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History of an empire

Article - June 28, 2012
The first steps in oil exploration in Algeria were made in 1877
Those initial discoveries were followed by many more, such as Hassi Messaoud’s giant oil deposit in 1956, and Algeria soon became a major player in the energy industry. The creation of Sonatrach on December 31, 1963 was a key moment for the country: at the time, however, the Algerian Government held only 4.5 per cent of the licensed exploration acreage, while French interests held as much as 67.5 per cent.

After the Arab-Israeli War of 1967, Algeria nationalised Mobil and Esso’s refining and distribution activities, and Sonatrach signed an agreement with Getty Oil on October 19, 1968, by which it acquired a 51 per cent interest in Getty Oil.

Later, in February 1971, Algeria’s President Houari Boumedienne began to nationalise all French oil and gas holdings in the country. As a result Sonatrach gained control over the entire petrochemical sector in Algeria.

The old concession system was replaced by the expropriation of a 51 per cent share in all French petroleum companies operating in the country. Only Total agreed to continue its activities, while other companies left the country.

In December 1979, a conference on petroleum exploitation recommended allowing increased participation by foreign companies and countries in Algerian exploration.

From 1986 onwards, it became possible for foreign oil and gas companies to do business in Algeria within a partnership with Sonatrach, a process which was then simplified in 1991.

The Sonatrach-Gaz de France accord, signed on January 12, 1989, allowed the state to set a compromise price of approximately $2.30 per million BTUs. A total of 9.5 billion cubic metres of natural gas were delivered annually until 1990, and Sonatrach recovered 850 million francs in arrears, since the accord applied retroactively beginning in November 1, 1987.

In March 2005, the Algerian parliament adopted the hydrocarbon reform bill, encouraging International Oil Company (IOC) investment in the hydrocarbon sector, which Sonatrach had previously dominated. However, 2006 amendments to the hydrocarbon bill created a windfall tax on IOC profits when oil prices topped $30 per barrel. This tax reached up to 50 per cent on some contracts. In addition, the amendments gave Sonatrach rights to a 51 per cent or higher participation option on each newly discovered project.