Alam El -Shawish Concession Bullion Market Price 1742.99
Crude Oil USD/BBL
Hilal redevelopment project AFRICA P.6
Shell and Eni score a new block offshore Nigeria
MoP greenlights Dana-EGPC joint venture in the Gulf of Suez P.4 HIGHLIGHT
Price 97.18 110.34
Percentage +12.39% +1.94%
must regain control of upstream activities
Interview with Eng. Abdallah Ghorab, Egyptian Petroleum Minister
2012 Triggers Mixed Expectations
Expertsâ€™ predictions and opinions regarding the state of the Egyptian petroleum sector in 2012 have varied, particularly in light of the shift in policy witnessed under the Petroleum Minister Eng. Abdullah Ghorab in comparison to his predecessors. These opinions can be broadly categorized into two main outlooks: one which retains much optimism for the new year, expecting an increase in investments despite ongoing political turbulence, the other sees drilling and exploration operations in Egyptian concessions taking a turn for the worse. P.18
Between Syria and Iran: Concessions and Contradictions in Brussels The European Union (EU) is finding itself in a practical dilemma in its use of sanctions as a tool of political pressure. While severe sanctions have been unwaveringly employed against the Syrian oil industry, much greater hesitation has been shown in targeting the Iranian oil industry due to the precarious balance currently in place. P.12
Do Not Lose Faith
f you have the will and faith, you can make the change you are dreaming of! In my humble opinion, we have lost this faith and we have been tied with negative criticism of everything surrounding us, whether people, events...etc. Most of us have directed the attention towards the dark side of all occurrences, which has deviated the main goal we shared at the beginning of 2011, which was the reconstruction of Egypt. No one deny the fact that 2011 was an unprecedented year in our modern history. The rate of events and changes that took place has dramatically altered the path of the whole country. Being positive or negative changes, people have been concentrating on politically analyzing the events, attacking others’ for their different views and criticizing those who are not on the same line. Why do not we just stop acting as political experts and coordinate our efforts to rebuild our nation? If each one of
us doubles his/her effort at work, at school…etc., would not it lure more positive outcome? By human nature, we tend to wait for others’ first step to make ours. However, to avoid over generalization of this concept, we can say that it applies to most citizens. When I recall the early days after the fall of old regime, the optimism and positive energy among citizens could have boosted the whole nation high. But, unfortunately, this energy has faded away over the day due to the effects of various tremendous changes. I believe we should all seize the opportunity of celebrating a new year to reset our goals and targets, put our differences aside and make the fruitful change we are all dreaming of. Wishing you all a Happy New Year
The Great Potential Of GTL Technology Gas-to-Liquid (GTL) technology is a chemical process by which natural gas is refined and converted into liquid form. The technology emerged in the 20th century and was utilized to convert coal to methane gas (the primary component in natural gas.) Afterwards, through a chemical process known as F-T, methane in converted into various liquid forms of synthetic fuel. Over the past few decades, the demand for expanding and upgrading the use of GTL technology has significantly increased, especially after the recent spike of international oil prices. The demand for the expanding and developing the GTL technology has been considerably rising in recent years. Such rise is attributed to the solutions the GTL could provide to the various aspects of the petroleum
industry. For example, GTL could facilitate the transport of natural gas as it is often extracted in remote locations and deep waters, which makes it difficult to mobilize in its gaseous form. Moreover, the recent decrease in the cost of GTL technology had led to an upsurge of its competitive advantage. Not to mention the efficiency of integrating the technology into refinery stations and the pre-existing infrastructure. The products of GTL are characterized by having an extremely low percentage of sulfur, which makes it one of the most eco-friendly petroleum products. GTL could also prevent the waste of natural gas that usually accompanies the extraction of oil and thus, boosting the output oil producing wells.
Dr. Hamdy Abu El-Naga
Petroleum Industry Consultant
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January Issue 61
Petrodara advances its Bapetco deepens drilling activity drilling plan Badr Petroleum Company (Bapetco) finished the drilling of two development wells, BED-19-2 and BAHGA-U in the company’s Alam El-Shawish West Block, in the Western Desert. These drilling activities were
Dara Petroleum Company (Petrodara), a subsidiary of Transglobe, drilled a new development well, East Arta-23, in the West Gharib Lease, located in the Eastern Desert. The East Arta-23, a crude oil producing well, was drilled by the EDC6 rig to a 5000 feet-depth. The drilling cost of this new development well averaged $800 thousand. Back to August 2008, TransGlobe completed the acquisition of an additional 25% in eight development leases, which are Fadl, Hoshia, Hoshia North, Hoshia West, Hoshia East, Rami South, Arta and Arta East; all located on the West Gharib concession. Transglobe increased its working interest to 100% on all nine West Gharib lease thanks to this $18 million deal. The average monthly production of Petrodara revolves around 377559 barrels of crude oil.
Rashpetco sustains its development wheel
held in the context of the company’s development plan of the fiscal year of 2010/2011. The drilling investments of the two wells totaled $8.265 million. The Bahga-U gas producing well was drilled to 15200 feet depth,
while the other BED-19-2 oil producing well was drilled to a total depth of 9761 feet. Bapetco plans to drill 44 wells during the 2011/2012 fiscal year, which is higher compared to last fiscal year’s 34 wells.
Dana Gas intensifies exploration in Delta Dana Gas, one of the UAE’s leading companies, drilled a new exploratory well, Fluto, in the area of Delta. This drilling operation, which is part of the company’s drilling plan of the 2011/2012 fiscal year, cost $5 million. The well was drilled to a total depth of 7241 feet through the EDC-66 rig. The production
capacity of the new well is still under evaluation. The Nile Delta area has an average monthly production of 97914 barrels of oil. The area’s volume of sold gas counts for 11385 cubic feet, which is expected to increase by 76% to reach up to 14940 cubic feet.
MoP gives green light to Dana-EGPC Gulf of Suez joint venture The Egyptian Ministry of Petroleum (MoP) has approved the establishment of a new joint venture, Petro Kareem, between the Egyptian General Petroleum Corporation (EGPC) and Dana Petroleum, which is expected to produce from a lease within the North Zeit Bay Concession. There are already two oil-producing wells in the concession, which is located in the Gulf of Suez. According to the Aberdeenbased company, another four wells
are expected to be added, but they are subject to development lease approval that is still pending. “2011 has been a very exciting year for Dana Egypt… Such positive results from various exploration activities have been strengthened by the recent Petro Kareem joint venture approval,” said Nick Dancer, Managing Director of Dana Petroleum. He further added, “Lorcan’s onshore location makes it an extremely attractive production op-
portunity and we have plans for up to seven exploration/appraisal wells in the concession area for 2012.” According to Dana Petroleum’s estimates, there are at least 10-12 million barrels of oil in the terms of reserves in the concession area. Dana Petroleum Egypt reported several exploration successes at North Zeit Bay during 2011. The company hit good quality oilbearing sands in addition to two discoveries of gas and condensate.
Melrose Resources Plc., the oil and gas exploration, development and production company, revealed its plan to invest approximately $83 million over this year fir exploration and development activities. A total of $37 million will be spent on exploration wells in Bulgaria and Egypt and a seismic project in Romania, while most of the remaining $46 million will be used to develop the company’s main fields in Egypt Meanwhile, the company is still working hard on decreasing its debts levels. The company completed the sale of its gas assets in South East Texas to Faulconer Resources 2010 Limited Partnership LLP for a cash consideration of $5.8 million. “We are pleased to complete the sale of our remaining gas leases in South East Texas which
effectively concludes the divestment of Melrose’s US asset portfolio. We can now fully focus the Company’s resources on our established core areas in Egypt and the Black Sea and on business development opportunities in areas where we have competitive advantages,” David Thomas, Chief Executive commented on the sale. He added, “We are looking forward to 2012 when we will continue to pursue our various exploration and development projects whilst maintaining a strong focus on delivering the company’s financial objectives. Based on our performance in 2011, we are now setting a new target to reduce financial gearing to below 60% within 12 months.” The exploration program of Melrose in 2012 includes three
exploration wells, two in Egypt and one in Bulgaria, in addition to a seismic acquisition in Romania. The first Egyptian well Al Hajarisah-1 will be drilled in the South East Mansoura concession, during the second quarter. The second well in southern Egypt is scheduled to begin drilling late in the third quarter. The majority of planned development expenditure - some $45.1m (£29m) - will be allocated to the company’s main producing fields in Egypt. “The exploration program contains some potentially high impact wells, both in Egypt and Bulgaria, and we will be particularly pleased to commence the seismic acquisition program on the Muridava and Est Cobalcescu blocks, offshore Romania,” declared Thomas.
Melrose increases exploration spending
Rashid Petroleum Company (Rashpetco) completed the drilling of a new development well, SIMSAT-B2-DA in the West Delta Deep Marine (WDDM) Concession, in the Mediterranean Sea area. The drilling cost of this natural gas producing well counted for $16.25 million. The SIMSAT-B2-DA was drilled to a total depth of 6400 feet by the Endeovor rig. Rashpetco is a joint venture held by the Egyptian General Petroleum Corporation (50%), BG (40%) and Edison (10%). Since 1994, BG Group and partners have discovered 14 gas fields on the WDDM Concession: Scarab, Saffron, Simian, Sienna, Sapphire, Serpent, Saurus, Sequoia, SimSat-P1 and SimSat-P2. Additional development leases were granted in 2007 for the Solar, Sienna-Up, Mina-1 and Silva discoveries. According to recent reports, Rashpetco had a total production of 2172143 cubic feet of gas in addition to 10900 barrels of oil during last November 2011.
