EGYPT - The Gas PSA.

During exploration the same terms as those for oil apply to gas, but with a longer period for evaluating gas finds. In the event of a gas discovery, the operator will be entitled to recover E&P costs and a share of gas production. The length of gas PSAs is 35 years, with the possibility of a five-year extension. Egas buys the operator's share of the output. For export-oriented ventures there is a different arrangement.

Because of a big increase in the volume of gas purchased for the domestic market, since late 2001 Egas has been asking sellers to defer payments for up to three years. The interest Egas offered to pay in late 2001 was 200 basis points above Libor. But since then, as interest rate fell to their lowest point in 40 years, Egas reduced its offer. Some companies have since agreed to deferred payments but for shorter periods, while others are still insisting on getting paid on time.

The gas purchase price formula, approved by parliament on Feb. 19, 2001, provides a ceiling of $2.65/m BTU if the price of Brent is $20/b or above and a floor of $1.50m BTU if Brent is $12/b or lower. But since late 2003 Egas has wanted to de-link the price of natural from crude oil and peg it against some of the end-products, such as electricity.

Arabian Oil Co. (AOC) of Japan in late July 2005 signed a PSA with EGPC to produce 6,000 b/d of crude oil in the second half of 2007 in the North-West October field in the middle of the GoS. The output is to be raised later to 12,000 b/d and AOC hopes to raise the field's recoverable reserves to 40m barrels. This will mark AOC's first production at its own oil field in the Middle East since it lost a concession in the Saudi sector of the huge Khafji oilfield in 2000 and rights to the Kuwaiti sector in 2001. AOC's move into Egypt is part of plans to invest 30 bn (US$270m) over three years to March 2008 for development in the Middle East and neighbouring areas.

AOC is a wholly owned unit of Tokyo-based AOC Holdings, in which the Saudi government and Kuwait Petroleum Corp (KPC) each holds 7.8%. AOC has also joined a project run by Alexoil SA of Switzerland to explore another block in Egypt. Operations are expected to begin in the field in South Zeit Bay in late 2007.

Devon Energy of the US (50%) in mid-2005 got the 4,901-sq-km onshore North Qarun block close to Cairo in the Gindi Basin of the Western Desert as part of a JV with affiliates of Santos of Australia (25%) and Teikoku Oil of Japan (25%). The JV is committed to spend US$5m (A$6.5m) over the first three-and-a-half-year phase, drilling two exploration wells and acquiring and processing seismic data. Devon is the operator.

This follows Santos' initial entry into North Africa with the 2004 farm-in into an eight-well exploration programme, covering three exploration blocks in Egypt with Devon Energy. Santos Managing Director John Ellice-Flint in mid-2005 said: "The North Qarun block adds to Santos' growing international portfolio of exploration acreage, further diversifying and expanding our exploration options. Importantly, it is close to existing oil and gas infrastructure with spare capacity". Ellice-Flint said it was pleasing to team up with successful companies like Devon and Teikoku, which both have excellent exploration credentials. Santos said the seismic programme was to begin late in 2005 with the first of the exploration wells tentatively planned for 2007.

A JV of Devon and Teikoku is doing a seismic survey and and should drill two exploration wells in the 446-sq-km South October block in the GoS. Devon holds 65% in this and Teikoku the remaining 35%.

Petroleum Minister Sameh Fahmi in August 2005 signed five E&P amendments covering blocks in the GoS and the Western Desert and including obligations by the firms to spend at least $109.5m and to drill 23 wells: (1) The North Qarun deal between EGPC and the Devon-Teikoku-Santos JV - as mentioned above. (2) The E&P deal for the North Ramadan block in the GoS area next to the North July development lease between EGPC, the independent IPR of the US and India's ONGC Videsh (OVL) - with the latter saying the block has a potential 600m barrel oil reserve in place. (3) The E&P deal with EGPC for South October involving Devon and Teikoku. (4) An E&P deal between EGPC and IPR for a 50-50 JV with Western Desert Operating Petroleum Co. (WEPCO) to explore the Alamein field. (5) An E&P deal for the North Logia block in the GoS between Ganoub El-Wadi Holding Petroleum Company (Ganope) and Burren Energy of the UK.