Algeria Bid Round 2024: a strategic shift under the new Algerian hydrocarbon law

Rym Loucif

Loucif + Co, Algiers

rloucif@loucif-law.com

Introduction

Algeria is Africa’s leading natural gas producer and is an OPEC member. It is a key gas supplier to Europe and it ranks among the top three oil producers in the region.

However, the Algerian oil and gas sector has suffered from limited interest in past years. Only four of 31 blocks were awarded in the 2014 bid round. At the same time, oil and gas domestic consumption has steadily increased.

Additionally, according to the Algerian National Oil Company, Sonatrach, two thirds of the Algerian territory remains unexplored or largely underexplored, with only limited offshore exploration.

Hydrocarbons being the backbone of the economy, there is a crucial need to revitalise the sector and attract foreign investment and input in order to notably seize untapped offshore opportunities and develop unconventional resources. In this context, the Algerian legislature enacted Hydrocarbon Law No. 19-13 of 11 December 2019 (the ’New Hydrocarbon Law‘) to overhaul the existing legal and fiscal framework governing upstream oil and gas activities.

While some aspects of the New Hydrocarbon Law are unchanged from the previous regime, there are some contemporary key differences offering financial incentives and a far more flexible and clearer legal framework.

Recently, on 14 October 2024, the National Agency for the Valorisation of Hydrocarbon Resources (ALNAFT) launched the Algeria Bid Round 2024, the first licensing round under the New Hydrocarbon Law.

This bid round, long anticipated, is the country’s first since 2014. The Algeria Bid Round 2024 also marks the first phase of the Algerian Government’s five-year plan, focusing on conventional hydrocarbons in onshore perimeters, primarily in the southwestern region.

Prior to examining the features of the Algeria Bid 2024, it is useful to provide an overview of Algeria’s oil and gas sector and a brief outline of Algeria’s regulatory system.

1. Legal framework: Law No. 19-13 – towards a more flexible and clearer regime

1. 1. Overview of Algeria’s oil and gas sector

In 2023, Algeria produced around one million barrels per day (b/d) of crude oil and 101.5 (billion cubic metres) of natural gas, making it the leading natural gas producer in Africa.[1]  

The majority of gas exports are directed to Europe via three key pipelines – TransMed, Medgaz and the Maghreb-Europe Gas Pipeline (MEG) – as well as through four LNG export terminals operated by Sonatrach.

1. 2. Brief outline of Algeria’s regulatory system

Over the past three decades, Algeria’s hydrocarbon legal and fiscal regime has evolved through three key legislative milestones aimed at opening the sector to international investment while preserving strategic national interests.

The first major reform, Law No. 86-14 of 19 August 1986, established a state monopoly over hydrocarbon exploration, production and transportation. International Oil Companies (IOCs) were only permitted to operate through partnerships with Sonatrach, which retained exclusive ownership of mining titles and infrastructure. Under these partnerships, IOCs could not hold mining titles directly. IOCs received a capped share of production (up to 49 per cent) as compensation for their investment, tax-free and FOB Algeria. Natural gas had to be marketed through joint entities where Sonatrach held majority voting rights. This model effectively preserved state control while leveraging foreign capital and technology.

The second milestone, Law No. 05-07 of 28 April 2005, marked a paradigm shift, aiming to liberalise the sector and improve transparency and competitiveness. It introduced two new regulatory agencies: the Hydrocarbon Regulatory Authority (ARH) (for technical regulation) and ALNAFT (for contract awards and management of petroleum data). It removed Sonatrach’s regulatory powers, transforming it into a purely commercial entity. It ended mandatory Sonatrach partnerships, allowing IOCs to contract directly with ALNAFT. It also replaced Production Sharing Contracts (PSCs) with a tax/royalty regime – the Exploration and/or Exploitation Contract – with no production sharing mechanisms or state participation by default.

However, shortly after its adoption, Order No. 06-10 of 29 July 2006 reintroduced some restrictive features, including Sonatrach’s right to a minimum 51 per cent stake and the introduction of retroactive windfall taxes applicable to prior PSCs, thereby partially reversing the liberalisation intent.

These legal developments laid the foundation for the more balanced and investor-friendly framework later introduced under the New Hydrocarbon Law.

Algeria’s New Hydrocarbon Law, introduced in December 2019, reintroduces the PSC existing under the former Law 86-14, and reasserts the following basic principles:

1. 3. Institutional framework

Three public bodies supervise the oil and gas sector:

• the Minister of Hydrocarbons, responsible for requesting the issuance of mining titles and approving hydrocarbon contracts by decree of the Council of Ministers;
• ALNAFT, the exclusive holder of mining titles, tasked with organising public tenders, issuing deeds of attribution and granting the right to conduct upstream activities within defined perimeters; and
• ARH, acting as a technical regulator, ensuring compliance with applicable engineering, safety and environmental standards.

1. 4. Authorisation and award process

Foreign companies are required to enter into a contract with Sonatrach in order to perform exploration and exploitation activities in Algeria.

Hydrocarbon contracts are awarded through competitive bidding conducted by ALNAFT. Tender process is opened only to pre-qualified companies (which means those companies holding a certificate issued by ALNAFT in consideration of legal, technical and financial criteria).

However, direct negotiation is permitted, upon consultation with ALNAFT, where justified by reasons of public interest.