Agiba Maintains Western Desert Production Rates 60 50 40 Nov-‐11
Commenting on the amendment of gas price exported to Jordan (Al Masry al-Youm)
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Abdullah Ghorab, Minister of Petroleum
Agiba Petroleum Company revealed that its production rates of crude oil and natural gas have been, to some extent, consistent over the previous six months. As part of the company’s development plan for the current fiscal year 2011/2012, Agiba has completed the drilling of two development wells during last November, in its concession area in the Western Desert. The first well, RAML-25, was drilled using the PDI-147 rig to a total depth 4700 feet. The cost of drilling this crude oil producing well averaged $1,100 million. AG-91, the second well, is 11680 feet deep, and was drilled using the ST-6 rig, the drilling
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cost of which has averaged $1,200 million. Within the same concession area, Agiba drilled two crude-producing developmental wells last October, Aghar-7 and Aghar-174. The collective production of such wells has reached 300 barrels of oil per day. It’s worthy to mention that during last November, the company’s production levels have reached 122,0344 barrels of crude oil and 730,28 cubic feet of natural gas. Agiba is a joint venture including Eni with 56%, Lukoil Overseas 24% and the International Finance Company (IFC) with 20%, with the EGPC holding the remaining 50%.
“The Egyptian petroleum sector alone is LE61 billion in debt”
Commenting on Egypt’s economic situation (Al-Ahram)
Kamal Al-Ganzouri, Prime Minister
An Iranian delegation will be coming (to Muscat). We are still discussing. It all depends on the price
Steady production rate for Petrobel Belayim Petroleum Company (Petrobel) witnessed a steady production rate over the last quarter of 2011. The company concluded the year with the drilling of two wells, one exploratory and one development. The first exploratory well, 113-178, was drilled to a total depth of 8440 feet, through the ST-12 rig in the company’s Belayim Concession area, located onshore the Gulf of Suez. The second well, South East Belayim 1 was drilled to of 9882 feet depth, through the ST-1 rig in the same concession. This latter well has been placed on production line and generates 2450 barrels of oil per day (bopd). The drilling cost of the 113-178 well averaged
The price change will be retroactive for all gas exported since last January, and will affect the main quantities agreed upon as well as additional quantities exported within the context of the agreement… The new prices will be consistent with market price indicators
January Issue 61
Rigs per Speciﬁca-on November -‐ December 2011
$2.25 million, while the cost of the second well counted for $3.83 million. According to latest reports, another three development wells have been put on production line, two wells (75-A-113 and 141-112) are located in Sinai and another (Belayim South 1) located onshore the Gulf of Suez. The first two development wells have a combined oil production of 850 barrels per day, while the third has an 80-barrel daily production. Petrobel, the 50-50 joint venture between the Egyptian General Petroleum Corporation (EGPC) and Italian Eni, had a total oil production of 4107517 barrels and total gas production of 9512806 cubic feet, during last November 2011.
Commenting on possible imports of Iranian natural gas (Gulf Oil & Gas)
Khalifa Mubarak Al Hinai, Advisor at the Ministry of Oil and Gas of Oman
The blocks on offer are not related to South Sudan. All of them are in Sudan in areas that have not seen armed conflict and have no connection to the outstanding issues with South Sudan highlighting the new six blocks bid (Reuters)
Sudan’s Oil Minister Awad al-Jaz
HSBC Bank Egypt
Concludes $50 million finance for IPR Petroleum HSBC Bank Egypt announced the closing of a $50 million financing for IPR Petroleum. The facility will be used to refinance existing credit facilities, as well as the development and production of the company’s oil and gas assets in Egypt. IPR has been an active Exploration and Production player in Egypt for over 20 years where it operates various assets onshore in the Western Desert and offshore in the Gulf of Suez. IPR has an attractive portfolio of properties and prospects with significant upside potential, which will be exploited over the next four years. The company is involved in six Joint Venture Operating Companies with multinational partners and looks to grow this position through future acquisitions. Sam Dabbous, Chief Operating Officer of IPR Petroleum said, “HSBC Bank Egypt has played a vital role in the success of the
company in the past years, where the Bank has provided innovative financial solutions tailored to the company, in addition to excellent execution skills and capabilities, which makes us proud to be associated with HSBC Bank Egypt on the long-term.” Commenting on the Facility and IPR’s recent investments, Dabbous, reported that since 2006, IPR has invested approximately $300 Million in the Egyptian energy sector including USD200 Million in the Western Desert and $100 Million in the Gulf of Suez. This included seismic programs, wells, facilities, platforms and pipelines. “Being able to secure this facility enhances our strong relationship with the Bank at this important time in Egypt. We expect that the facility will increase production and reserves, as well as the value of the company to our shareholders. We affirm our
commitment to the energy sector in light of the positive climate on the long term, and we look forward to our continued growth with the support of our partners who share our commitment and vision,” added Dabbous. Helmy Ghazi, Head of Structured Finance at HSBC Bank Egypt said, “IPR reserve based lending facility is the third of its kind this year, which adds to the credibility of HSBC Bank Egypt in financing the Egyptian hydrocarbon industry, especially in the current difficult economic conditions.” “The oil and gas sector is one of the most strategic sectors that the Bank supports in Egypt, as it is considered the backbone of the Egyptian economy. We have an unparalleled track record of delivering truly bespoke products and insightful advice to Oil & Gas players “, added Ghazi.
6 African Petroleum plans Aggressive Expansion in West Africa
The Australian-based African Petroleum revealed its plans to substantially increase investments in the region of West Africa. The oil and gas exploration company is mainly focused on offshore operations in West Africa and has current projects off the coast of Gambia and Liberia. Last month, African Petroleum has commenced a new deal in Senegal, describing the new acquisition as an important step towards its drive to become a leading stakeholder in the petroleum sector in West Africa. The agreement between African Petroleum and the Senegalese authorities was concluded through African Petroleum’s Dakar based subsidiary, African Petroleum Senegal Limited, which is wholly owned by the parent company. African Petroleum expressed that new exploration program will target deep-water Upper Cretaceous submarine fans, which are considered to have similar high impact potential as discoveries
in the Jubilee field in Ghana and the Mercury discovery in Sierra Leone. African Petroleum currently holds a 100% interest in blocks LB-08 and LB-09 offshore Liberia, also a 100% interest in block SL-03 offshore Sierra Leone. The company has respectively completed 5100 and 2500 square kilometers of 3D seismic data in these countries. It has also drilled one well in LB-09 with promising results and plans to drill another well in the same block during the first quarter of 2012. In conjunction with its partner Buried Hill Gambia BV, African Petroleum also holds a 60% operating interest in blocks A1 and A4 offshore Gambia where it has completed 2500 square kilometers of 3D seismic data. Through its ongoing acquisition of offshore acreage, African Petroleum is moving towards becoming one of the largest West African-focused oil and gas exploration companies.
Total proposes a pipeline connecting South Sudan to Uganda
French oil giant Total proposed the construction of a pipeline from South Sudan to Uganda, which would also be extended to the Kenyan coast. The aim of this pipeline project is to bring Ugandan oil to a Kenyan port and continue to South Sudan. Christophe de Margerie, Total’s Chief Executive Officer said that the proposed project could potentially solve the problems currently encountered by South Sudan in exporting its oil. South Sudan took two-thirds of Sudan’s daily oil production of 500,000 barrels, after gaining independence in last July. However, the new country is landlocked, and the use of the northern pipeline to the Red Sea is quite improbable given Khartoum’s stubborn position, demanding a $32 fee per barrel for usage of the pipeline to Port Sudan, a fee that is 10 times greater than the typical industry levels. “The pipe, which is supposed to be from our potential blocks, because they are not yet our blocks in Uganda, could be, effectively, a hub for different sources of crude,” de Margerie told reporters in a press conference held on the sideline of the World Petroleum Congress, which took place last month in Qatar. He also addressed Uganda adding, “as part of our long-term view, you have to take into consideration what
sort of oil can come from neighboring countries to make the pipe less expensive.” The government of South Sudan has deliberated with oil companies regarding the possibility of building a pipeline directly linked to Kenya. However, analysts believe that such project would be difficult for the country to implement, considering that it is still suffering civil strife, not to mention the challenges of raising the needed funds to overcome other logistical obstacles. Therefore, connecting with the pipeline planned for Uganda to Kenya is the correct move because it would significantly cut the overall cost. Total has agreed to buy stakes into Ugandan oil blocks, in which the London-based Tullow Oil has already discovered 1.1 billion barrels of recoverable reserves. In addition, Total owns a potentially oil-rich license in South Sudan. Uganda has the potential of becoming an oil distribution hub for East Africa, including South Sudan’s oil exports, if the plans for the oil pipeline from the country to the Kenyan coast are to proceed, expressed de Margerie. He also added that there was no timeline for the construction of the pipeline and that Malaysia’s Petronas and China’s CNPC, which are already operating in South Sudan, might also be interested in said project.
