Arrears owed to foreign partners to be fully repaid by end 2019: Minister of Petroleum

Mohamed Adel
13 Min Read
Minister of Petroleum and Mineral Resources Engineer Tarek El Molla

In light of the continuous development of the Egyptian oil sector, the successive discoveries of oil and natural gas fields, and Egypt’s plan to transform into a regional energy centre in the region, Daily News Egypt sat down for an interview with the Minister of Petroleum and Mineral Resources Tarek El-Molla. The transcript for which is below, lightly edited for clarity:

How much is foreign partner’s share of gas, oil fields paid monthly? And what about cost of fuel, gas imports?

The foreign partner’s share of the oil and gas bill is approx $650-700m per month, based on the global oil prices.

The monthly import bill for fuel and natural gas has declined to about $550m in the current fiscal year (FY), down from an average of $700m last year.

The import bill varies from month to month as gas imports recently witnessed a significant decline in imported shipments due to the dependence on local gas production, which witnessed significant increases and is expected to continue to increase gradually over the coming period.

Egypt will stop importing liquefied natural gas (LNG) after self-sufficiency at the end of this year through local production, soon after completion of the development of major discoveries and putting them into production.

Are there oil agreements currently underway?

Work is underway to finalise the issuance procedures of 14 new petroleum agreements. We have signed the largest number of oil exploration agreements since 2014, reaching 87 new agreements. This has contributed to putting Egypt as a main player in the oil and gas industry.

What is status of Edison Company in its concession area, given that exploration period concluded in 2017?

The Italian Edison Company is currently operating in the Mediterranean Sea in two concession areas: North Theka and Ras Habi in the south of the Zohr field. There are some good indicators. The drilling will soon start after Edison completes processing the seismic data of both areas.

The studies and evaluation of the geological structures carried out by the company showed potential. This drilling will then start in the second half of 2019.

How much is investment of foreign partners? How much do we owe them?

The investments of foreign and joint companies operating in the field of research, development, and operation reached $10bn at the end of the last FY 2017/2018. Investments are expected to reach $10bn in the current year 2018/2019.

As for the arrears of the partners, we were able to reduce them to an unprecedented figure at $1.2bn at the end of the FY that ended in June 2018, down from $6.3bn in 2012.

The lowest figure was at $1.35bn on 30 June 2010. We will be able to pay the last of that by the end of 2019.

The Ministry of Petroleum works to reduce the indebtedness of the foreign partner in parallel with the payment of periodic dues to purchase their share in the production of the local market, and this is a strong incentive for companies operating in Egypt to increase their oil investments.

Has Iraqi side agreed to increase crude oil shipments to 24m barrels?

We recently agreed with the Iraqi side to renew the contract with the same quantities of last year at 12m barrels from January 2018 to September 2018, through six shipments of 2m barrels each.

Which projects to be linked to production during coming period?

We are currently directing all our efforts to expedite the completion of the Zohr field, having successfully begun early production in the first phase in December 2017. Production was expected to reach 1.75bn cubic feet in August and 2bn per day before the end of the year, and then to 20.7bn in 2019. The investments of the project amount to $12bn.

The second phase of the northern fields of Alexandria, Fayoum, and Giza will be linked to production before the end of this year, and then Raven in 2019. The production of the fields should rise gradually to reach 1.5bn cubic feet per day.

The confirmed project reserves in all stages and fields are estimated at 5tn cubic feet of gas and about 55m barrels of condensates.

Other projects are underway to start production, such as the 9B stage in West Delta with Shell and North Port Said, as well as North Sinai and the second phase of Desouk field in the Nile Delta, in addition to the planned projects, such as Salamat and Hadwa.

What about agreement with Shell to start development phase 9B in Borollos?

Actual work to develop the 9B stage with Shell began months ago. We are now drilling the wells in the deep Mediterranean Sea. By 2018/2019, we will see the first production from these fields.

Shell will invest around $750m during the project period to produce 350m cubic feet of gas per day.

This comes after a two-year stop, following the accumulation of foreign partners due in the Borollos and Rashid areas.

What about ministry’s plan to increase production of crude oil, gas during coming period?

