Shell subsidiary BG International is acquiring 100% of ExxonMobil’s North East El Amriya offshore gas block under a farm-out agreement, according to a press release (pdf) from Shell. BG will become the sole operator of the block once the transaction — which is pending government and regulatory approvals — is complete. It plans to begin drilling the first well during the first half of next year. Shell Egypt declined to disclose the value of the transaction or the block’s expected production capacity when we asked yesterday.

SOUND SMART- A farm-out agreement is when a company that owns the right explore for (or produce) oil or natural gas lets another party do the actual work. Think of it this way: You have the right to bake and sell Brand X muffins in Egypt — but you don’t have the money or interest in doing so. Under a farm-out agreement, you would assign the rights to a second company that would be allowed to bake and sell Brand X muffins. You (the “farmor”) would typically get an up-front payment from the “farmee” — and you’d get a royalty, cut of sales or percentage of profits. The farmee would also have to meet specific targets or spending requirements. Farm-out agreements are common in the oil, gas and mining industries.

Exxon owned the block for less than 2.5 years: The US oil company acquired the block at the end of 2019 and had planned to invest some USD 220 mn to drill four wells in the area.

What they said: “The proximity of this block to our existing assets and other exploration blocks Shell holds in the area will help us accelerate our offshore ambitions,” Chairman and Managing Director of Shell Egypt Khaled Kacem said. “This agreement strengthens our portfolio and is a significant milestone along the delivery of our strategy to build a solid gas position in the country.”

Shell has upped its presence in the Med over the last three years: Shell and Malaysia’s Petronas were granted two other concessions close to Amriya — North Sidi Gaber and Al Fanar — in 2020. Shell also last year offloaded its onshore oil and gas assets in the Western Desert, shifting its focus to projects including its West Delta Deep Marine offshore gas concession in partnership with Petronas — which is also right next door to the newly acquired block.