Digging deeper in the offshore industry, obstacles maybe come in hefty numbers, but anyone can notice that the ministry tries to apply the most appropriate strategy to cover the most of challenges

“Egypt is becoming a major player in the Mediterranean region,” Dr. Cyril Widdershoven, Middle East specialist and consultant, said. It’s the kind of industry that Egypt should’ve been practicing as its own geographical position place it in the right place to reach Europe, “Egypt is the heart of Africa, Asia and Europe,” commented OMV (Egypt) Exploration GmbH on Egypt’s vital location.

Egypt still needs to play it right; as there are lots of competitors with previous lengthy experiences. Widdershoven described this as “Egypt’s competitiveness in the international oil and gas markets, with specific relation to the European markets, is still questionable. It has to compete increasingly with the already intricate relations between North African producers, such as Algeria, Tunisia and Libya, who are all interconnected to the Italian and/or French pipeline structures.”

Does Egypt need to wake up and smell the gas slipping from under its nose? Come to look at it, lately the offshore witnessed a fair number of discoveries, started in the prime of the year, Dana Petroleum and its partner GDF Suez’s in Papyrus-1X well located offshore Nile Delta in west El Burullus concession, also EGAS (The Egyptian Natural Gas Holding Company) awarding three blocks in the gas-prone Mediterranean offshore acreage to major international oil companies, like the British Petroleum Company (BP), British Gas (BG), Shell and Malaysia’s Petronas, where Shamel Hamdy, former first undersecretary at the Ministry of Petroleum, saw it as “In the deep water you need big players, so we were happy to see them ‘acquire acreage’. They have the know how and the ability to invest.”

That brings us to one of the major obstructions in the offshore; the cost of drilling could reach a number that would be so high that it affects providing the suitable production facilities; “The high cost of the deep drilling in the Mediterranean is considered the main reason behind the poor production facilities and had a bad effect on the production facilities,” said OMV (Egypt) Exploration GmbH. Yes, the discovery is the biggest part of the process, but making this oil or gas reach the hand of users stand on these facilities.

We can give credit to the ministry on trying to find a solution to this by issuing a law that one company can use the facilities of the nearest firm working close to it, extended pipelines is an example to these services. Still, the area of the Mediterranean needs a lot of services due to the tough nature of this area, and as it’s a bit fresh that it lacks the ideal infrastructure. We have to also mention the committee of development in the Mediterranean, which headed by Eng. Tariq Al Hadidy, the First Undersecretary of Petroleum Ministry for Gas affairs, administrate all the operations and how to supply the needed facilities to the firms working in that area.

Digging in the offshore industry, the companies and the industry are not the only two that face the opposite wind sometimes, the ministry face this wind in the form of the not managed coordinating between the petroleum sector and other sectors or other authorities. The environmental requirements are a main issue to the petroleum ministry, there are lots of promising lands being neglected because of obstacles from other authorities not to explore in it. Apache Corp was one of the companies that got affected by this wind and the ministry didn’t have any hand in it, the firm was drilling in acreage in Gulf Suez area and reached proven results but had to leave the block due to orders from other sovereigns, Apache was already paying a lot in drilling in that area and that made the company unwilling to invest in the country for period of time.

“Firms working in the offshore area were hit by the law 114, which is know by the 5th of May, that law lift the cover of the free trade zone system to the new system of investments,” said one official that did not want to mention his name. The free zone system used to provide the full exemption of taxes, which used to attract lots of foreign investments, but after the new law the companies found itself falling under a huge amount of fees, and again the ministry takes credit in this by facing it with applying some adjustments to the price of gas that was previously written in the contracts with the foreign partner, “The positive and stable commercial and political environment in Egypt was the reason, which encouraged OMV to invest in Egypt,” according to OMV (Egypt) Exploration GmbH, when asked about the most important conditions in the agreement between OMV and EGAS or EGPC. The ministry changed the price from $ 2.65 to reach an appropriate price that matches the global price of gas, but at the same time it won’t be more than the international price, as the delegates already gained experience from previous negotiations.

Production share, as part of the obstacles that may face the firms in Egypt or as Mr. Ibrahim Zahran, the petroleum expert, describes it as “the old contracts system”. He added “Egypt needs a new contract system, because the production share is currently not doing any good to the country, especially in the growing demand of gas for domestic needs”. Eng. Ibrahim Eissawy, the former First Undersecretary of Petroleum Ministry for Gas Affairs Gas, agreed with Zahran that Egypt needs new type of agreements. “Profit Share contract system allows the ministry to be free from giving back money to the foreign partner,” said an official, who did not want to mention his name.

Zahran also said that the companies face problems in the period of after production, which Egypt lacks the needed elements to know how to provide services to the firms during and after the drilling.

The main thing that struck me in Mr. Zahran’s words were something that he pointed out, which brings us back to the well coordinating between authorities, that he didn’t understand how can the bridge of Fardan been built to stand in the way without taking in mind that any rig to be moved from Gulf of Suez to the Mediterranean will need to sail across the universe!

Drilling in the deep water needs a well experienced and smart strategy to deal with the foreign partner and how to attract the international companies to our country, “We would expect encouraging companies with generous Fiscal Terms and minimize the Bureaucracy,” explained OMV (Egypt) Exploration GmbH, to show the expectations of the foreign partners from EGPC. Drilling in the offshore cost a huge amount of money and only major companies can afford such investments and needed technologies; especially that drilling in this kind of deep water would need the latest equipments and studying tools that add more to the cost. The ministry has been trying for long to build such policies that allow it to reach a success point with the investments; lately it has been adopting a new strategy of ongoing negotiations with the foreign partner, doing more amends on the fixed old price of gas in the agreements, taking up a new way of dealing with the international companies by providing the needed support and facilities in the drilling process and even after the discovery.

Moreover, the ministry should relay on the strategy of providing the required information of any offshore block, in order to help the investor and attract more international companies, as these firms likes to have the specific data of the blocks to know what kind of surveys to use on them. The international companies are known for their capability of knowing the exact needed studies to be done, and if the ministry was able to provide the right figures then the chance of attracting more firms is higher.

Finally, the main issue in the offshore is clarity. It works as the official language between the ministry and the foreign partners, it’s the kind of language that could attract more investments, “international companies need clear information, clear data and studies,” said official source that did not want to mention his name. If the international firms found a country that is so lucky with its location between Africa and Europe, and were given transpereant informaton, and were offered the needed facilities, Egypt would be one of the major countries in the offshore industry. Clarity is now the global language and we need to start talking their words.

By Sama Ezz Eldin