VIEWS ON COMPANIES LIKELY TO CONSIDER A STAKE IN ZOHR
Natural Gas Europe reached out to many experts for their thoughts on two questions related to the recent Zohr gas discovery by ENI in Egypt: Which are the companies most likely to take a stake in the Zohr discovery should it become available? What are the possible drivers behind their decisions?
Our engagement did show a strong interest among experts, with many actively working on the issue and declining our invitation to respond to the two questions. Many also deferred comment given the early stages of this hypothetical proposition.
Sohbet Karbuz, Director of Hydrocarbons, Mediterranean Observatory for Energy (OME)
First of all, it is quite speculative that ENI would sell part of its stake in the field. The field can become a cash machine if it is developed as quickly as it is proclaimed. Even though total development cost of the field will be well beyond $7 bn, the price the produced gas will get is quite handsome, minimum $4/MMBtu max $5.88/MMBtu. Another speculation is the possibility that the field may extend to Block 11, licensed to French Total, into Cypriot waters, even though ENI itself has given no indication for that. If it does perhaps this would raise the interest of Total to take part in the field. Another potential candidate could be Edison, which is active in Israel, and has 50% stake (Petroceltic another 50%) at the North Port Fouad concession, next to the block where the Zohr field is discovered. Companies involved in the LNG plants in Egypt; particularly Union Fenosa Gas (a joint venture between Gas Natural Fenosa and Eni), the operator of the Damietta LNG plant, should also not be overlooked. Other potential candidates would include companies with deep pocket to help ease the financial burden of developing the field, companies that would like to (re)enter the Egyptian market or reinforce their presence there. However, until we have a better picture about the field in the coming months in terms of its real size and dimensions, speculations about acquiring a stake in it will likely continue.
Theodoros Tsakiris, Assistant Professor for the Geopolitics and Economics of Hydrocarbons at the University of Nicosia, and South Europe Programme Associate LSE IDEAS at London School of Economics
The most likely partner who has no ownership over any LNG capacity in the Eastern Med is Total. Total is also present offshore Cyprus and offshore Egypt and I believe that it has revitalized its interest in the region after the Zohr discovery which is almost adjacent to its own licence areas in Cyprus. Shell/BG could be another option as on offtaker of gas for Zohr provided of course that Cairo decided to direct a very significant portion of Zohr's discovery to its LNG facilities in Indku and Damietta.
Madalina Sisu Vicari, PhD candidate, University of Liège
First, the possibility of selling the stakes in the Zohr gas field has not definitely been nailed down. Given this gas field’s proximity to existing infrastructure, the sustainable costs of the investments-estimated at $7 billion so far, the option of entirely developing the Zohr field by ENI itself should not completely be ruled out. More, as ENI is the main shareholder of Saipem - a major company in the gas services sector - it could and should take advantage, in Zohr’s development, of this company’s specific experience and important track-record. Actually, ENI is facing two options with regard to the Zohr’s development: either it would attempt to monetize the gas field without selling any stake or it would proceed at selling stakes - but no less than 50 percent, in order to maintain its value and future development prospects. The final decision would be determined by several variables such as: 1. the share of the future gas output which would be destined to the Egypt’s domestic market-whose prices are not pegged to the oil; 2. the possibilities of exporting the output - so far it has been assessed the prospect of LNG exports to Europe; 3. ENI’s further decision with regard to its dividends; 4. and ultimately ENI’s strategy with regard to the place it intends to occupy onto the global gas market.
At this early stage, it is rather difficult to assess which companies would take a stake in the Zohr’s field, as some major issues are not clear yet: whether ENI would finally sell stakes; the percentage and the price of the stakes which would be sold; and the share of the output which would be destined to the Egyptian domestic market, along with the prospects of gas output export. In this context, it is worth mentioning that the Egyptian authorities had already announced that, under the production sharing agreement for Zohr’s field, 65% of the future output would go to the Egyptian domestic market, and 35% would remain to ENI. However, these figures remain to be confirmed. Nevertheless, given the aforementioned Zohr’s proximity to existing infrastructure and the sustainable costs of the field’s development, along with the windows of opportunity to supply an energy-hungry market like Egypt and export the gas to other markets, it would be very likely that many companies would manifest interest in acquiring stakes in the Zohr’s gas field. There is also the possibility that another energy-hungry country to see in Zohr an opportunity to satisfy its energy needs, as it was the case of China National Petroleum Corporation, which bought two years ago an important share of ENI’s Mozambique offshore gas field.
Nikos Tsafos, President & Chief Analyst, Enalytica
From a risk management perspective, it could make sense for ENI to reduce its share, but interest for entry into Zohr might be limited. For one, ENI has already done the heavy lifting (discovery), and so the entry price will be steep, especially if ENI believes that there is considerable upside in the block. Moreover, since this gas is likely to be sent largely to the local market, there are limited opportunities for any company to add considerable value through marketing or to see any upside from having physical access to the gas. Given these limitations, entry into Zohr would probably make most sense for an E&P player with existing operations in Egypt who is looking to expand their footprint. But it would not be surprising if there was lots of bargaining over the price, including a possibility that ENI would develop this alone.
Sergio Matalucci is an Associate Partner at Natural Gas Europe. He holds a BSc and MSc in Economics and Econometrics from Bocconi University, and a MA in Journalism from Aarhus University and City University London. He worked as a journalist in Italy, Denmark, the United Kingdom, and Belgium. Follow him on Twitter: @SergioMatalucci
Source: http://www.naturalgaseurope.com/zohr-gas-discovery-potential-players-25604
