Egypt is one of the pioneers in the Middle East to penetrate the oil and gas industry. The Middle East’s first oil refinery was built in the Egyptian port city of Alexandria in 1911. Since then, the petroleum industry has almost covered every part of the country; but some territories were not ready for exploration yet, such as Upper Egypt. However, this is no longer the case as a national plan has been set to explore this area. Nevertheless, during this process we are faced with several questions related to the future of oil and gas projects. How will the Ministry of Petroleum and the Egyptian government solve the obstacles hindering the achievement of this national plan?
Around 20 million citizens, representing 30% of the Egyptian population reside in the governorates of Upper Egypt. Based on the studies and research conducted by the government, the poverty rate in this area counts for 34%, which is due to poor living conditions and the lack of services provided in the area. As for the employment rate, it is “very low” as it counts for 9.3% of the total population number there.
Upper Egypt has always been known for its fertile ground. With better planning, sufficient budget and improved infrastructure projects, this area can develop in all levels; industrial, commercial and social.
Eng. Rachid Mohamed Rachid, Minister of Industry and Commerce, affirmed during a meeting of the Upper Egypt Development Committee that the government has set a group of incentives to encourage investments in Upper Egypt based on the President’s guidance who allocated one billion Egyptian Pounds for this plan.
The petroleum sector does share an outstanding role in this national plan. For instance, Ahmed Nazif, Egypt’s Prime Minister has stressed on the necessity to deliver natural gas to Upper Egypt within the coming three years and implement this grid in order to revive the industrial development. Sharing the same goal, Egyptian Minister of Petroleum Eng. Sameh Fahmy clearly stated on several occasions the importance of attracting more investments to support the national plan to promote oil, gas and other mineral resources in Upper Egypt.
Hence, the Ministry of Petroleum (MoP) has already conducted several projects in Upper Egypt and more are yet to be initiated soon.
Although such a focus has been intensified throughout the last six months, this does not deny the fact that there have been exploration and drilling activities led by international companies in this area. Over the past three years, drilling licenses were granted to foreign corporations, such as Groundstar, Centurion and Transglobe, in order to operate a number of exploratory wells.
Hassan Akl, Chairman of Ganoub El-Wadi Petroleum Holding Company responsible for the supervision of drilling and exploratory activities in this area said that the Canadian Companies, TransGlobe and Centurion Energy plan to expand their drilling activities throughout the coming three years once they fulfill the mission of research and studies in the fields of Kom Ombou and Naqra.
Focusing on Groundstar Resources Limited, it has decided to increase its working interest in a Farm-in Agreement with Pan Pacific Petroleum Egypt Pty Ltd. (“PPPEgypt)” in respect to West Kom Ombo Block-3 in Upper Egypt, last July. The Canadian company increased its share in Block 3, which approximately covers 10.5 million acres, to 60% from 42.5% by agreeing to pay 100% of the cost of the first two exploration phases ($7.1 million net to Groundstar) over a five year period.
Kam Fard, President and CEO of Groundstar said in a statement, “We are delighted to have obtained majority interest in Block 3. Groundstar will be actively involved in technical, operational, and administrative aspects of the exploration phase of the block. We have an extremely experienced technical staff capable of managing all phases of the exploration program on the block and we look forward to the exciting challenge ahead.”
As for Centurion Energy, a subsidiary of Dana Gas has been awarded the Ganope Block 2 Kom Ombo in June 2003, situated east of Groundstar’s Block 3. The company owns a 100% working interest in this block which covers approximately 5,600,000 acres. According to the latest company’s statements, drilling exploration operations are supposed start in May 2007.
Back to July 2004, TransGlobe Egypt, a wholly owned subsidiary of TransGlobe Energy Corporation, entered into a Farmout Agreement with Quadra Egypt Limited (“QEL”), a subsidiary of Quadra Resources Corp. Under the terms of this agreement, TransGlobe Egypt earns a 50% interest in the Nuqra Concession, located in Upper Egypt near the city of Luxor, by paying 100% of the initial $6 million of expenditures in the Period One and the Period Two work programs.
Two years later, the company moved the Nuqra project ahead to the drilling stage during 2006 by completing seismic, identifying locations and carrying out extensive drilling preparation work. A three-well exploration program consisting of two firm wells (Set #1 and Narmer #1) and one contingent well (West Narmer #1) was approved by the joint venture partners and the government.
The company chose to proceed with the first-three year extension to the exploration period, effective July 18, 2006. The extension requires a mandatory relinquishment of 25% of the Block and completion of a two-well drilling program, with a minimum expenditure of $4 million over a period of three years. The area relinquished was considered non-prospective by the company. The total area of the Nuqra Block 1 concession is approximately 5.5 million acres following the relinquishment.
At the beginning of this year, drilling commenced on the first exploration well Set #1 to a total depth of 1,372 meters, targeting a 30 million barrel gross unrisked prospect. However, Canada’s TransGlobe Energy has plugged and abandoned its Set-1 exploration well in Egypt’s Nuqra Block 1 after failing to find hydrocarbons. This did not challenge the company to resume its planned drilling activities as the drilling rig was moved during March 2007 to the second exploration commitment well at Narmer #1, targeting an unrisked gross 10 million barrel Jurassic prospect at approximately 2,400 meters.
