With 2008 just around the corner, the oil and gas industry makers should first evaluate and assess the achievements attained and goals fulfilled during 2007 before going ahead with their plans for the new year. One of the more obvious features of this year is the tremendous increase in volume of discoveries, investments and profit. Yet, there have been some drawbacks and controversies which have had some negative affects on the sector.
Last January, Croatia’s oil organization, INA, and a production unit of the German utility firm, RWE, announced an oil discovery in the East Yidma concession, located in the Western Desert. The two companies jointly obtained the oil exploration agreement for this concession in 2002. This discovery was estimated to have a daily oil production of 3,000 bbl of high quality low sulphur crude oil, said INA in a statement. “The newly discovered oilfield will be put into production during 2007 and by 2010 the whole concession area should be put into full production,” added the statement. INA, which is 51% owned by the state and 25% by Hungary’s MOL, is involved in gas and oil exploration and drilling in the Middle East and Africa.
INA achieved another discovery in Sidi-Rahman- 1, 3 km off the Mediterranean Coast. The well has an estimated production of approximately 3,200 barrels of crude oil per day with a 49 API, which is classified as one of the finest types of crude oil globally, based on the test’s results. The Croatian company revealed the presence of other geological formations in which reserves are estimated to contain about 21 million barrels of crude oil. These discoveries are to increase the area’s total reserves to reach around 52 million barrels of crude oil.
Moreover, Apache increased its future production with its discovery in the Western Desert in January 2007. The corporation achieved a natural gas and condensate discovery in its Alexandrite 1X well from the Alam El Bueib 6 (AEB 6) formation on its Matruh Concession. This is considered to be the first commercial production from the AEB 6 formation; the well tested 19.8 million cubic feet of gas and 4,045 barrels of condensate per day. The Alexandrite 1X was initially completed in the Jurassic Upper Safa formation and December 2007 – Issue 12 December 2007 – Issue 12 produced a total of 3 billion cubic feet of gas and 514,000 barrels of condensate since November 2003.
Three months following their January discovery, Apache’s CEO, President and Chief Operating Officer, G. Steven Farris, announced that the Jade-1X well has discovered natural gas on the company’s Matruh Concession in the Western Desert, which tested 25.6 million cubic feet (MMcf) of gas per day from the Jurassic Upper Safa member of the Khatatba formation. This discovery has served the company’s goal in extending its productive limits of the “Jurassic gas fairway almost 12 miles southwest of existing Jurassic production.” It is worth mentioning that Apache is constructing two additional trains in the Khalda Concession in an attempt to increase takeaway capacity by 200 MMcf of gas per day, bringing total capacity to approximately 750 MMcf per day. The
Egyptian Western Desert has witnessed four more discoveries led by Shell Egypt, and found in the acreages of Badr El-Din (BED) development leases and the West Sitra Concession; jointly operated by Bapetco, the Egyptian General Petroleum Corporation (EGPC) and Shell.
Shell Egypt and Bapetco made the first Alam el- Buieb discovery in the Abu Gharadig basin in the BED 1 Development lease. The BED 1-19 development well was spudded in January 2006 to target the main producing Kharita reservoir and the exploration potential of the deeper Lower Cretaceous Alam el-Buieb section below the BED 1 oilfield. The presence of hydrocarbons was confirmed in BED 1-19, within the Alam El Bueib formation, with a net pay interval totaling 38 meters. BED 1-19 was subsequently tested at a rate of approximately 25 million standard cubic feet of gas and 2,050 barrels of oil and condensate per day.
As for the Sitra Concession, Shell Egypt completed the deep Jurassic exploration well WS-J1-1, reaching a total depth of 5,077 meters in the Khatatba formation.
The well encountered 39 meters of gas in the Upper Safa Sandstone.
