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THE EVOLUTION OF ALGERIAN HYDROCARBON LEGAL REGIME AND THE NEW PERSPECTIVES
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SOME FIGURES
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Shape of hydrocarbon reserves • The volume of recoverable reserves of crude oil have
increased by:– 25% between 1990 and 1995
– 13% between 1995 and 2000
• The production has increased by:– 10 % between 1990 and 1995
– 13% between 1995 and 2000
end 1990
Produce
d
56% rem
aini
ng
44%
End 2000
rem
ain
ing
50%Produ
ced
50%
end 1995
rem
ain
ing
50%prod
uced
50%
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Shape of Hydrocarbon reserves
• The volume of recoverable reserves of natural gas have increased by:– 14% between 1990 and 1995
– 15% between 1995 and 2000
• The production has increased by:– 69 % between 1990 and 1995
– 40% between 1995 and 2000
à fin 1990 à fin 2000à fin 1995
remaining
76%Produced
24%
Remaining84%
produced16%
remaining
70%produced30%
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• During the last decade the renewal of the reserves has required an exploration investment of $3,2 billion:
$3,2 billion
en cours 27% Dry 16%
positifs 57%
0
0,2
0,4
0,6
0,8
millions de $
1989 1993 1997 2001
années
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• The development of these new reserves has required an investment of $8,9 billion:
0
1000
2000
3000millions de $
1989 1993 1997 2001
années
SH associés
SH31%
partners69%
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MAIN STEPS IN THE EVOLUTION OF LEGAL FRAMEWORK
1- PERIOD BETWEEN 1986 AND 1991:THE FIRST VERSION OF THE LAW
2-PERIOD BETWEEN 1991 UNTIL TODAY: THE AMENDMENTS TO THE LAW OF 1986
3-THE PERSPECTIVE OF A NEW LEGAL FRAMEWORK
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1- PERIOD 1986 / 1991:
FIRST VERSION OF LAW OF 1986
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Some principles of law of 1986
• Property of hydrocarbon Reserves ==> Nation
• Exploration /exploitation Activities ==> State ’s monopoly
• Performance of these activities by state companies which may choose to be associated with a foreign oil company
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Some principles of law of 1986
• Performance of activities submitted to the mining licences granted only to a state company.
• Possibility of entering into partnerships only with foreign companies
• 4 forms of association contracts autorised by the law
• specific tax system
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Some principles of law of 1986
• Obligation for any foreign investors to enter into Exploration contracts with Sonatrach
• Partnership on the already discovered fields not autorised
• Maximum limit of the partners’ share : 49 %
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Some principles of law of 1986
• Monopoly on transportation by pipeline
• Entitlement only to liquid hydrocarbons (equity)
• no equity on gas
• no recourse to the arbitration
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Some tax aspects of law of 1986
• Royalty from 12.5 to 20%
• Income tax from 65 to 85%
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PERIOD 1991 UP TODAY
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PERIOD 1991/TODAY: Amendments to law 1986 to allows:
• Recourse to the Arbitration
• Extension of partnerships to the appraisal and/or the development of the existing fields
• Possibility to have equity on gas
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PERIOD 1991/TODAY: Amendments to law 1986 to allows:
• Possibility for foreign companies to build and to exploit transportation pipe lines
• Reduction of the royalty ’s right to 10% and to 42% for the income tax
• Possibility of Tax Credit in the countries of the investors
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MAIN ASPECTS OF THE LEGAL FORMS OF CONTRACTS
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LEGAL FORMS OF CONTRACTS
• PARTNERSHIP
• Production sharing contract (PSC)
• Risk service contract (RSC)
• Joint venture company (JVC)
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• PRINCIPLES– Sharing the rights and obligations up to their rate of
participation.– SONATRACH’s participation must be at least 51%.
• CHARACTERISTICS– Exploration risk supported entirely by the partner– Sharing the production at the field– Each partiy pays a royalty and the oil tax on its share.– The investor finances the whole exploration investment – In case of a conmmercial discovery . SONATRACH
reimburses 51% of such investment.
Form of partnership
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• PRINCIPLES– As reimbursment of its expensesand remuneration, the partner
receives a share of the production at the loading port free of all taxes.
