Under the stewardship of Petroleum Minister Eng. Abdullah Ghorab, the Egyptian petroleum industry has witnessed a rising number of agreements between the Egyptian government and foreign companies. Greater focus has been placed on encouraging foreign investment in exploration and development operations in order to build up Egypt’s reserves of oil and natural gas and thus meet burgeoning domestic needs, in addition to exporting surplus resources with the purpose of funding economic development.
The Minister’s vision is slowly coming to fruition, as evidenced by the recent inking of a new agreement between Egypt’s state-owned Ganoub Al-Wadi Petroleum Holding Company (GANOPE) and Ukranian company Naftogaz. The agreement opens up GANOPE’s concessions in South Assiut for oil and gas exploration by Naftogaz. The agreement contains several elements which include:
Exploration operations, which are comprised of geological, geophysical and aerial studies, in addition to the drilling of exploratory wells in search of petroleum in accordance with the work programs and budgets determined for exploration.
Development operations, which encompass drilling, plugging, deepening, re-drilling, completion, and preparation of developmental wells, as well as changing the status well status. Development also includes establishing services and maintenance for equipment, network facilitations, and production-related laboratories, in addition to bringing developmental wells into operation.
Facilitation of transportation, storage, and other drilling activities.
Furthermore, the third clause of the agreement places three obligations of paramount importance on the agreeing partners:
The government is entitled to 10% of all petroleum produced in the concession in South Assiut during the developmental period; GANOPE is responsible for the payment of this percentage, and the contractor does not share this responsibility.
Exploration and Development operations are to begin in a preliminary period dating 3 years from the date of the agreement coming into effect.
In the case of a commercial discovery of either crude oil or natural gas, the investor is obligated to assess the discovery via the drilling of one or more wells for evaluation, as part of the investor’s research program. This is in order to determine whether the discovery is worth developing commercially, taking into consideration potential reserves, potential output, pipelines in place, the necessary infrastructure, and contemporary oil prices, in addition to factoring in all of the technical and economic elements related to drilling in the concession.
The agreement places upon the foreign investor the obligation of spending no less than $2.7 million on exploratory activity, which must include a seismic study covering a length of 1,400 km as well as a magnetic aerial study encompassing a distance of 800 km.
The fourth clause of the agreement stipulates that the foreign partner must begin petroleum exploration no later than 6 months from the date on which the agreement comes into effect. GANOPE is obligated to provide the foreign partner with all seismic data and all data pertaining to wells and other details in the concession area.
The preliminary exploration period for the investor is three years, with the possibility of two consecutive extensions. The first of these extensions could reach two years, while a further extension of up to three years could be granted.
The agreement also stipulates the drilling of 2 wells within the 3 year preliminary exploration period. The first extension period must witness investments of at least $3.7 million, while investments in the second extension period must be no less than $10.5 million.
In addition, the Ukrainian partner must prepare an operational schedule and an exploratory budget for the South Assiut concession. The foreign partner is not to significantly modify the aforementioned schedule or budget without the approval of GANOPE.
The Minister himself had previously declared the government’s intention to work towards securing a greater number of agreements with foreign companies, in efforts to boost Egypt’s reserves of petroleum resources.
In statements made to Egypt Oil & Gas, Eng. Ghorab claimed that success in luring foreign investment to the petroleum sector is largely reliant on the clarity of policies adopted by the government as well as on offering contracts that are appropriately balanced. These elements are meant to counterbalance the rising costs of exploration and development operations, particularly deepwater operations and the development of new fields.
The Minister highlighted the success of the petroleum sector in attracting investment despite the occurrence of global financial crises, attributing it to the trust and credibility the sector has accumulated and its effectiveness in working with foreign investors. He praised the sector’s adherence to clear strategies and policies which achieve a balance between all stakeholders.
By Wael Serag