A HART ENERGY PUBLICATION/JUNE 2006

Ancient sentinels oversee Egypt’s lead in North African gas reserve growth.

EGYPTOnshore Egypt offers opportunities to bold North American independents inboth its burgeoning natural gas sector and in its aging oil fields.

Contrast typifies Egypt. From its mysteri-ous Pharaonic pyramids to ruinedRoman towns to the throbbing crowds of

modern-day Cairo, this vast and ancient coun-try offers diverse faces to the world. Not farfrom lush fields of the Nile Delta, desolate ex-panses of rocky desert stretch to the horizon.Bedouins lack indoor plumbing, but eagerlychat on cell phones. Tourists jam the famedKhan el-Khalili bazaar, where vendors sellEgyptian souvenirs freshly imported fromChina.

Egyptians embrace their incredible past, butthey also live enthusiastically in the present.Nearly 80 million people call Egypt home, anda third of Egyptians are under 14 years of age.For Egypt’s swelling population, economicgrowth and job creation override many otherconcerns.

Oil has been and continues to be a major en-gine in Egypt’s economy, but natural gas isemerging as a crucial component. The coun-try’s position as a crossroads between NorthAfrica and the Middle East makes it auspi-ciously located for pipeline exports to suchgrowing, energy-short countries as Jordan,Lebanon, Israel, and the Palestinian Territory.And, liquefied natural gas (LNG) plants on theMediterranean coast ship Egyptian gas to portsthroughout the world. Unfortunately, recent ter-rorist attacks at popular Red Sea resorts havealso highlighted Egypt’s need to diversify itstourist-dependant economy.

Energy futureEgypt reached its peak crude oil and liquids

production of just under a million barrels perday in the early 1990s. According to state firmEgyptian General Petroleum Corp., the countrynow produces 680,000 barrels of oil and liquidsper day. Field declines slice 50,000 to 60,000barrels per day off each year’s levels, althoughoperators work diligently to arrest the slide.That’s because three-fourths of the oil flowsfrom decades-old fields in the Gulf of Suez, andproduction levels are hard to turn around.

Egypt still consumes less oil than it produces,however. The U.S. Energy Information Admin-istration estimates that Egypt exported 134,000net barrels of oil per day in 2004. Its proved re-serves stood at 3.7 billion barrels at the begin-ning of 2005.

Natural gas offers a much different picture.According to Egypt’s ministry of petroleum,the country contains 66 trillion cubic feet (Tcf)of gas reserves. Present production is 4.8 billioncubic feet (Bcf) per day, an astonishing jumpfrom less than a Bcf per day in the early 1990s.

Clearly, Egypt’s geology favors gas accumu-lations, and three major supply areas have de-veloped. The onshore and shallow-water NileDelta have yielded first-class fields includingHa’py, Port Fuad, South Temsah and Wakah;the Western Desert, an Oklahoma-size areawest of Cairo, has been producing fine Jurassicdiscoveries from deeper exploratory cam-paigns; and the emerging offshore Mediter-ranean basin, one of the world’s few gas-pronedeepwater provinces, boasts a string of multi-Tcf finds. Indeed, Egypt now leads NorthAfrica in gas-reserve additions, thanks to itstremendous deepwater discoveries.

Domestic demand for gas is robust: since1995, this has grown an average of 12% annu-ally. Even so, Egypt’s gas riches exceed its in-ternal needs, and the country aggressivelymarkets the commodity to other nations.

Its first gas exports were piped to Jordan in2003 through a line constructed from Taba, onthe north Sinai, to the city of Aqaba. At present,an extension of that line is under construction toAmman, and next year it will be able to deliver230 million cubic feet a day. The Egyptian gov-ernment plans to extend the line to Syria andTurkey, and sales of gas to Israel by pipelineare set to begin in 2007.

