• BG says reservoir declines contributed to its drop in upstream output
  • Company says that phase 9b of its West Delta Deep Marine project has not been sanctioned
  • Only one shipment of Egyptian LNG was exported by BG over 2013

UK energy company BG Group has revealed that its total Egyptian hydrocarbon production over 2014 was the equivalent of 62 thousand barrels of oil a day (b/d), 44.6 per cent less than it produced the previous year.

“Production volumes in Egypt were significantly lower in 2014 due to continued reservoir decline and a sustained high proportion of gas diversions to the domestic market,” the company said in its annual report.

The newly released data comes amid a worsening gas crisis in the country and as Egyptian President Abdul Fattah al-Sisi attempts to drum up new investment in upstream energy sector.

BG says it only exported one shipment of liquefied natural gas (LNG) from Egypt over the year, down from 25 shipments in 2013.

In January 2014 BG Group issued force majeure notices under its LNG agreements in Egypt due to gas being diverted away from its facilities to meet domestic demand.

“The proportion of gas volumes directed to the domestic market averaged 776 million standard cubic feet a day (cf/d) during 2014, notably above the contracted amount agreed by the government. As a result, gas volumes available for the LNG plant were minimal – Egyptian LNG ran at an average of 4 per cent capacity. Only four cargoes of LNG were produced during the year, one of which was allocated to BG Group’s LNG business.”

As well as suffering from a lack of feedstock to its LNG facilities BG is also owed hundreds of millions of dollars by the state-owned oil company Egypt General Petroleum Company (EGPC).

The outstanding debt stood at $0.7bn at the end of 2014 and EGPC has said the balance will be paid off by mid-2016.

BG estimates that the late payments have cost the company $100m.

“In forming our view we have taken into account the significant lump sum cash payments that have been received during the year and the positive developments that have taken place during the year on price re-negotiation,” BG said in its report.

“We consider the pre-tax charge of $100m relating to the downward re-measurement of the receivable to reflect the time value of money to be appropriate.”

BG Group also announced a pre-tax impairment charge of $790m, which it said was, “principally driven by further reserve downgrades reflecting underlying reservoir performance and the Group’s expectation of limited LNG exports from Egyptian LNG for the foreseeable future.”

Amid falling revenues for BG’s Egypt operations there are increasing concerns that it won’t follow through on pledged investments in the country’s upstream sector.

At the Egypt Economic Development Conference in March BG signed a heads of agreement with Egyptian General Petroleum Corporation (EGPC) and the Egyptian Natural Gas Holding Company (EGAS), agreeing to invest $4bn developing phase 9b of its West Delta Deep Marine (WDDM) project.

In BG’s annual report, published on 1 April, the company said phase 9b of the project is yet to be given the green light by the company.

Speaking to MEED, Kim Blomley, a spokesman for BG, emphasised that the agreement signed in March is non-binding and said that the project’s future remains uncertain.

“Phase 9b is still yet to be sanctioned. Potentially we would be willing to invest that amount of money – but there are some issues that still need to be sorted out,” he said.

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