Algeria Approves Anadarko Settlement

Algeria Approves Anadarko Settlement

The Algerian government on 29 March approved a $6.6bn resolution agreed earlier in the month with US firm Anadarko and Denmark’s Maersk related to the two companies’ challenge to Algeria’s 2006 imposition of a windfall profits tax (‘taxe sur les profits exceptionnels’ – TPE). “The settlement agreement is now fully effective, this brings closure to the TPE dispute,” Anadarko says. The deal also affects Italy’s Eni, taking the total value of the settlement to $8.8bn using Anadarko’s calculations of the ‘net present value’ of improved production sharing agreement (PSA) terms.

The rapid approval of the deal by the Algerian authorities – Algerian President Abdelaziz Bouteflika’s 29 March signing came less than three weeks after the original deal was inked with state oil firm Sonatrach – gives an indication that the Algerian energy bureaucracy is becoming more efficient and is keen to usher in a new investor-friendly climate (MEES, 5 March). With the deal coming into effect before the end of March, Anadarko – one of the biggest foreign investors in the Algerian oil sector – says the impact will already be seen in its first quarter results. Anadarko Chief Operating Officer Al Walker praised the “excellent outcome” that “preserves our relationship with Sonatrach.”

The agreement is worth $2.7bn in crude to be refunded to Anadarko and Maersk over the 12 months from 29 March, with Anadarko receiving $1.8bn and Maersk $920mn in line with the two companies’ relative shares in their Algerian assets. The monetary amount is fixed with volumes of crude actually delivered to vary in line with oil prices. At recent prices Sonatrach will have to deliver an additional 30mn barrels of crude (82,000 b/d) to the two firms and Eni over the next year, with Anadarko taking 15mn barrels and Maersk and Eni splitting the rest.

In addition, Anadarko calculates the deal as being worth $2.6bn to the US firm in ‘net present value’ from improved PSA terms going forward – half of this figure could equally be applied to Maersk and Eni, which each have 12.25% in Blocks 404a and 208 in Algeria’s prolific Berkine Basin. Anadarko has 24.5% and is operator, whilst Sonatrach – in line with prevailing PSA terms – has 51%. Current production of 370,000 b/d all comes from Block 404a. However, the value of the deal going forward reflects not only this but also the fact that the improved terms will greatly increase the profitability to the foreign partners of the 150,000 b/d El Merk project on Block 208, set to come on stream in late 2012 (MEES, 19 March). Eni was not party to the arbitration but will see its terms changed in line with its partners, MEES understands.

Investment Grade

Subsequent to the TPE agreement (and the settling of Anadarko’s share of liabilities related to BP’s 2010 Deepwater Horizon spill) credit ratings agency Moody’s on 23 March raised its rating of Anadarko to Baa3 from Ba1. Although this represents just one notch it moves Anadarko’s rating from junk to the lowest investment grade, reducing the company’s borrowing costs. However, the company’s shares have lost 10% of their value since the 9 March announcement, closing at $78.26 on the New York Stock Exchange on 5 April.

Under the terms of the TPE, imposed since August 2006, Sonatrach imposes an additional 5-50% levy (rising on a sliding scale) when the month’s average price for Brent crude tops $30/B. Takings have risen sharply in recent years in line with soaring oil prices, with Anadarko alone paying $680mn for 2010.The $2.7bn of crude refunded to Anadarko and Maersk equates to 60% of the payments the two firms made in 2006-11 under Algeria’s TPE, indicating that the companies will see a similar cut to their future TPE payments.

Copyright MEES 2012.