Algerian officials are expressing optimism that a new windfall tax on foreign oil firms operating in the country could net a cool $1 billion in the coming year, a move that has raised concerns with some oil executives.
According to Algerian Energy and Mines Minister Chakib Khelil -- who on Wednesday proclaimed the passing of the new tax during a news conference -- the time had come to adjust the current tax structure to "re-establish justice" in the Algerian oil sector.
Khelil told reporters and executives that decision was made "in view of the quadrupling of the price of the barrel" over the last year.
Full details of the new tax code for foreign oil interests were not made public Wednesday. Khelil told reporters that additional details would be published in the coming days and full details after the New Year.
The minister also mentioned that the adjustment was made in light of decisions by other oil- and gas-producing nations to restructure the sector. Most notably Venezuela has in recent years increased its tax rate for foreign oil companies. Bolivia has instituted a wide range of policies to gain greater control of its gas sector, though the measures fall short of a full nationalization of the industry as promised by Bolivian President Evo Morales.
Khelil then noted that Algeria's new code could have been much stricter, referencing both Bolivia and Venezuela, a remark one analyst referred to as a "veiled threat" against those companies that balked at the tax adjustment.
Hoping to keep the impact of Wednesday's announcement light -- despite obvious foreign oil officials' concerns about the decision -- Khelil said he was willing to discuss the new tax with any executive one-on-one.
Dick Holmes, vice president for international operations of the U.S. petroleum company Anadarko, spoke out at the minister's Wednesday news conference against the new tax, saying it could hurt existing contracts between foreign firms and Algeria's state-owned oil company Sonatrach and prove prohibitive to other foreign companies interested in investing in the North African nation.
Algerian law stipulates that Sonatrach have a 51 percent share in all oil operations.
Prior to the announcement, numerous oil interests operating in Algeria expressed concerns about the rumored tax increases, including Anadarko, the largest foreign firm in the country. Some have even threatened to pull out of the country.
But following the news conference, Holmes told Algeria's state news agency that Anadarko would remain in the country. "We won't sell our assets in Algeria. We stay here and we hope for a good future in your country," he said.
That's good news for Algeria, which produced about 1.4 million barrels per day and likely couldn't maintain that production level if Anadarko were to suddenly leave.
Some analysts predict that the new law will ultimately prove detrimental to Algeria's oil sector.
Eurasia Group Middle East and Africa analyst Geoff Porter said that if the tax were applied to new investors, it could discourage some from ever entering the sector.
"It's going to be tough for them (new oil firms) to make money there," Porter told United Press International.
He also noted that the repeal of the hydrocarbon reform that was implemented last year has also soured some firms' opinions on either entering or remaining in Algerian oil.
Under the reform, Sonatrach's stake in all oil projects was lowered to 20-30 percent, though since the repeal it has been returned to the previous 51 percent level.
"Now they throw this windfall tax on top of that, and foreign firms aren't quite sure they want to be there," Porter said.
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