Egypt is on a good track to export oil. Indeed, this country in the Horn of Africa signed just under 100 contracts with international oil companies (IOCs) between 2015 and 2021 for a value of USD 17 billion. He offered signing bonuses for drilling 319 wells.
In Egypt, all of the country’s oil production is carried out by foreign investors, including some of the most well-known companies in the sector, such as Shell, BP, Eni and APA Corporation (formerly Apache). The International Trade Association reports that between 2015 and 2021, Egypt signed just under 100 contracts with international oil companies (IOCs) – worth USD 17 billion – and offered signing bonuses for drilling 319 wells. In 2022 alone, 53 new oil and gas discoveries were made in Egypt, according to the 2022 Ministry of Petroleum and Mineral Resources Achievement Report.
But the land of the Pharaohs will not auction potentially prolific blocks (in January 2021, proven reserves amounted to 3.6 billion barrels of oil and 75.5 trillion cubic feet of natural gas) and then simply collect royalties.
The only way for IOCs and independents to get involved in Egypt’s upstream sector is to create a joint venture with a public entity such as the Egyptian General Petroleum Corporation (EGPC). Although contractual agreements take different forms – production sharing being the most common – this approach allows Cairo to keep an eye on its resources (and ensure proper extraction) while enabling partners to access opportunities with reduced risk. Today, no fewer than 50 international and independent oil companies participate in joint ventures, which have a considerable impact on the country’s economic well-being. According to the International Trade Association, hydrocarbon production is “by far the largest industrial activity in the country.” In fiscal year 2019-20, with relatively stable oil production, it represented about 24% of total GDP.
A committed partnership
As if Egypt’s vast resources were not enough to interest global energy companies, the government’s supportive policies reinforce their commitment to creating attractive investments. For example, while the CPSM does not establish a joint venture until the foreign company has completed exploration wells (and thus has the opportunity to determine if the project is viable), it often helps offset sunk costs – which can amount to millions of dollars – by giving a larger share of production to its partner. The fact that production costs in Egypt are among the lowest in the world is also relevant to this situation, which means that it takes less time for companies to recover their investment expenses. And, of course, having a government entity as a partner allows access to intermediate and downstream facilities at a lower cost.
According to the report “The State of African Energy Q1 2023 Outlook Report”, these factors pay off for companies like the American APA Corporation, which partners with the EGPC in Khalda Petroleum Company, Egypt’s largest oil producer.
Despite its long-term and highly successful relationship with APA, Egypt is not prepared to rest on its contractual laurels. In 2021, the country modernized and consolidated its production-sharing agreement with APA and its Chinese partner in Egypt, Sinopec. Aimed at boosting drilling rigs and production, the 20-year agreement, valued at US$3.5 billion, had an almost immediate effect: shortly thereafter, APA and Sinopec announced plans to double the average number of rigs compared to 2021. to triple the number of wells completed and increase upstream production by 12% to 15%. APA held 5.3 million gross acres in Egypt at the end of 2022, most of which – approximately 68% according to the company’s estimates – is not operating. The company says Egypt offers “considerable opportunities for exploration and development for the future.”
In parallel, the other joint ventures of EGPC – Belayim Petroleum Company (PETROBEL) (with Italian Eni), Gulf of Suez Petroleum Company, or GUPCO (with British BP), and AGIBA Petroleum Company (Eni and Russian Luckoil) – also seek to consolidate Egypt’s position as a regional energy hub. But it’s not just about oil – after all, Egypt is Africa’s third-largest producer of natural gas – and it’s not just about big names in energy.
The independent German company Wintershall Dea, for example, may not be as well known as the international oil companies, but it has been in Egypt as long, if not longer. The company started producing oil in the Gulf of Suez 50 years ago, but has since turned to natural gas. Among other partnerships, it partnered with EGAS, the Egyptian state-owned gas company, in a 50-50 joint venture called DISOUCO.
New players in the mix
Recent contract activity suggests that the joint venture model will be the foundation of the Egyptian oil and gas industry for years to come. For example, early last year Egypt signed new agreements with Canadian independent companies Transglobe Energy Corp. and Pharos Energy, based in London, to explore, develop and produce oil in the eastern and western deserts. The agreement includes approximately USD 506 million in new investments. Capricorn Energy, headquartered in Edinburgh, Scotland, which acquired Shell’s land assets in the western desert in 2021, is another new name to watch. The company has already announced that production exceeds expectations and plans to increase its capital expenditures accordingly. With respect to the IOCs, Shell, Eni, BP and BP are all preparing new drilling programs. Chevron said it would focus on Egypt and Suriname in the future.
It also suggests that the world needs more energy, and not less, and that efforts to discourage investment in African energy in the name of global decarbonization have not been as successful as Western climate activists would have liked.