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On December 30, 2013, Egypt’s state-owned petroleum corporation and natural gas holding company announced an internal auction for 22 concessions intended for oil and gas exploration. The concessions, located in the Suez Canal, Mediterranean Sea, Nile Delta and western desert, all must be in accordance with Egypt’s production sharing agreements. According to the EIA, Egypt is Africa’s second largest dry natural gas producer and is the greatest oil producer outside of OPEC members.

The auction is scheduled to end on May 19, 2014, which Egypt’s oil ministry believes is ample time for companies to formulate offers. The country previously awarded nine exploration contracts on October 31, 2013, which calls for 15 wells to be drilled in the Gulf of Suez, Sinai and in the desert. The agreement was the first of its kind since 2010 and requires a minimum investment of $470 million per company. Pico Holdings (ticker: PICO) and Royal Dutch Shell (ticker: RDS.B) are a handful of those involved in the venture.

Seven more exploration contracts were reached earlier in December and are expected to bring $1.2 billion in investments. Participating companies include BP (ticker: BP), Dana Petroleum (purchased by Korea National Oil Corporation in 2010) and Petroceltic International (ticker: PCI).

Past Troubles

Egypt’s is attempting to rebuild its subpar reputation among international oil companies. The country is approximately $6.3 billion in debt to international investment but recently pledged to begin making repayments. Roughly $1.5 billion was repaid on December 23, 2013, and the government says it expects to pay off another $3 billion by the end of 2017.

In addition, offshore producers in Egypt are paid roughly $2 to $3 per million British Thermal Units (MMBtu) due to the state’s numerous fuel subsidies. The amount is substantially lower than other areas, including Britain ($10/MMBtu) and Asia ($17/MMBtu). Egypt officials are debating raising pricing arrangements to lure new suitors, since the current price barely covers investment costs.

The country has struggled financially since its government was overthrown in 2011. Saudi Arabia, Kuwait and the United Arab Emirates, all supporters of the uprising, have pledged $12 billion in financial support to the nation since the upheaval.

Egypt’s Background

International oil companies dominate Egypt’s upstream oil sector. BP, Eni, BG, and Apache (ticker: APA) are the major oil and gas players in Egypt, with the first three primarily invested offshore and Apache in the onshore Western Desert, according to IHS CERA. There are also several small and mid-sized companies participating in Egypt’s oil and gas exploration and production.

While neither Egypt’s level of production nor the Suez Canal was significantly affected by the 2011 revolution, the country is scrambling to keep pace with its rising consumption. Oil consumption has increased an average of 3% per year for the past decade and has exceeded the production rate since 2010. Natural gas consumption has climbed an average of 11% per year since 2001. The need for energy has forced Egypt to scale back on its exports.

On the plus side, Egypt has the greatest refinery capacity in Africa, with nine refineries capable of handling more than 726 MBOPD. Its military also has successfully guarded the Suez Canal despite the tumultuous political situation. The security is in stark contrast of other African countries, where militant opposition has forced some foreign companies to abandon operations. Nigeria has said pipeline bombings and oil theft has cut its output by 100 MBOPD, and an uprising in Libya has slowed the country’s oil output by nearly 82%.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.