In order to maximise the production of crude oil, the Ministry of Petroleum relies on studying and finding opportunities to increase production from the existing fields while accelerating the completion of development plans and new projects, as well as working to reduce the cost of production.

Moreover, we are working to increase the efficiency of the production facilities and the expansion of research and exploration, especially in the promising areas in the Western Desert, which witnessed two recent discoveries by Eni. This encourages international oil companies to direct their investments there.

Will Zohr achieve self-sufficiency with its 30tn cubic feet?

Zohr is the biggest gas find in Egypt and the Mediterranean. It will contribute to meeting part of the market needs. Growing production from Zohr and other fields will contribute to reaching self-sufficiency of gas before the end of this year.

This means we will stop importing LNG. This is why we give maximum priority to the implementation of these projects and stepping up production.

Hence, we formed a supreme committee chaired by the minister of petroleum to follow the work development. The committee follows the work by field visits and meetings to ensure commitment to the timetable.

What about ministry’s plan to launch new bids?

International bids for exploration for oil and natural gas in the Red Sea will be put forward before the end of 2018, based on the results of the seismic survey there and to build on the efforts of the state in the demarcation of the border with Saudi Arabia.

The project provides Egypt with the opportunity to obtain more clear data for deep geological structures, sedimentary basins, and potential oil reservoirs to start oil activity in that pristine region.

One of the fundamentals of the oil work is the launching of international bids for exploration and then the conclusion of oil agreements. We have recently offered 11 bids in the sedimentary basins in the Gulf of Suez and the Western and Eastern deserts, as well as 16 in the Mediterranean Sea and the Nile Delta.

How many companies have been approved to import gas so far?

No approvals have been granted so far. We are studying requests submitted by the Gas Market Activity Regulatory Authority.

What are details of recent oil discoveries in Western Desert?

The South West Meleiha oil discovery was carried out by the Italian company Eni in the Faghur Basin in May, roughly 103 km from Siwa Oasis in the Western Desert at a depth of 5,100 meters. The find will output 2,300 barrels of crude oil per day at 32 quality level, next to 400,000 cubic feet of gas per day.

In July, Eni announced the successful drilling of the second well, SWM B1-X, about 7 km from the first well, at a depth of 4,523 metres with a production of 5,130 barrels per day.

What are latest developments of new projects in petrochemical sector being implemented?

A number of new petrochemical projects are currently being implemented, which will achieve the highest value added and high returns. These include current projects and more that are being studied.

Future projects for refining and petrochemicals are being studied in the New Alamein area, according to Egypt’s Vision 2030 in order to serve the expected population expansion and investment of the geographical location near Al Hamra Petroleum Port. There are opportunities for private sector participation in such projects.

We are also studying the establishment of an integrated complex for refining and petrochemicals in the Suez Canal Economic Zone in cooperation with the Japanese side, represented by Toyota Tsusho, which is specialised in the global establishment of such mega projects.

In addition, there is the largest petrochemical complex in the Middle East in the SCZone in Ain Sokhna, with investments of $10.9bn on an area of 5m sqm.

There is also the first phase of the wood panel production project, which will exploit the agricultural waste in Kafr El-Sheikh with investments of €80m.

The expansion project of Sidi Krier Company to produce propylene and its derivatives is also being implemented in two phases with investments of $1.7bn.

Finally, the project of production of formaldehyde methanol derivatives in Damietta with investments of about $50m is a model for maximising the benefits of petrochemical products.

What has been done about modernisation of oil sector, target of increasing gas production?

Egypt seeks to increase total natural gas production to about 6.5-6.75bn cubic feet of gas per day by the end of this year, up from 6bn cubic feet now.

In addition to achieving gas self-sufficiency before the end of this year and completely stopping the importation of liquefied natural gas, we give high priority to the implementation of these projects according to the timetables set and accelerating production.

The Ministry of Petroleum is implementing a project to develop and modernise the oil sector to achieve the goal of increasing the production of petroleum wealth during the next phase through the fourth work programme to improve the performance of the production activities, which adopts several axes to develop the country’s oil and gas resources and increase local production.

This is done through the promotion of activities and increasing investment in research and exploration for oil and gas through the launch of new global bids to attract investments, the most recent of which were two bids in 2018 to explore gas in 27 sectors covering most of the sedimentary basins in Egypt.

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