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Thursday, 18 October 2018

Friendlier terms on oil and gas production sharing agreements to take effect in 1Q2019

** #1 Friendlier terms on oil and gas production-sharing agreements to take effect in 1Q2019: The Oil Ministry is reportedly planning to roll out new production sharing contracts with friendlier terms for international oil companies in the first quarter of 2019, after it concludes its next tender for Red Sea exploration blocks at the end of this year, unnamed ministry sources tell Bloomberg. The new framework would see companies “bear the cost of exploration and production in return for a share of the output,” which will vary from one concession to the other, based on the cost of investment, according to the sources. It would also allow companies to sell their share of production to any entity of their choosing, as opposed to the current system, which gives them only one-third of output and allows the government to “buy the producer’s entire share at predetermined prices.” Existing contracts will not be affected by the new system, the sources added, noting it would only be applicable to “undeveloped frontier areas.”

Background: We had noted last month that the Oil Ministry was mulling the roll-out of a friendlier system to attract more oil and gas producers to Egypt, which is looking to become a regional hub for energy. Sources had then said that the framework — which was drafted with input from some oil and gas majors — would give producers larger portions of output in a bid to cut the time it takes for them to hit profitability on any one concession, as well as raise the cost-recovery ceiling on contracts to 40% up from 35%. Changes would also eliminate a clause in the model contract that requires companies to cede additional points in their concessions to the government every two years.

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