Shell and Eni score a new block offshore Nigeria
Royal Dutch Shell and Italian Eni announced their acquisition of OPL 245, the prospective Nigerian deep offshore oil block, bringing an end to a decade of legal disputes over the huge asset. The prospect sits near Total’s Akpo block, which has plateau production of around 175,000 barrels of oil equivalent per day. The ownership of the newly acquired block will be equally divided between Shell and Eni, but the latter will be the in charge of operating the block. A confirmation as to the cost of the acquisition or the size of block’s reserves is yet to be made by either company, but industry experts estimate that the OPL 245 block is worth over $1 billion and
holds around 9 billion barrels of oil. “The Nigerian government has awarded Agip [a subsidiary of Eni] and ourselves OPL 245 on a 50-50 basis. Agip will operate the block,” a spokesman for Shell Nigeria told Reuters. He added that the deal was completed in “recent weeks”. The OPL 245 block has been the subject of legal disputes. It was initially owned by the local Nigerian firm Malabu Oil and Gas, which is owned by former Petroleum Minister Dan Etete. Shell has been tussling over the asset with Malabu for the past 10 years. Shell and Eni announced that all money for the purchase of OPL 245 was paid to the Nigerian government
and not to Malabu Oil and Gas. “We can confirm that the federal government of Nigeria has allocated deepwater block OPL 245 to Nigerian Agip and Shell Nigeria Exploration Companies,” said Shell Spokesman Tony Okonedo. “Agip and Shell now have 50% each in OPL 245, which Agip will operate,” Okonedo added. “Any payment relating to issuance of the license was made only to the federal government of Nigeria. No payments were made by either Agip or Shell to Malabu Oil and Gas.” It is worthy to note that the Nigerian government revoked Shell’s license on OPL 245 in 2010 and awarded it to Malabu Oil.
Dominion Petroleum Concludes Block 7 Farmout in Tanzania
Bermuda-based Dominion Petroleum has been authorized by the Tanzanian officials to farm-out a 20% working interest in deepwater Block 7 to Mubadala Oil and Gas, which is one month ahead of scheduled date. The Abu Dhabi-based Mubadala has exploration and production interests in the Middle East, North Africa, and Central and Southeast Asia. The acquisition remains subject to a number of conditions, including clearance from the Kenyan Competition Authority (KCA) and the Tanzanian Fair Competition Commission (TFCC) and the consent of Kenya’s Minister of Energy. As announced last November, formal submissions have been made to the KCA and the TFCC seeking clearance in respect of the acquisition. Dominion and Ophir are in the process of seeking the consent of Kenya’s Minister of Energy to the acquisition. Dominion Petroleum also announced that, in addition to last year’s 3D survey, it plans to begin the acquisition of 1,000 square kilometers of 2D seismic data on Block 7 in early 2012. The purpose of the survey is to define
additional prospects in the deeper water portion of Block 7. The 2D survey is also intended to aid refinement of the partial relinquishment pattern for Block 7 that is required at the end of the first period of the license. Andrew Cochran, Dominion’s Chief Executive said, “I’m pleased to have received Tanzanian government approval for the farm-out of Block 7 to Mubadala so the deal will close shortly. Mubadala’s participation has validated the prospect of the acreage and our work on the Block to date. In Mubadala, we have a partner with considerable resources as well as exploration and commercial expertise.” Its worthy to mention that Mubadala Oil and Gas’s current net working inter-
est production is in excess of 400,000 barrels of oil equivalent per day.
Shell and BP to Resume Operations in Libya
Royal Dutch Shell and British Petroleum have announced their plans to finally resume exploration in Libya. Both companies have reported that they’re evaluating the resumption of drilling operations, which have initially begun before the outbreak of the Libyan revolution at the dawn of last year. In 2007, British Petroleum signed an exploration agreement with Libya. However, the company was forced to suspend all operations last February due to the eruption of political unrest. At the time, British Petroleum was on the verge of commencing the drilling of two onshore and off-
shore wells in Libya. Now, the company reports that it has been asked by the government to return to the country. British Petroleum’s CEO, Robert Dudley stated “they were to make a decision when it was the right time to ensure the safety of their employees.” Shell had been drilling two wells in Libya before the unrest as well, which have also came to a halt as a result of the political unrest. Currently, according to Shell’s CEO Peter Voser, the company is considering the resumption of its operations in Libya. Libya, the holder of Africa’s biggest oil reserves, is in the
process of restoring its pre-war petroleum production levels, which have dropped from 1.6 million to 45,000 barrels a day due to the long political strife it witnessed last year. According to Bloomberg, the loss of Libyan exports contributed to a 20% increase in London oil prices earlier last year. OPEC Secretary General Abdalla el-Badri estimates that Libya’s output of crude oil would reach 950,000 barrels of oil per day by the end of 2011, with an incremental increase to 1.3 million in the first quarter of 2012, and t 1.5 million in the second.
January Issue 61
China Hits its First Shale Gas Discovery
PetroChina, subsidiary of China’s leading energy group CNPC, announced last month the country’s first discovery of shale gas. The primary production reports of the two new wells drilled by Royal Dutch Shell resulted in positive indications, marking China’s entry to the market of shale gas production. These findings are likely to trigger a major change in the global natural gas market within the coming decade, as they once have in the U.S. The energy markets of the U.S. have fundamentally changed by the development of shale gas, which has transformed the U.S. from gas shortage to a point where companies were planning to export liquefied natural gas (LNG), essentially altering the dynamics of the international gas market. Shale gas is a type of natural gas extracted from fine-grained sedimentary rocks comprised of a mix of clay minerals flakes and tiny fragments of other minerals, especially quartz and calcite. Fu Chengyu, Chairman of Sinopec, China’s second-largest petroleum company commented on the new discovery stating that China is “set for
a shale gas revolution, which will surpass that seen in the U.S.”. He added, “It could take five to 10 years but that China’s output would exceed that of the U.S.” Many producers who were targeting the U.S. are now reconsidering their plans, as China, with its booming energy demand, is seen as the answer to their need for a market, which naturally jeopardizes the U.S.’s LNG markets in Asia. Based on a report issued by Baker Institute researchers Kenneth Medlock and Peter Hartley, Asia accounts for a massive 59% of global LNG demand, with China leading the way at 24% of all global LNG imports. The report, which studied China’s role in global LNG markets and forecast the Chinese LNG imports by 2040, highlighted, “growth in supplies of natural gas from shale is a catalyst for deepening the global natural gas market and strong demand in Asia triggers a significant growth in global LNG trade”. Currently, a number of companies are exploring for the shale gas potential in China, but there is yet to be commercial shale gas production.
Iran Hits Massive Gas Reservoir in the Caspian Sea Iranian Energy Minister Rostam Qasemi announced the discovery of a vast natural gas field in the Caspian Sea with estimated reserves of 50 trillion cubic feet. According to Qasemi, the field is 700 meters deep and is situated completely within the Iranian territorial waters. In a previous announcement, Qasemi stated that Iran’s natural gas reserves in the Caspian Sea (prior to the new discovery) were estimated at around 11 trillion cubic feet. Expressing the significance of the new discovery, Qasemi commented, “Iran’s Gas reserves went up to a great extent by discovering this reservoir”, and that “the [new] discovery of the gas reservoir in Caspian Sea, which is more complicated in comparison to those in the Persian Gulf and Oman Sea, was the result of several years’ efforts by the Iran’s oil industry’s experts.“
Accordingly, Iran plans to invest $15 billion a year to expand its annual gas output capacity to 11 trillion cubic feet by 2014, from 5.6 trillion in 2009. It will also invest $50 billion from 2010 until 2020 on LNG projects, with the aim of raising its exports to 8 million tons of LNG by 2012. The country also plans to increase natural gas exports by fivefold to 2.1 trillion cubic feet a year by 2014. Deputy Oil Minister Mohsen Khojaste-Mehr added, “extensive operations are underway to explore new gas deposits across the country which will probably increase the country’s proven gas reserves.” Currently, Iran holds the world’s second-largest gas reserves, according to the BP Statistical Review of World Energy in June 2011.
Anadarko approves Lucius Project in the Gulf of Mexico Anadarko Petroleum Corporation has announced sanctioning the development of the Lucius project located in the Keathley Canyon area of the deepwater Gulf of Mexico. The project will be developed with a truss spar floating production facility, with a production capacity of 80,000 barrels of oil and 450 million cubic feet of natural gas per day. It is currently under construction, and will constitute the largest spar operated by Anadarko upon its completion. Commenting on the Lucius project, Anadarko’s President and CEO, Al Walker, said, “We are very pleased to achieve this important milestone in the development of the deepwater Lucius project…We expect Lucius to be among the most economic projects in our portfolio, as we plan to utilize ‘off-
the-shelf’ technology and leverage our proven project-management skills in an area where we have extensive expertise. We estimate the Lucius unit holds more than 300 million barrels of oil equivalent with relatively shallow and highly productive reservoirs that can be developed in a capital-efficient manner” Along with Anadarko, several veteran operators are co-venturing the Lucius project with varying degrees of working interest. At the forefront of these operators is Plains Exploration & Production Company, holding 23.3% of working interest. In addition, Apache Deepwater LLC, which is a subsidiary of Apache Corporation, is contributing an 11.7%, Exxon Mobil Corporation is taking 15%, Petrobras with a 9.6% and Eni with a 5.4%. “The Lucius unit is a world-class oil
and gas accumulation in an emerging area of the deepwater Gulf,” said G. Steven Farris, Apache’s Chairman and CEO. “The decision to sanction the Lucius development is a milestone for Apache: It is the first major deepwater Gulf project approved since our acquisition of Mariner Energy in 2010.” The Lucius unit includes portions of Keathley Canyon blocks 874, 875, 918 and 919, and first production is planned for 2014 from 6 initial producing wells. Under the terms of a previously announced unitization agreement, Lucius interest owners agreed to process natural gas produced from the Hadrian South field through the Lucius facility in return for a production-handling fee and reimbursement for any required facility upgrades.
