Eni has signed a new oil exploration and production contract with the Algerian state-owned oil and gas company Sonatrach regarding the onshore Berkine basin area in the country.

The contract encompasses an area of 7,880km² in the southern part of the Berkine basin, near Eni’s current production assets of Menzel Ledjemet (MLE) and Central. Both the companies have been operating in the region since 2013.

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As agreed, Eni and Sonatrach will create an exploration and development work programme in the area.

The project will initially aim to accelerate the development of reserves, which currently hold an estimated 135 million barrels of oil equivalent.

Production is expected to commence by the end of next year.

In a separate statement, Sonatrach said that it will contribute an investment of approximately $1.4bn for the production of 45,000 barrels of oil equivalent per day.

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The contract is said to be the first to be signed following the implementation of the new oil law in Algeria. The implementation of the contract is subject to approval by the relevant authorities in the country.

Eni and Sonatrach also entered a memorandum of understanding (MoU) to cooperate on energy transition initiatives.

Under the MoU, the two companies will explore joint opportunities in the fields of renewables and hydrogen, as well as the capture and storage of carbon dioxide.

Eni CEO Claudio Descalzi said: “Today’s agreements are testimony to the commitment of Sonatrach and Eni to continue the shared strategy of accelerated project development, and to pursue the decarbonisation objectives within our common commitment to achieve carbon neutrality.”

Headquartered in Italy, Eni has been operating in Algeria since 1981.

Last month, the company agreed to sell a 49.9% stake in its subsidiaries that operate the Algeria-Italy gas pipelines for $435.7m.