Algeria, a country with a rich history in hydrocarbon production, is making significant strides in attracting global oil and gas investments. The National Agency for the Valorization of Hydrocarbon Resources (ALNAFT) has launched a comprehensive program aimed at revitalizing the country's upstream oil and gas sector. This initiative is part of a broader strategy to leverage Algeria's vast and largely untapped hydrocarbon potential and ensure energy security and economic growth.
This Holland & Knight alert provides a preliminary overview and key information for interested companies to consider following the extension by ALNAFT of a bid submission deadline for a hydrocarbons tender to July 2025.
ALNAFT's Licensing Round
In 2024, ALNAFT unveiled six new onshore licensing opportunities for conventional hydrocarbon exploration. These opportunities are part of a five-year licensing plan designed to attract global upstream investors. The six blocks, spanning a cumulative area of 152,000 square kilometers (approximately 58,687 square miles), are supported by extensive seismic data, including more than 102,000 km (63,379 miles) of 2D seismic data and more than 45,000 square km (17,374 square miles) of 3D seismic data.
Key Program Features
- Diverse Contractual Framework. ALNAFT offers three types of contracts to international oil companies (IOCs): production-sharing, concession and risk services. This flexibility allows companies to choose the most suitable partnership model.
- Extensive Data Packages. Potential bidders have access to Perimeter Conditioned Data Packages and Evergreened Data Packages, providing detailed geological and geophysical information.
- Competitive Bidding Process. The licensing round is open to competitive bidding.
Advantages of Investing in Algeria
- Strong Geological Potential. Algeria is one of the more established markets with significant geological potential.
- Stable Regulatory Environment. Algeria has a long history of working with IOCs, with a strong emphasis on contract sanctity and respect for the rule of law. This stability is crucial for long-term investments.
- Strategic Location. Algeria's proximity to European markets makes it an attractive destination for oil and gas companies looking to export hydrocarbons.
A Variety of Contract Types
In Algeria, the exploration, development and production of oil and gas are governed by several types of contracts, primarily influenced by the Algerian Hydrocarbon Law of 2019. Here's a comprehensive overview of the main contract forms used today:
- Production Sharing Contracts (PSCs). PSCs are a common form of agreement in Algeria. Under a PSC, the state-owned company Sonatrach partners with IOCs. The IOC bears the exploration risk and costs and, if a commercial discovery is made, the production is shared between Sonatrach and the IOC. The specifics of the share depend on the contract terms, but typically, the IOC recovers its costs from a portion of the production, and the remaining production is split according to an agreed-upon formula.
- Risk Service Contracts (RSCs). RSCs are another form of agreement where the IOC undertakes the exploration and development activities at its own risk and expense. If oil or gas is discovered, the IOC is reimbursed for its costs and receives a fee per barrel produced. Unlike with a PSC, an IOC does not own a share of the production but is compensated for its services and investment.
- Joint Ventures (JVs). JVs involve the formation of a new entity jointly owned by Sonatrach and one or more IOCs. This entity is responsible for the exploration, development and production activities. The profits and losses are shared according to the ownership percentages in the joint venture. This structure allows for shared risk and investment.
Key Features of the Algerian Hydrocarbon Law of 2019
The 2019 Hydrocarbon Law introduced several measures to attract foreign investment, including:
- Reduced Tax Burden. The law reduced the overall tax burden on IOCs, making investment in Algeria more attractive.
- Flexible Contract Terms. The law allows for more flexible contract terms, including the possibility of extending existing contracts and adapting terms to suit specific project needs.
- Environmental Considerations. New contracts often include provisions for reducing carbon emissions and promoting sustainable practices.
These contract forms and the supportive legal framework aim to balance the interests of the Algerian government, Sonatrach and international investors, fostering a collaborative environment for the development of the country's hydrocarbon resources.
Oil and Gas Reserves and Production
- Oil Reserves. Algeria holds approximately 12.2 billion barrels of proven crude oil reserves, making it the third-largest in Africa.
- Gas Reserves. The country has an estimated 159 trillion cubic feet of proven natural gas reserves.
- Oil Production. In 2023, Algeria's crude oil production averaged about 1.18 million barrels per day.
- Gas Production. Algeria's natural gas production is approximately 106 billion cubic meters per year.
Unconventional Oil and Gas Opportunities
- Shale Gas Potential. Algeria is believed to have about 231 trillion cubic feet of recoverable shale gas. This vast resource potential positions Algeria as a significant player in the unconventional gas market.
- Tight Gas Resources. In addition to shale gas, Algeria has substantial tight gas resources. The development of these resources is crucial for maintaining long-term production levels.
- Technological and Commercial Challenges. Though the resource potential is enormous, the commercial viability of shale gas in Algeria is still unproven.
- International Partnerships. Major international oil companies have shown interest in Algeria's unconventional resources, recently signing memoranda of understanding with Sonatrach to evaluate and develop these opportunities.
Potential Oil and Gas Reserves Yet to Be Found
- Undeveloped Discoveries. The U.S. Energy Information Administration reports that Algeria has about 100 undeveloped discoveries. These discoveries represent a significant opportunity for new exploration and development projects.
- Underexplored Basins. Approximately two-thirds of Algeria's territory remains underexplored or underdeveloped. The basins in the south and west of the country are particularly promising for new discoveries.
- Enhanced Oil Recovery (EOR). Existing fields offer potential for EOR techniques, which could significantly boost production from mature fields.
- New Licensing Rounds. World Oil predicts that the recent licensing rounds are expected to unlock about 20 billion cubic meters of fresh gas production per year in the next five to 10 years. This is based on preliminary estimates and highlights the potential for substantial new reserves to be discovered and developed.
- Shale Oil Potential. Algeria has been forecasted to potentially have a total of 121 billion barrels of shale oil, with 5.7 billion barrels recoverable with current technology. This positions Algeria as a significant player in the unconventional oil market.
Why Now Is a Propitious Moment
- Global Energy Demand. Global demand for energy is rising, driven by economic growth and the transition to cleaner energy sources. Algeria's hydrocarbon resources can play a crucial role in meeting this demand.
- Technological Advancements. Advancements in exploration and production technologies have made it easier to tap into previously inaccessible reserves. Algeria's extensive seismic data supports these initiatives.
- Authorities Support. The Algerian government is committed to attracting foreign investment, as evidenced by the recent reforms and introduction of new contractual frameworks.
Conclusion
ALNAFT's program to attract oil and gas investment is a structured initiative that offers numerous potential advantages to potential investors. With its strong geological potential, relatively stable regulatory environment and strategic location, Algeria presents a compelling case for exploration and development. The current global energy landscape and technological advancements further enhance the attractiveness of investing in Algeria's hydrocarbon sector.
