Dolphinus and the wider Egyptian gas hub story

Dolphinus was established with the main aim of becoming a “reliable and stable supplier of gas to major industrial gas distributors and consumers in Egypt”. It was co-founded by prominent Egyptian entrepreneurs Dr. Alaa Arafa, Eng. Khaled Abu Bakr and Mohamed Khalifa.

As a first step in its strategy, Dolphinus entered into a 64bcm, 10 year gas supply contract with Noble Energy and Delek Drilling for their gas in Israel (see Israel's Leviathan and Tamar gas to be sold into Egypt).

This is a welcome move for Egypt as Dolphinus can act as “middleman” for sourcing Israeli gas into Egypt. The two countries are still embroiled in a lawsuit over compensation to Israel when Egypt stopped supplying gas to the former in 2014 under a long term contract after Egypt ran into domestic supply shortages. Dolphinus therefore acts as a politically clean way to buy gas from Israel.

Dolphinus sees Egypt becoming a regional gas hub and looks to take part in that story by playing to the as import side of the story. Egypt has the right ingredients to be a hub. The country has a long history with gas, being an exporter for decades up until 2014 before needing to import gas in the last few years. This means the country has much of the infrastructure in place from domestic gas grids, cross-border pipelines, LNG facilities and access to FSRU capabilities.

While Egypt remains short gas, it is on the verge of being able to export again given the recent large discoveries in the offshore and also the emerging ability to re-export gas sourced from another country. This introduces the concept of Egypt being a gas trader, albeit currently at very early stages.

The existence of LNG export facilities means that the country has the ability (as it did before) to ship gas to a wide variety of destinations and is not reliant on pipeline infrastructure to penetrate markets. Being on the doorstep of the East Med allows Egypt to tap abundant sources of gas and the developing gas import dynamics means that the country is no longer tied to domestic supply sources to feed LNG – the issue back in 2014 when domestic demand outstripped supply and led to LNG facilities to call force majeure and stop exports.

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Israel's Leviathan and Tamar gas to be sold into Egypt

Noble Energy and Delek Drilling announced plans in February to export gas to Egypt. The plan is to supply 64bcm over a 10 year period to Egypt’s Dolphinus Holdings – 32bcm from Leviathan and 32bcm from Tamar.

Each field is contracted up to 3.5bcm p.a. or c.350mmcfpd and will bring the partners USD15 billion over the life of the supply contract. The contracted price and terms are in line with other supply contracts from these fields which is based on a Brent linked formula.

Source: Delek Drilling, February 2018

Leviathan is owned by Delek Drilling (45.34%), Noble Energy (39.66% operator), Ratio Oil Exploration (15%). The field is on track to target first gas by end 2019 and with the extra 350mmcfpd to Dolphinus brings contracted sales close to 900mmcfpd, just below the 1bcfpd target. The first phase of the field is planned to deliver 1.2bcfpd from four wells.

Source: Noble Energy, November 2017 with 525mmcfpd firm GSPAs at the time

Tamar is owned by Isramco Negev (28.75%), Noble Energy (25% operator), Delek Drilling (22%), Tamar Petroleum (16.75%), Dor Gas (4%) and Everest Infrastructures (3.5%) – this reflects the ownership post the recent sale of 7.5% by Noble Energy to Tamar Petroleum as reported previously (Tamar Petroleum to raise bonds to finance acquisition of Tamar from Noble and Israel capital cycle: Noble sells down Tamar to fund Leviathan).

The export route for the gas to Egypt is still to be decided but could utilise existing infrastructure or a new pipeline. At the end of February Noble Energy, Delek Drilling and Dolphinus were reported to be considering acquiring the Arish-Ashkelon pipeline owned by the East Mediterranean Gas company (otherwise known as the EMG pipeline).

Source: Delek Drilling, February 2018

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BP looks to sell out of Gulf of Suez

BP is running a process to sell its more mature fields in the Gulf of Suez, Egypt. The sale is hoped to raise between USD500 - 1,000 million.

The exit of the Gulf of Suez will allow BP to focus more on its deepwater gas portfolio in the country's offshore in the West Nile Delta and Eastern Mediterranean including the Zohr field which it entered at the end of 2016.