Algeria Approves Petroceltic deal with Enel
Irish petroleum operator Petroceltic has announced the approval of the Algerian Council of Ministers to the sale of an 18.375% of the company’s interest in the Ain Tsila field to the Italy’s Enel, a deal that is estimated to be worth $234 million. The announcement is regarded as the final stage of the approval process pertaining to the transaction between Petroceltic and Enel, which was announced last April; it paves the way for the completion of the transaction within 5 days, and the settlement of all amounts outstanding within 30 days thereafter. Commenting on the finalization of the deal, Petroceltic’s Chief Executive Officer, Brian O’Cathain, said, “We are delighted to announce that the final approval in Algeria of the Enel transaction has been granted which will allow for the deal’s swift completion in the coming days.” According to O’Cathain, the Algerian state-owned Sonatrach holds a 25% stake in the field alongside Petroceltic, which holds 56.625%. He also affirmed that Sonatrach has the preemption right over any
possible deal related to the field. Upon the completion of the transaction, Sonatrach will maintain a 25% interest, and Enel will hold an 18.375% interest. Highlighting their achievements, Petroceltic stated that the last well in the Ain Tsila field produced a daily combined flow of more than 10 thousand barrels of oil or equivalent per day. Said well is the last of a six-well appraisal program, which has successfully proven gas reserves in all of them. Petroceltic operates in several countries in the regions of North Africa, the Middle East and the Mediterranean, and Algeria is one of its most important drilling areas. Their success in the field of Ain Tsila, represented in their high production levels, justifies the construction of pipelines and other infrastructure needed for transportation of their gas production. The company also plans to submit a field development plan for the project to the Algerian government by the end of January with the aim of starting gas production by 2016, which is to be exported to either Spain or Italy.
January Issue 61
QatarGas commences tripartite SPAs with Japan
QatarGas has commenced a new Qatar’s Energy and Industry MinisSales and Purchase Agreements ter, the board Chairman of QatarGas. (SPAs) to supply additional 200,000 Seigo Iwasaki, Chairman and CEO tons annually of liquefied natural gas of Shizuoka Gas Company, and Yuji (LNG) to Japan’s Chubu Electric Kakimi, Managing Executive OfPower Co Inc. and Shizuoka Gas Co ficer and General Manager of the Ltd. Fuels Department of Chubu Electric The tripartite SPA stipulates the Power Company. transportation and delivery of an an“We believe this agreement will nual minimum of 0.2 million tons of enhance the further development of LNG to a group of LNG-receiving the relationship between Qatar and terminals located in Japan by QatarGas. The supply of the agreed upon Japan,” commented Kakimi during a volumes to Chubu Electric Power press conference in Doha. Chubu Electric has been cultivatCompany and Shizuoka Gas Company from QatarGas 1 joint venture ing a strong relationship with Qais planned to begin in 2016. tarGas as a foundation buyer of the According to the terms of the SPA, LNG project in Qatar since the exChubu Electric and Shizuoka Gas ecution of a long-term LNG SPA in will purchase approximately 1.2 mil- 1992. lion tons of LNG over a period of six Kakimi also stated that Japan years starting 2016 from QatarGas. would need an additional three to Quantities of LNG shared by Chubu four million tons of gas in 2012. Electric and Shizuoka Gas will be Such estimate is significantly lower determined by the two companies than the one given by Japan Oil, Gas and informed to QatarGas. The announcement of the tripartite and Metals National Corporation SPAs was made on the sidelines of last month, when a company official the 2011 World Petroleum Congress articulated in an energy conference in Moscow that Japan’s LNG dein Doha. mand would rise by 20 million tons The agreements were signed by Egyptian Petro 1-2 page ad.qxd:Layout 1 7/11/11 15:12 Page 1 Dr. Mohamed Bin Saleh Al-Sada, in 2012 compared to 2010.
Iraq strikes a $17B Gas deal with Shell and Mitsubishi
Iraq signed a $17.2 billion deal with Royal Dutch Shell and Japan’s Mitsubishi Corporation to extract natural gas in the south of Iraq, which is considered one of the biggest deals to rebuild Iraq’s energy sector. The joint venture, which includes the Iraqi state-owned South Gas Company, is expected to assist Iraq in utilizing more than 700 million cubic feet of gas per day currently being burned due to the lack of proper infrastructure. The multi-billion deal forms a joint venture to gather, process and market gas from three oil fields in the oil-rich province of Basra. Iraq will hold a 51% stake, to Royal Dutch Shell’s 44% and
Mitsubishi’s 5% shares. The gas will be used mainly for domestic energy needs, but there is also a possibility of exports. Commenting on the new deal, the Development Communications Manager of Shell Iraq, Diego Perez, stated, “We are pleased to confirm the signing of the final agreement to form a Joint Venture to gather raw gas from three major oil fields, which is currently flared in Basra.” The 25-year contract is one of the biggest deals that Iraq has signed with international energy companies over the past two years as the country rebuilds its oil and gas industry after
years of sanctions and strife. Mitsubishi Corporation’s Senior Vice President Tetsuro Kuwabara expressed that his company “has been doing business in Iraq for over 50 years and are honored to be able to participate in this large-scale energy Joint Venture with the Iraqi ministry of oil and South Gas Co.” The new deal is a key part of Iraq’s strategy to alleviate power generation woes. Despite billions of dollars spent since the 1990s to rebuild Iraq’s dilapidated electrical grid, Iraqis still suffer chronic power outages that often aggravate civil unrest and violent protests.
OPEC: Speculators Drive Up Oil Prices Speaking at a World Petroleum Congress panel, OPEC Secretary General Abdullah Salem El-Badri stated that speculators are partly to blame for high oil prices, reported CNN Money. El-Badri explained that while there is an abundance of crude oil in the world, the recent spike in prices is attributed to the variance between the number of oil barrels being traded in the financial markets vis-à-vis the actual supply of crude oil (the former being 35 times greater than the latter.) According to El-Badri, 3 billion barrels per day are traded on global exchanges, yet only 76 million barrels per day are in the actual supply. “The current price is comfortable for producers and consumers,” El-Badri added. “It allows producers to make investments, yet doesn’t hinder the global economy.”
Maria van der Hoeven, head of the International Energy Agency, is in opposition to El-Badri analy. Appearing in a debate against El-Badri on a panel moderated by CNN, van der Hoeven said, “The oil burden in 2011 is set to exceed 2008 levels… For consumers, crude prices are alarmingly high.” She also highlighted that production at the world’s current oil wells is declining by a rate of 7% per year. At such rate, the world needs to find and produce an extra 47 million barrels a day by 2035 just to maintain current production levels. Additionally, an extra 30% increase in oil demand is projected to accompany a doubling of the world’s economic output by 2035. “To meet this 47 million [barrels] you will need a lot of investment,” van der Hoeven said, emphasizing the necessity of finding “substantial sources of oil to be tapped.” UN
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FuelCell Energy, Abengoa to Develop Fuel Cell Power Plants
US-based FuelCell Energy, Inc. plans to supply fuel cell modules to be used at biofuel plants owned by the Spanish Abengoa S.A. Abengoa intends on developing a fuel processing system that will enable the use of liquid biofuel as a fuel source for a fuel cell power plant through technology from FuelCell Energy. FuelCell’s modules, called Direct FuelCell, produces power through an electrochemical reaction. Its chief source of fuel is oxygen from air and hydrogen coming from renewable sources like natural gas, biogas or methane produced through wastewater treatment. The initial pilot installation will be at the Abengoa headquarters in Spain using a 300-kilowatt fuel cell fitted with plant designed and manufactured by Abengoa. The company announced that completion of a distribution agreement for the deal is expected to take place within the next six. Javier Brey, General Manager of Abengoa, said, “The fit is natural between our organizations and we look forward to growing the market for ultraclean and efficient distributed generation fuel cell power plants in Spain as well as in Europe and Latin America, where we already have a presence.” Both companies plan to establish fuel cell power plants in for markets in Europe and Latin America. They are targeting municipalities, large industrial
power users and facilities that generate renewable biogas. Biofuels are especially attractive in Latin American countries such as Brazil where sugar cane is widely used as a feedstock to create ethanol.