The principal exports are now from giganticLNG projects on the Mediterranean coast.Three trains liquefy Egyptian gas: the world’slargest train at Diametta, on the east side of theNile Delta, and two at Idku, on the west side.The three facilities liquefy a total of 1.2 to 1.5Bcf of gas per day.

Western Desert Oil was initially developed in Egypt’s West-

ern Desert, also called the Libyan Desert. Sev-eral sedimentary basins and regional structural

ARTICLE BYPEGGY WILLIAMS

PHOTOGRAPHY BYLOWELL GEORGIA

Overleaf, WadiAl-Hitan inEgypt’s WesternDesert has beenadded to theUnited NationsEducational,Scientific andCulturalOrganization’s(UNESCO) WorldHeritage List,with help fromApache Egypt.The Whale Valleysite hosts fossilremains ofarchaeoceti, theEarly Eoceneancestors ofmodern whales.Below, althoughworld attentionhas focused onmajor gasdiscoveries inEgypt’s offshore,the onshorebasins also offerintriguingprospects.Facing page, atraffic sign alertsdesert drivers toa camel crossingarea.

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features dot the region, which stretches fromthe western banks of the Nile to Egypt’s borderwith Libya.

Following World War II, major oil compa-nies actively explored the Western Desert.They were frustrated; however, as the areayielded small clusters of 10- to 50-million-bar-rel fields rather than the giant-size accumula-tions they were seeking. Natural gas wasn’teven considered a commercial option, as theconcession agreements covered only oil andthere was no use for natural gas anyway.

That’s all changed now. Egypt begangranting rights to concessionaires to de-velop gas reserves in the late 1980s, and

that spurred exploration in the deeper gas-proneJurassic sediments that lay below the small Cre-taceous oil fields. The onshore Western Deserthas now emerged as one of the gas-supplypowerhouses of Egypt.

And Houston-based Apache Corp. hasgrabbed the position as the foremost producerof oil and gas in the Western Desert. ThisMarch, the independent posted record gross oiland gas production of 119,500 barrels and 501million cubic feet per day in Egypt, all fromWestern Desert concessions. During the pastdecade, Apache has invested $3.1 billion inEgypt, more than any other U.S. energy firm.

“We produce about 15% of Egypt’s daily en-ergy output,” says Rodney Eichler, Cairo-basedexecutive vice president and general managerof Apache Egypt. “We’re the most active drillerin the country—we’ve drilled more than 600wells since we became an operator in 1996.” Atpresent, the company runs 25 drilling and com-pletion rigs in Egypt, more than half of thecountry’s land-rig fleet.

Last year, Apache spent $540 million inEgypt. It drilled 121 wells, and added 92 mil-lion barrels of oil equivalent (BOE) of gross re-serves. “We will add production of almost39,000 barrels of oil and 96 million cubic feetof gas per day just from our 2005 program,” hesays. “We plan to continue our trend of increas-

ing our production every year.” Apache’s efforts in Egypt began in 1993 near

Lake Qarun, a huge saline lake in the WesternDesert’s Fayoum area, some 60 kilometerssouth of Cairo. Desert oases are usually depres-sions fed by springs, but the Fayoum is fed bythe Nile River, through a natural channel thatcuts through the cliffs on its western bank. LakeQarun was much larger during ancient times,and people have been attracted to its shores formillennia. Rich archaeological and paleonto-logical sites are preponderant in today’s Fay-oum, which remains an important agriculturaland tourist area.

In a dry and quiet corner of north Fayoum,the independent farmed into a prospect offeredby The Phoenix Resource Cos. Inc., a smallOklahoma City-based firm. It was an excellentdecision, and resulted in a 12,000-barrel-per-day oil discovery on the Qarun concession. Thecrude oil was struck in Cretaceous Bahariyaand Kharita reservoirs at depths of around3,100 meters.

In 1996, Apache acquired Phoenix and its in-terest in the crown-jewel Qarun discovery, esti-mated to contain some 70 million barrels ofrecoverable oil. Since then, the company hasexpanded its position to 10.67 million grossacres, spread across 14 producing and four ex-ploratory concessions in the Western Desert.