The Egyptian Minister of Petroleum closely checked during his recent visit to Upper Egypt the work progress in the drilling site of the first well (Set-1) at the Ganope Company’s operation location at Al Nakra area, by TransGlobe, within the framework of a program to drill three wells as a first phase in Upper Egypt.
Moreover, Upper Egypt has witnessed the establishment of the first LPG filling plant in the Tod area at Luxor, which is being implemented jointly by Petrogas and the Supreme Council of Luxor with a total cost LE10 million.
Two months ago, Fahmy paid a visit to Al Wadi Al Gadeed, Aswan, and Luxor, during which he has underlined the importance of luring more investments into Egypt to be used for developing oil, gas and other mineral resources in Upper Egypt. Based on this belief, he announced a series of new projects that reflect the petroleum sector’s dedication to activate the national plan to revive Upper Egypt. For instance, three new companies will be founded in order to fulfill the goal of developing mineral wealth, oil shales, and producing as well as packing drinking water at Al Wadi Al Gadeed. In Luxor, a new factory for filling LPG cylinders started operation with a capacity of 10,000 cylinders daily. According to the minister, the new mineral resources projects in addition to oil and gas exploration serve the ministry’s strategy to revive the area of Upper Egypt and avail the South Valley’s requirements of LPG in the governorates of Al Wadi Al Gadeed, Aswan, and Luxor.
Concerning natural gas recent projects, Edko Complex for Natural Gas Liquefaction and Exportation has been classified as the most important petroleum achievement last year, according to Fahmy. This complex includes two units for gas liquefaction with production power of 10 billion m3 annually, worth $1400 million, in which a consortium of British, Malaysian and French companies contributed to its implementation.
Following the same intention to focus on natural gas, 25 gas stations will be established in Al-Minya, in addition to 15 centers for car gas conversion serving the plan to convert nearly 14,000 vehicles to run with natural gas instead of fuel.
Difficulties and problems hindering the prosperous strategy
General Nabil El-Ezaby, governor of Assiut, referred to the low consumption rate, communications and transportation problems and the lack of clear time plans to finalize the infrastructure projects, as the obstacles demagnetizing investments from this area.
A petroleum expert, who preferred to be anonymous, stated in an interview in Al-Mal Newspaper that the activities of international companies in this area are still limited for many reasons. Amongst them are the lack of information and studies about the “drilling” locations where companies operate, lack of deep seismic studies and the absence of previous information or studies concerning previous activities and achievements in the area to encourage public petroleum companies to invest millions in exploratory operations in this location.
However, despite promises by the MoP and Egyptian government to dissolve such obstacles to speed up the development cycle, the anxiety and worries of investors remain a key issue that might draw negative effects.
New ventures and policies to achieve booming revitalization in the area
At the beginning of 2007, Fahmy announced that 46 wells in Upper Egypt will be drilled with total investments of $282 million, as the Ganoub El Wadi Petroleum Holding Company succeeded in inking 10 petroleum agreements, besides two others underway, for exploration in a total area of 220,000 square kilometers, representing 50% of the total area of Upper Egypt. This highlights a dramatic increase in the number of wells in this area, as only 12 fields were drilled throughout the history of exploration and drilling in this area.
On the local level, Fahmy has signed a joint cooperation protocol last March, including the cooperation between Al Wadi Al Gadeed and the Egyptian Mineral Resources Authority (EMRA) comprising the establishment of an oil, mining, and administration academy at Al Wadi Al Gadeed governorate to maximize the optimum use of the infrastructure and the available facilities at Abu Tartour phosphate project in cooperation with mining expertise house. During the minister’s visit mentioned earlier, three more agreements were signed; one of them was signed by GANOPE, EMRA, Petrojet, and Nile Oil Marketing Co. to establish Al Wadi Al Gadeed Co. for Mineral Resources and Oil Shale, S.A.E., active in exploration works, mineral resources, and oil shale exploitation.
Mohamed Farid Khamees, head of Investment Policies and Upper Egypt Development Group, a subsidiary of the Economic Committee of the National Democratic Party (NDP) declared that incentives have been authorized to revive the development procedure in Upper Egypt, commencing with the establishment of the Upper Egypt Development Company with a net capital of LE100 million. The goal of this company is to better market the industrial projects and highlight the incentives and benefits behind it to attract more investments in the area.
Moreover, Ahmed Nazif, Egypt’s Prime Minister has stressed on the necessity to deliver natural gas to Upper Egypt within the coming three years, instead of six years as planned. This project will be carried out on three phases; the first is 145 km length from Beni Suef to Al-Minya, the second is 115 km length from Al-Minya to Assiut and the third is 235 km length from Assiut to Qena. It is worth mentioning that a 738-km-long natural gas network is being established to cover Upper Egypt governorates extending to Aswan.
To minimize funding obstacles, the European Investment Bank (EIB) has joined a group of investors to finance Egypt’s south-bound gas pipeline with a 50-million-Euro loan. According to the terms of agreement, EIB and the Egyptian Natural Gas Holding Company are to finance a 115-km-long gas pipeline between Al-Minya and Assiut.
Magdy Rady, official spokesman of the Ministers’ Council, clarified that natural gas was already shipped to nearly 2.3 million households until last July. This number is expected to increase to six million households by year 2012, reaching a total of 8.3 million households.
(By Yomna Bassiouni)Download