• CHARACTERISTICS– The share of the partner cannot exceed 49% of the global production
of the relevant field.– Exploration risk supported by the partner.– All or part of the geological and industrial risk supported by the
partner.– The partner’s share of profits is free of tax. SONATRACH pays on
behalf of the partner a tax on profit which rate equals the general income tax.
Form of production sharing contract
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• PRINCIPLES– As reimbursment of its expenses and remuneration,
the partner receives a payment in kind or in cash free of tax.
• CHARACTERISTICS– RSC Allows to chose the risk to be supported by the
partner.– The payment depends on the risk taken up by the
partner.– The partner do not have any equity on the field or
the production
Form of risk service contract
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Depending the form of the contract, the share of the production of the investor is delivered:
– At the field, as part of the production.In such a case the association will have the form of a “partnership”.
– At the port of loading, as part of the production free of tax. In such a case the association will have the form of a “production sharing contract” (PSC).
– As a payment in cash or in kind free of tax. In such a case, the association will have the form of a “risk service contract”(RSC).
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TAX LIABILITY– The royalty over the whole production and the b oil tax on
the result have to be paid:
• .by SONATRACH when it operates alone or in association in the form of a “production sharing contract” or a “risk service service contract”
• By SONATRACH and the investor in prorata of their participation when the association is a “partnership”
– For the purpose of tax credit, The investor is liable for the paiement of the tax on its profit in case of a PSC or RSC . SONATRACH have to pay such tax on behalf it.
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PRODUCTION ALLOCATION METHODOLOGY: PSC
EXAMPLE
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11/04/23
Production sharing contract: distribution of the production
COST OILCOST OIL
PROFIT PROFIT OILOIL
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11/04/23
Production sharing contract : distribution of the production
Production destined to royalty, costs then profit sharing.
Distribution between the State, SONATRACH and the partner
royalty state
Transport costs partner + eventually SONATRACH
operating costs Partner + eventually SONATRACH
Investment reimbursementpartner + eventually SONATRACH
Partner’s net profit partner
SONATRACH’s part of profits SONATRACH + state
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11/04/23
Definition of the state revenues
• The State revenues are the value of the production after deducing:
–The transport costs–The exploitation costs (operating
costs and reimbursements of investments),
reimbursementreimbursementOf the costsOf the costs
transport
Operating costs
Reimbursement of the investments
State revenues State revenues
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11/04/23
Sharing the State revenues
• The state revenues are shared between:
– The partner as profit– The state as royalty and
tax– SONATRACH as net
profit
Partner
taxes
Royalty
State
SONATRACH
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ROLE OF SONATRACH UNDER THE LAWS OF 1986 AND 1991
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SONATRACH ’s DOUBLE ROLE IN THE CURRENT REGIME
• REPRESENT THE STATE VIS AVIS THE OIL COMPANIES
• ROLE OF ANY COMMERCIAL COMPANY
• CONSEQUENCES: JUDGE AND PARTY
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RELATIONSHIP BETWEEN THE ACTORSUNDER LAWS OF 1986 AND 1991
STATE
SONATRACH
FOREIGN COMPANY
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PERSPECTIVES OF THE DRAFT OF THE NEW
LAW
TO IMPROVE THE CURRENT LEGAL FRAMEWORK TO:
• Elaborate a more simple and attractive contractual system.
• Give Sonatrach the possibility to be only a commercial entity.