Khalda concessionAs part of its 1996 Phoenix purchase,

Apache acquired a 40% nonoperated interest inthe Khalda concession, in the northwestern por-tion of the Western Desert. Unlike the Qarunarea, Khalda does not lie near any ancient ormodern civilizations. This corner of Egypt isflat, rocky desert, punctuated only by the occa-sional herd of camels. It is arid beyond belief,and hot and terribly remote.

Apache soon decided to consolidate its posi-tion at Khalda. When it entered the concession,Khalda hosted 15 producing oil fields and sixshut-in gas fields. Most of the 30,000 barrels a

Apache Egyptproduces 15% ofEgypt’s dailyenergy output,says RodneyEichler, top,executive vicepresident. TheKhalda area isApache’s mostprolific region inEgypt, says DaveTalbott, bottom,operationgeneralmanager, KhaldaPetroleum Co.Facing page,Apache Egypt isupgrading itsfacilities at QasrField, Khaldaconcession, tohandle itssurging volumesof gas. Top left,additions toQasr’s end-of-line facility willallow it toproduce moregas into Shell’sObaiyedprocessing plant.

day of production were made from shallowLate Cretaceous Bahariya and deeper EarlyCretaceous Alam el Bueib (AEB) reservoirs.Several fields were in the early stages of water-floods.

By 2001, Apache had acquired 100% of theforeign-contractor interests in Khalda, and as-sumed operations.

The company, through a relentless focus onKhalda, has turned this once-backwater areainto its most prolific region in Egypt. In five

years, Apache has doubled production of bothoil and gas from Khalda, says Dave Talbott, as-sistant general manager and operation generalmanager of Khalda Petroleum Co., the joint-venture entity that consists of Apache andEgyptian General Petroleum Corp. (EGPC).Khalda Petroleum runs the Khalda-area devel-opment concessions, and Apache Egypt oper-ates the exploratory concessions.

“We’ve been replacing and growing reservesas well as increasing production,” says Talbott.On a gross basis, the greater Khalda area nowproduces 78,700 barrels of oil and 460 millioncubic feet of gas per day.

Apache was also active in deepwater explo-ration in the Mediterranean Sea, operating theWest Mediterranean (Block I) concession, en-compassing onshore and offshore land in theAlamein area. Beginning in 2002, it and part-ners RWE-DEA and BP scored several discov-eries. Based on the results of five wells, a gasresource on the order of several Tcf was estab-lished in Miocene and Pliocene reservoirs.Nonetheless, in January, Apache swapped itsoffshore interests in the concession with NewYork City-based Amerada Hess for propertiesin the Permian Basin of West Texas.

The reason for the trade: in mid-2003,Apache had also discovered Qasr, a huge Juras-sic gas/condensate field at Khalda. The com-pany was looking at two multi-Tcf projects thateach required substantial investment, and it de-cided to focus on Qasr. That find was a betterfit with Apache’s corporate style: it was on-shore, in the midst of infrastructure, and couldbe quickly brought to market. “Now we’restrictly a Western Desert player,” says Eichler.

Qasr, which contains proved reserves of 2.2Tcf of gas and 61 million barrels of condensate,is one of the two largest gas fields in the West-ern Desert and the largest find in Apache’s his-tory. Royal Dutch Shell’s Obaiyed Field, northof Khalda about 60 kilometers from theMediterranean coast, is the other world-classJurassic find.

Not surprisingly, market access has beena perennial issue on this side of theWestern Desert, and infrastructure has

developed slowly. During the last decade, at-tention has shifted strongly toward gas, particu-larly since the 300-kilometer Western Desertpipeline and several gas-processing plants werecompleted in 1999.

Today, Khalda and Obaiyed are the primegas-producing concessions in the WesternDesert, together making 660 million cubic feetof condensate-rich gas per day.