Germany Completes its OneMillionth Solar Power System The German Solar Industry Association (BSWSolar) announced the completion of its one-millionth solar panel array last month, 21 years after an ambitious program was launched in Germany to promote the uptake of solar power. According to BSW-Solar, the new system is expected to expand Germany’s photovoltaic capacity to five giga-watts. The solar panel array will be connected to the main power grid on the rooftop of the Institute for Sports Equipment Research and Development in Berlin. Solar power systems in Germany currently supplies approximately three percent of the country’s gross electricity consumption and by 2020, solar panel-supplied electricity will account for at least 10% of consumption. Commenting on the success of the project, Gunther Cramer, President of the German Solar Industry Association, explained that the “significant price re-
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ductions for solar power systems have been made possible by increases in production volume and by technical advances. Already in the near future, the generation of solar power will become one of the most affordable energy forms out there.” Germany’s interest in solar power has been primarily driven by the country’s pioneering efforts in feed in tariffs, a system where owners of systems are paid for electricity produced by their solar panels. Under a gross model, such as that in Germany, all power produced receives a premium and under a net arrangement, only electricity surplus to that used by the building upon which a solar power system installed receives the payment.
Between Syria and Iran:
Concessions and Contradictions in Brussels The European Union (EU) is finding itself in a practical dilemma, unwaveringly targeting the Syrian oil industry with its sanctions but hesitant to target the Iranian oil industry due to the precarious balance currently in place
By Ahmed Maaty
ollowing Syria’s induction into the “rogue state” club by Western powers, the EU’s recent decision to intensify economic sanctions against both Syria and Iran comes as no surprise. After all, this tactic allows the EU to isolate and pressure regimes deemed by the organization to be uncooperative (and perhaps unwanted) without the need to resort to controversial military campaigns rarely favored by the organization. The oil factor plays majorly into the political standoff between the EU and the two defiant regimes, as the nature of the sanctions imposed on both countries reveals discrepancies, not entirely consistent with the political narrative. EU’s sanctions against Syria, prompted by reported human rights violations in the Syrian regime’s handling of popular protests that have erupted in the country over recent months, have been intensified by a new round last month, which adds 12 people and 11 entities to the list of those targeted. The list now includes major state-owned corporations such as Cham Holdings and the stateowned General Petroleum Corporation, as well as prominent figures within the ruling regime including the Syrian President Bashar al-Assad himself. Syria was also banned from acquiring loans from the European Investment Bank. These steps were accompanied by a parallel increase of sanctions over Iran due to its alleged nuclear weapons program as well as a spike in EU-Iran tensions following the British embassy in Tehran debacle. A total of 39 people and 141 entities were added to an already sizeable list of Iranian officials and banks, as well as corporations with ties to the Revolutionary Guard Corps. The key difference between both packages of sanctions is simply OIL. The most remarkable measure in the new round of sanctions against Al-Assad’s regime is then imposition of a complete ban on buying, importing, or transporting Syrian crude oil. No such action was deemed necessary against Iran. While the Iranian energy sector is hampered by a ban on exports of natural gas refinement technology to Iran, while the oil industry remains virtually untouched by the EU in terms of sanctions. An oil embargo against Iran is certainly not out of the question, and was in fact an idea put forth by EU leaders as a possible future method of punishing Iran for non-compliance with EU demands, but the European Council has so far been noticeably hesitant in acting on these threats, unlike the case of Syria. The oil embargo against Syria, a country that relies on crude oil exports for approximately 25% of its national revenue, has left Al-Assad’s regime scrambling for buyers for the economically vital
industry. Approximately 95% of Syria’s oil exports formerly went to the EU, and even alternate buyers, such as India, are finding it difficult to deal with Syria due to the inclusion of transportation of oil in the EU-decreed restrictions. The sanctions have forced global oil corporations, such as Total, Royal Dutch Shell, Suncor Energy and Gulfsands Petroleum to cease operations in the country, effectively cornering the Syrian oil industry. The importance of EU-bound crude imports to the Syrian economy means that the Syrian oil embargo is likely to prove instrumental in isolating the Syrian regime. The Iranian regime, on the other hand, remains free to trade in oil with EU members, and thus uses the resource to maintain its economic legitimacy despite the fact that crude exports are even more vital to the country’s economy than in the case of Syria. Crude oil exports constitute roughly 50% of Iranian budget revenues, which marks the industry as the beating heart of the Iranian economy. The EU is Iran’s biggest trade partner, with 90% of EU imports from Iran being energy-related, and this relationship continues despite the EU’s political stance regarding Iran, which is arguably even more severe than its position on Syria. The EU’s recent differences with Syria are centered on matters of principle and world view (primarily the sanctity of human rights), and while these issues resonate with European public opinion and are thus important in preserving public legitimacy for EU regimes, they cannot be equated with the EU’s differences with Iran, which primarily concern matters of regional and global security. In light of these observations, the EU’s decision to enforce a ban on Syrian but not Iranian oil stands out as somewhat of an anomaly. A closer look at both countries’ standing in the global oil game reveals a significant gulf and helps partly explain the EU’s continued hesitation in imposing an embargo on Iranian oil. In recent years, Syria has been producing an estimated 400,000 barrels of oil per day (a figure which has fallen significantly post-sanctions, one estimate placing it at 250,000), which amounts to less than 1% of global oil production. Syria’s proven oil reserves lie at approximately 2.5 billion barrels, which leaves it outside of the top 30 oil-rich nations. While the overwhelming majority of Syrian oil exports went to the EU (before the sanctions were initiated), the country’s overall production capabilities were not substantial enough to dissuade the EU from imposing an embargo. Iran is a different story. Home to proven oil reserves estimated to be 137 billion barrels, Iran ranks 4th globally in terms of oil wealth, and pro-
The impact of an embargo on Iran could end up being felt in Europe more than in Tehran.
The oil embargo against Syria has left AlAssad’s regime scrambling for buyers duces roughly 4 billion barrels of oil per day, estimated to be 5% of total global production. While a number of oil giants, such as Total and Royal Dutch Shell, has been dissuaded from dealing with Iran due to US pressure (the US itself has imposed harsh economic sanctions on Iran’s oil sector), Iran still exports a healthy amount of oil to global markets in general and the EU in particular; Spain for example, an EU member, imports roughly 15% of its oil from Iran. Iran is an important source of crude for the EU, but the effects of a complete cessation of oil imports from Iran by the EU would be more than simply the loss of an exporter for member states. The previously discussed centrality of Iran in global oil markets, coupled with the globalized, integrated nature of modern economics and in particular energy markets, means that the impact of an embargo on Iran could end up being felt in Europe more than in Tehran. Iran’s substantial contribution to global oil production makes it an integral component in the balance of modern oil trade. The elimination of the significant EU market from Iran’s list of buyers would undoubtedly drive oil prices up due to the cut in supply. Saudi Arabia is the only country with spare production capability, which may be able to cover a large portion of Iranian supply if banned, but political as well as economic difficulties may arise in such a scenario. Even then, Iranian exports would not be fully compensated for, and a spike in prices would ensue for a resource essential to keeping national economies operational. This would entail severe consequences at a time in which most national economies (not least those of EU members) are ill-prepared to deal with them. The damage done to Iran, surely the objective of any future sanctions, may pale in comparison. The statement that the EU is Iran’s largest trade partner is somewhat deceptive in this context, as oil exports in particular have gradually shifted away from the EU towards Asia in the past years. In 1995, 47% of Iranian oil exports were sold to EU members; a number that shrunk to 25% by 2009, with China has become Iran’s biggest oil buyer. While an EU oil embargo on Iran would damage the country’s economy, the presence of alternate buyers, along with Tehran’s significant experience in navigating sanctions and systematizing their adaptation to them will provide substantial insulation from potential disaster. Oil may be more vital to Iran than to Syria, but the defense mechanisms of the Iranian leadership in the face of an embargo by far trump those of Syria. Another factor perhaps taken into consideration
in European corridors of power is the Strait of Hormuz, the world’s most important oil shipping lane, which runs through Iran. Following recent tensions between Iran and the US due to the Iranian authorities’ recovery of a downed US spy drone flying in Iranian airspace, Tehran threatened to use its navy to shut down the Strait, which resulted in a briefly raise of oil prices. The probability of such Iranian action is slim to none, particularly when the embargo’s effect would be less-than-disastrous as stated. If an EU oil embargo manages to exceed expectations in terms of the damage done to Iran, however, the possibility of such an act of desperation to raise oil prices will most likely not be discounted by EU leadership in the face of a regime seen by some to be capable of irrational behavior. Perhaps the EU’s biggest fears of a ban on Iranian oil have less to do with the dynamics of Iran and its oil exports and more to do with the dynamics of the EU itself. The hesitation to ban Iranian oil is born of the fact that the readiness to do so is vastly and clearly unequal among EU members. Countries such as the UK and Germany clearly lean towards implementation, while others such as Spain, Italy and particularly Greece rely heavily on Iranian oil imports and are thus unenthusiastic towards the idea. The EU statements confirm this division, with French Foreign Minister Alain Juppe conceding that this issue must be taken into account and compensation for the cuts must be ensured. The sovereign debt crisis currently rattling the EU has caused significant polarization within the EU, as member states blame each other for the crisis and constantly disagree on how to solve it. Euro-skepticism is on the rise and some are predicting breakaways or even a complete breakup of the Eurozone or the entire Union, and the fact that the members most dependent on Iranian oil are some of those suffering most severely from the debt crisis certainly does not help. An oil embargo against Iran may initially seem appealing to those with the EU’s strategic interests in mind, particularly after it was applied so decisively against Syria. However, the situation is starkly different in the case of Iran. The political gains of the Syria embargo most likely outweigh the economic loss to the EU. An embargo against Iran certainly remains a possibility and may well end up being implemented after inter-member coordination, but costs both economic and political will potentially surpass any gains to be made. The core EU members are looking down the gun barrel at Iran, but if they ever pull the trigger they may end up shooting themselves in the foot.
