Despite the distinguished production increases attained by the Ministry of Petroleum, exceeding expectations and scoring unprecedented achievements, the question raised, for how long will the Ministry be able to maintain the same rates of increase? By what means it can keep booming the production? Many experts that a production sustainability can be fulfilled through offshore investments; the real route to a prosperous future
Egypt’s total production of crude oil, condensates and natural gas has increased to 1.8 million equivalent barrels per day (bpd) in 2008/2009 compared to 690 barrels per day in 1981/1982. During President Hosny Mubarak’s visit to the sites of Badr El-Din Petroleum Co. in the Western Desert last month; Eng. Sameh Fahmy, the Ministry of Petroleum said that the natural gas production increased from 5.2 billion cubic meters a year to 60 billion cubic meters annually, 24-times higher, highlighting that Egypt is the second African natural gas producer after Algeria. Though these announcements sound promising, concerns remain questioning the possibilities of extending the E&P arena to secure this flow of production increase. Seeking alternatives has been considered the best answer for the previous questions; exploring new unusual areas through new techniques, such as the offshore drilling, helps maintaining and even increasing the production level. Drilling in deep waters and opening new production opportunities relieve the status of anxiety.
Although oil and gas production in the water/sea is more challenging compared to land-based installations and much of the innovation in the offshore petroleum sector revolves around overcoming these challenges, the Ministry of Petroleum has been encouraging the offshore drilling and offering facilities to operators as an incentive to carry on this type of drilling.
Described by many experts as the blooming future, the offshore operations have been the focal zone serving the demands for an increasing production. The areas of Gulf of Suez and the Mediterranean Sea have witnessed an intensified drilling and development program since last year.
Development plans in the Gulf of Suez
The Gulf of Suez is home for more than 400 wells, which generate an average of 222,000 barrels of oil per day. The most producing fields of this area are Morgan, October and Sakkara (GUPCO), Marine Belayim (Petrobel, a JV between the Egyptian General Petroleum Corporation EGPC and ENI), Al-Ashrafy (Agiba Petroleum Co.), North Amer and Alhamad (General Petroleum Corporation GPC), North and South Geisum (Petrogulf), Alzaafaran (Gemsa Petroleum Co.), East Al-Zeit (Zeitco), North July (Al Fanar), Al-Amal (Al Amal Petoleum Co.) and Gama and Shukair (OSOCO).
As a matter of fact, the Gulf of Suez is characterized by the non-stop wheel of development, which runs the areas towards production increases. Among the present development programs implemented in this area is the North West October, held by the Arabian Company for Oils. This 25-year development plan is worth $143.9 million total cost, and another $114.6 million operating costs. Production is estimated to start this year at an average rate of 1300 bpd, to be gradually increased to 5900 bpd by 2012. According to studies, the volume of reserves counts up to 11.8 million barrels and the maximum edge of daily production averages 6000 bpd and three million cubic feet of gas per day.
Navigating in the Gulf of Suez, Apache, Petzed, BP Egypt join the list of area’s players with their development programs. Apache has allocated $17 millions for the East Ras Budran concession, which estimates 2000 bopd during the early production stages. Petzed, a fully owned subsidiary of National Petroleum Company (NPC), operates Muzhil field, where it plans to construct an offshore platform with all required production facilities in order to start the production in the second quarter of this year at a rate of 4000 bopd from the two fields Muzhil-1 and Muzhil-2.
As for BP Egypt, the British company carries two development programs in this area, North Shedwan and West Morgan. The first expects the beginning of production from NS 377 field by next October and from the NS 385 field by mid 2010. Both fields’ capital cost is approximately $60 million. The second project of Morgan includes the construction of an offshore platform to be connected to the production facilities of Morgan Marine Field.
Future potentials of the Mediterranean
In addition to the Gulf of Suez, the high potentials represented by the Mediterranean Sea are of an enormous value as well. This area is considered as a vast promising spot where various production opportunities lie. Currently, there are 92 wells, which produce a daily average output counting for 4632.7 million cubic feet of gas. The most important producing fields are Gabi Khan (GUPCO), Rashid (Rashid Petroleum Co.; Rashpetco is a JV between BG International Limited 20%, Shell Egypt NV and Shell Austria AG 20%, Edison Gas SPA 10% and EGPC 50%), Abu Qir (Western Desert Petroleum Co Wepco) Simian, Sienna and Sapphire (El Burullus; a JV between British Gas International Ltd (25%), Petronas Carigali SDN BHD (25%) and EGAS (50%)).
It is worth mentioning that the Simian and Sienna fields produced first gas in 2005, for supply to Egyptian LNG Train 1 at Idku. The Sapphire field produced first gas in 2005, for supply to Egyptian LNG Train 2. The facilities consist of 16 sub-sea wells tied into the existing WDDM gas gathering network and a shallow water control platform. The onshore processing facilities form part of the Idku Gas Hub where the Egyptian LNG facilities are located.
