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Egypt Planning New Oil, Gas Contracts to Attract Investors

Source: Bloomberg 10/17/2018, Location: Africa

Egypt is working on a new model for future oil and natural gas production contracts in undeveloped areas to spur exploration and help become self-sufficient in energy, oil ministry and company officials said.

The most populous Arab nation is seeking to transform itself into a gas re-exporting hub on the doorstep of energy-hungry Europe, and the planned contract overhaul is part of a broader strategy to liberalize its energy industry. Italian firm Eni SpAís discovery of the giant offshore Zohr gas field in 2015 reignited waning investor interest in Egyptís oil and gas industry, the countryís biggest single source of foreign direct investment.

Under the new system, companies would bear the cost of exploration and production in return for a share of the output, and they would be free to sell to whomever they wish, said the officials, who asked not to be identified because the discussions are private. The production shares would differ from concession to concession, depending on the investment, the officials said. The oil ministry didnít immediately respond to requests for comment.

Egyptís existing production-sharing agreements entitle investors to about a third of a projectís output to help cover exploration and production costs. The remaining output is split between the company and the government, which then has the right to buy the producerís entire share at predetermined prices.

International oil companies have long complained that the existing contracts are too bureaucratic, and Egypt, which for years exported gas to neighboring countries, struggled before Zohrís discovery to attract major new energy investments. Its production-sharing agreements drew greater scrutiny after the 2011 uprisings against former President Hosni Mubarak, when the country began to experience fuel shortages and power blackouts.

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