Egypt Bidding Delayed By Political Upheavals
Recent signs of action in Egypt’s state oil and gas apparatus appear to have stalled. Egyptian General Petroleum Corporation’s (EGPC’s) ongoing bid round has again being delayed and a flurry of oil and gas field development permit approvals earlier this year has ground to a halt.
Little is now likely to be decided in the sector ahead of 23 May presidential elections (with a second round, if required, slated for 16 June).
The political temperature has been rising in Egypt in recent weeks. Three key presidential candidates – including the Muslim Brotherhood’s preferred choice and former intelligence chief 'Umar Sulaiman – were last week barred from contesting the election. The country’s oil and gas sector appeared to be getting back into its stride late last year and early this year after the massive upheavals earlier in 2011 but Egypt’s oil authorities seem to have again become nervous of taking long term decisions in case this leaves them open to attack following a post-election change of policy.
Bidding for Western Desert, Eastern Desert, Sinai and Red Sea blocks has now been extended to 21 April, according to a note on EGPC’s website. However this extension was not announced until the previous late-March deadline had already passed. In addition, despite the bid round website being only in English the extension notice is only in Arabic: indeed the English language homepage maintains that the closing date is 29 March (itself a postponement from 30 January – MEES, 26 December). A planned second EGAS gas-focused bidding round is unlikely to open before the elections.
Egypt’s 2011-12 Bid Round – Available Blocks
Interest in the 15 blocks on offer – many of which are acreage previously relinquished (MEES, 2 April) – has been lukewarm. EGPC has received a total of 25 bids from 12 international companies, according to EGPC Vice-Chairman 'Adil Sa'id, quoted in Egyptian daily al-Ahram
on 15 April. In a rather optimistic spin Mr Sa'id said that this level of bidding “shows that despite the security conditions and a somewhat unstable political environment, Egypt still ranks among the top countries worldwide for attracting investment.” He added that EGPC’s promotional efforts meant “several unexpected companies” were among those taking part in the bidding. Among criteria to be evaluated when the bidding envelopes are opened over the next few days will be proposals to help technical transfer to Egyptian firms, Mr Sa'id said.
Waiting For Permit Approvals
One company that says it is “actively pursuing new opportunities” in the ongoing EGPC bid round is UK independent Premier Oil. However, whilst the Gulf of Suez geology is to the company’s liking – Premier identifies as its core strength the “rift theme” geology to be found in the Gulf of Suez – the company is also getting a taste of Egyptian bureaucratic delays. Premier was (provisionally) awarded the South Darag Block in the Gulf of Suez in Egypt’s 2009 bid round, the last such round to have reached a conclusion (Egypt’s 2010 bidding round had still not been awarded when the Mubarak government was overthrown in February 2011 and was subsequently canceled – MEES, 21 February 2011). Premier signed a deal with EGPC for the block in March 2010 but this has still not been approved over two years later – exceptional even for Egypt. Premier, in its annual report published on 17 April, rather charitably attributes delayed ratification to “the Egyptian parliamentary election process.”
South Darag is key to the company’s plans to “build a new core area in Egypt” given that its only current (ie approved) Egyptian interest is a minority 20% stake in the Hess-operated North Red Sea Block 1, where an exploration well last year produced poor results and no further drilling is currently planned. Premier farmed into the Hess block in 2012 after
being (provisionally) awarded 100% of South Darag, at the time saying that it believed the same geological structures extended into the Hess acreage.
Following ratification of the South Darag permit Premier is committed to reprocessing 2D and 3D seismic with a minimum three-year exploration spend of $2.5mn. Premier has penciled in exploration drilling for 2013 with “three leads identified with 30-100mn barrels potential” and notes that any discoveries would be close to existing production facilities. Given that Egypt is central to the company’s strategy, Premier is putting a positive spin on events. “Recent political instability [in Egypt] creates opportunities for companies that take a long term view,” the company said in a recent presentation.
Another deal still awaiting Cairo’s approval is Canadian independent TransGlobe’s purchase of a 50% operator’s interest in the Western Desert’s South Alemain concession from Spanish refiner Cepsa (bought by Abu Dhabi’s International Petroleum Investment Company in 2011). The $3mn deal for the block on which US firm El Paso also has 50% was struck in June 2011. Two appraisal wells are planned to bring a discovery on the block that tested at 1,700 b/d to production.
Meanwhile, also in the Gulf of Suez, independent firm Kuwait Energy last week saw its West Ahmed-1X appraisal well in Area A test at 1,250 b/d. The well is adjacent to the mature Shukheir North West field. Kuwait Energy has ramped up production on the block – producing since 1960 – to 7,250 b/d from 2,800 b/d when it assumed operatorship in 2008. Kuwait Energy has 70% and Oman’s Petrogas 30%.
Egypt is Kuwait Energy’s key area of operation, accounting for 12,640 b/d of the company’s total 17,370 b/d of oil equivalent production for the first quarter 2012. The company’s East Ras Qatara concession in the Western Desert produces just over 7,000 b/d net to Kuwait Energy and Area A delivers 4,600 b/d. But both are set to be overtaken once EGPC’s recent discoveries at Abu Sennan in the Western Desert come on stream (MEES, 12 March). Kuwait Energy executives told the Egyptian oil minister at a recent meeting that they expect Abu Sennan to produce 10,000 b/d. Kuwait Energy is also not immune to Egyptian delays – development of the permit’s discoveries awaits EGPC approval of the company’s development plans. Kuwait Energy is operator with 50% equity, with partners Dover Investments holding 28% and Beach Energy 22%.
Kuwait Energy completed a strategic investment agreement with Dubai-based Abraaj Capital earlier this month (MEES 16 April) and says it is “preparing for a future listing, subject to market conditions,” according to the company's first quarter report, published on 19 April.
© Copyright MEES 2012.