Petroleum Ministry denies problems with BG, Eni

Egypt’s Petroleum Ministry denied reports that gas company BG has halted production and development of two stages of its offshore West Delta Deep Marine project. The statement comes as Egypt also faces reports that Eni, operator of the giant Zohr gas field, may be looking to reduce its stake in the project.

The ministry’s denial of problems with BG comes in response to a Tuesday report by Reuters. An anonymous official from the Egyptian General Petroleum Corporation reportedly told Reuters that BG, which recently became a subsidiary of Shell Oil, stopped work at the 9A+ and 9B wells after disagreements on pricing. Accoridng to the source, BG was looking to be paid $5.88 per million British thermal units (MMBtu) rather than US$3.95 previously agreed upon, and that as a result of these disputes the company withdrew rigs working on the 9A+ wells on March 7.

The ministry completely rejected these reports, asserting in a press statement that there not currently a phase called 9A+ in the West Delta project, and that phase 9B has not yet entered development. According to the ministry, it is currently negotiating with Shell over the project’s schedule, but that Shell is committed to all of the terms of the development agreement originally inked with BG.

Shell has not issued an official response.

The Ministry of Petroleum added that it has entered negotiations over pricing with some foreign partners “to balance the interests of all parties” and “to accelerate development plans and therefore increase production.” In a series of contracts signed in late 2014 and eaely 2015, Egypt increased the prices it pays for gas it buys from foreign producers working in Egypt. Payments for gas from offshore developments reportedly went as high as US$6 per MMBtu, up from a previous cap of US$2.65.

Egypt has also faced reports that Eni, which holds the development license for the giant offshore Zohr gas field may be looking to sell some of its stake in the project.

With global petroleum prices in a slump, the company reported net losses of 8.8 billion euros in 2015. In a strategy presentation last week, Eni announced that it plans to dispose of 7 billion euros of its assets over the next four years in an effort to streamline operations. Eni also noted that its ratio of discoveries to production is 2.4, compared to an average of 0.3 among competitors.

The company did not specify which projects it planned to sell off, but speculation turned to Eni’s gas project in Mozambique as well as the Zohr gas field. An official from state gas company EGAS told financial newspaper Al-Borsa that Eni has not made Egypt aware of any plans to sell all or part of its stake in the project, adding that the company would need permission from Egypt’s government to do so.

However, the source noted, it’s not uncommon for oil companies to sell off parts of development projects as they adjust their portfolios, and that Eni doing so would not have adverse impacts on Egypt since Eni’s contractual obligations would be passed on to any buyer.


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