Algeria Aims For Energy Law in 2012, Then Shale

Source: Reuters 5/3/2012, Location: Africa

Algeria will amend its hydrocarbons law before the end of the year to attract more foreign investment to help it develop potentially big reserves of non-conventional resources, an adviser to the country's energy minister said on Thursday.

"The amendments of Algeria's hydrocarbon law will introduce tax incentives that aim to boost offshore exploration and attract foreign companies that can bring technology know-how for the development of unconventional reserves," adviser Ali Hached told delegates at a conference.

Asked by reporters on the sidelines whether the law would be amended in 2012, Hached said: "Yes, of course." Algeria wants to develop technology-intensive shale gas and offshore production to help ensure security of supply in the long run, and they currently favour allowing foreign oil majors to help achieve those goals.

Production of shale gas could start within the next three years, Abdelhamid Zerguine, Sonatrach's Chief Executive Officer told Reuters on the sidelines of the conference. But while Algeria is keen to change unattractive tax rules, Zerguine said it would remain the majority partner in all projects.

Under the current system, state-owned energy company Sonatrach is the majority partner in all new exploration projects and the state levies high taxes on foreign players, two points that foreign energy firms would like to see change.

"This will not change," Zerguine said. "At 49-percent, companies have already earnt a lot of money but the complex nature of unconventional reserve projects means that we need to make some adjustments." Sonatrach was also keen on one-to-one negotiations as opposed to tenders, he said.

"When you know that a company masters technologies it is best to go and talk directly with them," Zerguine said. A recent study showed that on an area of 180,000 square km and assuming a 20 percent extraction rate, production could reach 0.6 billion cubic metres per square km, Zerguine told delegates.

The government has also raised Sonatrach's budget for investments in the next five years to $80 billion, up from $68 billion, Zerguine said, adding this included $12 billion for unconventional resources. Algeria's last three bid rounds for oil and gas permits have attracted lacklustre interest from foreign firms, raising questions about whether it has enough new projects coming on stream to maintain output levels. Hached said new projects coming on stream would raise the OPEC member's daily oil output to over 1.5 million barrels at the end of the year.

Supporters of reforming the hydrocarbons law will have to get past resistance from powerful figures within the Algerian government, however, who in the past few years have been behind a push towards resource nationalism.

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