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THE DRAFT OF NEW LAW:
MAIN PROVISIONS
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SCOPE AND OBJECTIVES OF THE DRAFT
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SCOPE OF THE DRAFT
COVERS ALL UPSTREAM AND DOWNSTREAM ACTIVITIES EXCEPT NATURAL GAS DISTRIBUTION (GOVERNED BY ELECTRICITY LAW)
OPEN ALL ACTIVITIES TO ALL INVESTORS : - PRIVATE OR PUBLIC- NATIONAL OR INTERNATIONAL
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PRINCIPAL OBJECTIVES (1)
ESTABLISH COMPETITION IN A FREE MARKET
IMPROVE ENVIRONMENTAL STANDARDS
PROVIDE CLEAR, SIMPLE, & COMPETITIVE FISCAL REGIME & CONTRACTUAL CONDITIONS
SEPARATE GOVERNMENT AND COMMERCIAL ROLES
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PRINCIPAL OBJECTIVES (2)
DECONTROL PRICES
PROVIDE RATIONAL EXPLOITATION SECURING OPTIMAL CONSERVATION
ENABLE SONATRACH TO FOCUS ON ITS COMMERCIAL ACTIVITIES
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THE ACTORS
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THE ACTORS
• Ministry in charge of hydrocarbons
• 2 Agencies
• Sonatrach
• Others investors
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THE ADMINISTRATION: MINISTRY IN CHARGE OF HYDROCARBONS
ISSUES LAW ENFORCEMENT TEXTS AND
MODEL CONTRACTS
APPROVES E&P CONTRACTS
ISSUES PIPELINE CONCESSIONS
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TWO INDEPENDANT AGENCIES
LEGALLY, ADMINISTRATIVELY AND FINANCIALLY INDEPENDANT
BUDGET APPROVED BY THE MINISTRY FUNDED FROM PART OF THE ROYALTIES PLUS FEES FOR SERVICES
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FIRST AGENCY: REGULATION AUTHORITY..
CONTROL THE APPLICATION OF THE REGULATION FOR UPSTREAM AND DOWNSTREAM (TECHNICAL ISSUES, HSE, NORMS AND STANDARDS)
MAKES RECOMMENDATIONS FOR THE AWARD OF PIPELINE CONCESSIONS
SEES TO THE APPLICATION OF THE REGULATIONS GOVERNING TPA FOR PIPELINES AND STORAGE FACILITIES
ISSUES CONSTRUCTION & OPERATING PERMITS FOR DOWNSTREAM ACTIVITIES
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SECOND AGENCY : ALNAFT..
PROMOTES E&P INVESTMENT
MAINTAINS AND UPDATES NDB
CONDUCTS TENDERS FOR E&P BLOCS, IN VIEW OF CONTRACTS AWARD
SIGNS E&P CONTRACTS AND OBTAINS MINISTRY APPROVAL
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… ALNAFT
APPROVES DEVELOPMENT PLANS AND ANNUAL I & E PROGRAMS
COLLECTS ROYALTY AND SEES TO PAYMENT OF OTHER TAXES
SECURES EASY ACCESS TO INFORMATION REGARDING GAS MARKETS
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THE STATE COMPANY: SONATRACH
TO BE TREATED LIKE ANY OTHER INVESTOR
TO FOCUS ON ITS COMMERCIAL VOCATION
TO FINANCE ITS PROJECTS WITHOUT STATE GUARANTEE
TO CONTINUE TO ADMINISTER THE CONTRACT ALREADY CONCLUDED
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THE INVESTORS
• ANY LEGAL ENTITY HAVING THE TECHNICAL AND FINANCIAL CAPACITIES
• INVESTORS CAN BE ALGERIAN OR FOREIGN, PRIVATE OR PUBLIC ENTITY
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STATE
AGENCIESRegulation Contracts
COMPANY COMPANY COMPANY SONATRACH
Relations under the draft of the new lawRelations under the draft of the new law
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MAIN PROVISIONS CONCERNING THE
UPSTREAM ACTIVITIES
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UPSTREAM
CONTRACT AWARDED BY TENDER ON THE BASIS OF A SINGLE CRITERIA :
WORK PROGRAMME OR SIGNATURE BONUS OR ROYALTY RATE ABOVE MINIMUM FIXED BY
