Paul Boughton
Egypt has officially announced the results of its licensing round for gas-prone Mediterranean offshore acreage, which drew only limited interest from IOCs in the current economic climate and with Egypt's own gas-export-related political problems, although a number of players are planning increased upstream investments going forward.
The awards in Egypt's delayed offshore licensing round of gas-prone acreage have now been made official, with only four out of seven offered blocks having received bids and been awarded, writes IHS Global Insight Middle East Energy analyst Samuel Ciszuk.
The offered blocks were in general taken by the IOCs that are already major players in the Egypt deepwater Nile Delta Basin, with two consortia—Total and Enel in one, and Shell, BP and Petronas in the other—grabbing one block each, while BP and BG each secured an exploration and production (E&P) block on their own.
The tender result is a partial disappointment, but can conveniently be blamed on the global recession and the fact that the blocks were previously relinquished acreage; however, to see upstream investment continue to flow into Egypt, the government will have to demonstrate stability in its enforced export-to-reserve ratios and its mandatory domestic pricing formulas.
In line with the media leaks reported over the past weeks and months, only four out of seven offered offshore deepwater blocks in the Mediterranean have been awarded, as the licensing round's organiser, the Egyptian Natural Gas Holding Company (EGAS) published the final results yesterday. There were also few—if any—surprises as to the identity of the victorious companies, with most of them being seasoned operators in the deepwater Nile Delta basin. Most of the results were already more or less known for certain by the time for the original award ceremony should have been held in the first quarter of 2009, and by now the final result was no secret, as bidding was extended for the most sought-after Block 3.
Ultimately, EGAS has confirmed that a consortium of British supermajors Shell and BP, together with Malaysia's Petronas, won the hotly contested Block 3 (North Damietta Offshore) licence, covering an area of 1,600 sq. km and having significant amounts of previous 2D and 3D surveys carried out, as well as three wells drilled, on its acreage. The companies themselves said they have equal stakes in the licence and have committed to drilling four wells within six years on the block.
A second award went to BP on its own, with the company securing a 100 per cent stake in Block 2 (North Tineh Offshore) about 60 km north of Port Said. The block covers around 2,400 sq. km, reaching water depths of about 1,000 metres. The UK supermajor has committed to drilling three wells at the permit—where four wells have already been drilled—within a six-year exploration period.
The third awarded block went to BG Group, which secured a 100 per cent interest in Block 1 (North Gamasa Offshore) covering an area of only about 281 sq. km and located much closer to the Egyptian shore than the other awarded blocks. Two wells had already been drilled on the block, which is adjacent to some significant discoveries, and considerable quantities of 2D and 3D seismic data exist. BG did not, however, immediately divulge how many wells it had committed itself to drilling.
The fourth block was awarded to a consortium consisting of French supermajor Total and Italy's largest utility, Enel, which secured Block 4 (East El Burullus Offshore) covering a 2,516-sq.km area and lying in water depths from about 100 metres to 1,600 metres, 70 km from the coast. The block has two previously drilled wells, as well as extensive 2D and 3D seismic surveys, and the companies have agreed to drill one further well on top of shooting further seismic surveys during their exploration term. Total will hold a 90 per cent operator stake in the licence, while Enel will partner with the remaining 10 per cent.
The Egyptian Oil Ministry, EGAS, and the state oil company Egyptian General Petroleum Company (EGPC) need feel no shame at the outcome, given the current economic downturn and the fact that the blocks offered were stitched together from previously relinquished areas. Two of the three remaining blocks were also far from the Nile Delta gas-prone areas, closer to the Libyan border to the west and therefore representing virgin deepwater areas with a very different risk set.
Nevertheless, there should be some cause for concern among hydrocarbon policy officials in Egypt. Investment in development has lagged over the past years, as domestic pricing politics—as well as a row over under-priced gas exports to Israel—have spilled over into questions about all of Egypt's gas exports and a popular backlash against gas- and fuel-price liberalisations. Since the price that the government pays producers for the portion (roughly one third) of their gas reserves that have to be supplied to the domestic market was for a long time too low for deepwater production to be feasible in the long term, development in the promising offshore areas had already started slowing some years ago. When the uncomfortable decision to raise the government's payment prices was finally taken, countrywide gas and power shortages were already becoming frequent, encouraging a popular movement—spurred on by Egyptian industry—to attack Egypt's growing export commitments, especially those to the popularly regarded 'arch-enemy' Israel, which were the main reason for the shortages. Without exports, however, there would be no chance the upstream operators could make a profit, so the threat of the (roughly one-third) ratio of reserves earmarked for export being reduced made even more IOCs hold back investments.
The challenge for Egypt has been to make sure that IOCs again feel confident in the long-term direction of Egypt's energy policy, so that the large gas reserves discovered in the past decade-and-a-half can be successfully developed and the operators attractively reimbursed. A lot of work has been put into rectifying and clarifying Egyptian policies over the past two years, with higher prices being offered for the domestic supplies from fields expensive to develop, while most of the export gas prices have also been renegotiated upwards. With some stability hoped to return, development investment is likely to rise once again, albeit—for now—being somewhat dampened by the international crisis.
