Is the Egyptian petroleum sector Thriving or Surviving?

Egypt’s recent revolution has caused chaos in the country’s economy. From the tourism sector, which has seen a catastrophic 46% drop in revenues post-revolution, to the struggling real estate sector, major investments and injections of economic aid will be needed to get the country back on its feet, but what about the oil and gas sector?

The potential of large profits has long led international petroleum companies to take risks that other investors would shy away from. As uprisings continue across the Arab region, international oil and gas majors continue to operate and grow investments in Egypt, Yemen, Syria and even Libya.

In Egypt in particular, petroleum sector players seem to have emerged from recent events essentially unscathed and more eager than ever to expand investments and activities in the local oil and gas sector. Far from being deterred by the recent circumstances, international companies, particularly those with a long record in Egypt that has seen them remain through other political upheavals, remain eager to invest and contribute to rebuilding Egypt’s economy.

As first quarter earnings reports come in, a positive picture of Egypt’s oil and gas sector is taking shape, with local operators posting increases in profits and production levels and announcing new undertakings and investments for 2011.

Apache Corporation
Apache, the largest foreign operator in Egypt, did not let recent events in the country slow it down. The company operated 22 rigs during the first quarter of 2011 and drilled 33 wells, including exploratory wells in the Tayim development least in West Kalabsha. Production remained constant throughout the quarter, increasing steadily as the political and economic situation in Egypt stabilized.

US-based Apache recently announced plan to raise its capital expenditure by at least 8% in 2011 provided that international oil prices remain high. Spending on new projects will be extended to the company’s Egypt operations, where Apache has announced plans to experiment with horizontal drilling at its concessions in the Western Desert beginning later this year.

Apache holds 74,000 acres in the East Bahariya field and believes a shale formation there holds between 700 million and 2.2 billion barrels of oil, said Thomas Voytovich, Head of Apache in Egypt

Apache has a record of successfully extracting oil and gas from deep and difficult formations in Argentina and North America. The company’s success in those markets has convinced Egyptian officials to allow Apache to undertake controversial shale-drilling operations in two locations. “We have two wells planned to test the idea here later this year,” Voytovich said. “It’s a step-change for us.”

Dana Gas
Sharjah-based Dana Gas has confirmed that it will continue to invest in projects in Egypt, despite the fact that the Egyptian government owes the company over $148 million. The Sharjah-based company continued operations uninterrupted during the first quarter of 2011. 

Dana Gas made a major natural gas discovery last May at the South Abu El Naga well in the Nile Delta, which led to the discovery of a new formation of hydrocarbon. The El Wastani formation may hold over 60 billion cubic feet of gas, according to the company’s preliminary estimates.

A test drilling at the Abu El Naga well produced gas at a rate of 14.1 million cubic feet per day, while the El Wastani formation produced 5.9 million cubic feet per day of dry gas. Dana gas intends to prepare a development plan for these new discoveries and is considering linking them with a gas processing station during 2011.
The company is seeking to raise production from concessions in Egypt and Iraqi Kurdistan by 20% in 2011, according to CEO Ahmed Al-Arbeed.

BG Egypt
BG Egypt delayed projects in North Africa due to civil unrest in Egypt and Tunisia at the beginning of the year. Development projects at West Delta Deep Marine in Egypt, due to start later this year, were postponed “by several months,” BG said in a statement. Gas demand in Egypt experienced “significant disruption.” BG Group posted a 38% fall in net profit for the first quarter on a 5% fall in output due to unrest in Egypt and Tunisia. BG Group also said it expects development projects in Egypt’s West Delta Deep Marine concession, which had been expected to go onstream later in 2011, to be delayed by several months.

“It was a challenging quarter for our exploration and production operations, with civil unrest in North Africa, flooding in Australia, an increase in UK tax and a shutdown in the North Sea,” said Chief Executive Frank Chapman. “We now expect modest production growth in 2011. The plans for a ramp-up in production in 2012 and 2013, as well as our 2020 goals, are unaffected and are supported by significant progress with our growth projects in Brazil, the US and Australia, as well as further exploration and appraisal success in Brazil and Tanzania.” Chapman said the company remained on track to deliver its growth targets through to 2020, with annual growth of 6% to 8% expected through to 2015.

