Anadarko Sets Aside $100Mn For 4Q 2006 Algerian Windfall Taxes, Forecasts $225Mn For 2007
Anadarko Petroleum Corporation on 5 February announced it would record a charge of approximately $100mn for the fourth quarter of 2006 for the new windfall tax legislation introduced by Algeria last year and effective as of 1 August 2006. It also calculated that the Taxe sur les Profits Exceptionnels (TPE) for 2007 would amount to $225mn. In December Algeria published the sliding taxation rates that apply when the monthly average price for Brent crude oil exceeds $30/B (MEES, 18 December 2006). “Our Algerian assets are operated under a production-sharing contract containing a stabilization clause that protects our existing investment and related asset value,” Anadarko chairman, president and CEO Jim Hackett said in a statement. “Although we are recording the estimated impact of the tax with this charge in the fourth quarter, we expect to ultimately receive relief through the stabilization provision once its applicability is recognized in a settlement agreement or in international arbitration.”
Houston-based Anadarko, the largest foreign operator in Algeria with a production rate of around 60,000 b/d, is negotiating with state-owned Sonatrach for a clearer understanding of how the TPE will be applied. According to Anadarko there remain a number of ambiguities on the interpretation of the law, particularly whether the tax applies to earnings above $30/B or to the whole price, in which case Anadarko would argue that the TPE is being applied to revenues, not exceptional profits. Should the two sides fail to come to a mutual understanding, Anadarko may refer to international arbitration after March 2007, when Sonatrach is due to retain that portion of Anadarko’s crude oil production it deems equivalent to the value of the tax.
Anadarko said the fourth-quarter charge represented an estimate of its liability for the exceptional profits tax from the law’s 1 August 2006 effective date through year-end 2006, based on the assumption that the tax applies only to production value in excess of $30/B. Beginning in 2007 – assuming an average oil price of $60/B and application of the TPE to production value in excess of $30/B – Anadarko’s estimated annual expense for the exceptional profits tax would be $225mn. “If the exceptional profits tax is applied to the full value of production rather than to the value in excess of $30/B,” Anadarko said, “the estimated annual expense would double under the $60/B price assumption [$450mn]. There is also uncertainty as to how the collection and relief of tax will ultimately be resolved. Sonatrach…has indicated it will begin collecting the current and past tax in March 2007 by retaining a portion of the barrels to which Anadarko is entitled.”
Regarding future investments, Anadarko said it held 110mn barrels of proved undeveloped reserves in Algeria and there was no reserve revision associated with the implementation of the tax under the assumption that it applied only to production value in excess of $30/B. “As the company’s dispute process progresses, Anadarko will continue to review the impact that the tax change may have on future development plans and associated reserve bookings, if any,” the company said, with Mr Hackett adding: “We believe that the sanctity of our contract’s stabilization provision will be upheld and thus will preserve the value of our Algerian asset base. Although we expect a favorable outcome to this matter, ultimate resolution may be more than a year away.”
