Sonatrach

ANNUAL REPORT 2010

Message from the Chief Executive Officer

Primary hydrocarbons production stood at nearly 214 Mtoe, of which 55.3 millions tons of crude oil and 145.8 billion cm of natural gas. The sales volumes of liquid and gaseous hydrocarbons, for the domestic market, confirm the growing sustained trend of the countrys domestic demand with an increase of + 3% compared to 2009 and the highest priority we attach to supply the domestic market. In 2010, a record of twenty-nine (29) hydrocarbons discoveries was achieved, thus invigorating the initiated process of reinforcing and expanding our reserves base in Algeria. Twenty-seven (27) discoveries were made by Sonatrach individually and two (02) in partnership.

Mr. Nordine Cherouati Chairman and Chief Executive Officer of SONATRACH

Sonatrachs results for 2010 were positive with a substantial growth across all the companys activities. The targets set were met and, in some cases, exceeded. In the markets, our efforts took advantage from the surge in oil prices which experienced a strengthening with an annual average price of 80.1 $/bbl in 2010 for the Sahara Blend, up 29% over the previous year. This trend was somewhat thwarted by the natural gas market prices which remained depressed. In this context, we consolidated the sound financial position of Sonatrach, thus strengthening Sonatrach Groups contribution to the national economy. Our exports turnover thus stood at US $ 56.1 billion in 2010, increasing by 26% over 2009, with a net positive result of DZD 705 billion, a significant 148% rise over 2009. The oil tax paid by Sonatrach to the Treasury rose from DZD 1983 billion in 2009 to DZD 2 520 billion, or a 27% increase over the previous period.

Regarding investment in Algeria, Sonatrach multiplied its efforts in 2010 compared to 2009. We recorded an investment level of more than 11% in physical terms value with achievements of around US $14.4 billion equivalent. The core of the investment program was achieved in the Upstream (69%), including namely the drilling of 242 exploration and development wells, 148 of which carried out by Sonatrach individually. The implementation of the established investment program continued during 2010 including major projects such as the implementation of Hassi Messaoud LPG unit , the developments of Gassi Touil gas field, Rhourde Nouss Quartzites of Hamra deposits and also of El Merk in partnership with Anadarko, Menzel Ledjmet East in partnership with ENI, the ongoing implementation of two mega LNG trains in Arzew and Skikda and the rehabilitation projects of Northern refineries. 2010 also witnessed the reinforcement of our treatment, transportation and processing capacities through the commissioning of several significant projects for the optimisation and operation of fields and hydrocarbon production facilities,

04 Annual Report 2010

including Hassi Messaoud South Crude Processing Unit, phase II of Hassi RMel Boosting, Alrar Early Production Facilities , Rhourde Khrouf gas reinjection unit (in partnership with Cepsa), phase II of TFT Boosting ( in partnership with Total and Repsol), phase III of Moctaa Douze Beni Saf GZ4 gas pipeline projects, which will supply the Medgaz, Hassi RMel Arzew LZ2 LPG transportation pipeline, and the Three LPG Trains and Nitrogen Storage and Conditioning Centre projects in Arzew. The high level of investments recorded during 2010 also includes funding to support the cost of new projects, demonstrating Sonatrachs desire to lay solid foundations for the future. Among major projects initiated in this regard, I can mention the rehabilitation of Rhourde Nouss 100 & 300 LPG trains, the FEED for the development of Timimoun gas fields (in partnership with Total and Cepsa) and in Touat (in partnership with GDF-Suez) to which I would include the project for the Rehabilitation and Adaptation of Algiers refinery facilities in respect of which an EPC contract worth almost 970 million dollars equivalent was signed. Our international activities recorded continued success: a second hydrocarbon discovery was made in Libya following the one achieved in 2009 on Block 65 where Sonatrach is operating through its subsidiary SIPEX. In Peru, on the Cashiriari Field, Blocks 88 and 56, in Camisea, in which Sonatrach holds stakes, 29.5 millions of liquid hydrocarbon barrels and 12.18 billion m3 of natural gas have been produced. Sonatrachs Human Resources are deeply committed in the success achieved in 2010 which recorded a dynamic process of continuous qualitative improvement involving recruitment and training operations namely in core businesses.