Adding to the series of discoveries in the Western Desert, Empresa Nacional del Petroleo (ENAP), through its subsidiary Enap Sipetrol S.A, announced its new oil discovery in the East Ras Qattara block. A consortium composed of Enap Sipetrol, as operator with 50.5% participation, and the Australian company Oil Search Limited (49.5%) was licensed to conduct exploration activities in this block since 2004. This discovery is Sipetrol’s 10th in Egypt and 11th in the MENA region, during the last four years. Sipetrol had a previous discovery in this area; Shahd-1 well in November 2006. The new discovered oil in the Ghard –ST1 well was drilled to a depth of 3,436 meters and proved the existence of oil in the lower Bahariya formation. A 10-meter thick zone of interest was proven at a depth of 3,341 meters and produced light oil of 40.5 degrees API at an initial rate of 2,026 barrels per day, plus 2.6 million cubic feet a day.
One of the major oil discoveries at the beginning of 2007 was attained by the world’s second largest oil firm, BP, which had discovered more than one trillion cubic feet of natural gas in the Mediterranean, 668 meters (2,250 feet) below sea level north of Alexandria-Egypt.
The deep water discovery, equivalent to half of Egypt’s annual gas consumption, would further attract foreign investors, said the Minister of Petroleum Sameh Fahmy in a statement.
BP is responsible for nearly 40% of the country’s oil and gas production through its partnership with EGPC. This deep water discovery revives the fact that Egypt can be ranked as the second in the world in terms of deep water gas reserves as “70 trillion of the country’s estimated 100-120 trillion cubic feet of gas reserves” are situated in deep water.
The year of 2007 symbolizes a special year for Melrose, OVL & IPR and Rally, as it witnessed their first production in Egypt. Melrose Resources Plc secured its first production at the West Khilala development project, from its El Mansoura concession. The West Khilala-3 development well was drilled as a production well on the northern flank of the West Khilala structure in the Qawasim formation and it reached a total depth of 10,500 feet with the target reservoir encountered on prognosis with 82.5 feet of clean gas-bearing reservoir. During March and April, further production equipment was installed at the field, as a continuing appraisal and development drilling program of up to four wells was planned. Moreover, on the same concession, the West Dikirnis-7 appraisal well was drilled with the aim of proving additional oil reserves on the northern flank of the West Dikirnis structure.
Melrose also announced during the first half of this year the increase of its funds for operations in some countries, among which Egypt. A total of 7 million new ordinary shares of 10p each (the Placing Shares) have been placed, conditional, inter alia, on UKLA related party approval, at a price of 385 pence per share. With regards to its activities in the Egyptian territories, approximately £26.5 million was allocated for continuing exploration and development expenditure in the country.
Speaking of ONGC Videsh Ltd. (OVL) and its partner IPR Red Sea Inc., they achieved a significant oilfield discovery in their North Ramadan-1A well, in the Gulf of Suez. The discovered oil is classified as sweet crude of 36.50API. North Ramadan-1A, the first commitment well for the North Ramadan concession, was drilled to a total depth of 10,050 ft in the Lower Miocene Mheiherrat formation. According to the deal signed with the Ministry of Petroleum (MoP), OVL (70% share) and IPR (30% share) have a minimum work commitment in the first exploration phase of three years in addition to the drilling of three exploratory wells, acquisition of 50 sq km of 3D data and reprocessing of existing data. The budget allocated for this first phase accounts for nearly $45 million and there are still two other phases of production remaining for the two companies in this concession.
Closing the triangle of companies categorized under “first production year in Egypt” is Rally Energy Corp., which announced a new dual zone heavy oil discovery on a separate structure with the drilling of its West Issaran-1 exploratory well. The company set a plan to continue the development of this West Issaran discovery through a drilling program of offset Lower Dolomite development wells, combined with two delineation wells that will evaluate both the aerial extent of the Upper and Lower Dolomite accumulations and the ultimate reserves potential from thermal and conventional methods in this area. It is worth mentioning that this area is currently producing approximately 150 barrels of oil per day.