For more information, www.ihsglobalinsight.com
The awards in Egypt's delayed offshore licensing round of gas-prone acreage have now been made official, with only four out of seven offered blocks having received bids and been awarded, writes IHS Global Insight Middle East Energy analyst Samuel Ciszuk.
The offered blocks were in general taken by the IOCs that are already major players in the Egypt deepwater Nile Delta Basin, with two consortia—Total and Enel in one, and Shell, BP and Petronas in the other—grabbing one block each, while BP and BG each secured an exploration and production (E&P) block on their own.
The tender result is a partial disappointment, but can conveniently be blamed on the global recession and the fact that the blocks were previously relinquished acreage; however, to see upstream investment continue to flow into Egypt, the government will have to demonstrate stability in its enforced export-to-reserve ratios and its mandatory domestic pricing formulas.
In line with the media leaks reported over the past weeks and months, only four out of seven offered offshore deepwater blocks in the Mediterranean have been awarded, as the licensing round's organiser, the Egyptian Natural Gas Holding Company (EGAS) published the final results yesterday. There were also few—if any—surprises as to the identity of the victorious companies, with most of them being seasoned operators in the deepwater Nile Delta basin. Most of the results were already more or less known for certain by the time for the original award ceremony should have been held in the first quarter of 2009, and by now the final result was no secret, as bidding was extended for the most sought-after Block 3.
Ultimately, EGAS has confirmed that a consortium of British supermajors Shell and BP, together with Malaysia's Petronas, won the hotly contested Block 3 (North Damietta Offshore) licence, covering an area of 1,600 sq. km and having significant amounts of previous 2D and 3D surveys carried out, as well as three wells drilled, on its acreage. The companies themselves said they have equal stakes in the licence and have committed to drilling four wells within six years on the block.
A second award went to BP on its own, with the company securing a 100 per cent stake in Block 2 (North Tineh Offshore) about 60 km north of Port Said. The block covers around 2,400 sq. km, reaching water depths of about 1,000 metres. The UK supermajor has committed to drilling three wells at the permit—where four wells have already been drilled—within a six-year exploration period.
The third awarded block went to BG Group, which secured a 100 per cent interest in Block 1 (North Gamasa Offshore) covering an area of only about 281 sq. km and located much closer to the Egyptian shore than the other awarded blocks. Two wells had already been drilled on the block, which is adjacent to some significant discoveries, and considerable quantities of 2D and 3D seismic data exist. BG did not, however, immediately divulge how many wells it had committed itself to drilling.
The fourth block was awarded to a consortium consisting of French supermajor Total and Italy's largest utility, Enel, which secured Block 4 (East El Burullus Offshore) covering a 2,516-sq.km area and lying in water depths from about 100 metres to 1,600 metres, 70 km from the coast. The block has two previously drilled wells, as well as extensive 2D and 3D seismic surveys, and the companies have agreed to drill one further well on top of shooting further seismic surveys during their exploration term. Total will hold a 90 per cent operator stake in the licence, while Enel will partner with the remaining 10 per cent.
The Egyptian Oil Ministry, EGAS, and the state oil company Egyptian General Petroleum Company (EGPC) need feel no shame at the outcome, given the current economic downturn and the fact that the blocks offered were stitched together from previously relinquished areas. Two of the three remaining blocks were also far from the Nile Delta gas-prone areas, closer to the Libyan border to the west and therefore representing virgin deepwater areas with a very different risk set.
Nevertheless, there should be some cause for concern among hydrocarbon policy officials in Egypt. Investment in development has lagged over the past years, as domestic pricing politics—as well as a row over under-priced gas exports to Israel—have spilled over into questions about all of Egypt's gas exports and a popular backlash against gas- and fuel-price liberalisations. Since the price that the government pays producers for the portion (roughly one third) of their gas reserves that have to be supplied to the domestic market was for a long time too low for deepwater production to be feasible in the long term, development in the promising offshore areas had already started slowing some years ago. When the uncomfortable decision to raise the government's payment prices was finally taken, countrywide gas and power shortages were already becoming frequent, encouraging a popular movement—spurred on by Egyptian industry—to attack Egypt's growing export commitments, especially those to the popularly regarded 'arch-enemy' Israel, which were the main reason for the shortages. Without exports, however, there would be no chance the upstream operators could make a profit, so the threat of the (roughly one-third) ratio of reserves earmarked for export being reduced made even more IOCs hold back investments.
The challenge for Egypt has been to make sure that IOCs again feel confident in the long-term direction of Egypt's energy policy, so that the large gas reserves discovered in the past decade-and-a-half can be successfully developed and the operators attractively reimbursed. A lot of work has been put into rectifying and clarifying Egyptian policies over the past two years, with higher prices being offered for the domestic supplies from fields expensive to develop, while most of the export gas prices have also been renegotiated upwards. With some stability hoped to return, development investment is likely to rise once again, albeit—for now—being somewhat dampened by the international crisis.
For more information, www.ihsglobalinsight.com