The Companys permanent workforce remained almost stable with 47 963 employees in 2010, or a less than 1% increase, and 17 455 persons benefited from training. The significant results achieved during the past year demonstrate the real capabilities of our Company and the tremendous potential it holds. They confirm our determination to stay the course. We are continuing our efforts in 2011 to undertake ambitious projects up to Sonatrachs missions and to our abilities to meet challenges, improve management at all levels and strengthen the steering of the Group. For this purpose, an important program for the intensification of efforts was set up in order to consolidate our reserves base and, in this respect, a strategy was defined for the exploration of our shale gas potential. Other challenges will be addressed through the management and implementation of large-scale projects. We do indeed want to build a project engineering and management capacity consistent with our strategic goals. These efforts must obviously be coupled with the alignment of our organization and our procedures to the supply chain and contract management improvement imperatives, together with reinforcing our capacities in the training and development our human resources. To this end, and as has always been in the past, I know that we can rely again on the commitment and dedication of Women and Men in Sonatrach.

Annual Report 2010 05

06 Annual Report 2010

The General Meeting

Mr. Karim DJOUDI, Minister of Finance Member

Mr. Abdelhamid TEMMAR,

Minister of Prospective Planning and Statistics Member

Mr. Youcef YOUSFI, Minister of Energy and Mines Chairman Mr. Mohamed LAKSACI, Governor of the Bank of Algeria Member Mr. Houari KHACHAI, Representative of the Presidency of the Republic Member

Annual Report 2010 07

The Board of Directors

Mr. Abderrahmane Raouya,

Representative of the Ministry in charge of Finance Membe

Mr. Hadji BABAAMI, Representative of the Ministry in charge of Finance Member

Mr. Youcef OURRADI,

Representative of the Ministry in charge of Hydrocarbons Member

Mr. Nordine Cherouati Chairman and Chief Executive Officer of SONATRACH Chairman of the Board

Mr. Mustapha HANIFI, Representative of the Ministry in charge of Hydrocarbons Member

Mr. Noureddine BOUTERFA, Appointed for his competence in the field of hydrocarbons Member
08 Annual Report 2010

Mr. Ali TOUATI, Representative of the Bank of Algeria Member

Mr. Said SAHNOUN, Vice- President, Upstream Activity Member

Mr. Allaoua SAIDANI, Vice- President, Pipeline Transportation Activity Member

Mr. Abdelkader BENCHOUIA, Vice- President, Downstream Activity Member

Mrs. Yamina HAMDI, Vice- President, Marketing Activity Member

Mr. Mansour KECHCHAR, Employee Representative Member

Mr. Abdelkrim MAHIEDDINE, Employee Representative Member

Annual Report 2010 09

The Executive Committee

Mr. Said SAHNOUN, Vice- President, Upstream Activity Member

Mr. Allaoua SAIDANI, Vice- President, Pipeline Transportation Activity Member

Mr. Nordine Cherouati Chairman and Chief ExecutiveOfficer Member

Mr. Abdelkader BENCHOUIA, Vice- President, Downstream Activity Member

Mrs. Yamina HAMDI, Vice- President, Marketing Activity Member

Mrs. Fatma Zohra BENOUGHLIS, Executive Director, Strategy, Planning and Economy

Mr. Akli REMINI, Executive Director, Subsidiaries and Holdings

10 Annual Report 2010

Mr. Farid BOUKHALFA, Executive Director, Finance

Mr. Samy TOUNSI, Executive Director, Engineering & Development

Mr. Younes HEGUEHOUG, Executive Director, Human Resources

Mrs. Naima BOUTEMEUR, Central Director, HSE (Health, Safety and Environment)

Annual Report 2010 11

Organigramme

Chief Executive Officer

Project Review Committee International Projects Coordinating Committee Direction of Public Relations

