The bounce back of Egypt’s upstream operations continues to gain momentum, attracting additional offshore-focused investments and transactions with latest reports indicating Dubai-based oil and gas company Dragon Oil has received the nod to increase its share of the North African country’s huge hydrocarbon offshore assets.
Reports of Dragon Oil’s acquisition of additional exploration and production concessions in Egypt, which some see as an outcome of the country’s progressing energy sector reforms and intensification of campaigns to woo more international oil companies to explore and produce oil and natural gas from the still underexplored offshore sector, is a coincidence of sorts.
The approval for Dragon Oil to expand its operations offshore Egypt coincides with a period the North African country is grappling with a population explosion that has risen to nearly 98 million and an expanding economy that rose to 5.3% last year and is likely to reach 5.8% in 2018, factors seen to have exerted pressure on the country’s energy supply triggering demand for more upstream investments.
The reported sanctioning of Dragon Oil’s purchase of the concessions from BP were preceded by official statements by both companies in June on an agreement about BP’s interest in the Gulf of Suez Petroleum Company subject to the now reported awarded approval by the Ministry of Petroleum and Mineral Resources.
The deal was initially slated for completion in the second half 2019 with BP saying it was part its plan to “divest more than $10 billion of assets globally over the next two years.”
Dragon Oil, a wholly-owned subsidiary of the Emirates National Oil Company, was, before the deal with BP, active in Egypt specifically in the 93-square-kilometer shallow water East Zeit Bay, located offshore southern Gulf of Suez where it has a 100% interest. The block is adjacent to oil producing fields of East Zeit, Hilal, Ashrafi, SW Ashrafi and Zeit Bay fields hence Dragon’s optimism about its Egypt investment.
BP and Dragon Oil’s transaction and the recent offshore gas discoveries could just be a few indicators of Egypt’s progress towards its ultimate goal of positioning itself as an energy hub in the Mediterranean region capable of playing a key role in energy security for parts of Europe, the Middle East and Africa.
In fact, the latest strongest indicator of the lucrativeness of Egypt’s offshore space was this week’s reaffirmation by Shell of its plans to “fully concentrate on growing its Egyptian offshore exploration and integrated gas business” and determination to sell off its current onshore upstream assets in the Western Desert with divestment talks with potential buyers expected sometime this quarter.
“We remain committed to Egypt and see our future in supporting the Government’s energy hub vision by growing Shell positions across the offshore and LNG value chain,” said Wael Sawan, Shell Upstream Director.
According to Sawan, offshore Egypt, which is expected to drive the country fast-expanding value chain “is where we can best leverage our expertise, deliver the strongest added value to Egypt, and optimize our portfolio to ensure the company delivers a world class investment case.”
Shell says currently its companies “are progressing with new offshore activities, including our West Delta Deep Marine (WDDM) Phase 9B project, which involves eight new development wells, and exploration in WDDM, for which a second offshore rig has been recently mobilized, that will be followed up with exploration in Rosetta as well as the recently awarded Blocks 4 and 6.”
Nearly 50 international oil companies including Shell, BP, ExxonMobil, Eni, Apache among others are likely to push Egypt into oil and gas surplus territory as the country projects an increase in demand for crude and natural gas to support the planned revamping of crude processing plants and scaling up of gas-fired electricity generation.
The government is inching to closer to implementing a crude refinery refurbishment program to address the issue of under capacity that has seen Egypt’s refineries operate at a capacity of 508,00 barrels per day (bpd) down from the nominal 840,000 bpd. Successful refurbishment will increase demand for additional exploration and production to sustain the revived processing capacity.
Egypt’s proven hydrocarbon reserves were estimated at 3.3 billion barrels of oil and an estimated 62.8 trillion cubic feet of natural gas by 2017.
Additionally, a flourishing offshore sector in Egypt would ensure more crude production that is needed to meet the planned $38 billion petrochemicals investment plan over the next five years.
With the signing early this year of contracts, valued at $800 million, between the Ministry of Petroleum and Mineral Resources and 12 new exploration and production concessions, including BP and Shell, for new offshore areas, Egypt could as well be on its way to achieving its long-held objective of being the upstream market leader in the Mediterranean basin and beyond.