The company has now resumed full operations in Egypt, where it produces nearly 35% of the country’s total natural gas output, and recently announced plans to invest $250 million in three offshore exploratory wells in 2011-2012. BG Egypt plans to drill two wells in El Manzala block this year and one in El Burg before the end of 2010, according to Sami Iskander, BG’s Head for Africa, Middle East and Asia. The company is also building a new pipeline and compression project in the West Delta, where it has 34 offshore wells.

Eni SpA, Italy’s largest oil company with major investments in Egypt, continued to produce its daily average of 230,000 boe/d throughout the first quarter of 2011 as unrest swept the country.

Eni is now looking into the future with major plans for its Egyptian projects in 2011. Company Chairman Aldo Bonomi announced that Eni would invest $1 billion this year in research and development, building upon the company’s longstanding tradition of investment in research and development in the Egyptian market. Bonimi added that Eni remains committed to current projects in the Dennis and Seth fields in the Mediterranean, as well as to pursuing developmental wells in the Gulf of Suez, Sinai, the Western Desert, and Timsah.

Melrose Resources
Melrose Resources has continued with exploration projects in Egypt undeterred by recent turmoil. The company completed the acquisition of a new 2 and 3D seismic survey over its South East Mansoura concession. With this information in hand, Melrose is working to finalize the data interpretation for this site to evaluate its potential for possible drilling during the third quarter of this year. A survey over the Mesaha exploration concession in southern Egypt has produced encouraging results, and the acquisition program should be completed in late June.

The company completed a pilot hold for its fifth horizontal well at West Dikirnis and this well is currently producing at a rate of 310 boe/d. Drilling is currently taking place on an 800 foot section of the well to drain a sand interval. The completed well is expected to come online in July at a production rate of between 600 and 800 boe/d.
Melrose has reduced 2011 production guidance estimates from 44 million boe/d to 40.5 million boe/d due to recent issues at the North East Abu Zahra well and other production variances. Aside from these minor setbacks, Melrose Resources remains positive about its prospects in Egypt. “We are looking forward to progressing our other exploration initiatives in Egypt, Bulgaria, Romania and France,” Melrose Chief Executive David Thomas said in a statement.

TransGlobe Energy
Canadian firm TransGlobe Energy posted record production from its Egyptian operations during the first quarter of 2011, despite ongoing turmoil in the country. “The political environment in Egypt has stabilized and business processes and operations are returning to normal,” the company said in a statement. TransGlobe has a 100% working interest and is operator of Egypt’s West Gharib concession, a 50% interest in the East Ghazalat block, and a 71.43% stake in the Nuqra block 1 where it is also operator.

Egypt production averaged 11,218 barrels of oil equivalent per day (boe/d), a 16% jump from the same period the previous year. This included a 20% rise from January to March 2010 at the company’s West Gharib concession to 8,738 barrels boe/d. April production at West Gharib jumped 58% year on year to 11,468 boe/d.
The company reported that it discovered eight new active wells West Gharib during the first quarter of 2011 and that it expects to close on a new 4,000 boe/d acquisition at the West Bakr concession, near West Gharib, in June.

The company’s oil revenues for the quarter grew 59% to $97.995 million from $61.651 million. Net profit dropped to $2.889 million from $12.601 million due to a conversion to International Financial Reporting Standards that caused a $11.7 million impairment of exploration and evaluation assets at the Nuqra Block in Egypt, where two wells turned up dry.
TransGlobe will focus on the West Gharib area in 2011-2012 and has plans to expand the area’s Arta and East Arta pools with new drilling operations. “The West Gharib project area is now the primary producing asset in the company’s portfolio and continues to be the growth engine for the future,” it said.

Sector Outlook
Egypt’s stabilizing political situation, and support for the economy picking up in the form of assistance packages from the World Bank, IMF, United States, Saudi Arabia and European bodies, the country seems back on track to achieve economic growth and development.

These oil and gas sector companies certainly think so; major investments and new projects will bolster Egypt’s image as an investment destination, provide jobs and help to support the economy as it recovers and prospers. With these international players continuing to pump investments into the country and present a positive outlook on Egypt’s economic climate, recovery of investment inflows in other

By: Kate Dennis


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