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Algeria oil changes pose exploration challenge http://today.reuters.com/news/articlenews.aspx?type=reutersEdge&storyID=2006-09-11T162842Z_01_L11887095_RTRUKOC_0_US-ENERGY-ALGERIA.xml
Mon Sep 11, 2006
By William Maclean
ALGIERS (Reuters) - Algeria is betting tough new investment terms will not discourage exploration by foreign oil firms but resource nationalism's latest exponent may have to convince markets that planned output gains will now be attained.
The oil and gas producer last week enacted a law giving state-run company Sonatrach, Africa's biggest company by revenue, a more central role and introducing a windfall tax on international oil companies.
The measure pushes the country further into the international energy spotlight after a cooperation deal between Sonatrach and Russian gas monopoly Gazprom (GAZP.MM: Quote, Profile, Research) stirred fears that it could lead to higher gas prices in Europe.
The move, a reversal of a planned energy liberalization, is popular with a population suffering deep unemployment following years of political conflict and resentful of foreign participation in the Saharan oil and gas riches.
But the change has received a mainly guarded reception in private among foreign oil firms, which have steadily increased their share of Algerian production over the past 15 years.
Executives concede that the country will remain attractive for foreign oil companies, for want of better alternatives.
AMBITIOUS
But some say the moves raise a question mark over the country's ability to meet stated targets for increasing oil production, because new barrels are expected to come from new fields, rather than developments to existing reserves.
Oil executives say many fields developed in the 1990s now produce about 10 percent less petroleum each year.
That decline rate is unexceptional. But Algeria's plans for output increases are ambitious.
The country aims to increase oil output to two million barrels per day (bpd) by 2010 from around 1.4 million bpd now and to produce 85 billion cubic meters (bcm) of gas per year in the next five years from 62 bcm now.
"Increasing volumes is very much dependent on exploration," said Valerie Marcel, principal energy researcher at the Royal Institute of International Affairs in London.
She said Sonatrach was very well aware of the requirement to explore for and produce new barrels and was increasingly well "energized and organized" to carry out that task.
But with the more prominent role assigned to it by the latest changes, giving it an automatic 51 percent of all new ventures in the energy sector, it may be hard put to devote to exploration all the attention it ideally might like, she said.
"Sonatrach has been very busy with LNG (liquefied natural gas) as well as with gas and oil in existing fields," she said, adding: "Sonatrach may once again be too busy to do everything."
Analysts say the question of output goals was a valid one to raise because Algeria had failed to meet a previous target to raise output to 1.5 million bpd by the start of 2005.
Foreign oil companies working in the country have declined to comment on the latest changes until an annexe detailing practical measures is published.
TAX
Among the details they will be seeking are a definition of the excess profits that will now be subject to a windfall tax in any month in which Brent crude averages over $30/barrel.
The rate at which the tax is applied has an enormous margin of variation, from five to 50 percent. Again, companies will be looking for an explanation of how that rate will be set.
More potential ambiguities, including in upstream tender procedures, will also need to be clarified, they say.
The new amendments give the energy minister, in exceptional circumstances, the right not to follow standard tender procedures for upstream projects if the cabinet finds this is "in the general interest in the framework of energy policy."
The measures reverse hydrocarbons legislation passed in 2005 that was meant to overhaul Algeria's oil and gas industry and to turn Sonatrach into a purely commercial entity.
The biggest foreign operator is U.S. Anadarko Petroleum Corp (APC.N: Quote, Profile, Research). Others include Royal Dutch Shell (RDSa.L: Quote, Profile, Research), BP (BP.L: Quote, Profile, Research), BHP Billiton (BLT.L: Quote, Profile, Research), ENI (ENI.MI: Quote, Profile, Research) and Hess Corp. (HES.N: Quote, Profile, Research).
One element of the new resource nationalist measures that is unambiguously clear is their very popularity at home.
That support among ordinary Algerians is likely to help President Abdelaziz Bouteflika push through changes to the constitution in a referendum later this year that will allow him to run for a third term and entrench more power in his office.
Djelloul Djoudi, a leading member of the small but influential leftist Workers Party, which collected 850,000 signatures in a campaign against the liberalization, said the measures would not deter foreign investors and would preserve Algeria's wealth for Algerians.
"The amendments correct mistakes in the previous law, which serves the interest of multinationals," he said. "It would have been disastrous if we had implemented it. The amendments will preserve our gain."
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