In the Eastern side of Gulf of Suez, the fully owned subsidiary of the National Petroleum Company (NPC) Petzed announced a new commercial oil discovery in Muzhil-1 field, situated in the South Abou Zeneima Block. The well tested in Muzhil-1 field, 1900 barrels of oil per day in aggregate from two different layers. Moreover, Dana Gas had a series of discoveries and achievements throughout this year. At the top of the list is the discovery in El-Wastani West-2 (EWW-2) well, which was tested and flowed at a rate of 9.5 million standard cubic feet per day (mmscf/d) of Gas and 1,022 barrels of Condensate per day (bc/d) at 28/64 choke from the Qawasim sands. The drilling process was conducted to a total depth of 3,175 meters and encountered 8.3 meters of net pay over a gross pay interval of 24 meters and was carried out by Centurion Petroleum Corporation, the upstream division of Dana Gas.
Deals / Agreements
At the beginning of 2007, the Shura Council’s Industrial and Energy Committee approved nine agreements for oil and natural gas prospecting in the areas of the Gulf of Suez and the Western and Eastern Deserts. The amount of investments for these agreements accounts for approximately $222.65 million, said Shamel Hamdy, the First Under-Secretary of the Ministry of Petroleum.
One of the major contracts sealed during the first half of 2007 is the WTR- Gulf of Suez Petroleum Company (GUPCO) deal. Through this two-year contract, Aberdeen-based WTR is to provide the materials and the installation of cold repair for leak fixation in the areas of the Gulf of Suez, the Western Desert, Port Said, Dashour and Ras Bakr, where GUPCO owns production rights along with its partners BP and EGPC. This deal presents an opportunity of expansion to WTR whereby they can enhance and increase their activities in the Egyptian market.
In the framework of the ministry’s strategy to expand the usages of natural gas in all the Egyptian governorates, the Arab International Bank (AIB) sealed a loan agreement with the Egyptian Natural Gas Holding Company (EGAS) in order to finance the installation of two gas supply lines from Taba to Sharm El Sheikh and Shokair to Hurghada with a total value of LE 355 million and $90 million (LE 512 million). This loan agreement is provided by a consortium of eight banks which include the AIB; Societe Arabe Internationale de Banque, Egyptian Saudi Finance Bank, Piraeus Bank, United Bank of Egypt, National Bank for Development, the National Bank of Abu Dhabi, and the Audi Bank. The main target of this project is to supply six million housing units over the next six years with natural gas with LE 30 billion total investment.
This is not the sole contribution of banks in projects related to the oil and gas sector. Another group of banks headed by the Commercial International Bank (CIB) signed a deal with the Egyptian Propylene and Polypropylene Company (EPPC) to finance a $450 million project establishing a new processing plant in Port Said. This plan, expected to start production by 2010, is to produce 350,000 tons of propylene and polypropylene annually. In addition to CIB, three other banks participated in this financing agreement; the National Bank of Egypt (NBE), Banque Misr and NSGB. This plant is the first of its kind in Egypt, as it is the first to implement steam active reforming in producing propylene and polypropylene, a method first introduced in the early 1990s in the United States and Argentina. In addition to EPPC, seven shareholders have signed to finance the project including The Egyptian Holding Petrochemical Company, Eastern Holding Company, and Amwal Al-Khalij. The project’s estimated volume of investments accounts for more than $690 million.
No one can deny the enduring efforts of the MoP to bring into play the area of Upper Egypt and its attempt to benefit from its concealed reserves. Dana Gas is one of the leading corporations that have served the ministry’s strategy. Through a farm out agreement, the Middle East’s first regional private-sector natural gas company and Kuwait International Oil & Environment Company (KIOEC), a subsidiary of TAQA Holding and Gulf Oil Investments are to partner Dana’s Komombo Concession, situated in Upper Egypt, 800 km south of Cairo. Dana already conducted technical evaluation of the concession, including “the interpretation of geological and geophysical data and the acquisition of 516 Km’s of 2- D seismic”, announced the company in a statement. This technical evaluation led to the identification of drillable prospects and four addition leads. The new partners are to share the drilling works which were scheduled to begin in mid 2007.