At present, Qasr produces 270 million cubicfeet of gas and 11,000 barrels of condensatedaily from Jurassic Safa reservoirs at between4,000 and 4,300 meters. “We are adding sub-stantially to our facilities to handle the Qasr dis-covery,” says Eichler. Driven by Qasr, ApacheEgypt forecasts a net 28% increase in gas pro-duction and a 10% increase in liquids produc-tion this year over the 2005 level.

The Qasr #1 welldiscovered ahuge Jurassicgas/condensatefield at Khalda,one of the twolargest gas fieldsin the WesternDesert.

A cairn of blue-painted rocksmarks thelocation for aseismic line. 3-Dseismic is acrucialprospecting toolin the WesternDesert.

Apache’s hefty production jump will beachieved through several projects. Prior to thediscovery of Qasr, Khalda gas was gatheredthrough local systems to three gas-processingplants. The Qasr project now routes the gasthrough a carbon-steel pipeline system to a newhub at Shams Field, and then on to the gas-pro-cessing facilities. The plants separate, dehy-drate and sweeten the gas/condensate mix. Theliquids are stabilized and pumped into theWestern Desert oil pipeline network, and thegas stream is compressed and piped to theAmeriya petrochemical complex, on theMediterranean coast. There, more liquids arestripped and put into tanks for sale, and the drygas is sent via pipeline to markets east.

Now, Khalda Petroleum is installing perma-nent production-handling facilities at QasrField, to upgrade the temporary system em-ployed to bring on production quickly.

Because Qasr gas contains approximately 9%CO2, the company uses both duplex materialand carbon-steel piping in facilities construc-tion, says Talbott.

Khalda Petroleum recently completed an 18-inch line from the field to Obaiyed, and at pre-sent produces 140 million cubic feet per dayinto Shell’s plant. After two additional trainsare brought onstream at the Qasr end-of-line fa-

cility, the company will be able to produce 210million per day.

The joint venture is also adding 110 millioncubic feet of daily capacity at its Salam gasplant, and building a 24-inch line from Qasr tothe plant. “We are also optimizing capacity atour Tarek facility, in the eastern portion of theKhalda area,” says Hamid Abul Fotouh, fieldgeneral manager, Khalda Petroleum.

In addition to Qasr, the company made an-other Jurassic find at Syrah last year. The field,just north of Qasr, has pays in both the Upperand Lower Safa. It will be produced throughthe Qasr facilities.

Oil productionAlthough natural gas has taken center stage,

Apache has not forgotten about its considerableoil production. “On average, we grow our pro-duction on the oil side between 6% and 8% ayear,” says Eichler. That’s against an annualdecline of 35% in the Western Desert fields.

When Apache took over operations atKhalda, most of its production was from small,structurally controlled oil fields on KhaldaRidge, one of the large structural features thattrends through the Western Desert. Since 2001,Apache has expanded into the southwest andnortheast parts of its Khalda-area concessions.

Hamid AbulFotouh, fieldgeneralmanager,KhaldaPetroleum Co.,says that thelogistics ofcampoperations havesteadilyimproved fromthe early daysof theconcession.

9

Two extendedbattles werefought duringWorld War II at ElAlamein. Thesecond was adecisive victoryfor BritishGeneralMontgomery.Left, more than7,200 soldiersare buried in theCommonwealthWar Cemetery.Top and left,artifacts fromthe battles at ElAlamein are stillfound in thedesert.

Hundreds of locations in the Bahariya, Kharitaand AEB reservoirs remain all along KhaldaRidge, and west of the ridge Umbarka andKahraman fields could support another 100 and150 wells each, respectively.

“We’re also developing an oil field on top ofQasr gas field, in AEB reservoirs,” says Eich-ler. The oil zones, found at about 3,300 meters,are currently producing 9,000 barrels of oil perday.

