Pharos Energy signed the Third Amendment to the El Fayum Concession Agreement with Egypt’s Minister of Petroleum and Mineral Resources Tarek El Molla and Egyptian General Petroleum Corporation (EGPC), the company announced.
The agreement shall enter into force upon signature, with the retroactive application of the improved fiscal terms as of November 2020.
According to the agreement terms, the cost recovery petroleum percentage (i.e. the share of gross revenues that is available for the contractor to recover its costs) will be increased from 30% to 40%, which guarantees Pharos a significantly faster recovery of all its past and future investments.
Furthermore, Pharos has agreed to waive its rights to recover a portion of the past costs pool ($115 million) and reduce its share of excess cost recovery petroleum from 15% to 7.5%. When in full cost recovery mode, the contractor’s share of revenue increases from c.42% to c.50% as of November 2020, significantly lowering the development project break-even.
Most importantly, the new arrangements will encourage new exploration and development investments, which will in turn maintain and increase production rates as well as optimize resources, to the mutual benefit of Egypt and the company.
The Third Amendment also grants the contractor a three-and-a-half-year extension to the exploration license term, with an additional obligation to drill two exploration wells and acquire a 3D seismic survey in the northern area of the license.
It’s worth noting that the Third Amendment had to be signed prior to the transfer of a 55% participating interest (and operatorship) in the El Fayum and North Beni Suef Concessions to IPR Lake Qarun, a transaction which the company expects to complete in Q1 2022.