Petroleum Africa
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Friday, November 28, 2014
Dana Gas will begin a new exploration and drilling program in Egypt in Q1 2015, including its first offshore well on Block 6 in the North El Arish Concession Area near Gaza.
Egypt needs to increase its natural gas supply which has remained stagnant since the early 2000s; however, the cost of production is higher than the price of gas which remains fixed at $2.65 per 1,000 cubic feet.
The chief executive Patrick Allman-Ward said that while Dana Gas appreciates the willingness of the government to change prices, the company would like to see a market-based gas system in Egypt. “While the increase flexibility is extremely welcome, it’s difficult to do a discounted cash flow on a basis of a promise.”
Egypt’s natural gas production fell 12.2% in September compared with the same month a year earlier. Exports also declined 81.4% as more natural gas was diverted for domestic use.
The country faces its worst power crisis in history as it relies heavily on natural gas for power generation, much like the UAE. The Egyptian state-run Information and Decision Support Center said that electric power generation accounted for 68.7 per cent of natural gas consumption, an increase from last year’s 59%.
Dana Gas has invested over $1 billion for exploration and drilling activities in the North African country since 2007, doubling its reserves. However, Allman-Ward said that since 2011 the country’s instability has created a “crisis of trust” between Dana Gas and the Egyptian government.
The firm is still owed $276 million, of which $160 million is overdue for payment. The new drilling program was created in order to help the company accrue the money owed; the chief executive said he expects all overdue receivables by 2018. “However, if you don’t know what the gas price is going to be, you can’t calculate whether that investment is going to make you money or not,” said Allman-Ward.
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