The Qarun-area fields also continue to makesubstantial oil. Today, Qarun Field and its satel-lites produce nearly 9,000 barrels of oil per day.

The joint-venture company, Qarun Petro-leum—composed of EGPC, Apache and Okla-homa City-based Devon Energy Corp.—alsohandles oil production from the Beni-Suef, ElDiyur and East Bahariya concessions, whichbring its total production to about 28,500 bar-

rels of oil per day. Gas is fairly minor here, asthe production is from oil-prone Cretaceousreservoirs.

“All of the oil is sent, either by pipeline ortrucks, to the main processing center at Qarunbase,” says Abdou Maghraby Belal, assistantgeneral manager for Qarun Petroleum. Fromthere, it is piped 48 kilometers to two 350,000-barrel tanks at the massive Sumed pipeline. Theoil is sold and added to the pipeline in tanker-size loads.

As at Khalda, the oil fields at Qarun, EastBahariya and East Beni-Suef are in variousstages of infill- and secondary-recovery efforts.“In many ways, with its multiple reservoirs andstacked pays, the Western Desert is similar toWest Texas,” says Eichler.

Indeed, much of what Apache does in itsEgyptian oil fields constitutes basic practicein America: fracturing reservoirs, initiating

waterfloods, and improving artificial-lift strate-gies. Prior to 2001, just 11 frac jobs had beenperformed in all of Egypt; today, Apache andits joint-venture companies have completedmore than 200 jobs. Last year alone, Apacheperformed 454 production-enhancement opera-tions on its wells.

The growth in waterflood projects has alsorequired capacity additions. Apache has in-creased oil-processing capacity from 98,000 to202,000 barrels of per day, and water-injectionfacilities have blossomed from 50,000 barrelsof source water per day to 75,000. By year-end,Apache will be injecting 130,000 barrels ofproduced water per day.

Apache also encouraged the use of beam-

Rush hour takeson a newmeaning inCairo’s citytraffic.

Rod pumps wererarely used inEgypt in thepast, but that ischanging.Below, a Lufkinunit pumps awell in Tut Fieldin the Khaldaarea.

Egypt is an expanding market for LufkinIndustries Inc., of Lufkin, Texas. “Forthe past four years, we have concen-

trated on making Egypt—and all of North

Africa and the Middle East—a core businessarea,” says Don Crow, Eastern Hemispheresales manager.

While a country replete with mature oilfields might have seemed a natural marketfor Lufkin, rod pumps were rarely used inEgypt. Engineers believed pumping unitswere only applicable to low-volume wells.“Actually the units can pump up to 2,000barrels a day,” he says. “People just had noexperience or training on rod pumps.”

Spurred by Apache Corp.’s ApacheEgypt, which wanted to greatly expand theuse of beam pumps on the Khalda conces-sion in the Western Desert, Lufkin launchedan energetic education campaign. For years,it had sold the occasional pump in Egypt, butbusiness was minor.

Results of the new focus on Egypt are ap-parent. “We’re converting wells from elec-tric submersible pumps (ESPs) to rodpumps, and we’re also showing companies

WALKING BEAMS IN THE DESERT

there are a number of smaller Canadian compa-nies that also focus intensively on Egypt.

One public firm that boasts a long and ex-cellent track record in Egypt is Calgary-based Centurion Energy International

Inc. The company was formed in 1997 by theamalgamation of a couple of junior companiesthat owned properties in Western Canada,Tunisia and Egypt. “We quickly made the deci-sion to divest the Canadian assets and focus oninternational E&P,” says Said Arrata, presidentand chief executive.

Initially, Centurion concentrated on Tunisia,but that changed when Marathon Oil exitedEgypt and sold its assets there to Centurion.“That was how we built our land base, and westarted active exploration in 2000.”

