Moving upstream: Deals with a number of IOCs show that interest has held steady

One of the largest concerns for the Ministry of Petroleum since the start of 2011 has been the potentially adverse effects of political uncertainty, as well as a deterioration of security conditions as Egypt undergoes its challenging political transition. While there has been some concern that the political unrest of the last years would deter international oil companies (IOCs), the bidding rounds that have been staged since the uprising of 2011 suggest that the interest of IOCs in Egypt’s hydrocarbons resources remains strong.

OIL: In September 2011 Egypt announced the opening of a bid round for exploration blocks – a move which, as the first since the onset of political unrest, was followed by the industry with particular interest. A total of 15 exploration blocks were on offer, geographically dispersed across the Gulf of Suez, Eastern Desert, Western Desert and the Sinai sedimentary basins. An original bid closing date in January 2012 was extended to the end of March in order to allow more companies to participate, and by October 2012 the Egyptian General Petroleum Corporation (EGPC) was in a position to announce the results of its bid round.

Of the 15 blocks, 11 attracted bids and were awarded by the EGPC, which collectively amounted to 10,500 sq km of the 18,000 sq km initially on offer. Foreign interest proved considerable, with Canada-based TransGlobe Energy taking five blocks, Shell Egypt taking two and other major participants including Apache and Vegas Oil and Gas – both of which have a substantial history in Egypt – winning concessions. The blocks not awarded were North-West Gindi, South Abu Sennan, South-East Abu Sennan and North-East Issran.

GAS: Egypt has also succeeded in running a bid round for gas exploration blocks since the 2011 uprising, although the extent of its success is less clear as of mid-2013. The international round was launched in June 2012 by the Egyptian Natural Gas Company (EGAS), and comprised 15 blocks – 13 offshore and two onshore – in the Mediterranean Sea and Nile Delta basins north of the capital Cairo. As with the earlier oil exploration bids the initial closing date was pushed back – in this case from November 2012 to February 2013. In April 2013, the Ministry of Petroleum announced that it had received 13 bids from international companies and had provisionally awarded eight of them.

Although the initial announcement did not represent a formal ratification, the bids suggest that the unrest in Egypt for more than two years has not overly subdued foreign interest. Among the successful bidders are a number of players with years of experience in the Egyptian energy sector, such as BP, Dana Gas, Edison, Petroceltic, Sea Dragon and IEOC, as well as a newcomer to the country, Australian-based Pura Vida Energy.

THE SOUTH: In 2013 the ministry has another opportunity to assess the interest of international oil and gas firms in the nation’s natural resources. In December 2012, Ganoub El Wadi Petroleum Holding Company (GANOPE), announced the commencement of an international licensing round for 20 exploration blocks in the Western Desert, Eastern Desert Red Sea and the Gulf of Suez. GANOPE, which alongside EGPC and EGAS is one of the ministry’s five main petroleum sector entities, was created in 2002 to manage and supervise all petroleum activities under latitude line 28, in which area it has oversees 16 concession agreements and a further seven agreements jointly supervised with EGPC.

Compared with the northern part of the country, GANOPE’s inventory is relatively unexplored. GANOPE signed its first development lease, the Al Baraka Komombo Concession, as recently as 2008, and its first production agreement the same year, and of the 20 blocks on offer in the current round, 12 have yet to see an exploratory well, while six have been drilled less than five times in their history.

The initial date for the closure of the bid round was May 30, 2013, but GANOPE extended its bid round by a month to June 30, 2013. The very presence of a bid round is viewed positively by industry professionals, according to Osama A Wahab, the chairman and managing director of the Egyptian Drilling Company. “It is a positive sign for us as it means explorations and drilling will continue in the medium term,” he told OBG.

FUTURE STRATEGY: The outcome of GANOPE’s bidding round, which is expected to be revealed in late 2013, is of particular interest to those who believe that Egypt’s future production potential lies in its relatively unexplored frontier areas. The ministry is now placing considerable emphasis on new and untested blocks in its strategy, the fundamentals of which were most recently outlined in the first half of 2013.

The strategy consists of five broad initiatives, the first of which is to commence exploration in new or frontier areas, such as the Gulf of Aqaba and the Red Sea – a task which is likely to be both expensive and technically challenging, and for which the ministry is expected to encourage new players as well as its long-term partners. The second initiative, meanwhile, involves focusing on the numerous mature reserves in the ministry’s inventory, utilising enhanced oil recovery (EOR) techniques to boost production. Significantly for oil companies, the minster stated that ministry may be willing to modify its standard production-sharing agreement (PSA) to account for higher levels of investment and longer duration terms required for EOR projects.

EXPLORING THE OPTIONS: The third part of the plan is to explore the potential for unconventional resources, the most important of which are oil and gas shale reserves – an area that will require significant investment and foreign expertise. Some in the industry believe it is still too early for this particular step. Thomas Maher, the vice-president and general manager of Apache Egypt, told OBG that Apache would not try to exploit shale reserves. “Apache sees a number of technical and commercial challenges with regards to shale exploitation in the Western Desert at this time,” he said.

The possibility of helping to close Egypt’s energy gap through geothermal energy makes up the fourth initiative of the ministry’s strategy, with the accumulated expertise and experience of the petroleum sector to be transferred to this non-fossil fuel resource, with drilling and well maintenance and monitoring firms most likely to benefit from any move in this direction.

OVERCOMING CHALLENGES: Finally, the ministry’s strategy aims to tackle some of the existing obstacles that challenge the rate of increase in production it is seeking. This will include: addressing the issue of the approval process for development leases, considered by many to be too complex and time-consuming; military approvals, an important factor given the armed forces are among the biggest landowners in the country; security issues, which have affected operations at some facilities; the concessions agreement extension policy; joint venture policies in procurement and contracting; and global purchasing.

The ministry, then, is clear on what needs to be done in order to boost its production levels. To date, at least, it seems the international cooperation that it needs in order to realise its ambition will remain forthcoming.

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The Report: Egypt 2013

Energy chapter from The Report: Egypt 2013

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