Sunday, October 15, 2006

Algeria Seeks to Limit Foreign Exploitation of its Natural Resources

Algeria Agrees Oil Windfall Tax
Opec Moves to Reduce Production

Algeria is one of Africa’s largest oil and gas exporters. In recent years, frequent oil and gas discoveries have helped boost Algeria’s economy after years of political upheaval and violence. By 2010, Algeria’s daily oil production is set to increase from 1.5 million to 2 million barrels. Algeria is estimated to have oil reserves of nearly 12 billion barrels, attracting foreign oil companies like Shell, BP, Anadarko Petroleum, and Hess Corporation.

Algeria is taking measures to exercise more control over its natural resources and capture more of the financial benefits of high global oil prices. Beginning in early 2007, Algeria will tax the “excess” profits of oil companies between 5-50% when oil prices average more than $30 a barrel. The Algerian parliament also agreed to give Sonatrach, the state-owned oil firm, an increased 51 percent stake in the country’s exploration and refining contracts. It will also be mandatory for Sontrach to be involved in all future development projects. The tax will apply to existing production agreements between Sonatrach and private operators, as well as those signed in the future.

“This will have a positive effect on future generations.” – Algerian Energy Minister Chakib Khelil said of the measures
Algeria announces these measures in the wake of its endorsement of an OPEC (Organization for Petroleum Exporting Countries) proposal for a one million barrel per day reduction in oil production. Oil prices have been sliding in recent months prompted by a weaker than expected hurricane season and solid U.S. inventories of oil stocks.

Question: Are these amendments likely to scare off international investors from Algeria?

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