Centurion began with a reentry of a well onits El Manzala concession in the Nile Delta.The El Watsani 2 tested 11 million cubic feet ofgas and 230 barrels of condensate per day.From that auspicious beginning, the company’s

pumping units in Egypt. In the past, Egyptianwells mainly used electric submersible pumps.Beam pumps, so familiar to U.S. oil fields, areexcellent tools for oil wells producing at rela-tively low bottomhole pressures. Apache ar-ranged with Lufkin Industries Inc., of Lufkin,Texas, to import several pumps to Egypt.Today, Apache has 51 units working at Khalda.

Exploration ongoing Along with all of its producing areas, Apache

still has substantial exploration potential in theWestern Desert. Of its 10.67 million acres,about 1.9 million are held in developmentleases and the remainder are exploratory. Over-all, the Western Desert is not mature, and thegas-prone Jurassic offers the potential for largeaccumulations.

The company relies heavily on 3-D seismic,and sees a direct correlation between this seis-mic and its drilling success. By the close of thisyear, it will have 25,000 square kilometers of 3-D seismic data. At present, 93% of its develop-ment leases are covered by modern 3-D, andhalf of its pre-2005 concessions.

During the coming 18 months, Apache plans18 exploration wells, about 55% of which willseek oil. “We’re drilling secondary and tertiaryoil prospects in the Cretaceous, but we are stillin the primary exploration phases for Jurassicgas prospects,” says John Polasek, Khalda ex-ploration manager.

Canadian interestApache may be the largest and most visible

North American firm that works in Egypt, but

that the pumping unit is the method ofchoice for new wells with low bottomholepressures,” says Crow.

Other pluses: Rod pumps have high resid-ual value and can be moved from well towell, and they are much cheaper to operatethan ESPs, which consume high amounts ofelectricity. Also, in situations such as gas in-terference that overwhelm ESPs, rod pumpsoffer solutions.

Lufkin recently held a four-day seminar inCairo to teach Egyptian engineers all aspectsof rod pumping. “Rod pumps are one choiceoperators have, but it was a choice peopleweren’t aware of.”

In addition to Apache, the company nowcounts numerous operators among its Egyp-tian customers. Lufkin crews work through-out the Western Desert and it staffs a largedistrict office in Cairo.

“We are starting to manufacture in Egyptto minimize cost and time-to-market for ourcustomers. In the near future, we hope toreach the point that we can supply the Mid-dle East and North Africa regions fromCairo,” says Crow.

Egypt is oftencalled “The Giftof the Nile.”Below, the El-Gamea Bridgecrosses the Nilein Cairo.

velopment leases. “We have embarked on amajor exploration program this year,” says Ar-rata.

The company has formed a partnership withShell, and the major is farming into 50% inter-est in West Manzala and West Qantara in ex-change for cash payments and its share offuture exploration and development costs. Cen-turion retains operatorship.

At present, the company has three rigs atwork, and plans to drill between 15 and17 exploration and appraisal wells this

year on the two concessions. “We have a bud-get of $150 million this year,” says Arrata.Centurion’s typical Nile Delta well reaches adepth of up to 3,500 meters, encounters up tofour pay intervals, and contains about 50 Bcf inrecoverable reserves.

The Shell deal also includes an agreement forthe two companies to cooperate in developingLNG opportunities if enough gas is discoveredon the concessions. “We are targeting gas ex-ports, and we believe that our partnership withShell puts us on the fast track to monetize ourgas resources at world prices.” Export capabil-

production has rocketed upward. This year, Centurion expects to produce an

average of 38,000 BOE per day from Egypt, astunning 65% increase from its 2005 average of23,000 BOE per day.

Today, Centurion owns 6.4 million acres ofleases in Egypt, spread among three producingconcessions and two exploratory blocks in theNile Delta; a huge exploratory concession inthe Kom Ombo Basin near Luxor; and a 30%interest in the Tanganika Oil Co.-operated WestGharib concession, on the west side of the Gulfof Suez.

