Algeria to keep majority stake in oil projects

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Algeria's review of its energy legislation will not include scrapping a rule that gives the state energy firm a majority share in all upstream projects, the official news agency quoted Energy Minister Youcef Yousfi as saying on Wednesday.

The review will involve linking taxes on foreign investors to profits instead of turnover, though a windfall tax is likely to remain, according to an official source close to the Algerian energy sector.

Mr. Yousfi earlier this week announced the changes to the hydrocarbons law to make them more attractive to foreign investors, after three consecutive bid rounds for oil and gas acreage failed to attract much interest.

"The review of the incentives for foreign investment which will be conducted on the hydrocarbons law will in no way affects the 51/49-per-cent rule, which remains a fundamental part of our law," the APS state news agency quoted Mr. Yousfi as saying.

"These incentives will be brought in notably to increase offshore exploration and in non-conventional oil and gas," it quoted the minister as saying.

Foreign energy executives have said the terms stipulated by the hydrocarbons law as its stands now are not attractive enough for them to buy into Algerian acreage.

The shortage of new exploration projects has led some analysts to question whether Algeria can meet its natural-gas export targets over the next few years, and fill new pipeline capacity which is scheduled to come on stream.

The energy sector source, who spoke on condition of anonymity, said the changes being planned to the hydrocarbons law included the following:

-- Tax will be calculated based on the profit from a project, instead of the current system where tax is levied on the basis of turnover, and which some foreign executives say is punitive.

-- The source said a windfall tax, levied on a foreign investor's revenues once the oil prices exceed a certain threshold, will probably remain. Some foreign majors have disputed the tax, but the source said such taxes are standard practice throughout the world.

-- While state energy firm Sonatrach will continue to have at least a 51-per-cent stake in new projects, it will carry a bigger share of the risk if the project is a failure, said the source.

-- Projects involving non-conventional energy – usually shale gas which can be difficult and expensive to extract – will be governed by their own special provisions in the amended hydrocarbons law, the source said.

Catherine Hunter and Richard Cochrane, analysts with consultancy IHS, said Algeria has finally realized that if it wants to revive investment, it needs to shake up its energy laws.

"The apparent unfreezing in policy impasse overall represents a welcome development from an investor viewpoint, and too signals the potential to overhaul Algeria's position in global energy supplies," they wrote in a research note.

"Lack of investment and a likely failure to meet export targets have finally started to feed through to an understanding that better terms are required in Algeria, although there is still some way to go in clarifying what shape revised terms will take."