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Is Eni's Egyptian Bet Paying Off?
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After a tremendously tough four years for Egypt’s energy sector, complete with widespread shortages and a collapse of domestic production and export market, foreign firms were finding it harder and harder to justify the risks of operating and investing there. In addition to mounting debt to foreign producers, Egypt was also struggling with security and political stability issues. And while political progress is debatable, the country’s energy sector does appear to be turning a corner of sorts, allowing some success for a handful of international firms.
Earlier this month, Italy’s Eni announced a newdiscovery in Egypt’s Western Desert, according to a company statement. The well is located in the West Melehia deep exploration prospect and began with an initial daily flow of 2,100 barrels. Seventy-six percent of the license is held by Eni through a local subsidiary.
“The discovery will be rapidly followed by the drilling of other delineation and development wells which should result in an estimated production of about 8,000 barrels per day by the end of 2015,” Eni said, according to Reuters.
The wells are the result of a successful bidding process from September of last year, when Eni won the rights to three exploration licenses. According to a Rigzone report, the licenses cover about 794 square miles. The Italian firm will also become the operator of offshore blocks, which run up against the Cypriot maritime border. The licenses expand the company’s presence in Egypt, making it one of the largest foreign operators in the country.
On the same day as Eni’s well announcement, Egypt announced another new exploration effort with a European firm. According to the country’s oil ministry, Egypt signed a gas exploration contract with France’s Total for efforts in the Nile Delta, alongside the state-backed EGAS.
Worth $20 million, the agreement will help Cairo seek out possible new gas developments to help reduce dependence on costly imports, which recently helped drive up the country’s energy sector debt to over $6 billion. As recently as 2011, Egypt was producing enough gas to provide exports to Jordan and Israel, but saw that ability collapse under the weight of security and financial challenges, not to mention a burgeoning gas production effort in Israel. Despite efforts of successive governments, violence and instability have plagued the country’s eastern Sinai, making investment and pipeline protection increasingly difficult to ensure.
For now, any oil progress will be weighed down by the uncertainty of the current global price collapse and the question of how much it will – or can- rebound. After all, new oil exploration always looks a lot more attractive with the sure bet of a June 2014 $100+ a barrel than this weekend’s levels, hovering around $50 depending on your market.
To help prepare for further new investment, Cairo has been working to provide the necessary infrastructure. In September of 2014, the country announced plans to dedicate $14.5 billion in petrochemical and refinery investment as a part of an expansive campaign to increase the country’s ability to meet increasing demand.
Source: http://www.forbes.com/sites/christophercoats/2015/01/31/is-enis-egyptian-bet-paying-off/
