BG Egypt: Tying into the network

06 December 2004
On 24 November, the BG Group announced that it had completed the purchase of a 40 per cent stake in the offshore Rosetta field, one of a cluster of poetically named concessions off the northern coast of Egypt. Usually such announcements are the result of a long and painstaking bidding process. Local bureaucracy and a course of legal and constitutional hurdles can stretch out the tendering process for new acreage to as much as two years. But this was an internal transfer between former business partners, and, with some deft manoeuvring, was completed in a matter of weeks.

Only a few months beforehand, the Royal Dutch/Shell Group had announced to the market that, as part of the rationalisation of its regional holdings, it had agreed to sell its stake in Rosetta to Kuwait Foreign Petroleum Exploration Company (Kufpec). At this point, BG Egypt stepped into the fray, exercising its rights to pre-empt the sale as the existing operator of the concession. With a 40 per cent stake already tucked under its belt, BG knew all too well how valuable this little patch of territory could be to its business. It is one of the few upstream assets that fellow stakeholder Edison International, which retains a 20 per cent share, held on to during the recent divestment of most of its upstream assets in Egypt. 'Rosetta has been a key part of our portfolio, and it simply proved too good an opportunity to let go,' says Michael Barron, policy and corporate affairs manager for BG Egypt. 'The price was good, so we exercised our pre-emption rights.' The deal is worth an estimated $235 million.

The first significant upstream investment by BG in Egypt, Rosetta started production in January 2001 and supplies gas to the domestic market under a 25-year supply agreement signed with the government in 1997. Under a recent deal with Egyptian General Petroleum Corporation (EGPC), BG is moving ahead on the second phase of development, with compression facilities for the fields commissioned in early 2004 in order to maintain production rates. First gas from phase 2 is expected in the second quarter of 2005, taking its contracted supply to 345 million cubic feet a day (cf/d) from 275 million cf/d.

'Our biggest emphasis at the moment is on exploration and building up production levels. We are always looking after new bid rounds, to see if the acreage on offer fits the rest of our portfolio, and we are committed to doing more in Egypt.' says Barron. 'Now we are entering a new cycle. We had a very successful period of exploration in the 1990s, but we have found markets for that gas. Our main aim now is to find more reserves and we are entering a very active exploration phase. We have formalised the awards of two new concessions, at El-Burg and El-Manzala, and we are stepping up our exploration in the West Delta Deep Marine (WDDM) concession, where we expect to drill four more wells in the next year.'

Burullus Gas Company,a joint venture of BG, Petronas of Malaysia and EGPC, is responsible for drilling and field development in the WDDM concession. First awarded to the group in 1995, the WDDM concession has so far yielded 16 consecutive discoveries of gas condensates. Holding some 370 billion cubic metres (13 trillion cubic feet - tcf) of proven reserves, it is now the largest offshore integrated natural gas project in the Mediterranean.

Nine gas fields have been identified so far: Scarab, Saffron, Simian, Sienna, Sapphire, Serpent, Saurus, Seqouia and Solar. Burullus is working on the subsea development of the Scarab/Saffron and Simian/Sienna fields, which have proved a reliable supplier to the domestic market. Contracted volumes of gas supply from Scarab/Saffron rose on 1 January to 586 million cf/d, but the twin fields have already demonstrated an ability to produce at about 750 million cf/d.

Rising domestic demand - driven largely by a pressing need for new electricity generation capa

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