• Oil companies BP and RWE will pay income tax and royalties on profits
  • BP says the contract is a fair deal for all parties
  • The North Alexandria gas project is Egypt’s biggest ever oil and gas development
  • A $12bn contract to restart the project was signed in March
  • BP has declined to reveal how much it will pay in royalties

UK-based oil company BP has confirmed that the deal to restart the $12bn North Alexandria field development project in Egypt’s Nile Delta does not include a profit sharing agreement (PSA).

Speaking to MEED, BP spokesperson Toby Odone said that a different kind of contract was needed due to the country’s circumstances.

“It would not have been possible to develop and produce gas from those fields under the current PSA and cost recovery model because of the difficulty of achieving dates and production quantity without a regime that allows the contractor to move quickly and take the full risk of the actions and costs to meet the commitments or get penalised,” he said.

Under a typical Egyptian PSA the companies with stakes in the oil and gas assets gain around 30 per cent of the profits from hydrocarbon sales with 70 per cent going to the Egyptian government.

Under the new deal, which was signed at the Egypt Economic Development Conference in Sharm el-Sheikh in March, BP and its partner RWE will receive 100 per cent of the profits.

BP and RWE will sell all of the gas produced from the concession to the state-owned energy company Egyptian General Petroleum Corporation (EGPC) at a pre-arranged price of between $3 and $4.1 per million British Thermal Units.

BP and RWE will pay royalties and income tax to the Egyptian government on the profits made from the sale of gas.

BP declined to give details on the amount it would be paying in royalties or tax.

The UK-based energy company has been criticised for the terms of the new deal from some quarters, with commentators saying that the international oil company would make excessive amounts of profit as a result of the deal and it had taken advantage of the Egypt’s desperation to secure new gas supplies.

This has been denied by BP, who says measures are in place to ensure that all parties get a fair deal.

“A gas price reopener mechanism with clear and transparent procedures has been introduced to reduce the gas price if the project capex is lower than the estimated capital investments or increase it if it is significantly higher,” says Toby Odone.

The North Alexandria gas project is Egypt’s biggest ever oil and gas development.

Speaking at the Egypt Economic Development Conference in Sharm el-Sheikh the CEO of BP, Bob Dudley said that the contract was worth $12bn and would create 5,000 jobs for Egyptian nationals in its construction phase.

First gas from the project is expected in 2017.

The North Alexandria development is expected to produce up to 1 billion cubic feet a day of gas when fully operational, or 25 per cent of the country’s current consumption.

This additional production could be transformative for Egypt’s industrial sector, which has suffered over recent years due to an acute natural gas shortage.

Plans to develop the concession were put on hold in the wake of the country’s 2011 uprising and the government has struggled to make a deal to restart the project due to its large debts to foreign oil companies and the low price paid for domestically produced gas.

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