Dr Patrick Allman-Ward, CEO of Dana Gas, talks exclusively about how Egypt is and will continue to be a core part of the firm’s gas growth strategy
How important is Egypt to Dana Gas’ natural gas growth strategy?
Egypt is a very important component of our current and future growth strategy. We have been active in Egypt for 12 years, transitioning from being both an oil and gas producer to being solely focused on developing and producing natural gas and gas liquids, including condensate and LPG.
Our assets are principally onshore as is all our current production. However, in February 2014 we were awarded our first offshore license, the Block 6, El Arish Concession Area with 100 per cent equity interest. We have carried out an extensive program of 3D seismic data acquisition, with around 2,000 sq km recorded in 2016. We have carried out extensive seismic data reprocessing activities and evaluation studies and we are very excited that we have established several prospects with multi-Tcf gas potential.
We have been preparing to drill our first deepwater exploration well for over 18 months and we now expect that we will be able to begin drilling operations around April 2019.
We are also taking steps to maximise recovery from our onshore fields. For example, in the third quarter 2018, we completed the drilling of the Balsam-8 development well, which was tied into our production network ahead of schedule and below budget. The well is now producing 25 MMscf/d of gas and 1,100 bbl of condensate per day, which is equivalent to 5,300 boepd.
This, alongside the completion of the debottlenecking project in the Kurdistan Region of Iraq, helped push our group production back up to 70,000 boepd, representing a 12 per cent increase compared to the company’s nine-month 2018 average of 62,250 barrels of oil equivalent per day (boepd).
In addition, although we were disappointed with the non-commercial discovery that was made with the Mocha-1 well in the deep Oligocene objective of our onshore license areas, we continue to believe that there is significant growth potential in other deeper prospective intervals at the Qantara level.
Natural gas is going be a vital part of Egypt’s energy mix – Are you looking to expand Dana Gas exploration and investments in Egypt?
We have firm plans in place to expand our exploration in Egypt as outlined above and obviously, based upon success this will result in further investments to increase production.
Since 2011 and the significant increase that then occurred in Dana Gas’ receivables position we have had to be careful to balance incremental investment against collections. In 2014 we concluded the Gas Production Enhancement Agreement with the Egyptian government. This was truly a ground-breaking arrangement whereby Dana Gas committed to a staged work programme over a seven year period with over US$350 million of capital expenditure in the first three years. The result was a significant increase in production of approximately 270 billion cubic feet of natural gas, 8 to 9 million barrels of condensate and around 450,000 tons of LPG. In return Dana Gas obtained the rights to take the governments’ share of the incremental condensate and together with its own share, sell this on the international market. In this way Dana Gas has been able to gradually reduce its overdue receivables. To date, Dana Gas has sold eight cargoes with a total value of $76 million.
In December 2018, we received two industry payments from the government thereby collecting $55 million towards our overdue receivables, which together with other payments in March of $10 million and in May of $40 million this has brought our share of the total industry payments in 2018 to $105 million. Total receipts for the year reached $208 million. These payments will allow us to carry-out our first offshore deepwater drilling on our Block 6 concession.
We have been encouraged by the government’s willingness to make payments against their outstanding receivables before the end of 2018 and we hope this will carry forwards into 2019 to clear the outstanding balance entirely in keeping with the agreement. This will allow Dana Gas to continue to look at further opportunities for exploration and development investments in Egypt both within and beyond Block 6.
In your opinion, what are the next steps for the region to become a key gas and LNG hotspot?
I would argue that with the discovery of the 30 Tcf Zohr gas field by Eni in 2015 that Egypt has already become a gas hotspot. The rapid and impressive ramp up in production from the Zohr field has allowed Egypt to fully satisfy its domestic demand for gas and to cease importing LNG with effect from Q4 2018.
However, the rapid growth of energy and gas demand in country still leaves one of Egypt’s LNG plants idle and the other operating well below capacity. There is clearly opportunity for both more domestic supplies of gas, and that is where Dana Gas’ exploration activities in Block 6 come into play, but also to monetise stranded gas discoveries that have been made in the Eastern Mediterranean. In that respect it has been very encouraging to see the recent agreements that have been made between Egypt and Cyprus concerning the Aphrodite Field.
With its close proximity to over 50 Tcf of undeveloped gas in the Eastern Mediterranean, its existing regional pipeline networks and maritime shipping artery of the Suez Canal, Egypt is well placed to become a regional gas and LNG hub. A significant contributory factor has and will continue to be progress on market liberalisation, specifically enabling further opportunities for business-to-business gas sales agreements.
What other opportunities can Dana Gas find in North Africa and the Mediterranean?
We remain vigilant for any attractive commercial opportunity that presents itself in North Africa and the Mediterranean. We evaluate over twenty new business development opportunities every year. The company is in good financial health and could make further investments in the region should the right opportunity present itself. However, we have yet to find anything that satisfies our investment criteria and fits into our long-term growth strategy.
How is EGYPS helping highlight opportunities in the global gas and LNG market?
EGYPS is able to bring together global firms to Cairo to discuss local as well as global oil and gas issues. There are hundreds of speakers and over 400 exhibitors, thus providing an opportunity for Egypt to stake its rightful place in the global oil and gas industry. This is testimony to how far the event has developed and how important it is on the world stage.