Cairo is to offer improved pricing terms to international oil companies (IOCs) as part of a new gas exploration round in the Mediterranean Sea aimed at attracting fresh international investment into its unsettled energy sector.

The exploration round, to be launched by Egyptian Natural Gas Holding Company (Egas) in the next month, will follow the expected award of oil and gas licences in the south of the country in the next few weeks.

The Egas round marks the company’s first new exploration programme in two years, and will involve the tendering of at least eight new offshore blocks in the Mediterranean Sea.

It comes in addition to a previously announced plan by Egyptian General Petroleum Corporation (EGPC) to launch its own oil exploration round this year.

This is the first new gas acreage on offer to international energy companies in Egypt since Egas awarded eight licences in late 2006 to search for gas in the Nile Delta, Northern Sinai and the Mediterranean (MEED 8:12:06).

Oil industry executives say any gas marketed as a result of the Egas bid round is not expected to be subject to the low price threshold of $2.65 a million BTUs, to which most production in the north of the country is currently tied.

One planning executive at Egas says he expects oil majors to be offered terms of $4-$4.50 a million BTUs as compensation for the high cost of drilling in the deep-water blocks. “We must wait for guidance on these numbers from the [oil] minister, but there is a strong basis for offering more favourable terms for this upcoming round,” says the executive.

There has been widespread speculation in the local industry that better terms will be offered, although any firm commitment from Egas has yet to be confirmed, according to another Cairo-based energy executive.

“The entire issue of gas exports and pricing is a sensitive subject at the moment in Egypt,” he says. “The government must tread a fine line and the early indications are that these upcoming blocks will be on better terms, possibly up to $4.50 [a million BTUs], depending on the final acreage that is released.”

Oil majors expected to bid in the latest Egas round include the UK/Dutch Shell Group, BG Group and BP of the UK, Malaysia’s Petronas, the US’ Hess Corporation and Italy’s Eni.

Prospective bidders will be invited to review existing technical data on the blocks before submitting their bids.

The higher prices are the latest sign that Cairo is increasingly willing to compromise with IOCs.

Earlier this year, Energy Minister Sameh Fahmy decided to increase the price it pays BP and its partner, Germany’s RWE Dea, for gas produced from two licences, in the West Mediterranean and North Alexandria areas.

In March, Cairo indicated it would increase the price for gas in stages up to $4.70 a million BTUs for their deeper-water exploration, although that change still requires approval from parliament.

Egypt has risked raising the ire of foreign oil companies in recent months with a series of measures that have put their profit margins under pressure.

It imposed a 20 per cent tax on companies in Egypt’s free zones, which led to Egyptian Kuwaiti Holding Company abandoning plans to develop a $2.2bn refinery and petrochemicals plant at Ain al-Sokhna (MEED 8:8:08).

Elsewhere, its surprise decision to freeze new gas export deals until at least 2010 may yet lead Spanish Egyptian Gas Company (Segas) to halt its plans to develop a second liquefied natural gas (LNG) train at Damietta in the Nile Delta (MEED 20:6:08).

The decision to suspend gas export deals came after opposition parties in Cairo claimed the country was losing money because it was locked into poor export deals at a time of high energy prices.

The new Egas exploration round is also the latest sign of renewed activity in Egypt’s hydrocarbons sector.

Ganoub el-Wadi Petroleum Company (Ganope), the state-owned company responsible for the development of hydrocarbons resources in southern Egypt, plans to announce the winners of its own licensing round in the first few weeks of September.

The acreage, the first of five annual exploration rounds planned by Ganope between 2008 and 2012, covers blocks in the Red Sea, the southern Gulf of Suez, and the Eastern and Western Deserts (MEED 14:3:08).

However, the interest shown by IOCs in Ganope’s round has been mixed. One Ganope executive tells MEED that although 12 blocks were put on offer to oil majors, two have received less interest and may not be awarded immediately. “There are a large number of companies in line for the main blocks, however, and we expect to make awards shortly,” he says.

EGPC, which along with Egas is responsible for licensing acreage in the north, is expected to launch its new exploration round by November.

In 2007, Egas estimated Egypt’s gas reserves at 72.3 trillion cubic feet. About 78 per cent of this is estimated to be in the Mediterranean Sea.