Upstream Activity

Pipeline transportation Activity

Group Coordinating Directions

Engineering & Development Finance Human Resources Strategy, Planning & Economy Subsidiaries & Holdings Central Activities

Holdings
SIHC SPP

SIP

12 Annual Report 2010

 Executive Committee Ethics Committee Establishment Internal Security

Downstream Activity

Marketing Activity

RCH

Central Directions
SVH

SGS AIE

Legal Affairs Audit Group Markets Health, Safety & Environment Management of Associations

Annual Report 2010 13

14 Annual Report 2010

Introduction 2010 was characterized by a context marked by the strengthening of the Sahara Blend prices with a buoyant growth at an annual average of $ 80.1 /bbl compared with $61.9/bbl in 2009, or an increase of + 29%. The Sahara Blend prices, closing at $ 92.1/ bbl in December 2010, had a positive effect on the activity of Sonatrach.

At the national level, the sales volumes of liquid and gaseous hydrocarbons, intended for the domestic market, recorded an increase of + 3% over 2009 and confirm the growing trend of the country's needs. Corporate bodies activities Throughout 2010, the Board of Directors of Sonatrach Spa held seven meetings where he had to assess and decide on some twenty case files related to the management and the development of the Company; 25 resolutions have been adopted.

Annual Report 2010 15

Production of hydrocarbons
The primary production of hydrocarbons, all products The production of natural gas reached 145.8 billion m3, combined, amounted to 213. 9 million toe, including 55.3 82% under the production of natural gas from fields opemillion tons of crude oil and 145.8 billion m3 of natural rated by Sonatrach individually. gas. The production of condensate (including condensate The regions of Hassi Messaoud and Hassi R'Mel account reinjected into crude) amounted to 11.2 million tons. for 75% of the production of Sonatrach in own effort and As regards fields operated by Sonatrach alone, the production of condensate stood at 9,02 million tons and 54% of the total primary production. accounts for 80% of the total production. The primary production of oil in 2010 consists of 64% of natural gas, 26% of crude oil, 6% of condensate and 4% of The production of LPGs (including butane & propane fractionated in the South) amounted to 7.2 million tons. LPG. The production of LPG by Sonatrach alone accounted for The production of fields operated by Sonatrach alone to- 71% of the total LPGs production. taled 154.8 million TOE. As for pressure maintenance, the volume of water inSonatrachs share in the production represents 72% of jected into the oilfields reached 63.2 million m3. Gas voglobal primary production. The principal regions inputs lumes intended for injection totaled 89.1 billion m3. are located in Hassi R'Mel, Hassi Messaoud and Rhourde The volumes of natural gas cycled at Hassi R'Mel are Nouss with a total of 64% of the primary production. close to 38.2 billion m3, representing a 44% cycling rate The production in partnership reached 59.1 million toe in of gas primary production from the reservoir. 2010. The production in partnership accounts for 28% of the total primary production; the main poles are Ourhoud & Berkine contributing up to 9% of the total production. Crude oil production in partnership represents 52% of the total oil production while natural gas production in partnership accounts for 18% of the total production. The production share taken pursuant to the Exceptional Profits Tax (TPE) for 2010 stood at 2.62 million toe against 2.53 million toe in 2009.

18 Annual Report 2010

A corporate citizen serving the cause of national development

Annual Report 2010 19

Subsidiaries and Holdings in Algeria

National Subsidiaries Results for 2010:
U: DZD Million
Investments Staff (incl. temporary)