As a matter of fact, any sector/industry is in essence a double edged-sword, with both positive and negative aspects. And, in order to determine the growth rate and evaluate the quality of its achievements, industry decision makers should weigh both sides to estimate their points of strengthens and weaknesses in order to avoid possible drawbacks in the future.
One of the positive features that inaugurated the record of outstanding achievements in the industry is the construction of the first factory for the Ruherpumpen Company in the governorate of Suez. This can be considered as one of the landmarks of the year. This factory is considered the first of its kind, not only in Egypt, but in the Middle East region. The company will produce the various types of pumps needed in the oil and gas sector. The Egyptian public sector, represented by EGPC, Enppi, Petrojet, El Nasr Petroleum Company, participated with a 33% share, while the German company Ruherpumpen controls the remaining 67%. The 20-million Euro worth factory is to manufacture and maintain all kinds of pumps used in Egypt, which are more than 6,000 pumps in addition to providing the required spare parts. Concerning its production capacity, it is expected to attain 400 pumps a year. Enppi and Petrojet were selected to execute the design and implementation works of the factory.
Another bright pillar of hope in the sector is gold. “Egypt revives its Gold fortune…” was one of the key strategies and quotes adopted by the MoP, which is to resume the program of gold mining after a halt of more than 50 years. As a debut, Fahmy signed a memorandum of understanding with the International Finance Corporation (IFC), the private arm of the World Bank, to replace the old mining laws that contributed to the lack of local investments in general and foreign investments in particular. Improving the existing polices, which are to be completed in a year, is expected to boost the Egyptian economy by more than $10 billion. IFC official, Gulrez Hoda, said that this sum represents 10- 12% of the country’s GDP. According to the Middle East Times, Egypt’s “antiquated mining laws, based on profit-sharing, were prohibitive for foreign mining majors wishing to exploit the country’s huge reserves, and local expertise is currently insufficient to develop a home-grown industry.” Currently, two Australian companies operate in the Eastern desert; the largest, Centamin, claims proven resources of more than 7.7 million ounces of gold. “From our own activity in Egypt today, particularly through the company Centamin, it has become apparent that the gold sector has the potential for Egypt to become one of the largest gold exporters in Africa,” said Australian Ambassador to Egypt, Robert Bowker. Under the agreement, IFC will provide LE 1.3 million to finance the research conducted by its Technical Assistance Office for the Middle East and North Africa with the aim of reviewing the 50-plus year old mining laws and recommend reforms to regulations and taxation.
Returning to oil and gas, initiating its drilling program in Egypt has been the point of focus for Arsenal Energy Inc. This junior company announced that drilling operations on the 5.625 million acre Nuqra concession in the Upper Nile region are underway and anticipates the drilling of minimum two test wells in the Nuqra Basin. The first, SET-1 has a target depth of approximately 3,800 feet and will test a stratagraphic trap in the Jurassic zone identified through extensive seismic evaluation. The second one, Narmer-1 has a target depth of 7800 feet and will test a separate structure with Berriasian and Kimmeridgian sands. “The operator estimates that the two initial target structures could contain up to 40 million barrels of oil equivalent in recoverable reserves,” stated the company.
The Italian mega player Eni recorded the company’s highest production level ever achieved since starting its work in Egypt in the early 1950s. The Chief Executive Officer of the Italian producer declared that the work progress of the company in Egypt achieved a record level of crude oil, condensates and natural gas production, for the first time, where it exceeded half a million barrels of oil equivalent daily during last March. In a meeting with the Egyptian Minister of Petroleum, Eni announced its intentions to invest $12 billion in natural gas operations in the country over the coming five years. Moreover, the company plans to utilize advanced extraction techniques to serve its plan to access an extra 180 million barrels of oil reserves in its Balaim inshore field, located in the Gulf of Suez. According to Reuters, the extra oil will be extracted “over 12 years and would be worth about $9 billion, of which the Egyptian state’s share would be about $6 billion.”