Shell Egypt N.V. participates in two offshore exploration concessions, namely the deep-water North East Mediterranean Deepwater concession and North West Damietta concession with various participants. In 2008, Shell completed the sale of a 10% interest in the North West Damietta Extension concession located offshore Egypt to Gaz de France. The Dutch Company holds an 18% interest in Natgas, a local gas distribution company in Egypt.
Among the development programs carried out in the Mediterranean Sea area is held by BG Delta Limited, which is implementing a development program for the West Delta Deep Marine Concession (WDDM), Phase V, according to its contract signed with the EGPC on August 26, last year. The delivery of the first gas from WDDM concession Phase IV project (WDDM IV) to the Egyptian domestic market was achieved in February 2008, one month ahead of schedule. Located approximately 120 kilometers offshore Alexandria in the Mediterranean Sea, the upstream development was undertaken through BG Egypt’s joint operating company, Burullus Gas Company, in collaboration with Saipem, the drilling and installation contractor. The project marks the first time that all sub sea structures were fabricated entirely in Egypt by Petrojet, an affiliate of the Egyptian General Petroleum Corporation (EGPC). BG maintains its success in the area with strengthening its development plans for the concession.
As a matter of fact, BG Group is leading $1 billion-upstream projects in the country. According to Dow Jones Newswires, the investments will focus on producing more gas from West Delta Deep and the Rosetta concessions in Egypt’s Nile Delta, said Ian Hewitt, President of BG Egypt, last year.
“We are discussing those with our partners and we are making sure that our economics works and our returns are right,” he said.
Concerns over the rapid rise in Egypt’s gas consumption prompted the government to introduce legislation two years ago limiting to 25 percent the quantity of the country’s 58.5 trillion cubic feet of reserves that can be made available for export.
U.K Reading-based BG produces 2.6 billion cubic feet a day of natural gas in Egypt, equal to more than 40 percent of the country’s gas supply. Development of the offshore Nile Delta areas will involve sub-sea projects to add new gas wells to West Delta Deep Marine and Rosetta, which will also require additional gas compression facilities, said Hewitt.
The U.K.’s third-largest oil and gas company, plans additional exploration work to find new gas resources in El Manzala, El Burg and the North Sidi Kerir Deep Offshore, he said.
Liquefied natural gas, or LNG, will continue to play a major role in BG’s Egyptian business with the company planning a third production plant at its Idku facility by 2011, he said. “A third train at Idku would probably materialize by 2011 or 2012.”
Offshore New Comers
Since the offshore is the future as discussed earlier, this sector has became to some recent an attracting field for foreign investments. One of the most recent comers to the Egyptian offshore field is E.ON Ruhrgas. It has acquired a 29 percent interest in the NW Damietta exploration license from Shell Egypt N.V, last February. The license is operated by Shell Egypt N.V. (61 %) and the additional partner is GdF Suez (10 %). NW Damietta is located in the Nile Delta, offshore Egypt.
“We believe this license offers significant gas exploration potential,” said Jochen Weise, member of the E.ON Ruhrgas Board of Management.
An exploration well is planned to be drilled later this year. With two LNG plants, Egypt is an important gas supplier to Europe. “Gas upstream is an important growth area for E.ON Ruhrgas, which, along with an increased focus on LNG, contributes to long-term security of supply for our customers throughout Europe. In this respect, Egypt is a strategically important partner,” Weise added.
E.ON Ruhrgas already has its own gas production in Norway and the UK. Expansion to North and West Africa is now taking place in order to secure gas and LNG supplies for European markets.
In addition to E.ON, Toyota Offshore Gas Field Drilling Services is listed as a new comer as well. Last September, Toyota Tsusho Corporation announced the beginning of its offshore gas field drilling services business in Egypt through its joint venture the Egyptian Offshore Drilling Company S.A.E, in conjunction with the Egyptian Natural Gas Holding Company (EGAS) and Ganoub El-Wadi Petroleum Holding Company (Ganope). To get the business started, the Joint Venture signed on September 25, 2008 a loan agreement totaling approximately $500 million with a bank syndicate comprising several Japanese and Egyptian banks.
The business is investment type business where the Joint Venture procures and owns two new-build offshore drilling rigs and offers them to drilling services in the exploration and development of offshore gas fields located within Egyptian territorial waters. EGAS, in accordance with the charter agreement signed with the Joint Venture, will be operating and maintaining the rigs and performing the drilling, while the Company will be performing overall management of the Joint Venture as well as supplying the materials, equipment and consumables necessary for the operation and maintenance of the rigs. Ganope will be providing overall support for EGAS activities.
