Profits there have been phenomenal, but there is no profits cap".

MEED quoted Anadarko's country manager Francois Gaultier as saying: "Algeria is the type of asset we want to have. We are not planning to leave Algeria". Like BP, it is seeking clarification on the new measures. Future contracts will be based on a tax royalty system. Peereboom said: "It's difficult to say whether this system will be more or less onerous for IOCs. But in general companies prefer tax royalty agreements because they give you ownership of the resource".

On Oct. 14, 2006, the National People's Assembly approved amendments to the 2005 hydrocarbons law which reinstated Sonatrach's automatic position as 51% majority partner in all E&P ventures. The amendments imposed a windfall tax on IOCs of 5-50% when the price of dated BFO was above $30/b. The latter measure was to earn Algeria over $1 bn of income per year (see gmt5AlgGeoJan29-07).

Details of the tax published in December 2006 showed that it will have a disproportionate impact on key foreign producers. Companies producing over 40,000 b/d will be paying up to 50% of their additional profits to the state. The lowest rate applies to those producing 5,000 b/d or less.

The law was first drafted in 2002 but was abandoned in early 2003 due to opposition from the country's all-powerful unions which feared job losses in the one-time socialist state (see background in omt6AlgFieldsFeb7-05).

The Ministry administers the wealth of natural resources in Algeria and directs the national companies such as Sonatrach which partner with foreign companies to develop the petroleum resources. Patch said in its release: "Currently, Algeria's oil reserves are estimated at 15.4 billion barrels and its gas reserves at approximately 146.5 TCF".

Sonatrach, with an oil production capacity of 551,000 having fallen from about 700,000 b/d in recent years, until early 2002 used to bear the brunt of output cuts needed for Algeria's compliance with the OPEC quota system. But for the past two years, total oil output has been well over Algeria's quota. Its quota from Jan. 1 is 1.22m b/d, up from 782,000 b/d on Feb. 1, 2003. The foreign operators in recent weeks have been allowed to produce at capacity, with Algiers wanting to attract more firms into the E&P sector.

As a result, the foreign operators account for more than 700,000 b/d of Algeria's current oil production of about 1.25m b/d, compared to 217,000 b/d in early 2001 when their capacity was 302,500 b/d. By late 2005 the foreign operators' capacity will have risen to about 888,700 b/d, excluding condensates and LPG, and Sonatrach's capacity would have reached more than 620,000 b/d. The biggest producer among the foreign operators is Anadarko, the largest among the independent US oil companies in which Sonatrach has a stake (see profiles on following pages & in Gas Market Trends).