The petrochemical industry had, as well, its share of excellent investments this year, mainly from Kuwaiti and Canadian investors. First, the Kuwait-based Kharafi Group revealed its plan to build a chemicals and petrochemicals complex in the governorate of Fayoum, with $65 million investments. The Kuwaiti investor received the approval of the Egyptian Ministry of Environmental Affairs in the shadow of the recommendations from the Environmental Protection Apparatus (EPA). Amr Asal, Head of the Egyptian Industrial Development Authority (EDA) stated that this two-phase project is to produce approximately 222,000 tons of sodium sulfates, 250,000 tons of sodium chloride and 66,000 tons of caustic soda during the first phase of operations. It will be built on 4000 acres and is expected to create 5000 employment opportunities, he added.
The first phase is designed for the manufacturing of bi-products which are extracted from salt deposits in Qaroun Lake in Fayoum in addition to the installation of a facility producing hydrochloric acid at the capacity of 30,000 tons per annum. As for the second phase, a calcium production unit and a magnesium chloride plan are to be established; the first with a capacity of 232,000 tons per year and approximately 150,000 tons per year for the second.
Secondly, the Canadian Agrium Co. has participated with a 60% share in a $1.5 billion petrochemical project in addition to the contribution of Egyptian banks. Fahmy witnessed the signing of the Egyptian banks participation in the financing agreement, which accounts for nearly $950 million for the project of the Egyptian Agrium Company for Nitrogenous Products, which is to produce Ammonia/Urea. Local banks’ contribution reached about $380 million, which is equal to 40% of the main value of the loan. The project’s production capacity is about 1.3 million tons of Ammonia/Urea.
The contribution of the Petroleum Sector to the project is 33% and the contribution of the Arab Company for Petroleum Investments (APICORP) is 7%.
Leaving petrochemicals and returning to oil and gas, once again, Russia’s Lukoil also made headlines this year. After more than 25 years of receiving the production rights in the Meleiha Block, Lukoil announced the extension of its rights in this block, located in the Western Desert, until 2024 after obtaining the approval of the Egyptian authorities. Lukoil’s original agreement was signed in 1978, through which it has been conducting production activities in the block along with its partners, IEOC Production (subdivision of ENI Group) with a 56% share, Lukoil Overseas (24%), and the IFC, which holds the remaining 20% share. This block is considered as one of the most “profitable and effective producing projects” of the Russian corporation. It contains around 90 million tons of original oil in place, 34 million tons of initial recoverable oil reserves in addition to 129 operating wells. Moreover, it produced more than 17 million tons of oil throughout the past 30 years of operation.
On the not so bright side of the sector, it was announced at the end of last May that Canada’s TransGlobe Energy has plugged and abandoned its Narmer-1 exploration well on the Nuqra 1 Block after finding no hydrocarbons in the targeted Jurassic sands. “The well struck strong hydrocarbon shows in Cretaceous sands between 380 and 840 meters but the reservoir was found to be water bearing,” announced the company in a statement. However, TransGlobe worked in identifying other spots in the Cretaceous levels for the possibility of future drilling program, through the remapping of its seismic data for this region.
Egypt can be ranked as the second in the world in terms of deep water gas reserves as “70 trillion of the country’s estimated 100-120 trillion cubic feet of gas reserves” are situated in deep water
Another point of attention in the industry this year was the amount of storage facilities available in the country. A senior official from the MoP revealed the Ministry’s intention to construct a million-tone storage facility for Gulf crude oil in Sidi Krir by next year. He added that this will be executed through the establishment of a joint venture between the Ministry and Sumed, which is owned by the Arab Petroleum Pipelines Co. “The firm will build a few commercial storage tanks, which will make Sidi Kerir the main storage hub in the Mediterranean,” the official told Reuters.
