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Upper Bahariya formation at a gross rate of 100 bopd. The Shahd 4, another Jurassic well, is expected to be drilled in
2013, and if this well achieves positive results, the operator intents to drill a deep well in the southern part of the Shahd
SE field.
Oil produced from the ERQ wells is transported through flow lines to the Group’s nearby storage tanks for initial
treatment and draining of water. The storage tanks have a capacity of 85,000 bbl. The oil is then transported by truck to
either (i) El-Tebien, located approximately 340km from the site, for processing and then sale by EGPC, or (ii) the Qarun
processing facility, located approximately 90km from the site, for processing by Qarun, and from there transported via
pipeline approximately 80km to Dahshour and then to Sidi-Kirir Terminal for sale by EGPC. Custody of the oil transfers
to EGPC at the receiving area of the processing facilities, and EGPC is then responsible for processing, further transport
and sale of the product.
The Group increased oil production capacity from ERQ by 33% during 2013. This involved the drilling of two
Development wells, Shahd-3 and Shahd SE-6. The first two wells had an initial gross production rate of 4,000 bopd and
4,800 bopd, respectively. In addition, the Group is undertaking upgrades and additions to its infrastructure at ERQ. In
particular, the Group plans to construct a shipping line from ERQ to Qarun. The shipping line is expected to result in
significantly lower oil transportation costs and improve the safety of the Group’s Qarun operations by eliminating the
need for trucking.
Area A
The Group’s Area A asset currently covers an area of 300 km
2
and is located in the Eastern Desert adjacent to the Gulf of
Suez. The Group holds a 70% working interest under a service contract with the licence holder, General Petroleum
Company (“
GPC
”), under which the Group and Petrogas (which holds the remaining 30% working interest in the service
contract) provide GPC with (i) exploration services expiring in September 2014 and (ii) production and development
services expiring at various dates between February 2019 and July 2023. The exploration service contract may be
extended for additional 18-24 month periods and the production service contract may be extended for additional 10-year
periods, subject to approval by GPC. A Group company is the operator of the licence under the service contract and is
responsible for the performance of the obligations on behalf of its JV partner, as described in the section entitled “
—
Fiscal Regimes—Service contract in Egypt
” below. The Group acquired its interest from Oil Search (Eastern Desert)
Limited in 2009.
Within the four development areas are six producing fields: Um El Yusr, Kareem, Ayun, Shukheir, Kheir and Shukheir
NW, containing 47 producing wells. The first five fields have been in production since the 1960s, while Shukheir NW
was discovered in 2008, with commercial production beginning in 2009.
The six producing fields within Area A development area produced, in aggregate, 4,178 average bopd on a working
interest basis during the first three months of 2014, representing approximately 18.6% of the Group’s average daily
working interest production, which represented an increase of 5.5% as compared to 3,959 bopd in the first three months
of 2013.
Within the Shukheir North West producing field, in 2011 oil was discovered at the Ahmad-1 well, indicating an initial
flow rate of 900 bopd gross production and in 2012 oil was discovered at the West Ahmad-1X well, indicating an initial
flow rate of 1,250 bopd.
Oil produced from the Area A wells is transported through flow lines to the Group’s nearby storage tanks for initial
treatment and draining of water. The storage tanks have a capacity of 48,000 bbl. The oil is then transported via pipeline
to a nearby GPC processing facility to be processed by GPC for sale. From there it is delivered via pipeline to Gharib
Terminal, located approximately 45km from Area A. Custody of the oil transfers to GPC after it is received at the GPC
processing facility, and GPC is then responsible for processing and further transport of the product.
The Group aims to increase oil production capacity from Area A through its three new development wells drilled in
2013: Yusr-38, Yusr-60 and N-Ahmad. Yusr-38 and Yusr-60 were successful, with an initial rate of 370 bopd each. N-
Ahmad was plugged and abandoned and was not commercial. The Group also undertook a pilot water injection project at
the Yusr field in April 2013. The Group undertook water injection work and plans to extend the water injection to
additional areas in the Yusr field after finalising the 3D reservoir models for these areas.
The Group is committed to total capital expenditures with respect to Area A will amount to $1.8 million in the remainder
of 2014 for one exploration well and $5.2 million over 2015 and 2016 to drill four additional development wells.
