The Ministry of Petroleum has reached a major deal on petroleum exploration and drilling with British Petroleum (BP), in a move that some are calling the biggest foreign contract of the past three decades.
Sources within the Petroleum Ministry told Al-Masry Al-Youm that the agreement gives BP full rights to production in the North Alexandria field until investment costs are covered, which will take an estimated twenty years. This arrangement, known as the “post-production investment model,” will replace the “production sharing” model currently in use.
The sources added that the agreement, called “internal importation,” will put Egypt on the list of gas-importing countries for the first time since gas exploration and production began in the late 1960s. The agreement grants the General Petroleum Authority first purchasing rights at a price agreed to by both parties and pegged to international oil market prices.
The new contract will void a July 2001 agreement between the Petroleum Ministry and its business partners that set gas prices, according to Al-Masry Al-Youm’s sources.
That agreement set the maximum price of gas at US$2.65 per million BTUs. According to sources, the new price for North Alexandria field gas will be tied to the international price of crude oil, with a minimum of US$50 per barrel and a maximum price of US$120 per barrel. This will raise the price Egypt pays for its gas to between US$3 and US$4.10.
“Among the advantages of the agreement is that it will not burden the General Petroleum Authority with any investment expenses during exploratory operations,” one of the sources told Al-Masry Al-Youm. However, he also noted that the agreement would force the authority to abandon production sharing, which allows it to obtain a net 300 million cubic feet of gas daily at no cost, compared with the 900 million cubic feet of gas the authority will obtain at a price negotiated between the two parties under the new system.
The sources also said another disadvantage of the new agreement is that it will push the authority’s other partners to demand the same concessions granted to BP.
Translated from the Arabic Edition.