THE LAW
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UPSTREAM
CONTRACT GRANTS EXCLUSIVE RIGHT TO E&P HYDROCARBONS
ALL PRODUCTION OWNED BY CONTRACTOR AT THE MEASUREMENT POINT
CONTRACTOR MARKETS ITS PRODUCTION
CONTRACTOR PAYS ROYALTY AND TAXES
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TERM OF CONTRACT
MAX. DURATION 32 YEARS (EXPLO. PERIOD 7 YEARS & EXPLOIT. PERIOD 25 / 30 YEARS)
EXPLOITATION CONTRACT : RIGHT TO EXPLORE IN EXPLOITATION AREA
CONTRACTOR DECIDES OF THE COMMERCIAL EXPLOITABILITY
RETENTION PERIOD
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RIGHTS OF SONATRACH
RIGHT TO PARTICIPATE TO BID ROUNDS IN THE SAME CONDITIONS THAN OTHER
INVESTORS
SONATRACH’S OPTION TO ACQUIRE INTEREST IN ANY PROJECT (20 % - 30 %)
OPTION VALID WITHIN 30 DAYS AFTER DEVELOPMENT PLAN APPROVAL FOR DISCOVERY
MARKET JOINTLY WITH CONTRACTOR IF GAS DICOVERY
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SOME RIGHTS OF THE INVESTORS
INTERNATIONAL ARBITRATION
CONTRACTOR OWNS FIXED ASSETS FOR LIFE CONTRACT
RECEIVING AND MAINTAINING EXPORT REVENUES ABROAD IS GARANTED
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SOME RIGHTS OF THE INVESTORS
DEPRECIATION AT THE VALUE OF US $ THE LAST DAY OF FISCAL YEAR
IMPORT FOREIGN EXCHANGE TO COVER LOCAL COSTS ALLOWED
RIGHT TO USE LOCAL CURRENCY REVENUES TO COVER LOCAL COSTS
RIGHT TO REMIT IN FOREIGN EXCHANGE ANY LOCAL CURRENCY SURPLUS
EXEMPTION FROM VAT AND TAX DUTIES
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UPSTREAM TAX ASPECTS
SURFACE RENT : (PER KM2, ZONE & PERIOD)
ROYALTY : (ZONE & AVERAGE B.E.P/DAY) PAID MONTHLY IN CASH
PETROLEUM REVENUE TAX (PRT) :
RATE ESCALATES WITH VALUE OF CUMUL. PROD. RIGHT TO USE UPLIFTS
PRT IS DEDUCTIBLE
INCOME TAX (CIT) : CONFORM TO GENERAL CORPORATE INCOM TAX
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…..UPSTREAM FISCAL PACKAGE
EXEMPTION FROM ALL OTHER TAXES OR IMPOSITIONS
CONSOLIDATION OF ALL ACTIVITIES IN ENERGY SECTOR IN CALCULATING CIT
ALLOW DEVELOPMENT OF MODEST SIZE DISCOVERIES
PROVIDE INCENTIVES TO EXPLORE IN FRONTIER AREAS
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DOWNSTREAM
IMPORTATION AND SALE OF HYDROCARBONS AND PETROLEUM PRODUCTS IN ALGERIA ARE FREE
DOMESTIC PRICES ARE DECONTROLLED AFTER TRANSITION PERIOD
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Main provisions concerning midstream and downstream
activities
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MIDSTREAM: TRANSPORTATION BY PIPELINE
CONCESSION FOR 50 YEARS
OPEN ACCESS
NON DISCRIMINATORY TARIFFS
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..DOWNSTREAM TAX ASPECTS
POSSIBILITY TO INVEST IN ANY DOWNSTREAM ACTIVITY
INVESTOR SUBJECT TO GENERAL TAX SYSTEM
THE ACTIVITIES OF TRANSPORTATION , LIQUEFACTION, LPG SEPARATION ARE EXEMPTED FROM :
VAT PAYMENT CUSTOM TAX AND DUTY
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LEGAL PROTECTIONOF INVESTORS’ RIGHTS IN
SIGNED CONTRACTS
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EXISTING CONTRACTS
EXISTING CONTRACTS REMAINS VALID
RIGHTS AND OBLIGATIONS OF PARTNER ARE MAINTAINED
SONATRACH WILL CONTINUE TO MARKET STATE’S SHARE OF THE HYDROCARBONS
FOR EACH ASSOCIATION CONTRACTS, A PARALLEL CONTRACT’ WILL BE CONCLUDED BY ALNAFT AND SONATARCH TO FIX TAXES TO BE REVERTED BY SONATRACH TO THE STATE
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THANK YOU FOR
YOUR ATTENTION