Analysis of the second half of 2007; tackling major discoveries, deals sealed, new projects… etc from July to December 2007

Last July, British BG, Malaysian Petronas, and Italian Edison decided to boost the volume of their investments in Egypt by allocating $4 billion to execute mega projects in upstream activities to produce natural gas from the offshore fields discovered in the Mediterranean, over the next three years.

Serving the aim of strengthening its operations, RWE Dea has been awarded, in mid July, 100% working interest in Tanta onshore concession. The block was offered in the Egyptian Gas Holding Company (EGAS) 2006 International Bid Round and was awarded by the Egyptian authorities.

OAO Novatek has chosen Egypt to debut its international activities. It has acquired a 50% working interest in the El-Arish offshore block from Tharwa Petroleum S.A.E. This initiative reflects the success of the Egyptian petroleum sector in luring more foreign investments.

Calgary-based TransGlobe Energy wrapped up a deal offered by Tanganyika Oil to buy eight development leases in the West Gharib concession for $59 million in cash, through which it will boost its daily production by 27%.

In a similar deal, UK-based Dana Petroleum has bought Devon Energy’s entire Egyptian upstream portfolio in a $375 million deal, through which Dana is to gain approximately $67 million of working capital in Devon Egypt.

Following the same footsteps, Gaz de France (GdF) has acquired a 45% stake in the Alam El Shawish West license from Vegas Oil & Gas, in the Abu Gharadig basin. In the same month of November, Thailand’s PTT said in a statement that its subsidiary PTT International would buy 36.75 million (25%) shares in East Mediterranean Gas Company (EMG) from Mediterranean Gas Pipeline at $13.25 per share.

Almost every corner in Egypt was hit by a successful discovery this year. Last August, Dana Gas achieved a gas discovery in its West Manzala concession. A month later, on September 4, the company achieved its second success by making the first ever oil discovery in Southern Egypt from its El Baraka-1 exploration well drilled in Komombo Concession. This is the first time for oil to be discovered in commercial volumes in Southern Egypt.

On September 18, Lukoil announced its oil discovery in the Meleiha Block, in the Western Desert. The well drilled by Agiba has achieved commercial hydrocarbon reserves on the Gawaher structure. This block is expected to produce nearly 1.5 thousand bpd.

Concerning the 2007 contracts, the Ministry signed last July eight deals for oil and natural gas exploration worth $660 million with several foreign firms; such as BP, Austria’s OMV and Norway’s Statoil, and cover 34,000 km square, including offshore fields in the Mediterranean Sea, the Nile Delta and the Western Desert.

Aker Kvaerner had as well a share in July; it has been awarded a five-year contract for operation, management and maintenance of the Al Zaafarana FPSO offshore by operator Gemsa Petroleum Company and partners.

As any period of time carries both positive and negative aspects, the second half of 2007 was not unattached from some drawbacks. Last September, Canadian operator Dover Investments decided to plug and abandon works from the Sear Dragon energy’s EWA-4X well in the Gulf of Suez, declaring that it had reached basement rocks.

Apache had a similar decision when it announced last November that the ERB-B-1X well operated by Apache East Ras Budran Corp. LDC in the East Ras Budran (“ERB”) Concession in which Regal holds a 25% working interest, was abandoned as it was subsequently tested without a productive flow of oil being achieved.

Back to the bright side, 2007 was filled by a series of new mega projects. Among which, we can list The Arab Petroleum Pipelines Co., Sumed’s project to establish five new storage tankers at Sidi Kreir, increasing its storage capacity to 20 million barrels of oil per day. This initiative is set to place Sumed as the center of international crude oil.

The petrochemical industry has witnessed as well a revival movement. With $200 million investments, a contract was signed to execute the Polystyrene Production Project, which is considered one of Petrochemicals Master Plans.

What was considered as a landmark in 2007 was the introduction of new pricing policy – Egypt’s first of its kind – to phase out gas and electricity subsidies for energy intensive industries. The pricing policy will raise the cost of natural gas to $2.65 from $1.25 per million BTUs – the equivalent to cost price – over three years.

Celebrating a new year is accompanied with new hopes, plans, and strategies for better achievements. Thus, what will 2008 bring to the petroleum industry?

By Yomna Bassiouni