There is a committee responsible for the development of the Mediterranean and it identifies the production and joint production facilities to maximize the use of those facilities in a simple way to reduce the time and work on a common understanding between global partners in the Mediterranean, Eng. Ismail Karara, the previous first undersecretary for gas affairs in the Egyptian petroleum Ministry, said.
1- How can you evaluate the gas industry in Egypt, especially with the MOC conference is around the corner?
I think the success that we reached here in the gas sector is considered a phenomenon, whether in the exploration, drilling, production, or meeting increased local demand. I think we should consider the Mediterranean Sea as God’s gift to Egypt.
2- From your point of view as a former governmental official, what are the most important conditions in the agreement between EGAS or EGPC and the foreign partner?
All the agreements include terms and conditions which are obligate to the Petroleum Ministry and the foreign partner. However, there are some terms that can be added to replace others in the contracts concerning the Mediterranean area according to the location of the drilling and exploration fields as drilling in shallow depth is different from in the deep water. Besides, the government is aware that the exploration in the deep water costs more and with more risks; therefore, it observes such facts while signing the agreements.
3-Do you think there are any obstacles facing companies while drilling in the Mediterranean?
The obstacles are represented in the existence of the oil and gas in high depth. Drilling in deep water needs specific drilling tools which require huge investments. Nevertheless, there are no obstructions that can stand in the way of the companies to invest more in the offshore of Egypt. I must point out that the aftermath of the 114 law of the year 2008, which took the companies from under the cover of the free trade zone system, after the firms used not to pay any taxes to the investment system which made some of the firms lose trust to invest more in the area since there were no previous agreements concerning such changes. It also affected on the exploration, development and investments operations not only the refining. Moreover, there are exploration areas necessitates the approvals of other authorities to permit working, although these areas are full pf prospects. And now, there is coordination between authorities in order to resolve this issue.
4- Do you think the future of gas is in the Mediterranean though many said that it’s mostly discovered?
This is totally not right! alot of companies lately are interested in bids offered by EGAS and EGPC for the Mediterranean and that is the opposite of what was happening in the past.
5- What are the main facilities that the ministry provides to meet the high cost of drilling in the Mediterranean?
The ministry has been offering many facilities to the companies investing in the offshore of Egypt. It is represented in the amendments of the gas pricing agreed upon in the previous contracts, to change from $2.65 to match up with the global prices of gas. In addition to adopting a clear policy in dealing with the foreign partner that makes both sides reach a point of maximum understanding. Hence, when there is a bid round, many companies aim at being the winners specially because there are certain aspects which determines that winner.
6-What are those aspects?
They are many, for instance the time period of the drilling, the volume of the investments to be invested, and the number of wells to be drilled and ofcurse the bonus signature offered by the investor. Besides, the whole process contains motivations and facilities to attract the investor to the country; that what distinguishes us from the other countries.
7-How can you attract the investors?
By the terms in the contracts, the price must be close to the global one. There are also some conditions which allow the ministry buying the share of the foreign partner, in a try to supply the growing local demands. The price of gas used to be measured comparing to the price of Suez Blend. However, after the global crisis and how the price of oil went higher, we amended the prices to fit with the global price especially in light of the economic crisis that affected the world badly and led to the high cost of oil production.
8-Did the foreign partner demand this change or was it the ministry’s way to keep the investors in the country?
The companies did ask to negotiate the old prices and the ministry had to sit and listen to what they need and subsequently agrees on it. As the costs of production always increases with the boost of the crude’s rates. The foreign partner wouldn’t develop or even produce, if there were no changes in the prices. So, the ministry always tries its best to have good relation with the firms in order to guarantee providing the needed gas for domestic use.
9- How the natural gas’s price is calculated depending on the costs in the Mediterranean Sea?
There is a price equation in the contract which is always revised by the People’s Assembly and the Shura Council, and both discuss the fixed formula to set the gas price according to the conditions in the agreement.
10- What is the impact of the global crisis on the drilling activities in the Mediterranean?
Egypt is considered as one of the countries which slightly affected by the global crisis, as the ministry was smart enough to deal with the foreign partners during the crisis. The government granted facilities to the foreign partners as a result of petroleum policy which is characterized by flexibility.
11-But it was said that the ministry was late in paying back the foreign partner?
There was no problem, it was just due to the gap happened after the price of the barrel of oil reached $ 147, which created this huge gap between the prices, but we managed to cover this gap by scheduling of such payments.
12-Do you support the approach made by BP to buy Alexandria’s north field whole production to meet the local demand? And would you consider it rather than exporting?
As I said before, both the ministry and the foreign partners are looking for their best interest, as for the ministry to cover the local demand, and the foreign partner to benefit from working in the Mediterranean Sea. So, if the ministry and BP reach an agreement that would provide the mutual interest for both of them, then why not other companies follow that?
13-Do you prefer working with the Production Share System or Taxes System, or other systems, and which do you prefer?
The ministry is always in search for the best system for the Egyptian market. From my point of view, the Profit Share System is the best for our market, which will exempt the ministry from paying back to the partner and it would also give the freedom to the foreign partner to deal with the exploration and production with no supervision from EGPC and that would stimulate the period of both operations.
14-Do you think this Profit Share System would work here in Egypt to attract more investments?
Any international company would invest without second thinking if it found a country with lots of good exploring opportunities and with a government that works side by side with the investor and provide the needed facilities to them. And according to the studies and expectations before entering the bidding, the companies work and don’t favors a system or the other, but for profit.
15-Are there specific strategies adopted by the ministry in the Mediterranean?
Yes, of course. There is a committee responsible for the development of the Mediterranean which is chaired by the First Undersecretary of the Ministry of Petroleum and gas affairs who is now Eng. Tarek El Hadidi, and it includes the heads of companies and gas producer in charge of production and reserves and projects of such companies. Moreover, the committee identifies the production and joint production facilities to maximize the use of those facilities in a simple way to reduce the time and work on a common understanding between global partners in the Mediterranean.
16-What are the future plans for gas in Egypt?
The main concern now for the Egyptian Petroleum Sector is how to reach the production phase in the shortest possible time and to provide the necessary investments and to achieve economic returns. The plans are always achieved in time.
17- Do you think the petroleum future is in the Mediterranean?
I’m confident about the proven reserves in the Mediterranean, and also in the South Valley.