The success of Apache rests on the low production costs of the Western Desert – oil is easily accessible in comparison with the deepwater blocks of the Mediterranean and Gulf of Suez. Other producers, including Royal Dutch/Shell, BP and a host of newcomers, have been drawn to the region as a result. ‘It takes some time to make the smaller finds viable, but our main advantage is we have the infrastructure in place and can tie everything back in,’ says Eichler.
Production from the Western Desert last year averaged about 170,000 barrels a day (b/d) of crude, 14,000 b/d of liquefied petroleum gas and 780 million cubic feet a day (cf/d) of natural gas. The figures for oil production are healthy, but it is the region’s potential for gas that has drawn so much excitement recently, after Apache in July announced its most significant discovery to date in the Western Desert. Despite technical problems encountered during drilling, the Qasr-1X well tested at a combined rate of 51.8 million cf/d of natural gas and 2,688 b/d of condensate from two separate zones. ‘It’s really very exciting, given the government’s vision for gas,’ says Eichler. ‘Demand is growing at an extraordinary rate, and really the main drive at the moment is to monetise that gas by selling it abroad. Every new find frees up more for export.’
The Apache announcement topped a summer of major hydrocarbon discoveries, which included BP Egypt’s largest oil find in the Gulf of Suez in 14 years – the Saqqara well has estimated reserves of 80 million barrels – and the announcement of yet another major gas find in the Rosetta concession, offshore the Nile Delta, which is held by the BG Group of the UK, Edison International of Italy and Shell Egypt. The full potential of the Western Desert has yet to be properly gauged, but the implication of as-yet undiscovered gas reserves will whet the appetite of foreign companies. Natural gas from the region is of far higher quality than the dry gas found in the main producing region of the Nile Delta.
But for the time being it is the deepwater Mediterranean blocks that have drawn the most attention, both from foreign investors and the government. This is partly due to their role in supplying gas for the two liquefied natural gas (LNG) terminals being developed at Idku and Damietta, and partly due to the tremendous success of exploration to date, despite the huge capital costs involved.
‘With the confidence of such gas export windows, international companies will have more confidence to invest in Egypt’s upstream exploration and development opportunities,’ Petroleum Minister Sameh Fahmy told delegates at MEED’s 2nd Mediterranean Gas Congress in Cairo in mid-September. ‘The success ratio of Mediterranean exploration has been phenomenal. For example, 17 consecutive exploratory wells, in one exploration acreage, and five wells in another were drilled in a water depth of over 2,000 feet. All 22 wells were successful. The first production from some of these deepwater discoveries started in March 2003, utilising the latest techniques of subsea completion. Starting the application of this new technology is a real breakthrough in Egypt.’
Banking on reserves
Total proven gas reserves stood at 60 trillion cubic feet (tcf) at the end of June this year, and the stated target of the Egyptian Natural Gas Holding Company (EGAS) is to prove reserves of 120 tcf within a decade. The strong government lead has helped to underwrite the confidence of foreign companies in the Egyptian gas story. ‘We’re all conscious of how vital the government leadership has been, and continues to be, in making a success of these projects,’ says John Earl, chief executive officer of Egyptian LNG (ELNG). ‘[Fahmy] has placed a lot of trust in the foreign companies and been bold enough to embrace new models for these extremely complex projects.’
The main impetus now is on new exploration. The recent streamlining of licensing procedures meant that the award of concession rights from the November 2002 bid round was – for Egypt – remarkably quick. ‘It’s still slow compared with other countries, but it’s better than it ever used to be,’ says one foreign oil executive in Cairo. ‘There was a period around 1994 when nothing happened at all, but they’re now trying to have at least two bid rounds a year. Given the demand for gas, they need to keep up the pace, and keep putting up new acreage to bid. But the main problem is that from the time they announce a new round… to making a final decision can take at least one year. They really need to get quicker.’
The pace is picking up, however. The Petroleum Ministry launched two new July bid rounds covering 15 oil and gas exploration blocks across the country. The significance of the second bid round is that it marks one of the first times the government has opened up comparatively unexplored territory in the south, where three major concessions were put on offer covering some 95,227 square kilometres of land on either side of the Nile between Aswan and Naga Hammadi. The southern concessions were the first to be tendered by the newly-created Ganoub el-Wadi Petroleum Company (Ganope).
The hopes of oil companies and the government alike ride on the success of the new upstream development, although Egypt is unlikely ever to rival the major hydrocarbon producers of the Gulf. And some people think this is no bad thing. ‘It’s good news if they find enough oil and gas to underwrite the balance sheet without having so much that it creates major distortions in the system,’ says a British financier based in Cairo. ‘If you look at places like Saudi Arabia and Nigeria, you can’t help thinking all that oil has caused as many problems as it has solved.’