Egypt to Facilitate Oil Exploration

RECENTLY, several major oil companies announced substantial decreases in their investments in Egypt, many of them searching for better opportunities in Russia, Eastern Europe, and other countries.

British Petroleum, Total, Elf Aquitaine, and others, all decided to scale down. Some companies have been discouraged by Egypt's relatively low production rates.

These reports initially led to concern that Egypt's oil production could be significantly reduced. Industry sources cautioned that Egypt has to act quickly to continue to compete in the changing market.

"Egypt is sitting on significant undiscovered oil and gas reserves. Egypt will not discover these reserves, however, unless the business environment is very positive. We have seen indications of this, but it needs faster development," says Dr. Tarek Heggy, chairman of Shell Companies in Egypt.

For Egypt, oil is the country's No. 1 export and a major source of foreign currency. Egypt's oil earnings jumped by 70 percent to $1.54 billion in the year ending June 1991 due to higher prices during the Gulf crisis. Lower oil prices are forecast for 1992.

Half of Egypt's production of 870,000 barrels per day goes to the domestic market. The country has a growing population of 56 million people. With estimates of Egypt's known reserves as enough for only 17 more years, continued oil exploration is needed to sustain the industry.

In order to continue attracting foreign companies, the new petroleum minister, Hamdi al-Banbi has promised to increase incentives in high- risk areas, deep water zones, and other marginal locations that are expensive to explore. For example, foreign companies could be allowed to keep 40 percent of the oil produced during an initial period, to help them recover exploration costs. Some present cost-recovery agreements are as low as 20 percent.

Mr. Banbi, who replaced Dr. Abdel Hadi Qandil last May, has changed oil pricing and reshuffled senior personnel in the ministry. He has also renewed a push to increase oil and gas exploration.

In January, four new concessions were signed with Amoco Corporation, International Egyptian Oil Company, the Italian company AGIP's Egyptian branch, and Phillips Petroleum. These companies have promised to spend $114.5 million to drill 28 wells off Egypt's Mediterranean coast.

Ten more bids will be tendered for the Gulf of Suez and Red Sea areas by the end of April. Seven Western desert areas will open for bidding at the end of May.

Banbi says that although several companies are reducing investment in Egypt, for every firm doing so another is increasing its activity in the country. For instance, Repsol of Spain will buy British Petroleum's 16.67 percent stake in the Suez Oil Company. British Gas is increasing its activities in Egypt, and Crescent of the United Arab Emirates and the Greek-owned Kriti Oil and Gas, among others, are planning to come to Egypt for the first time, Banbi says.

Depite these changes, many oil-industry sources call for better terms. "Egypt has some of the toughest production-sharing terms in the industry," says one foreign oil industry executive. The government has offered more incentives for firms in risky areas, but industry sources say more flexibility is needed in lower-risk areas. If a company's production is lower than expected, then that company could get a higher percentage of profits, for example.

The government could also be more cooperative in approving oil companies' exploratory expenses and generally interfere less in their activities, oil-industry sources say. "You've got a country with a history of bureaucracy that goes back to the Pharaohs. They invented the word," one oil executive says.

Yet there are advantages to doing business in Egypt. These include an established infrastructure, oil know-how, a stable government, the reputation of honoring agreements, a substantial local market, and an increasingly flexible oil ministry. "They say we have enough reserves to last for only so many years. They have been saying this for 10 years, but we keep on finding oil," says Aly Wally, president of Petroleum and Industrial Consultants and a former Egyptian oil minister.