OBG talks to Sherif Ismail, Minister of Petroleum

Interview: Sherif Ismail

What kind of interest are you seeing from international oil companies (IOCs) in new acreage?

SHERIF ISMAIL: The results of the most recent bidding rounds issued by the Egyptian General Petroleum Corporation (EGPC), the Egyptian Natural Gas Holding Company (EGAS) and Ganoub El Wadi Petroleum Holding Company (Ganope) demonstrate the interest of IOCs in Egypt, and can be interpreted as a sign of trust in Egypt’s significant potential in terms of hydrocarbons reserves. For instance, during the latest bidding round for hydrocarbon exploration issued by the EGPC, 11 concessions were granted to six IOCs with a minimum commitment to invest $282.3m and drill 97 wells. As for the EGAS bidding round, 13 offers were made for eight blocks – including some from foreign companies working in Egypt for the first time – with a minimum commitment of $1.2bn to drill at least 18 wells. The new terms of agreement gave the bidding round a special appeal in the areas concerned, which in turn need massive investments, expertise and new advanced technology.

The approved investment budgets of foreign companies working in Egypt during the year 2013/14 indicate their commitment to pursuing investment in accordance with their programmes. They also intend to implement planned development projects in the newly discovered fields, while also intensifying their exploration with a total investment of more than $8.5bn.

Ganope has also launched an international licensing round, receiving offers from eight international companies, some of which are new players in the Egyptian market. These offers are currently being examined from both the financial and technical side.

We are confident that there is still great interest and determination from IOCs to win new concessions and to develop discovered fields. It should be noted that the launch of international licensing rounds is part of the Ministry of Petroleum’s strategy to intensify the exploration of oil and gas so as to secure new sources of energy in addition to encouraging companies to accelerate their development of discovered fields.

To what extent is the EGPC’s liquidity crunch having an impact on investment in upstream operators?

ISMAIL: The EGPC is facing some liquidity issues, and the government is currently taking a number of short-term measures to help develop EGPC’s financial position as a national economic corporation. We are also encouraging IOCs working in Egypt to promptly execute development plans to increase production while Egypt stays committed to paying its debts according to a mutually agreed timeframe. The current phase calls for the use of unconventional measures to find solutions, and various alternatives are being examined, one of which would be to allocate a percentage of the increase in production to pay off dues and debts owed by the EGPC. Increasing gas prices purchased from IOCs according to upstream concession agreements in deep waters is the main incentive to boost the appeal of these projects, as well as to attract investment.

Despite the challenges facing Egypt, we still possess solid grounds for success, including our strategic location as the hub of three continents, our long-standing experience within the hydrocarbons industry, and our reliable infrastructure with great potential for oil and gas production, refining, transmission, gas exports and liquefied natural gas. In addition to our strengths in petrochemical projects and expertise in the field of human resources, Egypt also has the potential to develop its untapped oil reserves and other energy resources.

How can deepwater projects be encouraged in Egypt?

ISMAIL: The main catalyst to attracting more investments to these projects is raising gas prices in production sharing agreements from deepwater areas.

The most important factor in determining the terms of the contractual renegotiations is to keep pace with world prices, as well as maintaining a sense of the balance in contracts. Negotiation parties must weigh up different factors in assessing the value of an open contract or commodities imports, in order to ensure fair prices for gas producers, distributors and consumers.