All oil exploration and production concession agreements in Egypt have been operating according to Production Sharing Agreements since 1973. This was a shift from the tax/royalty system towards equal sharing agreements concluded between the government, represented by the Egyptian General Petroleum Corporation (EGPC), and foreign companies, with a view to reduce the pressure on the state budget. The sharing system was also prevalent in developing countries with respect to prospecting and producing crude oil, and was then known as the Indonesian model.
With the beginning of gas exploration activities in Egypt in the mid-1980s, the production sharing agreements were modified to accommodate the gas industry. Prior to this change, partners were not permitted to share gas unless it was exported as liquefied natural gas (LNG). The amendment was made to generally include gas in such agreements using a special formula for pricing. It could be said that it was acceptable to use this system for gas in shallow water and superficial layers.
