Egypt Tries Harder to Stop Energy Firm Exodus

MarineLink.com
Thursday, March 06, 2014

By Lin Noueihed, Reuters

Egypt is enhancing exploration terms and striving to repay nearly $5 billion it owes to foreign oil and gas producers as it struggles to prevent them fleeing to more promising prospects elsewhere in Africa.

Cairo needs them to expand exploration and bring new finds to production if it is to keep the lights on and avoid more civil unrest. But investors are hesitant - Egypt pays them barely enough to cover investment costs.

The costing issue has been compounded since the 2011 overthrow of Hosni Mubarak by Egypt's inability to pay foreign firms for existing output and its decision to divert for domestic use the share of gas they normally get to export.

The crisis has left BG Group, a major investor which relies on Egypt for almost a fifth of its output, unable to meet export commitments. The British firm has said it would not invest further until more debts are paid and assurances made.

Low investment has seen Egypt's gas production drop to just over 5 billion cubic feet a day from 6 billion in 2012, said Martijn Murphy, analyst at energy consultancy Wood Mackenzie.

But smaller players say Egypt has raised its game. Its new licensing rounds have attracted bids despite the turmoil.

Ireland's PetroCeltic, which relies on Egypt for 70 percent of its output, was among three firms to sign up for new acreage last month.

"They have been very creative in keeping investment flowing and keeping investors engaged," chief financial officer Tom Hickey told Reuters. "For instance, the new rounds give you the opportunity to discuss the gas price, if you find it, rather than setting it in the contract."

Hickey said onshore gas producers currently receive a maximum of about $2.75 per 1,000 cubic feet, far below the prices paid in the North Sea and elsewhere.

The new leeway is attractive to investors, allowing them to push for higher prices depending on distance from shore, reservoir depth and what the discovery will cost to develop.

Egypt is offering other perks too. It is allowing firms to offset the signature bonus - a one-off fee paid to seal an exploration deal - against receivables rather than pay upfront.

In an important change, new concessions would be able sell directly to commercial users, such as steel or power plants, bypassing government entities, executives and analysts said.

WoodMac's Murphy said these users would pay more, partly relieving the state of huge subsidies while satisfying producers' demand for prices that better reflect their costs.

Such measures are vital, say analysts, if Egypt is to stop producers from fleeing to geologically better-endowed neighbours such as Algeria.

Repaying Arrears
Producers welcome the promise of higher future returns, but say new investment will not materialise while Egypt struggles to pay for output, even at today's lower prices.

Oil Minister Sherif Ismail said last month that Egypt had already repaid foreign producers arrears worth $1.5 billion, and would repay a further $3.5 billion by 2016.

About $1.2 billion is owed to BG alone, but it says the outstanding balance has fallen on last year. Smaller firms say they have seen a larger overall share of their debts paid.

Calgary-based Sea Dragon Energy, a small oil producer that relies entirely on Egypt, said it was no longer owed any money.

"It has improved dramatically recently. A year ago we were 180-210 days out on receivables," CEO Paul Welch told Reuters.

"And they have accelerated the approval process in the ministry... Things are getting signed on a much swifter basis."

PetroCeltic said its arrears fell to $80 million at the end of 2013 from $125 million when it entered Egypt in August 2012.

But others have seen the debts mount as Egypt struggles to pay back larger sums. Dana Gas, which relies on Egypt for over half its output, said it received $53 million at the end of 2013, bringing its total arrears down to $274 million.

That represents a $38 million increase from the previous year, but chief executive Patrick Allman-Ward said the UAE-based company was confident a solution would be found.

Dana Gas signed a new contract with Egypt last month and Sea Dragon acquired two new concessions in April 2013.

Welch said the political turmoil also had a silver lining: energy firms' costs had fallen as the Egyptian pound weakened.

"We are aggressive on Egypt as we think things are improving and the time to invest is now," he said.

Offshore Potential
BP said last year it had found offshore gas in Salamat, the deepest well ever drilled in the Nile Delta.

It is evaluating how to proceed but a spokesman said BP remained committed to Egypt and to its major investment in the existing West North Delta project despite delays.

If it is to reverse the decline in gas production and exports, Egypt must ensure it taps these large deepwater finds that are costly to develop and require the expertise and financial clout of multinationals like BP and BG.

"The Nile Delta fields are maturing and that means you have to keep drilling new wells just to stand still," Murphy said.

"And there have not been significant investments in new fields because the investment climate is just not conducive to making decisions on multi-billion dollar projects."

Executives said Egypt had agreed in principle to pay a higher price for gas from offshore wells which, unlike oil, only get developed with an assured market and agreed price.

Murphy said prices upwards of $5 per 1,000 cubic feet had been offered in the past couple of years on the later phases of existing production-sharing contracts for major projects.

Executives say talks are ongoing over large projects with the industry pushing for $7 per 1,000 cubic feet - higher than Egypt pays now but less than it would spend on liquefied natural gas (LNG) imports if its own resources lie unexploited.

