Anadarko Gets Algerian Boost, El Merk Delayed

US independent Anadarko expects record production volumes for 2012, boosted by the March resolution of the company’s long-running Algerian tax dispute. The company and its partners on Algeria’s Block 404a will pay the ‘taxe sur les profits exceptionels’ (TPE) at a reduced rate of 18% going forward, compared to around 30% previously. But start-up at the company’s key project in the country, the 150,000 b/d El Merk development, may be pushed back to early 2013.

Anadarko’s first quarter 2012 results, released on 1 May, showed the company’s Algerian production dipping to 50,000 b/d, from 55,000 b/d for the first quarter 2011 (see table and graph). Higher oil prices mean the firm received a lower share of production due to the terms of the company’s production sharing contract (PSC) for Block 404a, which it operates, despite gross production rising slightly to 357,000 b/d from the fourth quarter last year.

Anadarko’s average realized prices for its sales of Algerian Saharan Blend crude soared by 21.5% to top $119/B in the first quarter, with the Brent-linked grade outpacing the rise in the company’s overall sales prices. This left Algeria’s share of the company’s sales steady at 24% despite the dip in production. Anadarko and other North American independents which have production interests outside their home continent have over the past year touted the boost given to their bottom line by exposure to Brent-linked grades. The Atlantic Basin benchmark has soared to an average premium of $15/B to US marker WTI over the past year: WTI had historically commanded a small premium.

Anadarko In Algeria, 1Q12

*2012/2011 changes on a percentage points basis.

Source : Anadarko, MEES calculations.

Anadarko’s Net Algerian Production ('000 b/d)

Anadarko expects its Algerian production to rise to 57,000-58,000 b/d for the second quarter, and average 56,000-58,000 b/d for the year as a whole. This indicates that no significant volumes from El Merk are expected this year — a timescale confirmed by Anadarko’s partner Talisman in its recent annual report. However, Ali Hached, special advisor to Algerian Energy Minister Youcef Yousfi, told a Paris conference on 3 May that El Merk would add 100,000 b/d of crude and 30,000 b/d of condensate to Algerian production before the end of 2012 “taking Algerian production to over 1.5mn b/d by year-end”. Talisman has a 9.1% El Merk stake via its 35% share of Block 405a immediately to the west of Anadarko-operated Block 208, on which the bulk of the El Merk reserves lie. Anadarko has 18.1% of El Merk (via its 24.5% of Block 208), ConocoPhillips has 16.9%, Eni and Maersk have 9.1% each, whilst Sonatrach has 37.7% (MEES, 19 March).

Anadarko’s revised contract terms — which entered into effect on 29 March and apply to Maersk and Eni, as well as Anadarko (MEES, 9 April) — had only a negligible impact on the company’s first quarter crude volumes. But for 2012 as a whole the company expects to see an additional 1.6mn barrels of Algerian crude as a result of the resolution — rising to around 5mn barrels a year (13,700 b/d) for 2013 and beyond. This will lead the company’s global sales volumes to a record 258-262mn barrels of oil equivalent (boe – around 710,000 boe/d) for 2012, despite capital expenditure holding steady.

The company reported the $1.804bn monetary benefit from the Algeria tax dispute resolution on its first quarter balance sheet, of which it “expects to receive approximately $1bn in cash during 2012 and the balance during the first half of 2013.” Anadarko says the total value of the resolution to the company is $4.4bn at current oil prices, with the remaining $2.6bn coming from Anadarko’s calculations of the ‘net present value’ of improved PSC terms going forward.

Although Anadarko (as well as its partners Maersk and Eni) will continue to pay the TPE, this will be at a lower rate of 18% going forward, although the old rate of 30% will continue to apply to the bulk of second quarter sales as this consists of crude produced before the resolution’s effective date (29 March). This means Anadarko’s effective Algerian tax rate will fall to 45-50% from the third quarter this year, compared to around 60% at present, according to John Colglazier, Anadarko Vice-President for Investor Relations and Communications.

© Copyright MEES 2012.