By Erica Fauser
Since 2009, a series of large natural gas discoveries in the Levant Basin have altered the dynamics of the region, and the Eastern Mediterranean basin became one of the latest areas of interest for the international oil and gas industry. Offshore fields in the area have great potential both in terms of economic activities and progress in the region as well as on an international political level. As such, international oil and gas companies are rapidly moving into this part of the world and the countries in the region are preparing for international petroleum activities by rolling out new laws and regulations, and organizing bidding rounds within their territory. Countries like Cyprus and Egypt have found new gas deposits in the area, which created the potential for Cyprus to export gas and for Egypt to meet more of its domestic gas needs. Following the sector’s development, both countries have passed new laws to regulate the market and boost its oil and gas activities.
When it comes to oil and gas exploration and production, Egypt is in a different league than its neighbors in the Eastern Mediterranean. Its crude activity spans more than one century and the country enjoys a colorful corporate landscape where large and small international companies and national companies cooperate and continue to make significant discoveries.
The country sits on proved gas reserves of more than 65.2 trillion cubic feet (tcf), according to the BP Statistical Review Report of 2017. These constitute the third-largest reserves in Africa, after Nigeria and Algeria, and 17th globally, just behind Norway (65.6 tcf). Unlike other hydrocarbon-rich Arab countries, Egypt has a settled relationship with international oil companies. Additionally, the country has the most diverse corporate landscape in North Africa. There are reportedly up to 100 international oil companies active in Egypt’s oil and gas sector.
In terms of investment protection, Egypt has well established arbitration laws that make the settling of disputes more predictable. In 1994, Egypt enacted a new arbitration act, Law on Arbitration in Civil and Commercial Matters (the “New Law”), bringing its arbitration legislation within international standards. Due, at least in part, to its new arbitration act, Egypt has experienced increased foreign investment. In fact, most foreign investors were waiting for an arbitration act, which enabled them to settle by way of arbitration any disputes as to their investment, which was on hold until its issuance. The New Law tracks the UNCITRAL Model Law. Egypt has also ratified the New York Convention, ICSID (International Convention for the Settlement of Investment Disputes), and the Convention of 1974 on the Settlement of Investment Disputes Between the Arab States and the Nationals of other States.
However, the New Law differs from the Model Law in many areas. Specifically, it applies to arbitrations having venue in Egypt as well as those taking place abroad where the parties have agreed to Egyptian Law, and to both domestic and international arbitrations. The language of the New Law leads to the determination that Egyptian courts, when examining awards for leave to enforce are not bound by the decisions of the courts of the country where the award was made, or under whose law the award was made. Egypt did not adopt Article 36 of Model Law regarding the setting aside of international arbitration awards. Rather, the New Law provides the award can be set aside if it contravenes public order, whereas the Model Law provides for setting aside the award if it contravenes international public order. This is a key distinction because public order in Egypt may mean something entirely different in relation to the international public order. This would seem to give Egyptian courts a great deal of discretion.
Overall, however, the New Law is seen as a positive step for the Egyptian economy and investment in Egypt. Its enactment has helped the Cairo Regional Centre for International Commercial Arbitration become a stronger presence for arbitration in the Middle East, as well as have a positive impact on trade in Egypt.
The discovery of hydrocarbons within Cyprus’s exclusive economic zone in December 2011 put the Republic of Cyprus on the world energy map, which was embraced with wide enthusiasm. The findings have since been followed by plentiful developments that seek to transform the initial surprise into a well-founded aspiration of becoming a producer and exporter of hydrocarbons.
The oil and gas exploration area is of 51,000 square km and is located in the south of Cyprus. This area has been separated into 13 exploration blocks. The recently formed state-owned Cyprus Hydrocarbons Company (KRETYK) has been given the mandate to manage Cyprus’s hydrocarbon resources and proceeds. The company also represents Cyprus in PSCs and deals with potential investors in relation to the construction of a liquefaction and export facility.
Cyprus is a party to several international conventions, making it more stable and investor friendly. Namely, Cyprus is a party to the International Arbitration in Commercial Matters Law 1987; the New York Convention 1958; the United Nations Convention on the Law of the Sea (UNCLOS); as well as the UNCITRAL Model Law on International Commercial Arbitration of 21 June 1985.
The country has also initiated and concluded several bilateral agreements with neighboring states. This includes the delimitation of the Exclusive Economic Zone of Cyprus with Egypt. Cyprus and Egypt have capitalized on their cooperation with a framework agreement expanding on the development of a cross-median line concerning hydrocarbon resources.
Further, Cyprus has developed an extensive network of double tax agreements with almost 50 countries, ensuring that the same income is not taxed in more than one country. Under these treaties, entities registered in Cyprus will not only enjoy tax exemptions within Cyprus, but will additionally profit from analogous exemptions within other treaty countries, thus making Cyprus very attractive to investors looking to avoid dual taxation.
As the Eastern Mediterranean oil and gas reserves continue to be explored and developed, investors can rest easy because the laws in place in Egypt and Cyprus were designed to encourage and protect investments. Nevertheless, the freedom to contract enables parties to have more flexibility in determining which law will govern their investment disputes. However, the fact that Egypt and Cyprus already have well established and settled laws make these countries more investor friendly for international oil and gas companies.