1. THE EVOLUTION OF ALGERIAN HYDROCARBON LEGAL REGIME AND THE NEW PERSPECTIVES

2. SOME FIGURES

3. 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
produced
50%
remaining
50%
Produced
50%
remaining
50%
Produced
56%
remaining
44%
end 1990
end 1995
End 2000

4. 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
remaining
76%
Remaining
84%
remaining
70%
Produced
24%
produced
30%
produced
16%
à fin 1995
à fin 1990
à fin 2000

5. During the last decade the renewal of the reserves has required an exploration investment of $3,2 billion:
en cours
27%
Dry
16%
positifs
57%
$3,2 billion

6. The development of these new reserves has required an investment of $8,9 billion:
31%
partners
69%

7. 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

8. 1- PERIOD 1986 / 1991: FIRST VERSION OF LAW OF 1986

9. 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

10. 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

11. 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 %

12. 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

13. Some tax aspects of law of 1986
Royalty from 12.5 to 20%
Income tax from 65 to 85%

14. PERIOD 1991 UP TODAY

15. 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

16. 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

17. MAIN ASPECTS OF THE LEGAL FORMS OF CONTRACTS

18. LEGAL FORMS OF CONTRACTS
PARTNERSHIP
Production sharing contract (PSC)
Risk service contract (RSC)
Joint venture company (JVC)

19. Form of partnership PRINCIPLES CHARACTERISTICS
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.

20. Form of production sharing contract
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.

21. Form of risk service contract
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

22. 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).

23. 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.

24. PRODUCTION ALLOCATION METHODOLOGY: PSC EXAMPLE

25. Production sharing contract: distribution of the production
PROFIT
OIL
ANCIEN SYSTEME
Il est d'abord procédé à l'affectation de la production à la redevance et le remboursement des coûts ( cost oil )
la part de la production destinée à la redevance est d'abord déduite.
si après déduction de la part de la production pour la redevance et le remboursement de tous les coûts, la production n'est pas épuisée, le reliquat est le profit oil que se partageront les associés.
NOUVEAU SYSTEME
51% de la production est affectée au titulaire du titre minier. Il sont destinés au paiement de la redevance et à l’impôt pétrolier y compris l’impôt sur la rémunération.
les 49% restant sont traités selon deux possibilités,
les invesitisseurs financent les investissements et les coûts opératoires, dans ce cas:
la production est d’abord affectée au paiement des coûts de transport
ensuite au remboursement des coûts opératoires
puis au remboursement des investissements
enfin si les 49% sont suffisant, à la rémunération des investisements.
le partenaire étranger finance tout ou partie des investissements et les coûts opératoires devises. SONATRACH finance une partie qui peut être nulle des investissements et les coûts opératoires devises. Dans ce cas:
les 49% sont partagés en deux parties. l’une destinée aux remboursement des investissements, des coûts opératoires devises et à la rémunération des investissements.
l’autre au remboursement des autres coûts.
COST OIL

26. Production sharing contract : distribution of the production
Production destined to royalty, costs then profit sharing.
SONATRACH’s part of profits
SONATRACH + state
Il est d'abord procédé à l'affectation du cost oil à la redevance puis au remboursement des coûts
le remboursement des dépenses se fait en valorisant la production sur la base du prix de SONATRACH et selon les priorités suivantes:
remboursement des dépenses de transport des produits
si la production est suffisante, remboursement des coûts opératoires
éventuellement au remboursement des investissements d'exploration selon des échéances dont le nombre est négocié.
puis remboursement des investissements d'exploitation selon des échéances dont le nombre négocié est au moins égal aux annuités d'amortissement prévues par la loi
les associés se partagent le profit oil.
la part de profit oil du partenaire, représentant sa rémunération, est nette d'impôts.
SONATRACH paye, à partir de sa part de profit oil l'impôt sur la rémunération du partenaire.
la rémunération brute du partenaire est considérée, au même titre qu'un frais financier classique, c’est à dire une charge pour SONATRACH.
Partner’s net profit
partner
Investment reimbursement
partner + eventually
SONATRACH
operating costs
Partner + eventually
SONATRACH
Transport costs
partner + eventually
SONATRACH
royalty
state
Distribution between the State, SONATRACH and the partner

27. Production sharing contract sharing profit oil
Gross profit of partner
Gross profit share of SONATRACH
net profit share
of SONATRACH
IDP
Tax on profit
le profit oil est partagé de la manière suivante:
une part de profit oil , représentant sa rémunération est remise au partenaire , nette d'impôts.
sur sa part de profit oil SONATRACH paye, l'impôt sur la rémunération du partenaire.
la rémunération brute est recalculée en tenant compte du taux IBS en cours. Aujourdhui ce taux est de 38%. La rémunération brute est donc égale à la rémunération divisée par 1 moins le taux d'IBS, soit donc aujourdhui par 0,62.
la rémunération brute du partenaire ainsi calculée est considérée, au même titre q'un frais financier classique, comme charge pour SONATRACH.
L'IDP est donc calculé sur la base du profit oil moins la rémunération brute du partenaire
Net profit of partner
COST OIL