Egypt already expects to import an extra $1 billion of refined petroleum products and secure significant gas supplies as it scrambles to avert a summer crunch.

"Developing its own resources is a lot cheaper than importing LNG," Murphy said. "The problem is Egypt needs gas now and some of these projects will take years to develop."

Maritime Today


The Maritime Industry's original and most viewed E-News Service

Maritime Reporter April 2016 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

Chevron Suffers Loss, Plans Job Cuts

Chevron Corp. reported a first-quarter loss as slumping oil prices continued to drag down revenue. The company said that it is "on target" to lay off a total of 8000 workers by the end of 2016,

China COSCO to be First through the Expanded Panama Canal

China COSCO Shipping has won the draw for its container vessel Andronikos to make the ceremonial first transit through the Expanded Panama Canal during the waterway’s inauguration on Sunday, June 26.

Sellick Equipment to Open New Facility

On April, 20, 2016, at the young age of 97 years, Walter Sellick along with sons Howard Sellick - President, David Sellick - Vice President and grandson Colin Sellick - Systems Manager,

Contracts

Great Lakes Inks M.E., N.C. Coastal Protection Project Deals

Great Lakes Announces $55 Million in Subcontract Work in the Middle East and Award of $38 Million for a Domestic Coastal Protection Project Great Lakes Dredge

Olympic Subsea Vessel Bags Contract

Olympic Shipping has secured a contract for Olympic Delta, an inspection, maintenance and repair (IMR) vessel, with an international client  to work on a renewable energy project.

Asia Tankers-VLCCs Rates Ease as Tanker Jams Fade

Port congestion eases at Basra and Chinese ports; tanker demand set to expand on lower oil prices. Freight rates for very large crude carriers (VLCCs), hurt by slower-than-usual release of cargo,

Finance

Oil Price Bottoming Depends on Global Growth - IEA chief

International Energy Agency (IEA) chief Fatih Birol said on Sunday that oil prices may have bottomed but that would depend on global economic growth. Asked if oil prices had reached a bottom,

ExxonMobil 1Q Profits Plunge 63%

Highlights   * Earnings of $1.8 billion decreased 63 percent from the first quarter of 2015.   * Earnings per share were $0.43 assuming dilution.   * Cash

Shipping, Key Ingredient of EU’s Africa Agenda

The African economy has become one of the most promising global growth markets. Shipping is taking care of the largest part of international trade and in Africa

Energy

Oil Price Bottoming Depends on Global Growth - IEA chief

International Energy Agency (IEA) chief Fatih Birol said on Sunday that oil prices may have bottomed but that would depend on global economic growth. Asked if oil prices had reached a bottom,

Blacklisted Tanker Returns to Libya's Zawiya Port

A tanker that Libya's rival eastern government had been using to try to export oil in defiance of the Western-backed administration in Tripoli returned to the country on Saturday,

Lerwick Harbor sees Seasonal Boost

The opening of the offshore season in northern waters has seen specialist oil industry vessels return to Lerwick Harbor during April to support subsea development projects.

News

Oil Price Bottoming Depends on Global Growth - IEA chief

International Energy Agency (IEA) chief Fatih Birol said on Sunday that oil prices may have bottomed but that would depend on global economic growth. Asked if oil prices had reached a bottom,

Blacklisted Tanker Returns to Libya's Zawiya Port

A tanker that Libya's rival eastern government had been using to try to export oil in defiance of the Western-backed administration in Tripoli returned to the country on Saturday,

Lerwick Harbor sees Seasonal Boost

The opening of the offshore season in northern waters has seen specialist oil industry vessels return to Lerwick Harbor during April to support subsea development projects.

Logistics

Cory Brothers Opens in Amsterdam Port

Cory Brothers Shipping Agency is delighted to announce the opening of Cory Brothers (The Netherlands) BV, in the port of Amsterdam, servicing the ARA range. The

Shipping Industry Flying On The Dragon’s Back

As the many Greek players in the shipping industry know well, the legend of Icarus tells us the dangers of flying too high. Merchant vessel earnings eventually

Panama Canal Dismisses ITF Claims

The Panama Canal has dismisses claims by the International Transport Workers’ Federation (ITF) that questions industry standards and the operation of the Expanded Panama Canal’s new locks.

Offshore Energy

Subsea 7 Profits Dip in Q1

Subsea 7 S.A. announced its financial results for the first quarter ending March 31, 2016, reporting revenues of $746 million, down 37 percent from the prior year period.

Ulstein Verft's First Wind Service Vessel Launched

Shipbuilder Ulstein Verft has launched its first vessel within the renewable energy segment, and also the first with the newly-developed X-STERN hull line design.

Incat Crowther Supplies Crewboat Design, Build Kits

Incat Crowther has been awarded a contract with shipbuilder Astinave EP of Guayaquil, Ecuador for the supply of vessel design services and aluminum component kits for a pair of 22.

 
 
Maritime Contracts Maritime Security Maritime Standards Naval Architecture Navigation Pipelines Salvage Ship Electronics Sonar Winch
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.1533 sec (7 req/sec)