Then, an administrative deed of attribution (‘acte d’attribution’) is issued by ALNAFT prior to the hydrocarbon contract’s approval. ALNAFT grants, through the deed of attribution, the right to the contracting parties to conduct exploration and/or exploitation activities within a designated perimeter.

1. 5. Contractual flexibility

One of the main innovations of the New Hydrocarbon Law is the reintroduction of PSCs – previously abandoned in 2005 but considered highly effective under Law No. 86-14 of 1986.

The New Hydrocarbon Law provides for three contractual models:

• Participation contracts, requiring joint investment by Sonatrach and its partners, with Sonatrach holding at least a 51 per cent interest. Upstream operations are financed proportionally to each party’s equity stake. The ownership of hydrocarbons is transferred to the contracting parties at the measurement point, and each party bears taxes applicable to its share. The contract may also include an advance of funds by the partner to Sonatrach during the research phase. In addition, the contract must include a joint marketing clause for all gas produced from a given perimeter, where such gas is intended for export. However, Sonatrach may be designated to undertake the marketing of said gas on behalf of the contracting parties.
• Production sharing contracts, whereby foreign contractors finance exploration and production activities. Sonatrach retains ownership of hydrocarbons at the measurement point and pays applicable taxes. The foreign contractor is entitled to recover costs and receive profit oil up to a ceiling of 49 per cent of total production, at the delivery point, net of the remuneration tax. Sonatrach also has the option to participate in financing as defined in the contract. Like participation contracts, PSCs must provide for a joint marketing clause for all gas produced from a given perimeter, where such gas is intended for export. However, Sonatrach may be designated to undertake the marketing of said gas on behalf of the contracting parties.
• Risk services contracts, whereby the foreign contractors finance upstream operations and receives cash remuneration based on the value of hydrocarbons produced. Sonatrach retains full ownership of hydrocarbons at the measurement point and pays the taxes due. The foreign contractor receives cash remuneration corresponding to the recovery of cost oil and profit oil, net of the applicable remuneration tax and capped at a maximum of 49 per cent of the total production value from the contractual perimeter.

1. 6. Fiscal and exchange control regime

The upstream fiscal framework under the New Hydrocarbon Law consists of five principal levies:

• A surface tax (rate per sq km variying according to the project phase);
• A hydrocarbon royalty (10 per cent);
• A hydrocarbon revenue tax (10–50 per cent);
• An income tax (30 per cent);
• A tax on the remuneration of the foreign contractor (30 per cent) under PSCs and Risk services contracts.

The New Hydrocarbon Law introduces the possibility of reduced tax rates to preserve ‘reasonable economic profitability’, particularly in the case of technically complex projects, geologically challenging perimeters or high-cost developments.

These reductions require joint ministerial approval and cannot fall below minimum thresholds (5 per cent for royalty; 10–20 per cent for income tax).

1. 7. A far clearer law

Compared to the 1986, 2005 and 2013 legislative frameworks, the New Hydrocarbon Law introduces a significantly clearer and more coherent legal regime for the oil and gas sector.

One of its key features is the establishment of a unified legal and fiscal framework applicable to both conventional and non-conventional hydrocarbons, thereby eliminating the dual regime that previously applied.

Another key improvement under the New Hydrocarbon Law lies in the clear treatment of direct and indirect transfers of interests in hydrocarbon contracts. The law captures change of control events and empowering the Minister of Hydrocarbons to declare a transfer incompatible with national interests – triggering mandatory divestment to Sonatrach or other contractors, subject to fair compensation.

2. Algeria Bid Round 2024: first licensing round under the New Hydrocarbon Law

On 14 October 2024, during the North Africa Petroleum Exhibition and Conference (NAPEC), ALNAFT launched the Algeria Bid Round 2024, marking the first upstream licensing round since 2014 and the first under the New Hydrocarbon Law.

This bid round represents the initial phase of the Algerian Government’s five-year strategy focused on conventional hydrocarbons in onshore perimeters, particularly in the southwest region.

Opportunities are offered under PSCs and Participation Contracts, as permitted by the New Hydrocarbon Law.

The bid round aims to stimulate exploration in historically prolific basins such as Berkin.

The process includes several key milestones:

• 14 October 2024: Official launch at NAPEC.
• 26 November 2024: Opening of data rooms and access to tender documents.
• 17 June 2025: Bid submission and opening, followed by evaluation and contract awards.

Bidders must complete the following prerequisites:

• sign a non-disclosure agreement;
• obtain prequalification from ALNAFT; and
• pay access fees for the tender documents and data room usage.

Each bid must include:

• A submission letter;
• initialled draft hydrocarbons contract and operations agreement;
• technical and techno-financial offers; and
• a valid prequalification certificate and access approvals.

Evaluation criteria differ by perimeter. For Toual and Guerne El Gessa, only technical criteria apply. For Grand M’Zaid, Ahara, Reggane II and Zerafa II, both technical and financial criteria are assessed.

The financial evaluation focuses on the bidder’s participation rate in financing upstream operations. For PSCs, this is competitively proposed, whereas for Participation Contracts it is predetermined by the contract.

Successful bidders must provide a parent company guarantee. Contracts will be approved by a Council of Ministers decree and enter into force upon publication in the Official Gazette.

Note