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Fiscal regimes
The Group’s operations in Area A are governed by a service contract and the Group’s operations in its remaining licence
areas in Egypt are governed by PSCs. The PSCs and service contract have been negotiated with the Egyptian
government and EGPC.
PSCs in Egypt
The Group’s PSCs in Egypt specify certain rights and responsibilities of the Group in an initial exploration phase that is
followed, upon a commercial discovery of hydrocarbons, by a development phase that is formalised by the automatic
grant of a 20-year development lease over the agreed area, with an option for a five-year extension subject to approval
from the Egyptian Ministry of Petroleum.
The ERQ and Burg El Arab PSCs now consist only of areas which are in the development phase. The Abu Sennan PSC
area comprises areas in both the exploration and development phases.
Under the PSCs, during the exploration phase the JV partners must perform certain minimum work obligations
applicable to that PSC. A Group company is the operator under two of the PSCs and performs those obligations on
behalf of the JV partners in those areas. In respect of its PSCs in Egypt, as at the date of this Offering Memorandum the
Group has performed all of the exploration phase minimum work obligations required, which included (i) conducting
surface sampling and field work, (ii) the acquisition of seismic surveys and (ii) the drilling of exploration wells, with
minimum expenditure commitments of between approximately $7.5 million to $27 million per PSC area.
During the development phase, the JV partners are required to prepare an annual budget and work programme, which is
submitted to EGPC for approval.
The fiscal regime under the PSCs operates on a cost oil/profit oil basis. Under the PSCs, the JV partners incur
exploration, development and operating costs in proportion to the cost interest percentage, and can apply to recover a
proportion of their approved costs, with cost recovery entitlements capped at the following cost oil percentage of gross
production in a given quarter:
PSC
Cost oil entitlement cap
(1)
Recovery per annum
(2)
ERQ ......................... 35%
25%
Burg El Arab............ 35%
20%
Abu Sennan.............. 30%
20%
(1) The maximum percentage of quarterly petroleum produced from all the development leases in that PSC area out of which the Group can
apply to recover its costs.
(2) The maximum percentage of exploration and development costs the Group can apply to recover exploration and development costs per
annum. Operating costs are recovered in the year incurred.
Unrecovered exploration, development and operating costs from a given period can be carried forward until complete
cost recovery is achieved (or, if sooner, until the contract terminates or finally expires, at which point unrecovered costs
are lost). Should all such costs not be recovered by the end of a given PSC, they cannot be recovered from another PSC.
Following deductions from gross oil production for cost recovery, the profit oil percentage of gross oil production
allocated to the JV partners is set out in the table below, with the balance allocated to EGPC:
PSC
Profit oil percentage or range
(1)
ERQ ..............................................................................
25-30%
Burg El Arab.................................................................
18-22%