BP has 100% of the fields in the Gulf of Suez area and operates them in a JV with the government called Gulf of Suez Oil Company or GUPCO.

GUPCO produces over 70mbopd of oil and 400mmcfpd of gas.

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SDX makes heavy oil discovery at West Gharib in Egypt

SDX has made a heavy oil discovery on the West Ghraib licence at the Rabul-5 well.

The partners had implemented a waterflood programme in 2017 on the block and commenced an exploration and appraisal programme. Rabul-1 and -2 were drilled last year resulting in two discoveries and the current Rubul-5 well is a continuation of the delineation programme. Approval for develeopment locations at Meseda will be sought in 2018.

SDX holds 50% interest in the block, with Dublin International Petroleum holding the remaining operated 50% interest.

Press release below:

SDX Energy Inc., the North Africa focused oil and gas company, is pleased to announce that
an oil discovery has been made at its Rabul 5 Well in the West Gharib Concession in Egypt (SDX 50% Working Interest & Joint Operator).

The well was drilled to 5,280 feet total depth and encountered approximately 151 feet of net heavy oil pay across the Yusr and Bakr formations, with an average porosity of 18%. Further evaluation of the discovery is ongoing, after which the Company expects the well to be completed as a producer and connected to the central processing facilities at Meseda.

Following completion of the Rabul 5 well the Company will move on to the Rabul 4 location, the second of two appraisal wells planned for the Rabul feature this year.

Paul Welch, President and CEO of SDX, commented:
"We are pleased to continue our recent run of drilling success with this oil discovery at Rabul 5. This well encountered the thickest section of pay sands seen in the Rabul area to date, demonstrating the significant oil potential contained within the licence. We have further drilling activity planned for the concession over the coming months and we firmly believe that these activities will enable us to increase output from the licence and achieve our ambitious production plans for 2018.”

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Flight ban into Kurdistan lifted

Kurdistan operators can begin to ramp up operations again following the re-opening of the airport. As reported previously, the closure had caused logistical problems for the operators.

Reuters reported yesterday that Iraq has lifted the ban on international flights to the semi-autonomous Kurdistan Region's airports. Prime Minister Haider al-Abadi said that Kurdistan's regional airports will be under the command of the Federal Ministry of the Interior. The ban on international flights was part of sanctions imposed on Kurdistan after September’s Independence referendum. In recent months the oil companies and service providers have reined in activity, and gone overland via Turkey when required.

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Eni enters the Emirates

Eni has made its first move into the Emirates with entry into various fields in Abu Dhabi. It has paid ADNOC USD875 million to acquire a 40-year licence on:

• 5% in Lower Zakum offshore oil field
• 10% in Umm, Shaif and Nasr offshore oil, condensate and gas fields

The fields require further investment with combined gross production from the fields targeting 910mbopd. Once at plateau, the fields will contribute material production and generate significant cash flow.

Eni press release below

Eni signed today in Abu Dhabi two Concession Agreements for the acquisition of a 5% stake in the Lower Zakum offshore oil field and of a 10% stake in the oil, condensate and gas offshore fields of Umm Shaif and Nasr, for a total participation fee of about 875 million US dollar and a duration of 40 years.

The signing ceremony was attended by His Highness Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi, and Deputy Supreme Commander of the United Arab Emirates Armed Forces, the Italian Prime Minister, Paolo Gentiloni, His Excellency Dr Sultan Ahmed Al Jaber, ADNOC Group Chief Executive Officer, and Eni’s Chief Executive Officer, Claudio Descalzi.

The agreements represent a strategic move for Eni gaining access to a Country with hydrocarbons reserves among the largest in the world.

Lower Zakum is located about 65 kilometers off the coast of Abu Dhabi. The discovery dates back to 1963 and production began in 1967. It has a target production of 450,000 barrels of oil per day. Umm Shaif and Nasr are located about 135 kilometers from the coast of Abu Dhabi and have a target production of 460,000 barrels of oil per day.

Eni's CEO Claudio Descalzi commented: «I'm very pleased about this agreement creating a larger presence for Eni in Middle East, in line with our expansion strategy, and creating a strong alliance with ADNOC and Abu Dhabi. The stakes in the two concessions give access to giant fields with huge potential and Eni is willing to contribute its best technology to maximize the future production».