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fter years of reporting news from concessions and covering companies’ activities, EOG has thought of inviting our esteemed readers to a free virtual tour of the Egyptian concessions. EOG made its first concession trip to PetroSennan’s area in the Alam El-Shawish East Concession, which covers about 994 square kilometers in the Western Desert. The new comer to the hydrocarbon industry is believed to have a promising future in Egypt’s petroleum industry.
ng. Al-Kahlawi Al-Naggar, Field Manager at Petrosnan in the Alam Al Shawish Concession highlighted that Petrosnan, a joint venture between the Egyptian General Petroleum Corporation (EGPC) and Ukranian Naftogas, controls four areas within the Alam Al Shawish. The first is the HG, which is the main area for crude oil and natural gas production in the Alam Al Shawish concession. The WHG and the EHG are two new areas in the concession, but they are still subject to the formal approval of the EGPC to be added to the company’s operatorship. Similarly, there are two natural gas production areas, Karima and Maleka, which are also awaiting the EGPC’s consent. “The company has been proving its high potentials since its establishment. We succeeded to drill 25 wells in addition to placing four wells on production line, which collectively have an average production
A journey into the Western Desert
By Shady Ahmed - Yomna Bassiouni
of 1500 barrels of crude oil per day, all in a short period of time,” said Al-Naggar. He further added that Naftogas is currently working to create facilities through production operations in four wells (HG\34\1,3,4, and 7) at a rate of 1500 barrels of oil and 1.5 million cubic feet of natural gas per day, in addition to preliminary processing operations, which consist of: 1. Separating the oil from gases using a high-tech separator 2. Storing the oil in storage tanks, each with a full-capacity of 1000 barrels 3. Transporting the oil via containers to the production facilities of the General Petroleum Company (GPC), which by its turn, it extracts water and salts and completes the processing of oil 4. Transporting the oil to the Abo AlGharadeeq area via the General Petroleum Company’s shipping lines Moreover, Al-Naggar stated that the
company is working to complete the drilling plans for the current fiscal year 20112012, which aims at drilling five wells, four of which are exploratory and one development, in the same concession area of Alam Al Shawish. The company has so far completed the drilling of two exploratory wells, and drilling of a third one is currently underway. Al-Naggar estimated the costs for drilling operations have reached $75 million. He added, in comparison to the previous fiscal year 2010-2011, the company drilled six exploratory wells and a development well in the same concession in Alam Al-Shawish, at a cost of $43 million. He added that the company is awaiting the EGPC approval to implement its development plan, in order to add several wells working to the company’s production rates. If the (Karima) area and (SEHG) are merged, Al Naggar expects production rates to hit 5000 barrels per
day, in addition to an increase in natural gas production if the gas line is activated rather than burned. In addition, Al-Naggar revealed that the company plans to conduct a seismic study for natural gas through an engineering study at the production plant, which is currently under review. The company’s best results, he stated, were achieved in the implementation of the previous year’s plan, during which 75% of exploration operations were successful and success rates for development plans reached 100% In related statements, Al-Naggar said that the biggest challenge presented by working in the Western Desert is the problem of unstable communication networks, adding that the company is in the process of finalizing a deal with one of the leading networks in Egypt to establish a phone network that is expected to cost more than LE20 million.
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Alam El -Shawish Concession
Drilling the high potentials of the desert
hen it comes to drilling, the company has had an outstanding record of drilling achievements over a short period of time. “We succeeded to drill a total of 25 wells, mostly are oil producing ones,” said Al-Kahlawy. The company’s drilling fleet consists of two rigs; the ST-11 and the NS-3. “The ST-11 is a land rig that is currently drilling the NHG-2/1 well, while the Nile Star rig (NS-3) is a work-over rig that is performing operations at the HG-34/5 well.”
Asked about the average cost of drilling one well, the Field Manager stated that the average cost revolves around $4 million per well. “The rig is classified as super land rig, 2000 HP, which has a drilling capacity of up to 22,000 feet-depth,” said Eng. Ibrahim Attia, Rig Supervisor. “The rig has already been used to drill a 17,000 feet-deep well.” Eng. Ahmed El-Hadary clarified that the rig was first rented three years ago and the rig contract was recently extended to a further six months. The
daily renting rate of the Sino Tharwa-11 rig counts for 21,800 Egyptian Pounds. “Since the rental of this land rig, a total of 17 exploratory wells were drilled by the ST-11,” he added. “All these wells are oil producing, with the exception of three wells that were dry hole.” The drilling engineer further highlighted that drilling operations are held under the concept of “Wild Cat”. “You do not know what exactly you will be encountering or the challenges you will be facing while drilling, that
is the reason why high precautions
have always been taken to prevent any kind of problems.”
The key factors of drilling are how
to handle a problem, ensure safety of the staff, save time and money.
Sharing the same comments as of
the production team, the drilling engineers emphasized lack of communications and prepared roads as the problems they suffer from the most.
must regain control of upstream activities Though his ministry has been heavily strained by burdens that have accumulated over the years, Eng. Abdallah Ghorab, the Egyptian Minister of Petroleum, talks to Egypt Oil & Gas about his strategy to tackle the persistent problems, his vision for creating a fertile investment milieu conducive to the sector’s prosperity and his plan to alleviate some of the major obstacles encountered by foreign investors
Subsidies have been applied in the first place for political reasons, not social ones
The number of foreign investors that apply in our bid rounds reflects the fruitful potential of the Egyptian petroleum industry
Restructuring the upstream sector is essential, where all authorities pertaining to the sector should fall under one umbrella, the EGPC. Meanwhile, EGAS should shift its focus on gas projects and the downstream sector
n my opinion, Eng. Abdallah Ghorab stated, the Egyptian petroleum sector is one of the most strictly controlled and heavily regulated sectors in the country. The legislative framework of the petroleum sector is designed to explicate any ambiguities or speculations regarding its activities… the various members/elements that constitute the petroleum sector are tightly interrelated, which leaves no room for concealing shady activities. When presented with some of the concerns raised by foreign investors (drawn from a recent survey conducted by Egypt Oil & Gas,) regarding the absence of transparency in the petroleum sector, Eng. Ghorab firmly denied these allegations and explicitly stated that, “transparency is not just a word, it is a value on which my strategy is based” The Minister highlighted his envisioned strategy to resolve the extant quandary of outstanding debts, which has been a collective concern for most of foreign investors. He commented, “I have met with most investors to exchange views concerning this critical problem and I have already discussed the Ministry’s plan to solve it.” “The core problem of the current financial deficiency arose when the petroleum sector exceeded its allowed credit limit from banks, which forced the latter to discontinue financing the former. In fact, the petroleum sector used to receive loans from banks and financial institutions for other entities that couldn’t commit to the repayment of these loans, which eventually led to the current this predicament.” Eng. Ghorab unequivocally affirmed, “this will not be the case anymore. In order to maintain the credibility of this sector, no more loans will be borrowed from banks for others!” The Minister expressed his willingness to debate whomever questions his transperancy in presenting the problems and the method by which they could be resolved. “I explicitly clarified to our foreign partners the roots of the payment delays and elucidated that at the time being, all our financial resources are directed towards subsidies. Yet, this would be a short-term problem as the Ministry’s next step will be focusing on the payment of all debts to our partners.” Eng. Ghorab characterized his new system of managing the sector as rigid and firm, which are qualities that have been entirely absent in the past. “Claims regarding lack
By EOG Team of transparency are invalid. In fact, a major trigger to the displeasure of foreign investors is the rigidity by which we currently govern the petroleum sector for the first time ever… the extreme pliability that dominated the sector in the past has resulted in negative consequences that need to be contained” The practice of modifying and amending business models to appease investors was very common in the past. Alternately, the new model is focused on maximizing the sector’s gains and yielding optimal outcomes. Ghorab cited the North Alexandria gas contract as one of the examples that put the petroleum Ministry under strong criticism. He explained that the lack of public awareness coupled with the incomprehension and cluelessness of some journalists, to the crucial matters regarding the petroleum industry, has led to the misinformation of the public; they assumed that the Ministry of Petroleum is giving up their ‘free share!’ “The term ‘free share’ does not exist in any of our contracts. According to the general regulatory framework of Production Sharing Agreements (PSAs), once cost recovery is settled, the remainder of production is distributed among partners on the basis of the agreed upon shares. Usually, our share revolves around 70-80%, while the remaining 20-30% are the partners’ take.” “In the case of the North Alexandria agreement, the modification from a PSA to participation/contractor agreement was adopted due to the Ministry’s inability to afford a $2 billion payment per year for cost recovery. It is economically unfeasible to pay $10 billion in cost recovery over a five-year contract.” Ghorab referred to the old participation contracts that were signed by GUPCO to prove his point, which is that contracts are like business models; they should be formulated to efficiently suit the requirements, location and the type of contract regime being implemented. “For instance, the booming Iraqi petroleum sector does apply the model of participation contract. This means that we are not inventing something new.” He further added, “I have been criticized on many occasions for modifying the North Alexandria contract. However, it is illogical to abide by the regulations of the old contract regime and pay $10 billion, which is economically burdensome, just to satisfy some voices that are unable to comprehend the full picture of this deal” Aside from the concerns stemming from contracts and
2012 tural reform, he stated that “the EGPC should be the one-shop stop for the upstream sector.”
