NEW HYDROCARBONS LAW

This new law introduces several measures to encourage investment in the hydrocarbon sector in Algeria. Indeed, it provides for a more flexible contractual regime and a more favourable tax regime to foreign partners.

While maintaining the rule 51/49 governing SONATRACH’s partnerships with foreign companies, it redefines the roles of the various national actors in the hydrocarbons sector, it introduces 3 forms for the activities of exploration and exploitation of hydrocarbons for foreign firms.

Redefinition of the roles of the various national actors in the hydrocarbons sector.

The Minister of Energy intervenes mainly in strategic decisions relating to energy policy and the National Company SONATRACH is simply an economic operator and not a regulator. Thus, ALNAFT will exercise its authority mainly over research and exploitation activities carried out upstream and the ARH will have a more accentuated role over activities carried out downstream.

Contractual forms for the activity of hydrocarbon exploration and exploitation activities

With the objective of allowing a more equitable and attractive distribution of profits with foreign partners, and to give them the latitude to choose the contractual form most appropriate to the type of activity they wish to conduct in the field of hydrocarbons, three types of contracts are proposed to them, namely:

• The Participation Contract;
• The Production Sharing Contract;
• The Risk Services Contract.

The Participation Contract is a contractual form in which the national company and its foreign partner (s) have the same rights and obligations in terms of expenditure, financing concerning the research period, remuneration and payment of tax obligations. The installations carried out in execution of this contract are the property of the Contracting Parties during the period of the contract; moreover, the financing of upstream operations is carried out in proportion to the participation of each party in said contract.

The production Sharing Contract In the case of a commercially exploitable discovery, a mechanism for sharing the production of hydrocarbons is set up between the partners. As such, the foreign partner recovers the investment and operational expenses incurred, namely “cost oil”; the rest of the recovered production is then called “profit oil”.

The Risk Services Contract is mainly devoted to operating upstream activities. The foreign partner finances upstream operations and receives his remuneration, as a portion of the expenditures he committed according to the contractual provisions

Tax provisions It goes without saying that the new law on hydrocarbons introduces a set of new tax measures which focus on stimulating the oil and gas sector and a substantial reduction in the tax burden suffered by companies operating in this sector.