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In the deepest well ever drilled in the delta, some 7km under the sea bed and in 649 metres of water, BP has found a 50km-long structure with a hydrocarbon column over 180 metres deep, the British oil multinational announced on September 9.
With an estimated 1.2 trillion cubic feet or more, the well, named Salamat, will not by itself make a significant dent in Egypt’s chronic energy shortage or revive its flagging exports.
But as one of only a handful drilled into Oligocene Nile Delta rocks to date, it is suggestive of some very productive geology at these extreme depths.
“What’s significant about this discovery is that it was really expensive at about $380 million to drill. Despite the high cost, BP clearly believes in the potential of some of the deeper plays,” said analyst Martijn Murphy of Wood Mackenzie.
Deep offshore gas finds cost a lot to develop, and unlike oil, they do not get developed without an assured market and an agreed price. Political and economic turmoil in Egypt over the past two years has damaged its capacity to offer a good price as well as investor confidence that it can pay.
In addition, energy sector investors are less tolerant of politically risky oil and gas spending than they were, even setting aside the political upheaval that began in Egypt over two years ago.
This is partly down to a more uncertain outlook for prices and rampant cost inflation over recent years, but it is particularly true of investors in the United States, who have a wealth of opportunities in unconventional resources at home.
Apache’s sale of a 30 per cent stake in a top quality Egyptian oil asset last month is testament to that change, even though it secured a good price from the buyer, Chinese state group Sinopec, parent of Sinopec Corp.
Egypt owes about $6 billion to companies working on projects in the country, the equivalent of over six months worth of payments and more in some cases.
As a result, long-term investors such as Britain’s BG Group are facing some difficult questions from shareholders as Egypt, which accounts for 15 per cent of BG’s production, struggles to pay its bills.
On top of the late payments, gas contracted to BG and French group GDF Suez for export as liquefied natural gas, or LNG, is being diverted for domestic use to keep the lights on and replace expensive fuel imports. That has left Egypt, the companies, and in turn their LNG customers reliant on cargo donations from Qatar.
BG’s attempts to boost production at one well this year by adding extra compression succeeded only in pumping out larger amounts of water. New wells need to be drilled regularly in the more established fields, and the latest drilling phase at its West Delta Deep Marine offshore project has fallen behind schedule.
All of these production issues are everyday oil and gas industry problems, but their importance has been magnified in the eyes of investors by Egypt’s instability.
BP made another deep discovery, called Satis, more than a year ago, and has yet to do anything with it.
“Salamat is a great find too, but until we have an agreement with the government, it’s just a hole in the ground we are rather pleased with,” one BP insider said.
Egypt’s latest oil minister, Sharif Ismail, is widely seen among the western oil companies that operate there as someone who can kick-start an easier working environment for them. On September 1, Ismail said he was preparing a repayment timetable.
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