Sonatrach Signs MOU With Exxon for Algerian Exploration

Sonatrach Signs MOU With Exxon for Algerian Exploration
Algeria has been pursuing foreign partnerships to boost output and exports.

Algeria's Sonatrach has signed a memorandum of understanding with Exxon Mobil Corp. to initiate talks around exploration opportunities in the North African country, according to a press release from the state-owned firm.

Algeria has been pursuing foreign partnerships to boost output and exports which have dropped in recent years due to heightened domestic demand and a low levels of foreign investment. The latest oil price crash also prompted the government to slash public spending by 30%.

The MoU “shows the interest of the parties to evaluate the options for collaboration following the recent promulgation of the new Algerian hydrocarbons law,” the company said in a written statement.

Last Thursday, the Algerian group signed two MoUs with the Russian company Zarubezhneft and the Turkish company Turkiye Petrolleri Anonim Ortakliôi. In mid-March, the national company had also signed a MoU with Chevron. Each of the signings “confirms the renewed dynamism of the Algerian mining sector, within the framework of the new attractive provisions introduced by the law on hydrocarbon activities,” Sonatrach said in a statement.

Effective last January, the new hydrocarbons law--which maintained rule 51/49 and Sonatrach’s monopoly on the transport by pipeline activity--reduced the tax burden carried by Sonatrach and its partners, bringing it from 85% to 60-65%. This drop is due to the reduction in the three main taxes in the Algerian hydrocarbon tax system, which are the production royalty, the petroleum revenue tax and the additional tax on result.

The other major reform linked to the new law is the return to and older system of production sharing, established by the law of hydrocarbons 86-14. In addition to production sharing, the new law reintroduces the participation contract, where Sonatrach and a partner oil company have the same rights and obligations in terms of risk-taking, expenses, remuneration, tax payments and production sharing.

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