Capital

Turnover

Net income 6 900 3 091 2 253 100

Holding SVH NAFTAL (100%) HYPROC S.C. (100%) AEC (50%) NEAL (45%) SPP1 (14%) COGIZ (100%) Holding SPP ENSP (100%) ENAGEO (100%) ENAFOR (30%) ENGTP (100%) ENAC (100%) GCB (100%) MI-ALGERIA (40%) ALGESCO (24%) : rsultats provisoires SAFIR (36%) Holding SGS TASSILI AIRLINES (100%) CASH (38,89%) BAOSEM (50%) 9 000 1 088,64 0,5 3 248 7 492 164 -511 665 43 14 472 558 37,67 778 275 68 15 840 12 000 7 920 200 864,36 402,9 800 7 000 14 800 6 390 3 190 7 630 165,22 23,92 7 560 255 275 12 397 125,5 362 10 573 26 696 1,28 986 581 1 200 2 700 2 700 3 500 1 100 780 400 992 0 29 328 1 695 47 33 6 52 2 087 5 347 4 716 9 163 3 069 6 513 729 162 117

En phase projet 444 --8 960 15 560 23 589 17 070 5 796 10 621 7 800 1 367 600 1 820 1 140 3 330 130 1 030 1 350 1009 95 139

34 Annual Report 2010

Capital

Turnover

Net income -7,21 245,31 0,4 165 61 8,9 3,02 -947 732 -60 237

Investments

Staff (incl. temporary)

Holding SIP OSPREC (49,5%) SARPI (50%) Holding RCH ACTIM (100%) 2SP (100%) SOTRAZ (100%) MEDCO (100%) ISGA (16,66%) ENOR (48%) HELIOS (51%) SOMIK (100%) SOMIZ (100%) SORFERT (49%)
EL BAHIA FERTILIZER (49%)

19,8 407,25 40 0,1 40 50 0,13 925,44 1 742,46 800 40 20 454,46 2 278,50 1 742,46 1 344 6 566

0 4 687 465 1 656 1 333 181 99 2 120 2 072 3 824 3 035

0 780 0,62 8,87 271 5,38 4,92 142 27 99 63

3 2 082 95 3 176 1 018 71 33 573 53 2 207 2 006

En phase de projet En phase de projet 714 6 085 -163 -336 En phase de projet 3 107 32 239

HELISON (49%) SORALCHIN (30%) AOA (49%) Holding AIE SKT (49%) SKB (49%) SKS (30%) SKH (10%) SKD (49%)

23 520 3 087 3 861 1 970 26 304

En phase de projet 3 607 2 067 11 491 4 787 16 350 2 248 En phase de projet

13 178 0 23,4

30 20 16

Annual Report 2010 35

Participation rate Holding SPC BVI SPC Trading NOSVL SPMC SPOTC ALTC HMTC RNTC SGCC SGTC Holding SPI BVI Med LNG HeM SPTC TGP TMPC Samco Holding SIPEX BVI (*) Sonatrach Peru Mauritania Ta1, 30, 31 & 35
Libya Block 65 Niger Block Kafra Mali Block 20 Mauritania Ta7 - Ta8 Mali Block 4 Libya Block 95/96 Numhyd Egypt El Dabaa Egypt Ras El Hekma

Unit

Turover

Net income

100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 49% 100% 21,18% 50%

MM$ MM$ MM$ MM$ MM$ MM$ MM$ MM$ MM$

5 004,00 14,99 4,31 11,72 10,92 10,92 10,19 11,40 -

112,60 5,88 1,91 2,79 4,42 4,57 3,19 2,49 0,01 1,59 1,40 75,00 11,91 0,01

MM$ MM$ MM$ MM$ MMCHF

19,72 1,52 354,00 54,12 1,22

SIHC (20%) ; SIPEX (80%) SIPEX Mauritanie 100%

SIPEX Libye 100% SIPEX Niger 100% SIPEX Mali 100% SIPEX 20% SIPEX 33,33% SIPEX Libye 50% SIPEX 50% SIPEX 20% SIPEX 20%

MM$

235,7 -

78,39 -

(*) Except for Sonatrach Peru, all SIPEX BVIs subsidiaries are currently in the research phase.

Annual Report 2010 37

Headquarters - Chemin Djenane El Malik, Hydra, Algiers, Algeria Phone: 213 21 54 70 00 - Fax: 213 21 54 77 00 Website: www.sonatrach-dz.com - Email: sonatrach@sonatrach.dz

Design, creation SONATRACH DCGRH.DCSI.B&N / 2011