{"id":554278,"date":"2021-12-28T04:33:37","date_gmt":"2021-12-28T04:33:37","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/2021\/12\/28\/egypt-scores-second-major-oil-agreement-in-less-than-a-week\/"},"modified":"2021-12-28T04:33:37","modified_gmt":"2021-12-28T04:33:37","slug":"egypt-scores-second-major-oil-agreement-in-less-than-a-week","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/egypt\/2021\/12\/28\/egypt-scores-second-major-oil-agreement-in-less-than-a-week\/","title":{"rendered":"Egypt scores second major oil agreement in less than a week"},"content":{"rendered":"

<\/a> Apache-Sinopec JV inks new USD 3.5 bn, 20-year production agreement<\/strong> with the Oil Ministry: <\/strong>The Egyptian joint venture between Nasdaq-listed American oil and gas giant APA Corporation (commonly known as Apache) and its Chinese<\/a>partner in Egypt<\/a>, Sinopec, has signed what APA is calling a \u201cmodernized\u201d production sharing agreement that will make Egypt the \u201cmost economic investment opportunity\u201d in the company\u2019s portfolio<\/strong>.<\/p>\n

FAST FACT- <\/strong>APA\u2019s JV here is Egypt\u2019s largest oil producer.<\/p>\n

What\u2019s in the agreement for Egypt? <\/strong>Apache says it accounted for c. 40% of all oil production in Egypt this year as it deployed more rigs in anticipation of this agreement. APA will bring more rigs into service in 2022 and aim to increase well completions 3x, a move it says will help drive a c. 8-10% CAGR in total production in Egypt. The company projects it will produce 47% of all oil here by 2025, according to an investor deck released yesterday (pdf)<\/a>. APA says its total gas production will remain stable at around 550-600 mmcf\/d through 2025. It is also promising to spend USD 235 mn here in 2022 and will pay EGPC a USD 100 mn signing bonus.<\/p>\n

What\u2019s in it for APA? Egypt is a lot more profitable \u2014 and is much less likely to be a drain <\/strong>on cashflows in the future. <\/strong>The new contract gives APA a 20-year term for existing development leases and five years during which it can explore for new reserves. Critically, it fixes both APA\u2019s profit share and cost recovery percentage from Egypt at the high end of what was previously a range. This should make Egypt more profitable for the JV \u2014 and help ensure it\u2019s not going out of pocket funding operations. On that note, APA in Egypt will be allowed over the next five years to recover some USD 900 mn in \u201cunrecovered costs\u201d that the company could not previously claim because it wasn\u2019t generating enough revenue from its Egypt concessions.<\/p>\n

A new profitability floor for Egyptian operations? <\/strong>The new contract\u2019s structure and a tweak to how the cost-recovery pool is calculated should mean operations won\u2019t result in \u201cbacklogged costs\u201d provided the price of Brent crude stays above c.USD 45 \/ barrel.<\/p>\n

Uh, how does a production sharing agreement work? <\/strong>A PSA (sometimes called a \u201cproduction sharing contract\u201d or \u201cPSC\u201d) outlines how partners in oil ventures make their money. For Egypt\u2019s new PSA with APA:<\/p>\n