Algeria has taken another major step to revitalize its oil and gas sector, signing a $5.4 billion production sharing agreement with Saudi Arabia’s Midad Energy. The deal, completed in partnership with Algeria’s state-owned Sonatrach, marks one of the largest bilateral energy collaborations in North Africa in recent years.
The 30-year contract includes an option for a 10-year extension and sets out a seven-year exploration period funded entirely by Midad Energy. Of the total investment, $288 million is specifically allocated for exploration. The agreement reflects Saudi Arabia’s growing interest in securing upstream stakes beyond its borders and gives Algeria access to much-needed foreign capital and technical expertise.
Focus on the Illizi Basin
The project targets the Illizi South perimeter, located about 100 kilometers south of In Amenas near the Libyan border. This area holds significant untapped hydrocarbon potential and has long been viewed as one of Algeria’s next major exploration frontiers. The deal aligns with Algeria’s strategy to modernize its energy infrastructure, expand production, and attract new investors.
For Algeria, the partnership supports its broader effort to boost national output through joint ventures with well-capitalized international firms. For Saudi Arabia, it offers a foothold in a region that has remained underdeveloped despite promising geological data. The agreement is expected to bring new seismic studies, drilling campaigns, and infrastructure improvements that could set the stage for long-term commercial production.
The project also highlights Saudi Arabia’s deliberate expansion into North African energy markets. By establishing upstream operations outside the Gulf, Midad Energy is diversifying the Kingdom’s exposure and extending its influence across a region with deep ties to both Europe and sub-Saharan Africa.
Strengthening Bilateral Cooperation
The deal underscores deepening ties between Algeria and Saudi Arabia across multiple economic fronts. Earlier this year, the two countries signed five agreements covering energy, trade, tourism, industry, and legal cooperation. Officials from both governments have continued to work on turning those frameworks into actionable partnerships, signaling a shared commitment to sustained collaboration.
This production sharing agreement is the most tangible outcome so far, reflecting both countries’ efforts to align economic priorities. For Algeria, attracting foreign partners is key to its $60 billion plan to modernize the energy sector over the next five years. For Saudi Arabia, the venture fits into its long-term strategy to broaden its international portfolio while maintaining a balanced diplomatic position across the region.
The timing of this partnership is also significant. North Africa is currently marked by political and security tensions, particularly between Algeria and Morocco, whose rivalry has implications for trade and defense alliances. Despite this, Saudi Arabia has managed to build constructive relationships with both nations. Its energy partnerships are being carefully structured to focus on mutual economic benefit rather than political positioning.
Regional and Strategic Context
This agreement takes place within a wider geopolitical landscape defined by shifting alliances and competing energy interests. Algeria’s partnership with Saudi Arabia demonstrates a pragmatic approach to foreign investment, balancing relationships with both Eastern and Western powers while pursuing stability through economic cooperation.
Sonatrach’s leadership has emphasized that foreign participation is critical for increasing production, introducing advanced drilling technology, and improving operational efficiency. Algeria’s oil output has declined in recent years, and new exploration projects like Illizi South are essential to reversing that trend.
Earlier this year, Sonatrach also signed an $850 million exploration and development deal with China’s Sinopec. These partnerships show Algeria’s growing willingness to diversify its international collaborations, engaging not just traditional European clients but also Asian and Gulf investors who bring financing and technical capability.
Algeria’s broader energy plan involves investing $60 billion over five years, with the majority directed toward upstream exploration and production. The government aims to reinforce its standing within OPEC and sustain its role as a reliable supplier of both crude oil and natural gas to global markets.
Outlook for the Illizi Basin
The Illizi Basin holds enormous potential for new hydrocarbon discoveries. If exploration confirms commercially viable reserves, production from the area could significantly increase Algeria’s export capacity. Beyond its direct output, the project strengthens regional cooperation and deepens economic integration between North Africa and the Gulf.
For Saudi Arabia, this agreement opens the door to future opportunities in Algeria’s midstream and downstream sectors, and possibly joint ventures in petrochemicals or refining. For Algeria, it reinforces its ability to attract global capital and technology while maintaining control of its natural resources.
As both countries look to expand their economic footprints, the partnership in the Illizi Basin stands as a model of pragmatic cooperation in a complex regional environment. It unites financial strength with resource potential, technical know-how with national strategy, and long-term stability with energy ambition.
The Sonatrach and Midad Energy agreement will likely be remembered as one of the key milestones in Algeria’s push to modernize its oil and gas industry and as an example of how Gulf investment can help shape the future of North Africa’s energy landscape.
