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scheduled to expire in March 2033, and each lease has an option for a five-year extension subject to approval from the
Egyptian Ministry of Petroleum. The initial exploration period covering the areas of the Abu Sennan PSC outside these
fields expired in May 2012, and the Group was granted a two-year extension of the initial phase of exploration until May
2014, pursuant to which it has committed to drill three exploration wells with total expenditure of $6.6 million in the
Abu Sennan PSC area. The exploration period has been extended for a second phase until May 2016, pursuant to which
the Group has committed to exploration and appraisal expenditure of $4.4 million in the Abu Sennan PSC area,
comprising the drilling of at least two exploration wells.
In July 2012, the Group commenced commercial production of oil, gas and condensate in Abu Sennan from four
producing wells (ZZ-4, Al Ahmadi-1X, Al Jahraa-1X, and El-Salmiya-1X) with a total initial flow rate of 2,200 bopd
and 3.5 mmscfd.
In December 2012, the Group discovered oil in ASA-1X exploration well, which indicated an initial flow rate of 350
bopd. The Group obtained a development lease from government authorities and diverted well ASA-1X on production.
Oil produced from the Abu Sennan is stored in the Group’s nearby oil storage tanks. The storage tanks have a capacity of
6,000 bbl. The oil is then shipped via trucks approximately 30 km to a GPC-owned processing facility to be processed to
a state ready for sale. From there it is delivered via pipeline to ElHamra Terminal, located approximately 200 km from
the processing facility, for sale by EGPC. Custody of the oil transfers to GPC at the receiving area of the processing
facilities, and GPC is then responsible for processing, further transport and sale of the product.
The Group’s discretionary development activities at Abu Sennan are focused on 3 development wells, 1 appraisal well
and 2 exploration wells and the construction of oil and gas processing facilities and infrastructure, expected to be
completed by September 2014 at total 2014 capex of $38.8 million. Gas production is expected to start up in October
2014.
Sales
EGPC acts as primary off-taker for oil produced under the PSCs in Egypt with the right to purchase the JV partners’ oil
at a price determined under the PSC (generally at a slight discount to Brent Crude prices). EGPC stores and aggregates
the crude oil output in quantities suitable for shipping and/or sale into the domestic refining market. For oil that is
transported via pipeline, custody of the product is transferred at a set point on the pipeline to the terminal designated in
the sales agreement with EGPC. For Abu Sennan, where oil is transported via truck, custody of the product is transferred
upon delivery to the receiving area of the processing facilities, at which point title and transport costs are paid by the
Issuer and recovered from EGPC.
For sales, oil is transferred to EGPC terminals for export or delivered to the local market by EGPC.
EGAS, an affiliate of EGPC, has a take-or-pay obligation in respect of 75% of the gas produced by Abu Sennan. The
obligation remains in place until the expiry of the relevant PSC. Neither asset is currently producing gas, but according
to GCA’s report, Abu Sennan has estimated 2P net entitlement gas reserves of 2.5 Bscf (0.4 mmboe) and 3P net
entitlement gas reserves of 9.6 Bscf (1.6 mmboe).
EGPC’s cash payments to the Group, reflecting both the Group’s cost recovery of exploration, development and
operating costs as well as the Group’s profit entitlement, have historically been remitted to the Group on an irregular
basis, and typically several months in arrears. As a result of the political unrest in Egypt beginning in 2011, the pace of
payments received from EGPC slowed, but this improved as at June 2012, and as at 31 March 2014 the total amount of
receivables due to the Group from EGPC was $135.0 million, of which $90.4 million were considered past due, but not
impaired as at that date. In the second quarter of 2014, the Group has received further payments in April 2014 and May
2014, resulting in receipt of total cash payments of $69.9 million against amounts owed by EGPC, and further decreasing
the average months of arrears from EGPC to the Group to 6 months and the total amount of receivables due to the Group
from EGPC to $124.4 million as at 30 June 2014. The Group received an additional cargo payment of $26.4 million on 9
July 2014. See “
Risk Factors—Risks Relating to the Group—The Group has been dependent on its operations in Egypt
for a significant portion of its revenues, and receivables due from the Group’s operations in Egypt under the Group’s
licence agreements are paid irregularly and after significant delay
” and “
Management’s discussion and analysis of
financial condition and results of operations—Material factors affecting results of operations—Receipt of cash payments
from EGPC.
”