Its Nile Delta blocks are far and away itsmost prolific assets: the 16,000-acre El Wastaniand East El Wastani production leases and the10,000-acre South Manzala lease currently pro-duce 160 million cubic feet of gas and 6,500barrels of liquids per day. Centurion holds100% foreign-contractor interest in each block.Additionally, the company nets about 800 bar-rels of heavy oil per day from its interests in theWest Gharib area.

Now, its attention has turned to two new ex-ploration blocks: West Manzala and West Qan-tara. Centurion operates both, which comprise800,000 acres and surround the company’s de-

Ross Clarkson,president ofTransGlobeEnergy Corp.,draws analogiesbetween the KomOmbo Basin inthe Upper Nileregion and otherpetroliferous riftbasins in NorthAfrica and theMiddle East.

Centurion Energyis flourishing inEgypt, and thisyear expects toaverageproduction of38,000 barrels ofoil equivalent perday, says SaidArrata, president.Facing page, twoworkers arrivewith the sunriseat EgyptianDrilling Co.’s Rig#16 in the Khaldaarea of theWestern Desert.

In Egypt, blocks are won by internationalbids. The Egyptian General PetroleumCorp., Egyptian Natural Gas Holding Co.

and Ganoub El Wadi Holding Co. (theagency that manages southern Egypt) holdbid rounds, every few months. The bids arevery competitive, especially in the prolificNile Delta region.

Exploratory concessions can be quitelarge and can carry years-long exploratoryterms, but they do expire. The foreign con-tractors pay all exploration costs during theinitial period. After discoveries are made,25-year development leases are issued.Joint-venture companies, staffed by employ-ees of the foreign contractors and Egyptianstate companies, manage developmentleases.

When production starts, foreign contrac-tors begin to recover their costs, and theEgyptian government pays its share throughits production. Costs are shared, and barrelsare divided into profit and cost components.

The Egyptian government is ahead of theinternational curve in awarding concessionsand structuring the cost-oil component intheir concessions. It offers a stable and se-cure environment for operators.

“Egypt is very progressive, and the gov-ernment recognizes the importance of bothdirect foreign investment in their countryand of the royalties and profit oil they ulti-

mately receive,” says Jesse Meidl, chief fi-nancial officer, Arsenal Energy Inc., basedin Calgary.

The fiscal regime is better for producersthan many other international areas, saysSaid Arrata, president and chief executive ofCenturion Energy Inc., Calgary. “We haveoperated in Egypt for the last eight years,without serious disruptions or accidents. Wehave been paid consistently and have beenable to repatriate our profits. Our bankers donot impose a premium for country risk.”

Nonetheless, companies working in Egyptconfront many challenges. “We have to havea very strong local network of businessesand local people to move any project for-ward,” says Meidl. “There are language is-sues, certain political risks and there can beconsiderable disconnects between seniormanagement and the field.”

Too, work doesn’t often progress at thespeed at which North American companiesare accustomed. “Things move slowly inEgypt. There is red tape to cut through.”

Manpower also poses significant chal-lenges. Experienced Egyptian professionalsare lured to the booming industry in the Per-sian Gulf states, where they can commandsalaries far higher than in their home coun-try. Finding and keeping good people is asmuch a problem for operators in Egypt asanywhere in the oil patch these days.

OPERATING IN EGYPT

ity is highly desired, as domestic gas prices arecontrolled. At present, gas sold into the Cairomarket fetches $2.80 per thousand cubic feet.

And, although the Nile Delta is considered amature area, plenty of gas remains. “Onshore,big reserves are tough to find. But for a smallcompany, you can absolutely find reserves thatcan impact growth and be used as a stepping-stone to other opportunities.”

Going forward, Centurion will remain fo-cused on Egypt. “We’re very happy to be there,and we’re expanding on our base. We’vegrown very fast and we want to be careful thatwe manage our future growth correctly,” saysArrata.

Kom Ombo Basin While Egypt’s discovered fields lie in Lower

Egypt and offshore, some companies see in-triguing exploratory potential farther south.