The rigs will be built in Singapore, with completion scheduled for the end of 2010 and the beginning of 2011 respectively. Upon completion, the rigs will be engaged in drilling services in offshore gas exploration and development blocks within Egyptian territorial waters.
Egypt supplies its abundant reserves of natural gas to meet its domestic demand, primarily as fuel for electric power generation, while exporting liquefied natural gas (LNG). An increase in natural gas production is becoming a matter of great urgency in Egypt in order to meet growing domestic demand, as well as to promote export, and for these reasons new introduction of rigs is being keenly awaited.
The company aims to establish an up- to down-stream natural gas business chain and considers Egypt, with its abundant reserves of natural gas, to be one of the most important countries in the upstream. The Company intends to forward with building the business chain by further growing its involvement in businesses in the area of natural gas upstream in Egypt, with gaining a foothold by the business starting this time.
Additional Pay at Ruby
One of the latest offshore attainments in Egypt was scored by RWE Dea and BP in the West Nile Delta. RWE Dea AG, Hamburg, announced last February the successful finalization of its extensive drilling campaign in 2008 within the West Nile Delta; the exploration well Ruby-3 (Ji 50-2) discovered gas.
The Ruby-3 (Ji 50-2) exploration well is located within the offshore West Mediterranean Deep Water concession, approximately 66 kilometers from the Egyptian coast. The well was drilled in 920-meter water depth and reached its total depth at 1957 meters. Gas bearing sandstones were penetrated in the Pliocene section as prognosed. Evaluation of the drilling results is ongoing in order to estimate the amount of gas resources and their implication to RWE Dea’s portfolio. RWE Dea has a 20 percent working interest in the concession, whereas the remaining 80 percent is held by Operator BP.
Ruby-3 was the last of six exploration and appraisal wells drilled by BP and RWE Dea within the West Nile Delta (WND) in 2008. The well penetrated one segment of the so-called Maadi prospect, which extends into other concessions, in all of which RWE Dea holds substantial shares.
The Ruby field was discovered in 2002 (Ruby-1) and successfully appraised in 2003 (Ruby-2). Located in the Western Nile Delta’s West Mediterranean Deep Water concession, other finds in the area include Polaris and Raven.
“With gas proven in the Ruby-3 well, chances increase that more gas may be discovered in the other, so far undrilled segments of Maadi,” explained Hans-Hermann Andreae, General Manager of RWE Dea Egypt. “However, prior to further appraisal of Maadi we will focus on development of several of the other gas fields discovered in the West Nile Delta area. These fields have been discovered earlier and some of them were successfully appraised in 2008.”
Last year, during the Mediterranean Offshore Conference, held in May 2008 in Alexandria, Hani Nasar, the Head of the International Agreement Section in the Ministry of Petroleum said that “BP and RWE are expected to pump a total of LE 5 billion in fresh projects in Northern Alexandria and the west of the Mediterranean.”
The new projects are expected to increase the production of natural gas through extracting gas from deep waters of the Mediterranean. Nasar expected that the minimum investment cost of these projects would be $800 million.
The General Petroleum Authority reached an agreement last year with both companies to increase the price of gas extracted from these regions from $2.65/million calorie unit to $4.65.
BP, RWE Dea and Royal Dutch Shell agreed to spend $950 million on oil and gas exploration off Egypt as the nation seeks to ramp up output amid record energy prices.
The three companies will pay the government bonuses totaling $105 million on signing the agreement, with Investments of $845 million. BP and RWE explore together in two deep-water areas north of Alexandria and promised to spend $800 million on drilling and surveying. Shell will spend at least $45 million on exploration north of Damietta.
According to Nasser’s announcements, the agreement with BP and RWE applies for gas extracted from deep waters only. He added that the prices are now fixed and related to the prices of the Brent oar in the international markets.
Hans Andrea, General Manager of the German Company, RWE, affirmed in 2007 that the company achieved many discoveries that are growing rapidly, as well as the cooperation with Suez Oil Co.
(SUCO), highlighting that the total expenditure of investments in the oil and gas exploration domain in Egypt during the past years reached about $3.5 billion, including $250 million during the last year only. Moreover, the company has three concessions in the Gulf of Suez area since 1974, and its daily production volume is approximately 17 thousand barrels. Since 1999, the company has started exploration activities for oil and gas in another concession area at the Nile Delta and off the Egyptian western coasts at the Mediterranean. He clarified that the company’s trend to focus on oil and gas exploration at the Nile Delta and the Mediterranean regions due to the positive indicators and significant discoveries in those areas.
The offshore drilling is not a short-term fix; it would take a decade to bring new leases into production. And, it will be years before exploration could begin and production start. Yet it explodes billions of barrels of oil and trillions of cubic feet of gas, paves new territories for energy sources and discovers the undiscovered oil and natural gas waves.
By Yomna BassiouniDownload