Subsidies’ inequality should come to a halt
From left: Eng. Abdullah Ghorab, Eng. Mohamed Fouad, Mrs. Yomna Bassiouni
transparency issues, some investors stated, according to a survey conducted by Egypt Oil and Gas, that the Ministry of Petroleum does not provide long-term plans that investors cab rely upon when deciding on the size of their investment. “I totally disagree,” responded Eng. Ghorab, “this is completely wrong and bias! I oppose whomever is responsible for perpetuating the incorrect claim that the Ministry does not specify or follow a plan.” “The 2011/2012 fiscal year has a $7-billion commitment in the upstream sector. The investors would not have spent such large sum of money if they did not see a clear plan implemented by the Ministry!” Ghorab added that more than 20 companies are taking part in the upcoming EGPC bid round to release 15 blocks, which was announced last October. “In the midst of the country’s current political instability, several investors have had doubts and uncertainties, but I have already approached many of the companies that expressed interest in keeping their Egyptian investments intact and confirmed their willingness to participate in the coming bid round,” he added. Moreover, Eng. Ghorab stated that new contracts will be signed soon and a new bid round for natural gas will be announced shortly. “The absence of the parliament has decelerated the process of commencing new contracts and the release of new blocks in bid rounds. That is why the closing date of the EGPC bid round is sched-
uled on January 31st, so that the newly elected Parliament kicks off.”
Need for structural reform
Quoted previously in an interview, in which he declared that the “financial situation of the EGPG is solid, yet needs structural changes”, we asked Eng. Ghorab to explain what kind of structural reform would be applied. “when I spoke of structural reform, I was referring to the sector’s financial structure, both the debts and dues, which is related to the whole financial system of the country. If each one receives his financial dues and pays his debts, we would not be facing such a problem. Hence, restructuring the sector financially is quite dependent on to the country’s financial reform.” Ghorab believes that the need for structural reform should target the improvement of the upstream sector. “In my opinion, the functions and activities of the upstream sector should be gathered under one roof, which is the EGPC, while the EGAS should be functional in the gas projects and the downstream only… the dimensions of this view are still being evaluated.” The Minister defined restructuring as the clarification of duties and responsibilities of each petroleum body. “The restructure is needed for the upstream sector, which should go under one entity… this would assist in avoiding any confusion or conflict between the different entities.” To sum up his perspective on struc-
“I am the first minister who tackled this issue openly, whether in stateowned television channels and newspapers or private ones.” He frustratingly clarified that subsidies have lost the way to the real needed citizens! “For instance, the luxurious marine activities and yachts of the coastal cities of Hurghada, Sharm ElSheikh…etc. get their fuel at subsidized prices, on the expense of the needy and the country as a whole!” The Minister also shed the light on the factories of the Free Zone that purchase petroleum products at subsidized prices and succeed in achieving more than 100% profit, while returning zero-revenue to the country. “Such profit margins are economically unacceptable worldwide… Why am I supposed to provide a risk-free environment solely to attract investors’ interest, while industries worldwide are usually the ones who bear the risk factor? Why am I taking this heavy burden on my shoulder?” he further added, “I will never be a facilitator factor for any investor!” “In my l opinion, subsidies represent a strategic tool to oppress people’s lives. If we examine the issue of subsides from a historical standpoint, we will realize that subsidies were initiated by regimes seeking more control and dominance over their citizens” The Minister clarified that he is not calling for a full abolition of subsidies, but rather a fair distribution of them. He further emphasized, “The main role of government is to provide the basic rights of a just life to all citizens; whether it pertains to education, wages, food, health care, transportation…etc. It is the government’s sacred duty to maintain the welfare of its citizens, by not making their lives dependent on subsidies.” Besides, Eng. Ghorab believes that the system of allocating subsidies should be reviewed and ratified. “Let’s agree that the formula of subsidies should be as follows:
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those who need, should get the subsidized products, but those who do not need subsidies and exploit this opportunity to make revenues should receive all petroleum products at the free price, or at least contribute the country the profit” “Unfortunately Egyptian resources have progressively depleting over the years under the façade of foreign investments, exportation, production…etc. We lack the proper knowledge and the clear vision to better utilize our resources.” When asked about the threat of the alleged energy crisis in Egypt, the Minister said, “I admit that there is a problem of circulation, not a shortage of petroleum products. For instance, we have been working hard to handle the complaints of butane cylinders shortage of and the lack of sufficient fuel at the gas stations. Such problems are a result of poor circulation practices, since the sector has never stopped producing and distributing petroleum products all over the country. I am confident that there is no energy production problem in Egypt, but we do have a circulation complication.”
The best is yet to come
Eng. Ghorab wonders about the seemingly dominant pessimistic outlook towards the future of the petroleum industry in Egypt. “For those publicizing such concerns, I can guarantee that Egypt would be generating more production for longer than they expect. The number of foreign investors that apply in our bid rounds does reflect the fruitful potentials of this industry.” Optimism is the clue for anyone working in this dynamic sector; you cannot keep drilling if you are not optimistic about the high potentials you can find. “There are many areas that have yet to be explored. If we take a look at deep-water drilling for example, we’ll find out that we are still drilling close to shores and have not gone into high depths, where promising gas potentials could be found and produced.” I believe that within five years, the Egyptian petroleum sector will skyrocket. The Minister concluded, “Egypt is a very wealthy country in terms of resources and natural endowments that have yet to be exploited… and I believe that an auspicious future awaits our beloved Egypt.”
The petroleum sector used to acquire loans from banks and financial institutions for other entities that could not commit to the settlement of these loans What has triggered the displeasure of some investors is the rigidity by which we currently manage the sector as a whole
2012 Triggers Mixed Expectations
Experts’ predictions and opinions regarding the state of the Egyptian petroleum sector in 2012 have varied, particularly in light of the shift in policy witnessed under the Petroleum Minister Eng. Abdullah Ghorab in comparison to his predecessors. These opinions can be broadly categorized into two main outlooks: one which retains much optimism for the new year, expecting an increase in investments despite ongoing political turbulence, the other sees drilling and exploration operations in Egyptian concessions taking a turn for the worse By Shady Ahmed - Wael Serag
xperts believe that sealing new agreements should be at the top of the Ministry of Petroleum’s priority list during the coming period. The Ministry aims at signing a number of agreements in the near future, a step that will give a boost to local companies working in drilling and exploration. An official at the Ministry of Petroleum expressed optimism regarding the current year of 2012, expecting an increase in production rates of both crude oil and natural gas, in accordance with companies’ outlined plans. In fact, the petroleum companies managed remarkable success in implementing their drilling plans across the Egyptian concessions in the Mediterranean Sea, Eastern Desert, Western Desert, Gulf of Suez, Delta, and Sinai, despite the political and social unrests that took place at the beginning of 2011. In exclusive statements to Egypt Oil & Gas, the Ministry source added that the petroleum sector has not been affected by the events in Egypt, as evidenced by the levels of success achieved in concessions in Egypt. He referred to the production success achieved in the Mediterranean Sea area, where production rate counted for 1541429 million cubic feet of natural gas in the previous fiscal year 2010-2011, which reflected 85.71% of the area’s production plan. The official claimed that the Delta area achieved an unprecedented success rate of 105.85%, as
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production of natural gas reached 164354 million cubic feet, while crude oil production reached 1283818 barrels. Drilling operations in the Sinai area thrived as well, achieving a success rate of 83.69%, with production hitting 2139 million cubic feet of natural gas and 24775629 barrels of crude oil. Eng. Lotfi Ramadan, General Manager of Crude Oil Production Plans at the Egyptian General Petroleum Corporation (EGPC), is similarly optimistic, stating that the petroleum sector was not affected by the ongoing events in Egypt. Ramadan pointed out that companies outlined several plans, and a substantial number of those plans were implemented to a large degree, adding that production levels were not affected by the events that followed the January 25th revolution. Ramadan said that there was no security problem and that the exploration and production activities in concessions were safe, as evidenced by the complete lack of complaints directed towards the Ministry of Petroleum or the EGPC regarding the matter. According to a source working at one of the major petroleum companies, the petroleum sector is achieving consistent growth, and a number of foreign newcomers is expected to invest in the sector this year. The Ministry of Petroleum eyes the release of a number of bid rounds for concessions in the coming period in cooperation with the EGPC, the source said, in order to pump new investments
into the sector in the current year 2012. The source added that all the Egyptian petroleum companies are working to boost investment, whether on a local or international level, seizing the fact that the global demand for petroleum services is increasing. In his view, the petroleum sector will benefit greatly from the agreements the Ministry plans on finalizing over the coming period, as the agreements signed last year with Yemen and Malaysia. This latter is expected to assist in the gas liquefaction process, as it possesses ample experience in that field. The agreements will push Egypt forwards in the plan to increase the country’s petroleum resources and greater employment rates for skilled professionals, by increasing tenders in order to guarantee investments, the source added. Petroleum services contractors will play a major role in the success of these agreements by offering their services to global companies. The source said that the Egyptian petroleum sector is stable due to the availability of drilling equipment operating in the activities of exploration and drilling of wells. The EGPC is currently seeking drilling equipment to commence the drilling of two exploratory wells in 2012. Eng. Ahmed Al-Gedawi, General Manager of Crude Oil Production at the General Petroleum Company (GPC), is less positive. He believes that the sector has been affected by the recent political
happenings in Egypt, including the General Petroleum Company (GPC), demanding that the state should pay more attention to the GPC, after 10 years of disregard. Al-Gedawi added that oil and gas are among Egypt’s strategic sources of income along with the Suez Canal and the tourism industry. The costs of extracting these resources are high, but they are justified by the returns. The petroleum industry’s revenues are added to Egypt’s GDP, which are a primary source of national income. Additionally, Egyptian skill and experience in this field must be protected and exploited, rather than allowing foreign investment to cripple Egyptian innovation in the name of funding primary production operations (exploration and drilling). Al-Gedawi stressed the importance of foreign investment in the petroleum sector nonetheless, in order to find new reserves and boost national income. He advocated the cultivation of technical skill and talent in the future, in addition to keeping spending under control to be able to produce every barrel of oil and every cubic feet of gas at the lowest possible cost. This, according to Al-Gedawi, is how the GPC operates. Al-Gedawi said the Company has become an institution built on technical and applied sciences, providing expertise to the entire Arab world and attracting those studying and working in the field to come and train in its fields and laboratories.