“We were looking for opportunities in the re-gion, and came across an interesting, relativelyundrilled rift basin in the Upper Nile region,”says Ross Clarkson, president and chief execu-tive of TransGlobe Energy Corp., a Calgary-based firm that holds interests in threeproduction-sharing contracts in Yemen.

The Kom Ombo Basin that attracted Trans-Globe’s interest was analogous to oil-bearingJurassic-Cretaceous rift basins in Sudan,Yemen and Chad. Quadra Resources, alsobased in Calgary, had won a concession on a7.5-million-acre block called Nuqra.

“We made a deal with Quadra to take overoperations and carry them for seismic work,”says Clarkson. “We now own 50% of the pro-ject at Nuqra.”

TransGlobe shot 800 kilometers of 2-D seis-mic and reprocessed about 3,100 kilometers ofexisting 1990s-vintage seismic on Nuqra.

Arsenal Energy Inc., another Calgary-basedcompany, acquired Quadra Resources last year.“We completed the Quadra acquisition in Au-gust 2005, and the Egyptian block was its prin-cipal asset,” says Jesse Meidl, chief financial

officer. “It’s very tough for a small North American

producer to show any real growth, and there areno significant land positions available. Egyptoffered the right combination of concession op-portunity and stable political regime,” he says.Another selling point was that the block islikely to be oil-bearing, but if gas is discovered,it could be sold to markets through Luxor orCairo.

Just five wells have been drilled in the colos-sal block, which is roughly the size of Belgium.Three of those wells had oil shows, and oneflowed about 150 barrels of 38-degree-gravityoil per day.

“That well tells us that source rock is present.It’s mature, and oil is being generated andtrapped in the basin. Obviously, we need morethan that to make it work,” says Clarkson. “ButI get very excited when I see a relatively unex-plored Jurassic-Cretaceous rift basin in theNorth African region that has only five wells,some of which have tested oil. Most of thesetypes of basins hold billions of barrels of oil.”

The size and magnitude of the explorationarea are hard to comprehend: Arsenaland TransGlobe have identified 13 pri-

mary structures on their seismic, but the datacover only about 20% of the block. Geologi-cally, the largest structure could potentiallyhold 150 million barrels in place and the small-est, some 10 million barrels.

Drilling is next on the agenda. “We’re out tobid for a rig right now, but Egypt is extremelybusy and rigs are extremely tight,” says Clark-son. “We’re going to be ready in the fourthquarter, and if we get a slot, we’ll drill twowells.”

The partners control the part of the KomOmbo Basin that lies east of the Nile, abouttwo-thirds of its total. Centurion holds Block 2,the other third of the basin on the west side ofthe river. The companies have shared mobiliza-tion and demobilization on seismic crews, andnow may share costs on a rig.

During the next three years, TransGlobe hasbudgeted C$10 million for exploration on theconcession. It is also looking at expanding itspresence in the country. “Now we’re an opera-tor and we have people on the ground. Severalbid rounds are under way, and we’d like to getsome additional holdings,” he says.

“Egypt is a very hot country right now for oiland gas explorers and producers,” says Meidl.“We’re certainly excited about our prospectsthere.”

So that’s onshore Egypt: it offers situationsfor every taste, from large independents build-ing infrastructure-intensive gas projects to tinyfirms scouting remote desert concessions foroil. Firms are fabricating sparkling new LNGterminals and others are rejuvenating aging oilfields. And, operators can drill anything frominfill wells on waterfloods to wildly promising,rank wildcats that make the most seasoned ex-plorer salivate. �

Brilliant flowersframe a view ofthe mosque atKhaldaPetroleum Co.’sSalam basecamp. Facingpage, theremarkable ruinsof Dimeh al-Siba,a Roman towndating from thethird centuryB.C., are tuckedinto a remotecorner of theWestern Desert’sFayoum region.

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