Strategic Move From Egypt

Since the discovery by Eni SpA’s of the offshore Zohr gas field in 2015, interest by investors in the Egypt’s oil and gas industry has surged.

Egypt is focusing on attracting new investors by changing they are doing business. Egypt wants to become a new hub to export gas into Europe. By changing their current agreement operators would bear the cost of exploration and production for a share of the output. The key is operators could sell to anyone. The production shares will be review by concession.

The current agreement entitles investors to about a third of the concession production to help cover exploration and production costs. The remaining output is dived amongst operator and the government with the option to purchase producer’s entire share at a predetermined price.

The game changer was the discovery of the Zohr field, prior to the discovery the government began to import comparatively more expensive liquefied natural gas. The country battled a financial crisis in 2012 with a $6.2 billion overdue as of July the overdue payments is at $1.2 billion with the promise from the government to repay them all.

With the production in full swing of the Zohr field the government will announce the end of the LNG imports. Egypt is planning to restart exporting LNG next year. With the growing demand of domestic energy, the country needs to increase the exploration and attract investors.

With the change on how the government is going to conduct new business with oil companies, it will facilitate operators to enter the race to new discovery and exploration. The changes are going to be implemented in the second quarter of the 2019. It coincides with the exploration blocks offered in Egypt’s next bidding round in the Read Sea. The tender will be announced at year-end.

By giving free range for companies that are owning shares to manage them as they see fit. It is a great incentive for those companies, if they pay all exploration and production costs.

With more flexibilities from the government that now allows private companies to import gas and re-export it through the country’s LNG facilities ending a state monopoly but also by adopting a flexible gas-pricing formula for companies already operating in Egypt to boost production.

It is a great way for Egypt to place themselves in a strategic position as a strong hub and exporter knowingly Europe has becoming a great importer of LNG.