OIL DISCOVERY IN UPPER EGYPT

UNCLAS CAIRO 002846 SIPDIS SENSITIVE SIPDIS STATE FOR NEA/ELA(NAFZIGER),EEB/ECS E.O. 12958: N/A TAGS: EPET ENRG ECON PINR EG SUBJECT: OIL DISCOVERY IN UPPER EGYPT Sensitive but Unclassified. Please protect accordingly. -------------- Summary -------------- ¶1. (SBU) Egypt's Petroleum Minister is hailing a crude oil discovery in Upper Egypt as a potential economic savior for the region, but some industry experts, citing questions over recoverable reserves, quality, and local refining capability, have their doubts. Their skepticism meshes with broader questions about the veracity of Ministry of Petroleum estimates of Egypt's crude oil reserves. That said, even modest production from the well will benefit the economy of Upper Egypt. End summary. -------------- Oil Discovery in Upper Egypt -------------- ¶2. (SBU) Minister of Petroleum Sameh Fahmy proudly announced on September 3 that the upstream division of UAE-based Dana Gas, Centurion Petroleum, had discovered commercial volumes of oil in its Komombo concession near Aswan in Upper Egypt. Fahmy, flanked by Governor of Aswan General Samir Yousef, hailed the find as the first of its kind in the region, and opined that it would boost the economic development of Upper Egypt as a whole. Emphasizing the well's potential economic impact, Fahmy officially renamed the well "Al Baraka" ("The Blessing"). ¶3. (SBU) The Komombo concession lies about 80 km north of Aswan, 700 km south of Cairo, and 320 km from the nearest refinery in the Nile Valley city of Assiut, well outside Egypt's traditional oil-producing regions in the Gulf of Suez, Mediterranean offshore, and Western Desert. Centurion drilled the well to a total depth of 8,712 feet, and reported penetrating several oil-bearing zones. Early tests produced 150 barrels per day from a thirty-nine foot perforated interval. The company is currently evaluating the recovery testing results and has not yet released a final estimate of reserves, although some press reports have estimated recoverable reserves at 8 million barrels. Dana Gas General Manager Rashid Saif Al-Jarwan said they were working with their GOE-owned partner Ganoub el Wadi Petroleum Company to determine the recoverable reserves and productivity of the find. The producer plans to bring the field into production as soon as possible and transport the oil via rail or Nile River barges to the Assiut refinery. -------------- Some Question the Impact, However 
 -------------- ¶4. (SBU) Some industry sources have told us, however, that the apparent poor quality of the oil, uncertainty over the quantity of recoverable reserves, and the distance to the nearest refinery could impinge upon the impact of the discovery on the Aswan region. The region is in great need of economic development and job creation, and the ruling National Democratic Party (NDP) has declared it a focus of its national economic development strategy. The Ministry of Petroleum reports the oil tested with a specific gravity of 37 degrees API and a wax content similar to that of Sudanese export crude. Industry executives here tell us, though, that the Al Baraka oil is waxy to the point of making transportation tough and refining more costly. Other experts question the MOP's fanfare surrounding the discovery given the uncertainty over recoverable reserves and the fact that three wells drilled by Spanish firm Repsol in the concession in 1995-96 produced meager results. Centurion officials, though, claim that the find is from a different formation/layer than the Repsol wells. The skepticism from within the industry meshes with a broader uncertainty over Egypt's reported crude oil reserves. -------------- Reserve Numbers Reliable? -------------- ¶5. (SBU) In contrast to Egypt's expanding natural gas reserves and production, expatriate industry sources tell us that the Ministry of Petroleum's statements regarding the growth in proven crude oil reserves over the past five years do not hold up against the reality of flat or declining production. The MoP reports an increase in proven reserves from less than 3 billion barrels in 2001 to over 3.7 billion barrels by late 2005 due to increased exploration activity and better recovery technology. Crude oil production, however, has declined from over 920,000 barrels per day (BPD) in 1995 to an average of 640,000 BPD in 2006. ¶6. (SBU) Some analysts here complain that no clear picture of Egypt's reserves exists because Egypt does not require its state-owned petroleum companies to perform certified reserve audits, unlike publicly traded companies in the U.S. and elsewhere that must perform annual reserve audits. One expatriate oil executive told us that they have suggested to the MoP on numerous occasions that they hire a reputable international firm to conduct a reserve audit so that Egypt's leadership can make informed decisions about the role petroleum will play in the country's economic development. The MoP has yet to heed the advice. ¶7. (SBU) Some opposition parliamentarians are questioning the Ministry's estimates, including Muslim Brotherhood (MB) MP Ibrahim al-Ja'fari. Al-Ja'fari recently tabled a formal question for the Prime Minister and Minister of Petroleum accusing the MoP of misrepresenting reserve amounts, and, according the MB's website, demanded an investigation into Egypt's petroleum sector "free from misleading (information) and maneuvering." RICCIARDONE