With the lack of storage facilities addressed, the lack of rigs in the market was next on the list of things to do for the MOP. This problem was addressed with the creation of a mega Egyptian-Chinese oil rigs project. Chinese Ambassador to Egypt, Wu Sike, and Egyptian Minister of Petroleum, Sameh Fahmy, laid the foundation for this joint project, which represents the first land oilrigs plant in the Middle East region. A memorandum of understanding was signed in October 2006 and the contract was sealed a month later stating the approved terms between the two countries to initiate this venture, which clarified that the two sides are to invest $15 million each and indicated the date to manufacture the 53 oil rigs, which will be during the coming four years (2008-2011).
Acquisitions / Deals
Among the companies that have strengthened their existence in the Egyptian Market is Al-Mansoori Specialized Engineering (MSE). The company signed a multi-million dollar deal to acquire the Tubing Conveyed Perforation (TCP) division of Energy Inc, which represents MSE’s third acquisition in Egypt.
The previous acquisitions are comprised of the purchase of a Cairo-based service company, Gulf Petroleum Investments (GPI), in a multi-million dollar deal in July 2006 and the acquisition of production testing, drill stem testing and memory gauge equipment company, Alpine Oil Services Egypt (AOSE).
Also, Velosi has signed its first contract to act as a full service provider in Egypt as it has been awarded a two-year contract, with an option to extend a further year, with the Gulf of Suez Petroleum Company, a division of BP, for lifting equipment management and maintenance for all BP sites. The Velosi Group provides asset integrity and HSE services to a number of top oil and gas companies, such as BP, Shell, ExxonMobil and Chevron.
Greece’s largest refiner Hellenic Petroleum has set its routes in the Egyptian market as it signed an exploration deal to drill for oil in the Obayed region.
The seven-year deal grants the Greek company the right to carry out its activities in an area covering 1841 kilometer square in west Obayed, which will cost about $26 million. Hellenic’s drilling area borders with the Obayed region where Shell is managing a natural gas find.
Making its first steps in Egypt like Hellenic, Europa Oil & Gas (Holdings) plc signed a production sharing agreement covering the West Darag Onshore Concession in partnership with Solaris Energy plc, the former with a 60% working interest, where it will function as operator.
The two companies will be responsible for executing the work program for this concession by the end of this year, which includes the reprocessing of existing seismic data along with geological and geophysical field investigations during the first twoyear phase. There are two other phases; one will require 500km of 2D seismic acquisition and the drilling of one well over a three-year period, while the last phase will require a similar amount of seismic acquisition and the drilling of two additional wells.
Problems / controversies
The year of 2007 was not devoid of ongoing controversies and problems, which have disturbed the tranquility of the Egyptian petroleum sector.
At the beginning of this year, Turkey urged Egypt and Lebanon to delay oil and gas exploration deals with Cyprus, saying that the agreement infringed on the rights of the breakaway Turkish Cypriot statelet on the divided island. This draws back the roots of Turkish-Cypriot conflict that erupted in 1974; Cyprus had been divided along ethnic lines when Turkey seized its northern third in response to an Athensengineered Greek Cypriot coup in Nicosia aimed at uniting the island with Greece.
Also, at the beginning of this year, Lebanon signed an agreement with the “the internationallyrecognized Cypriot government in the Greekpopulated south of the island for the delineation of an undersea border to facilitate future oil and gas exploration.” Egypt also signed a similar agreement last year.
“We remind countries or companies that might be interested in oil and gas exploration to take into consideration the will of the Turkish Cypriots and not take any initiatives that would adversely affect the resolution of the Cyprus issue,” stated the warning statement issued by the Turkish authorities.
This was just the evaluation of the first half of 2007, there is still a lot to assess and tackle in the second half to finalize this year resolution before celebrating the beginning of 2008.
By Yomna BassiouniDownload