MOC 2012 280x350mm_Layout 1 19/12/11 11.19 Pagina 1
January Issue 61
2 2 - 2 4 MAY 2012 ALEXAN D RIA EGYPT
Mediterranean Offshore Conference & Exhibition
THE MEDITERRANEAN ENERGY INDUSTRY: CHALLENGES & OPPORTUNITIES FOR A NEW ERA
CONFERENCE INFORMATION & REGISTRATION firstname.lastname@example.org EXHIBITION INFORMATION & REGISTRATION email@example.com
THE ONLY OFFICIAL OIL & GAS EVENT IN EGYPT
Egyptian General Petroleum Corporation
Egyptian Natural Gas Holding Company
Ganoub-El-Wadi Holding Company
Egyptian Holding Company for Petrochemicals
Hilal redevelopment project
By Osama El-Sayed, Projects General Manager for investments and JVs, EGPC
The existing Hilal platform is located in the Shoab Ali field in the Gulf of Suez. The platform was constructed and installed in 1984. However, 10 years later, the platform was severely damaged by ship impact and fire. Figure 1.1 shows the facility immediately post the ship impact.
Figure1.2 Hilal Platform current condition
Figure 1.1 Hilal Platform after Ship Impact and Fire
Further to the impact, the topsides were replaced and production resumed. However, the repair work to the jacket proved to be inadequate, and the three conductors contributed to poor structural rigidity, which resulted in excessive conductor/platform relative deflections and consequent rupture of the oil export flow line in 2004. A further repair to the substructure was made and production resumed, but due to ever growing concerns over environmental protection and safety of operators, a decision was made to cease production and shut down the wells in 2007. Figure 1.2 shows the current condition of the platform.
Temporary rigging were installed in 2008 as an attempt to stabilize conductor guide frames and 24” conductors. After recent negotiations on concession agreement extension, GUPCO had intentions to bring oil production back from the field. The Torsina Board agreed on September 26th to progress the “New Platform” option into FEED Engineering. The production is expected to reach 3-5 Mbbl/d of crude oil. The cost of the new platform is estimated around $234 million. The project’s main contractors are: ENPPI (FEED & Detailed Engineering), Petrojet (Procurement & Fabrication) and PMS (Offshore work). The project is scheduled to be completed in the third quarter of 2013. New Build Option • New jacket will be installed at a distance of approximately 200m from the existing one, which would allow the existing platform to be safely removed.
Advantages of New Build options: - New Jacket installation involves less offshore activities. - Conventional piling. - No requirement for diving. • New topsides will be designed in accordance with relevant standards and regulations • PIPELINES: Existing 12 and/or 18” pipelines will be re-instated. No failures of lines have been recorded. The integrity of the lines will be assured through inspection. Besides, a 12” or 18” tie-in spool will be installed. The pipeline will then be leak tested. Moreover, the existing 8” L spool will be replaced by another one, same size with integral tee. • Drilling: new seven wells will be drilled according to plan. Project’s Status 1. Engineering ENPPI is progressing PFDs, process simulation and revising the process piping design as per the recent design change on the flange ratings. Also, the company commenced engineering activities for line designation table, material selection guide and telecoms philosophy. Currently, ENPPI Structural Team is progressing in place analyses design report and jacket preliminary steel drawings. 2. Contracts Hilal Pipelines Inspection Tender commercial evaluation is complete. Principal Bid Committee
memorandum is under approval for award. The Project Team is working on drafting the Petrojet Structural Materials Provision and Fabrication Contract; expected to be issued to PSCM before the end of October. The team has also issued a memorandum to PSCM asking an International Offshore Installation Tender to be initiated. PSCM is working on the tendering strategy. 3. Procurement Petrojet issued tender for the provision of structural bulk materials. Technical evaluation of the quotations is in progress. On the other side, ENPPI is progressing technical evaluation of these quotations: Chemical Injection System, Safe Guard System, Pig Launcher and Receiver, Electrical Solar System Power Supply. Besides, ENPPI issued tender for these items, is collecting quotations from the market: Navigational Aids, Gaskets, Hot Bends, Multiphase Flowmeter, Pressure Regulating Valves. 4. Other Issues A site visit was held to review the existing condition of the Ras El Ush Control Room. At the end of 2010 and early 2011, the following has been done: • Securing & Stabilizing of existing PF to avoid its Collapse • All the current producing wells is Plugged & Abandoned.
January Issue 61
Gulf of Suez Offshore
Percentage of Total Area
23912321 21067321 22776786 1550775 1308240 1347560
5758214 6686429 6875714
1522081 1760930 1651519
Land Mediterranean Sea Offshore
Egypt Rig Count per Area -September 2011
Land Western Desert
2281071 2510714 2033036
Land Sinai Offshore
16265829 16867201 17189360 3222517730468750 31857500 3385000 3387958 3272283
1067105 1232893 1541096
Equivalent Gas Produc5on November 2009 -‐ 2011
Condensates Produc2on November 2009 -‐ 2011
Rigs per Speciﬁca-on November -‐ December 2011
70 60 50 40 30 20 10 0
G.O.S. Med. W.D. Sinai E.D. Delta Sea
2 1 Med. Sea
PlaEorm, 0, 0%
Standby/Stacking, 16, 12%
Semi Submersible, 4, 3% Jack-‐Up, 14, 11%
Land-‐Drilling, 61, 47%
Work-‐Over, 35, 27%
Natural Gas 4
Opec Basket Price
3 86 5 40 86 9 40 87 2 40 87 6 40 87 8 40 88 2 40 88 4 40 88 6 40
/2 10 1/1 /2 1 11 5/1 /2 1 11 1/1 /2 1 11 3/1 /2 1 11 5/1 /2 1 9 12 /11 /1 12 /11 /5 12 /11 /7 12 /11 / 12 9/1 /1 1 12 3/1 /1 1 12 5/1 /1 1 9/ 11
112 110 108 106 104 102 100 98
/1 22 1/2 /1 01 1 24 1/2 0 /1 1 1 28 1/2 /1 01 1 30 1/2 /1 01 1/ 1 20 2/ 11 12 6/ /11 12 8/ /11 1 12 2/1 1 14 /12 /1 /1 1 16 2/2 /1 01 2/ 1 20 11
Rigs per Speciﬁca-on December 2011
Med. Sea 64%
112 110 108 106 104 102 100 98
0 Med. Sea
Rigs per Area December 2011 (Total of 114 Working Rigs)
-‐D ril nd lin W g or k-‐ Ov er Se Ja m ck i S -‐U ub p m e rs Fix ib ed le P St l a an Fo db rm y/ St ac kin g
Oil Produc1on November 2009 -‐ 2011
LNG Produc3on November 2009 -‐ 2011
Rigs per Area November -‐ December 2011
January Issue 61
Register Today! Register Today to Attend the 2012 SPE North Africa Technical Conference and Exhibition (NATC) 20–22 February 2012, InterContinental Citystars, Cairo, Egypt
Managing Hydrocarbon Resources in a Changing Environment • The third edition of NATC provides an international platform to discuss and share knowledge, experiences, and the latest technical applications pertaining to current issues within the oil and gas industry in North Africa. • Learn from other prominent industry ﬁgures during an executive plenary session, technical sessions, panel sessions, and various poster presentations. • Be introduced to the latest technologies at the NATC exhibition which includes some of the most renowned oil and gas organisations from the region.
Visit www.spe.org/events/natc to find out more! For registration enquiries, contact Sarah Jubran at firstname.lastname@example.org. For sponsorship and exhibitor opportunities, please contact Taghreed Khallaf at email@example.com or call +971.4.457.5800.
Main Media Supporter: Egypt Oil & Gas
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January Issue 61