28. 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),
reimbursement
Of the costs
transport
Operating costs
Reimbursement of the
investments
Un minimum de rente, équivalent à la "redevance" est assurée à l'Etat
la part de la production équivalente au pourcentage légal de la redevance est d'abord déduite avant tout remboursement de coûts
Le profit est égal à la production moins la redevance et la part destinée au remboursement des coûts
Dans le cas d'une association en participation, le profit sur chaque part de production des associés est partagé entre l'associé (profit net) et l'Etat (l'impôt)
Dans le cas d'un partage production, le profit est d'abord partagé entre l'associé (la rémunération) et SONATRACH, puis entre SONATRACH ( le profit net ) et l'Etat (l'impôt).
State revenues

29. Sharing the State revenues
The state revenues are shared between:
The partner as profit
The state as royalty and tax
SONATRACH as net profit
SONATRACH
taxes
Royalty
State
La part de rente du partenaire, pour les contrats déjà signés varie entre 18% et 35%. L'importance de ce taux est fonction:
De la lourdeur des investissements et de la valorisation des produits. Si le rapport valeur des produits sur importance des investissements est faible, l'assiette de profit à partager est restreinte et donc, pour rémunérer les investissements financés par le partenaire, il faut concéder une part de profit importante (cas du développement de la région d'In Salah avec la Compagnie BP),
du taux de participation du partenaire au financement des investissements et éventuellement du paiement d'un bonus (cas du contrat ARCO pour l'augmentation de la récupération du gisement de R'HOURDE EL BAGUEL),
de la taille du gisement découvert (cas des gisements découvert par la compagnie italienne AGIP)
Partner

30. ROLE OF SONATRACH UNDER THE LAWS OF 1986 AND 1991

31. 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

32. RELATIONSHIP BETWEEN THE ACTORS
UNDER LAWS OF 1986 AND 1991
STATE
SONATRACH
FOREIGN COMPANY

33. 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.

34. THE DRAFT OF NEW LAW:
MAIN PROVISIONS

35. SCOPE AND OBJECTIVES OF THE DRAFT

36. 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

37. 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

38. PRINCIPAL OBJECTIVES (2)
DECONTROL PRICES
PROVIDE RATIONAL EXPLOITATION SECURING OPTIMAL CONSERVATION
ENABLE SONATRACH TO FOCUS ON ITS COMMERCIAL ACTIVITIES

39. THE ACTORS

40. THE ACTORS Ministry in charge of hydrocarbons 2 Agencies Sonatrach
Others investors

41. THE ADMINISTRATION: MINISTRY IN CHARGE OF HYDROCARBONS
ISSUES LAW ENFORCEMENT TEXTS AND MODEL CONTRACTS
APPROVES E&P CONTRACTS
ISSUES PIPELINE CONCESSIONS

42. TWO INDEPENDANT AGENCIES
LEGALLY, ADMINISTRATIVELY AND FINANCIALLY INDEPENDANT
BUDGET APPROVED BY THE MINISTRY FUNDED FROM PART OF THE ROYALTIES PLUS FEES FOR SERVICES

43. 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

44. 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

45. … 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

46. 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

47. ANY LEGAL ENTITY HAVING THE TECHNICAL AND FINANCIAL CAPACITIES
THE INVESTORS
ANY LEGAL ENTITY HAVING THE TECHNICAL AND FINANCIAL CAPACITIES
INVESTORS CAN BE ALGERIAN OR FOREIGN, PRIVATE OR PUBLIC ENTITY

48. STATE AGENCIES Relations under the draft of the new law
Regulation Contracts
COMPANY COMPANY COMPANY SONATRACH

49. MAIN PROVISIONS CONCERNING THE UPSTREAM ACTIVITIES

50. 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

51. 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

52. 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

53. 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

54. SOME RIGHTS OF THE INVESTORS
INTERNATIONAL ARBITRATION
CONTRACTOR OWNS FIXED ASSETS FOR LIFE CONTRACT
RECEIVING AND MAINTAINING EXPORT REVENUES ABROAD IS GARANTED

55. 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

56. 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

57. …..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

58. DOWNSTREAM
IMPORTATION AND SALE OF HYDROCARBONS AND PETROLEUM PRODUCTS IN ALGERIA ARE FREE
DOMESTIC PRICES ARE DECONTROLLED AFTER TRANSITION PERIOD

59. Main provisions concerning midstream and downstream activities

60. MIDSTREAM: TRANSPORTATION BY PIPELINE
CONCESSION FOR 50 YEARS
OPEN ACCESS
NON DISCRIMINATORY TARIFFS

61. ..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

62. LEGAL PROTECTION OF INVESTORS’ RIGHTS IN SIGNED CONTRACTS

63. 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

64. THANK YOU FOR
YOUR ATTENTION