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SONATRACH, ExxonMobil sign MoU for exploration, development opportunities in Algeria

SONATRACH, ExxonMobil sign MoU for exploration, development opportunities in Algeria

SONATRACH signed with ExxonMobil a Memorandum of Understanding (MoU) to initiate joint discussions on potential exploration and development opportunities in Algeria.

The signing of this Memorandum of Understanding shows the interest of the parties to evaluate the options for collaboration following the recent promulgation of the new Algerian hydrocarbons law. 

Last Thursday, the Algerian group had signed two MoUs with the Russian company Zarubezhneft and the Turkish company Turkiye Petrolleri Anonim Ortakliôi (TPAO). A month earlier, in mid-March, the national company had signed a MoU with the American oil company Chevron.

According to SONATRACH, the signing of these memorandums of understanding confirms the renewed dynamism of the Algerian mining sector, within the framework of the new attractive provisions introduced by the law on hydrocarbon activities.

Entered into force last January, the new hydrocarbons law, which maintained rule 51/49 and SONATRACH's monopoly on the transport by pipeline activity, reduced by more than 20% the tax burden borne by SONATRACH and its partners, bringing it from 85% to 60-65%.

This significant drop in the tax burden is due to the reduction in the three main taxes in the Algerian hydrocarbon tax system, namely the production royalty, the petroleum income tax (TRP) and the additional tax on result (ICR).

By not removing any tax and only reducing these three taxes, ''we have moved to a tax burden of around 60-65%, which corresponds to the world average in this area,'' said SONATRACH CEO, Toufik Hakkar, In addition to taxation, the new law introduced another substantive reform on the institutional aspect, clarifying, for the first time, the roles of the Minister of Energy, SONATRACH and the ALNAFT Agencies (National Agency for Development of Hydrocarbon Resources) and ARH (Hydrocarbon Regulation Authority).

The amended and supplemented Hydrocarbons Law 05-07 provided for thirty cases where ALNAFT was obliged to have the Minister's agreement. But with the new law, the minister only intervenes in strategic decisions relating to the general policy of the sector and not in technical matters. The other major reform brought by the new law is the return to the old system of production sharing, established by the law of hydrocarbons 86-14 which had made it possible to realize the great discoveries of the 1990s.

In a production sharing system, the foreign partner has no direct contact with the tax administration or other administrations because their tax obligations are regulated by SONATRACH. The partner is required under this contract to reduce its financial and technological contribution, to recover its costs and to be remunerated in return for a share of the oil production, negotiated with SONATRACH, which is not required, however , to bear the risks with his partner.

Knowing that the old law (05-07) provided for a single type of contract which was not very flexible and which did not respond to all forms of projects. But after the failure of this model, Algeria returned to the three types of contracts contained in Law 86-14, and that 05-07 had deleted. In addition to production sharing, the new law provides for a return to the ''participation contract'', where SONATRACH and the partner oil company have the same rights and obligations in terms of risk-taking, expenses, remuneration, payment of tax and production sharing as well.

The third contract reintroduced by the new law is the risk services contract, which will be used when SONATRACH does not want its partner to share production with it. Thus, the foreign investor invests, bears the risks before he is remunerated according to his performance, in cash and not in return for a sharing of production. This type of contract is used in particular to develop deposits that are difficult to exploit or to improve the recovery of mature deposits. The choice of one of the three formulas will depend on the nature of the areas proposed for exploration and exploitation, but also on the investor himself. (APS).




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