By Mohamed S. Khedr
As Egypt went through a volatile state during the past couple of years, the hydrocarbon industry followed closely in its struggles to remain afloat. Today, as most indicators highlight to an upwards trajectory, many experts address the direction the sector will take.
Mainly fueled by the increase in foreign reserves due to the liberalization of the Egyptian pound, Tarek El Molla, Minister of Petroleum and Mineral Resources, has recently promised to pay all arrears accumulated to International Oil Companies (IOCs) by 2019, with the latest payment of $750 to be made in weeks expected to decline the dues well under $2 billion for the first time since the 2011 revolution, and for the first time since the peak debt of $8 experienced in 2012.
Reform in the Eyes of IOCs
For upstream players the issue lies in the level of arrears and the promise of a new production sharing agreement, while for the downstream market, the move to liberalize the natural gas market has been considered as the core move, expected to change the market.
“The authorities are determined to continue with the reforms, and there is great progress in addressing various issues that IOC are facing within the Egyptian market today, which will drive further investments and increase IOC confidence in Egypt,” said Gasser Hanter, Vice President Upstream, Country Chair and Managing Director for Shell in Egypt.
Having a similar positive view, Nicolas Katcharov, Edison’s General Manager Egypt Branch and VP North Africa and the Middle East Operations, told Egypt Oil & Gas that as a result to the reforms, and the new regulation, increase in investments in exploration is expected. On the other hand, he explained that the major obstacle to further investments is the remaining $2billion overdue towards IOC.
“The liberalization of the gas market, for example, intends, to facilitate the progressive re-absorption of this debt. Everything depends on how the applicable rules of the new gas act will be designed, and particularly the possibility of using existing assets for an investor in the Egyptian oil and gas sector to recover,” Katcharov added.
Direct Effect on E&P Activities
Earlier in 2015, the ministry of petroleum faced some challenges in triggering enough interest in offered tenders; the reason of which is believed to be the increasing debt levels to IOCs. Between October 2013 and January 2015, 53 agreements were signed, with investments amounting to $2.9 billion and a total of $432 million in signing bonuses for the drilling of 228 wells, according to a statement by Sherif Ismail made during his reign as minister of petroleum and mineral resources.
However following the current reform program, figures highlight a hike in confidence of foreign players in the Egyptian market. Investments of IOCs in exploration and development operation in the fiscal year (FY) 2016/2017 amount to around $8.1billion, according to El Molla, who expressed that the ministry is targeting $10 billion worth of investments during the current FY 2017/2018.
The petroleum sector had succeeded in signing 79 new agreements for oil and gas exploration since mid-2013, with minimum investments of $15.3 billion, [while] from October 2015 to October 2016, 26 agreements were signed with a total investments of $12.1 billion, according to a press statement by El Molla.
According to the increase in incoming investments, the industry is seeing a remarkable recovery, yet the whole picture is wider than one single aspect. One topic to highlight is the current production sharing agreement and its impact on the deep-water drilling operations. By far, a handful of companies have the technological and financial ability to explore Egypt’s rich deep-water fields. The ministry of petroleum has formed a committee to build a new framework and contract, thus addressing this issue, promising yet another push towards more investments in the sector.