Anadarko to Reserve for New Algeria Tax Expense
Anadarko Petroleum will record an approximate $100 million charge to fourth quarter 2006 earnings following promulgation of regulations in December related to the implementation of Algeria's new "exceptional profits" tax. This tax applies when the monthly average price for Brent Crude exceeds $30 per barrel.
"Our Algerian assets are operated under a production sharing contract containing a stabilization clause that protects our existing investment and related asset value. Although we are recording the estimated impact of the tax with this charge in the fourth quarter, we expect to ultimately receive relief through the stabilization provision once its applicability is recognized in a settlement agreement or in international arbitration," Anadarko Chairman, President and CEO Jim Hackett said.
The fourth-quarter charge represents an estimate of Anadarko's liability for the exceptional profits tax from the law's Aug. 1, 2006 effective date through year-end 2006, based on the assumption that the tax applies only to production value in excess of $30 per barrel. Beginning in 2007, assuming an average oil price of $60 per barrel and application of the exceptional profits tax to production value in excess of $30 per barrel, Anadarko's estimated annual expense for the exceptional profits tax would be $225 million. If the exceptional profits tax is applied to the full value of production rather than to the value in excess of $30 per barrel, the estimated annual expense would double under the $60 per barrel price assumption. There is also uncertainty as to how the collection and relief of the tax will ultimately be resolved. Sonatrach, the Algerian state-owned oil company, has indicated it will begin collecting the current and past tax in March 2007 by retaining a portion of the barrels to which Anadarko is entitled.
With regard to future investments, Anadarko currently has approximately 110 million barrels of proved undeveloped reserves in Algeria. There is no reserve revision associated with the implementation of the tax under the assumption that the tax applies only to production value in excess of $30 per barrel. As the company's dispute process progresses, Anadarko will continue to review the impact that the tax change may have on future development plans and associated reserve bookings, if any.
"We believe that the sanctity of our contract's stabilization provision will be upheld and thus will preserve the value of our Algerian asset base," Hackett said. "Although we expect a favorable outcome to this matter, ultimate resolution may be more than a year away."
- 4 Ways Agile Sourcing Can Lead Enterprises to Success (Nov 10)
- Gadfly: Anadarko Woke Up, and It Really Smells the Coffee (Nov 01)
- No More Free Lunch Is the Big Change Under Way in the Oil Market (Oct 09)