Gas-Hungry IOCs Delve Deeper Into Egypt's Upstream

International oil companies (IOCs) seeking to boost their gas portfolios see Egypt as a prime destination thanks to its prolific Mediterranean deepwater and Nile Delta. The North African country produced 69.2 billion cubic meters (6.69 billion cubic feet per day) of gas in the 2021-22 fiscal year, generating $8 billion in gas and LNG export revenue. Although its economy is still vulnerable to external shocks, Egypt has shown itself to be a flexible partner for IOCs, offering gas and transition opportunities. Here is the state of play ahead of the COP27 climate change conference in Sharm el-Sheikh next month.

• Major drilling campaigns are on the horizon.

A host of majors are next year planning to start drilling in Egypt's West Mediterranean, Petroleum Minister Tarek el-Molla told reporters on the sidelines of a recent industry conference in Nicosia, with seismic complete and data interpretation in the final stages. Shell is expected to begin drilling in the North East Amriya (Block 3) offshore area in mid-2023, while Eni should also start work in its North East Hap'y Block around the same time.

Chevron and BP are also gearing up to drill. BP, which together with its partners produces some 60% of Egypt's gas, was awarded the King Mariout Offshore Area in the West Nile Delta in June. Seismic firm CGG is meanwhile shooting 3-D seismic for BP in the Nile Delta covering the firm’s 1.5 trillion cubic foot Atoll and Atoll North fields. Chevron, which is operator of four offshore exploration blocks and has nonoperating interests in two others, has said Egypt is now one of its two main exploration focuses worldwide, along with Suriname.

Egypt's Mediterranean and Nile Delta Concessions

Exxon ostensibly remains committed to exploration offshore Egypt despite selling its ownership of Block 3 to Shell. However, one executive says that while arriving to much fanfare in 2019, the US major has remained inactive, puzzling some in the local industry. Exxon has yet to comment on its long-term commitment to the country’s upstream.

• Wintershall is among the pacesetters as Europe chases Egyptian gas.

The recent interest from the EU in Egyptian gas supply as it seeks to replace Russian volumes has led European companies to step up their engagement in the country, whose output has risen by some 66% from 2015-16 levels. Wintershall Dea's Egypt country chief Sameh Sabry confirmed to Energy Intelligence on the sidelines of the Nicosia conference that the German company is "discussing areas and opportunities to grow in Egypt and to play a bigger role in the East Med region." Its CEO Mario Mehren and COO Dawn Summers both visited Cairo earlier this month.

Wintershall, for which Egypt is a core region — particularly as it looks to wind down its business in Russia — is currently drilling the second of a planned five to seven wells at its onshore Nile Delta East Damanhour Block close to its Disouq producing facility that should help fast-track development. It is also “very, very close” to finalizing a farm-in deal for “at least one” of the large frontier West Mediterranean blocks, Sabry said. Wintershall is also a partner in BP’s West Nile Delta project, which has suffered water encroachment across its fields, specifically Giza and Fayoum, El-Molla said previously. A decision on a second phase development of BP's Raven field, aimed at maintaining the current 830 million cubic feet per day plateau, is targeted for early next year, Sabry said.

• Egypt needs IOCs to find another Zohr.

Key fields in Egypt are depleting at a rate of 10%-15%, according to El-Molla. Given rising domestic gas consumption, that means Egypt will need to make some more discoveries like Eni's 30 Tcf Zohr find in 2015 to be able to satisfy local demand and provide a regular gas bridge to Europe as it transitions to a low-carbon economy by 2050.

The European Commission’s provisional LNG supply deal with Egypt could see Europe funding future liquefaction projects if required and El-Molla confirmed that “if in the coming few months, we would be able to discover additional gas offshore, then ... not a new plant but a new train” might be possible. The 7.2 million ton per year capacity of the Shell-operated Idku LNG facility could in theory be tripled, while the 5.5 million ton/yr capacity of the Eni-operated Damietta plant could be doubled.

• Contract renegotiations continue as Cairo looks to keep investors.

Conscious of the steep decline rates and having already suffered an energy crunch in 2012-14 when rampant domestic demand outstripped marketed gas exports, Egypt has proved willing to be flexible on fiscal terms to keep IOCs in the country and encourage more gas production.

Gas-focused regional independents like Dana Gas of the United Arab Emirates are seeking to consolidate portfolios in Egypt. Dana plans to split its 14 permits into three separate concession areas to improve its fiscal terms and allow for more capital investment to maximize gas output, CEO Patrick Allman-Ward told Energy Intelligence. It hopes to have negotiated an agreement with state Egyptian Natural Gas Holding Co. (Egas) by the end of this month. The aim is also to stem the natural decline from existing fields, with three new exploration wells planned.

Dana is following in the footsteps of other independents like APA, whose operational fortunes saw a turnaround after it renegotiated the terms of its production sharing contract last December.

• Upstream players see potential for carbon capture and storage (CCS).

Ahead of next month's COP27 climate change conference, Egypt has started to attract more diverse investors to its energy sector, such as Abu Dhabi’s Masdar and Saudi Arabia's Acwa Power. Acwa will develop a 1.1 gigawatt onshore wind project in the Gulf of Suez, while Masdar has a provisional deal to build 4 GW of electrolyzer capacity by 2030 for output of 480,000 tons of green hydrogen per year.

Existing upstream investors like Eni and Wintershall have expressed interest in CCS projects. The German firm sees Egypt as a potential pioneer in the region because “we believe Egypt has all the ingredients for it … depleted fields [and] the emitters,” Sabry said. Eni has invested $25 million in a small project capturing and storing 25,000-30,000 tons of carbon dioxide per year at its Meleiha field in the Western Desert. Cairo has already instructed joint venture companies across the hydrocarbon sector to define their emissions and reduce them year-on-year.