Despite its history in the international arena, Gaz de France is considered one of the young exploration and production companies in Egypt. Egypt Oil and Gas met with Jean- Louis Chenel, Gaz de France Egypt General Manager, who told us about the company’s strategies and expansion plans

Could you briefly describe the activities of your company to our readers?
Our company was created in 1946 with laws that nationalized electricity and gas industries in France, so originally we were involved in the gas production and gas distribution businesses. Later on, manufactured gas was gradually abandoned and converted to natural gas (methane). In the early 90s we started to develop internationally and in the mid to late 90s we started to integrate vertically, meaning upstream. The exploration and production division itself was created in the year 2000, which is a recent development. Our main business is still midstream and downstream, we have around 12 million clients worldwide and activities in transmission mainly in Europe and also now upstream activities.

What were your major achievements for the fiscal year 2006 and what are your upcoming plans for the future?
On the corporate level, in the fiscal year 2006, Gaz de France had the best operational performance in its history. Sales increased 21% than what it had scored in 2005, reaching 27,642 million Euros. According to Jean-Francois Cirelli, Chairman and Chief Executive Officer, “All of the group’s business lines contribute to the 2006 results which reflect, to this day, the best operational performance ever achieved by Gaz de France. These excellent results reflect the strength of its business model and the strategy implemented. The exploration-production activities enjoyed the full benefits of a buoyant energy business environment, the Infrastructure activities confirmed the solidity and recurring-nature of their results and the group successfully took advantage of its unique position in gas in Europe, for its trading and sales activities. Despite difficult weather and market conditions in early-2007, the group is confident in the robustness of its fundamentals. 2007 will go down as the year when the energy markets were fully-deregulated. All of the teams at Gaz de France stand ready to provide our clients with new offers and services, including electricity, to meet their needs in the best possible way. The implemented Gaz de France development strategy will be boosted by our planned merger with Suez, a major undertaking intended to further speed up the pace of our growth.”

Can you tell us more about the Suez merger with Gaz de France? How will this affect Gaz de France’s operations and when should it take place?
Gaz de France and Suez have announced their plan to merge in 2006. The Constitutional Court validated the plan, but ruled that it could be implemented only from 1 July 2007, as the opening of the European gas market will be completed only on that date.
Therefore, the merger could be implemented in the second half of 2007 after the presidential and parliament elections in France (held respectively in May and June 2007).
In any case, it is subject to the French government’s approval, as majority shareholder of Gaz de France.
Geographically and in terms of business, the two companies appear to be very complementary (for example, Suez is strong in electricity). The merger would create an energy giant.
Suez is not involved in the exploration and production business; therefore the merger would not affect our operations in Egypt.

Where does Gaz de France’s investment currently stand in Egypt?
As of today, we are the operators of the West El Burullus Concession that was signed and became effective on 15 September 2005. It covers a 1,364 km2 area offshore, east of Alexandria and west of Burullus lake. Further to a seismic campaign carried out last summer, we have now a complete processed seismic cube available and we are interpreting it. Our fist exploration well is planned late 2007 or early 2008 and is budgeted at USD 24 million if tested. In this regard, long lead items are ordered and we have recently secured the “Ocean Spur” rig from Diamond Offshore for our operations. We also have a 5% participation in some of the Idku Liquefaction Plant companies, they are different companies, so let’s say to summarize that we have a 5% stake in Train 1. It is a side agreement of our supply and purchase gas agreement, as we are an off taker of LNG at the plant and with a side agreement we have a minority participation in some of the Idku companies. This applies only to Train 1, we are buying the vast majority of the production of Train 1.

Can you tell us more about the exchange deal between Gaz de France and Dana Petroleum (E&P) Limited, concerning the West El Burullus Concession?
There was a swap agreement that was signed in November 2005 between several Gaz de France companies and a British company, Dana Petroleum that involved many countries including Great Britain, Mauritania and Egypt. For the Egyptian side of the deal, it included 30% farming in Dana Petroleum in West El Burullus. As of today, we have a 70% stake and are still the operator. In September 2006, we announced the second deal with Dana Petroleum whereby according to which we farm in them a 20% additional stake in West El Burullus, in order to share the exploration risks and, hopefully, rewards. We will then end at a 50-50 and we will keep the operatorship. The second 20% deal has not been approved yet; it has been announced and forwarded to the Egyptian authorities, EGAS and the Ministry of Petroleum. The formal process is expected to be complete mid 2007.

What is your current exploration budget?
Up to the end of 2006, we have spent roughly USD 10 million in exploration expenses. As I mentioned, the aforesaid exploratory well is budgeted at USD 24 million if tested. There will be, of course, other exploration expenses such as geological and geophysical studies, general and administrative expenses, etc.

Securing energy supplies has been a global concern, what is Gaz de France doing to guarantee its supplies?
Worldwide what we are doing is trying to secure gas on a long-term basis. There are two ways to do that, the first way is to secure long-term contracts. We are engaged in a 20-year agreement for LNG at Idku and if the chance arises we will be interested in buying additional volumes. This applies to Egypt and many other countries, in principle we are interested in buying additional LNG volumes. Recently Gaz de France has extended its gas supply agreement with Gazprom up to 2035.
The second way to secure supplies is our attempt to integrate upstream in order to have equity gas resources, as we are doing in Egypt.


One of Gaz De France’s LNG tankers, “Provalys”, during loading at Idku

Are there any upstream products of interest for you in Egypt?
It is clear that it strategic for us to increase our asset base in Egypt. We regularly participate in bid rounds, it is clear that the market is extremely competitive, but we keep trying. We are looking at farming opportunities and we are eager to reinforce our involvement in Egypt.

What difficulties did you face in the E&P sector since you became operators in Egypt?
I would say that up till now so far so good, it went quite smoothly, we are in line with our program and our budget. The relationship with the authorities, mainly EGAS and the Ministry of Petroleum, is excellent and we have found good contractors for seismic acquisition for processing. The difficulties we experience is more on the business development side because the market became these recent years very competitive for new concessions and it is a difficulty for us to reinforce our activities. In terms of operating I have not experienced many difficulties.

Can you comment on the lack of rigs in the Egyptian market?
It is true that the market is tight. However, we were looking for a jack-up for this well and apparently there were a few openings in the jack-up market. As I said earlier we managed to secure the “Ocean Spur” rig from Diamond Offshore.

Do you participate in any social activities?
Yes, we do this in Egypt through our participation in Idku, we don’t do it directly at the moment but as a shareholder of the liquefaction plant. As we start our exploration in Egypt, it is something that we plan for the future because we think it is beneficial to accompany your presence in the country with social activities. We need some time to identify the areas in need of social activities.

How do you see the future of the Egyptian oil and gas industry?
If you look at the future, you will see that Egypt will become a net importer of oil soon and this is the law of nature since oil fields are depleting, consumption is rising and production is decreasing. There will come a point in time when we will reach the breakeven point, and later there will be a growing gap. It is a challenge for Egypt to try to discover as much oil as possible and to replace oil revenues by gas revenues. We all have to be aware that exploration is becoming more and more difficult because all the big and easy fields have been discovered. Now we have to explore deeper horizons and dig deeper in the ground or explore more difficult environments, such as deep offshore zones.
What is important is that in order to make such explorations possible, the issue of gas prices in the local market must be tackled. It is clear that gas prices in the local market were adapted in the past, but now they may not adapted to the more challenging phase we are in.

(By Reem Nafie)

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