H.E. Dr Al Jaber said: «These agreements underline the international market’s confidence in ADNOC’s long-term growth plans and the UAE’s stable and reliable investment environment. They also broaden and diversify our partnership base, while contributing experience, technology, capital and market access.

“Our partnership with Eni, and other concession partners, will enable us to accelerate our growth, increase revenue and improve integration across the upstream value chain, as part of our ongoing transformation and build on the foundations that have been laid to deliver a more profitable upstream business. With these agreements ADNOC continues to leverage its 46-year legacy of successful energy partnerships, in support of its 2030 strategy”.

In both concessions, ADNOC owns a 60% stake. The operator is ADNOC Offshore.

Eni press release: https://www.eni.com/en_IT/media/2018/03/eni-establishes-a-long-term-presence-in-uae-acquiring-a-stake-in-two-offshore-producing-concessions?lnkfrm=serp

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All’s well in western Kurdistan

The western part of Kurdistan appears to be holding up following the referendum last autumn. Although there is much to do to reconcile the fragile relationship between Federal Iraq and the Kurdistan region, things for now appear to have stabilised – however upcoming elections in both is limiting any meaningful progress with political candidates not willing to make any bold reconciliatory moves to avoid alienating voters.

The operators in western Kurdistan continue their business. They are getting paid by the KRG although the ability to maintain payments given loss of Kirkuk revenues, which has been reclaimed by Federal Iraq, remains in question. Exports through the Fishkabour-Ceyhan pipeline has not been interrupted despite threats last summer by the Turkish to halt exports through the pipeline if the referendum went ahead – that threat has not been followed through by action luckily for Kurdistan where oil exports remains its financial lifeline.

Based on our discussions with operators, the key constraint to operations is staff and supplies. With the regional airport closed, it has been difficult to get the right manpower and supplies to the oil fields. Transportation is currently from Turkey or from Baghdad. 

Sarsang (HKN 37% operator, KRG 25%, Marathon 20%, Total/Maersk 18%)

Total has taken over Maersk’s stake in the light oil field following the acquisition of Maersk; it may consider divesting the interest given lack of obvious synergies with the wider global portfolio and presence in Federal Iraq. At the end of last year, the field was producing at 15mbbl/d and will be continuing to ramp-up this year potentially reaching 30mbbl/d by year end.

Atrush (TAQA 39.9% operator, Shamaran 20.1%, Marathon 15%, KRG 25%)

First production was achieved in July 2017 and production has ramped up to c.26mbopd. The Phase I facilities are complete with five producers drilled and well capacity of over 40mbopd, although production is currently constrained by facilities at 30mbopd. 2P of 103mmboe and 2C of 304mmboe at the end of 2017 – further conversion of resources into reserves as more wells are drilled and further phases of the development are defined. 

The export pipeline from Atrush to the KRG pipeline is operational and the Atrush oil sales agreement was renewed in February 2018 with crude selling at Brent less USD15.73/bbl including quality discount and transportation costs.

With further appraisal work, debottlenecking and expansion of the development, production could reach 100mbopd.

Source: Shamaran February 2018 investor presentation

Shaikan (Gulf Keystone 58% operator, KRG 27.5%, MOL 14.5%)

Production in 2018 is expected to be 27-32mbopd. Subject to continued payments, Gulf Keystone would look to invest in additional wells and capacity this year to take production capacity up to 55mbopd.

In January 2018, Gulf Keystone signed a new oil sales agreement with the KRG at a price of Brent less USD22/bbl including quality discount and transportation costs. Shaikan crude is largely trucked to Fishkabour for injection into the export pipeline to Ceyhan. Shaikan should begin exporting via the Atrush tie-in pipeline shortly which will reduce trucking requirements and reduce netbacks.

Ain Sifni (Hunt Oil 80% operator, KRG 20%)

Production continues to hover around 10mbbl/d and the operator continues to progress the development which could see production grow to 30mbbl/d. Crude is currently trucked to Fishkabour for injection into the export pipeline to Ceyhan. As production grows, Ain Sifni production could also tie into the Atrush export line.

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