Algeria, under revised leadership, plans major expansion

• Date: 01 January 2020
• Published date: 01 January 2020
• DOI: http://doi.org/10.1111/oet.12750

FOCUS

Algeria, under revised leadership, plans major expansion

Growing Algerian reserves, production and exports is the

top priority for the new Sonatrach CEO, Chikhi Kamel-

Eddine, who has taken over as Algeria adopts a new

petroleum law that cuts taxes by more than 20%. How-

ever, presidential elections on December 12 were dis-

missed by many citizens as simply extending the existing

regime, and protests continue—which could lead to a

clampdown.

Since February's ousting of long-time President

Abdelaziz Bouteflika, Algeria has been awaiting December

2019's general election. Former prime minister, Abdelmadjid

Tebboune, was voted head of state, with an official turnout

of about 40%—kept low by calls for a boycott. Peaceful pro-

tests have been ongoing since February and have intensified

over the past couple of months in rejection of the elections,

in which the interim government of President Abdelkader

Bensaleh and its military allies only approved candidates

closely connected to the Bouteflika regime.

A previous poll set for July was scrapped due to a lack

of viable candidates. All the candidates struggled to cam-

paign, with hostile crowds gathering outside poorly

attended rallies in heavily guarded venues. The election

itself was marred by scattered clashes with police, a wave

of arrests and sizeable protests. Nevertheless, the army

and the National Liberation Front, the party that won

independence from France in 1962, remain firmly in

power.

Despite this, some reforms have been moving forward,

including the new hydrocarbon law, which was introduced

in early November. The law is primarily designed to make

Algeria more attractive to overseas investors, as was the

appointment of Mr Kamel-Eddine (who replaces Hachichi

Rachid) as state-owned Sonatrach's CEO—his previous role

was overseeing relations with 30 joint ventures across the

country. Kamel-Eddine said the law was key to attracting

capital to develop reserves and find more in order to “guar-

antee the long-term energy security of our country”—60%

of the country's budget comes from hydrocarbon revenues.

Low oil prices (since 2015) and gas prices (especially this

year—see below), have led to a financial crisis.

Tough contract terms and a difficult operating envi-

ronment has put off many overseas investors over recent

years. This has led to project delays and a lack of invest-

ment, which has caused a significant fall in hydrocarbon

production and exports since 2008 when oil output was

about 1.4 mn bpd. At the same time, national consump-

tion is on the rise, having doubled since 2000. Algeria

now produces just over 1 mn bpd of crude

1

(see Figure 1),

and exports 500 000–600 000 bpd.

Currently, Sonatrach owns about 80% of total oil and

gas production in Algeria, with major overseas investors

including BP, Equinor, Total, Anadarko

2

, Eni, Shell, Rep-

sol and private equity-backed Neptune. Under the new

law, tax takes will fall from around 85%, to60–65%, with a

reduction in all three main taxes in the Algerian system—

the production levy, the Petroleum Income Tax and Com-

plementary Income Tax. Compared with the previous

laws of 2005 and 2013, the new law also gives fresh incen-

tives to international companies in terms of the legal con-

tent of contracts.

Algeria is offering three types of contract—a produc-

tion sharing contract, service risk contract and a participa-

tion agreement—with additional promises to reform fiscal

terms, exploration periods, tax incentives and gas pricing.

However, the existing ownership model where an IOC

takes 49% of any oil and gas project and Sonatrach retains

51% looks set to remain in place.

Sonatrach is reported to be particularly interested in

bringing onboard more partners for the development of

its extensive shale gas reserves (see below). In addition,

key oil and gas fields such as Hassi R'Mel (gas) and Hassi

Messaoud (oil) are mature, which means further invest-

ment and expertise in field management is required to

maintain output. The company has also invited partners

to make new discoveries in frontier plays, including its

unexplored offshore. In Algeria's 2018–2022 mid-term

plan, 85 exploration and appraisal wells were scheduled

to be drilled each year, but most of that is currently with

Sonatrach, which cannot cope alone. Without overseas

investment, Algeria could flip from being a major hydro-

carbon exporter to a net importer by 2025–2030.

Four unsuccessful bid rounds since 2008 have failed

to produce the desired investment due to Algieria's tough

terms under previous hydrocarbons laws. But some

DOI: 10.1111/oet.12750

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