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Oil Property Evaluation
        (Egypt)




           Cyril Iyasele

     Natural Gas Engineering


          May 06, 2010
Outline

 Introduction

 Egypt, Upstream E&P Fiscal Regime

 Egypt, License Terms

 Egypt, Key Fiscal Terms

 Egypt, Fiscal Regime Economic Modeling

 Egypt, Fiscal Regime - Sample Economics

 Egypt, Fiscal Regime - Sample Asset Valuation

 Summary
Egypt, Introduction




 A middle eastern country in northeast Africa

 The Arab Republic of Egypt is at the center of the Arab world

 The petroleum industry plays a key role in the Egyptian economy

 Egyptian oil production comes from four main areas:
       - Gulf of Suez             - Western Desert
       - Eastern Desert           - Sinai Peninsula
Egypt, Upstream E&P Fiscal Regime

Egypt, Petroleum Fiscal Environment

 Governing law
  -    The provisions of Law No. 86 of 1956
       concerning mines and quarries



 Licensing authority
  -     Arab Republic of Egypt



 National Oil Company
  -     EGPC (Egyptian General Petroleum Corporation)
Egypt, License Terms

Concession agreement for petroleum exploration and exploitation

 Exploration
  -     Initial exploration period of 3 years

   -     One extension to the exploration period, of 3 years

   -     Termination of agreement if no discovery after 6th year



 Production
  -    Commercial oil discovery

   -     Area capable of production to be converted to a ‘development lease’
Egypt, Key Fiscal Terms

 Type of contract
  -      PSA (Production Sharing Agreement)

 Bonuses
  -     Signature bonus
  -     Bonus per development block
  -     Production bonus

 Royalty
  -      EGPC shall bear the entitled royalty

 Income Tax
  -     EGPC shall bear the entitled income tax

 Deduction and depreciation
  -     Cost recovery
Egypt, Key Fiscal Terms
Egypt, Key Fiscal Terms
Production Sharing (Crude Oil)
                                                          EGPC's Share (%)

                             Brent Price less                                       Brent Price more
 Crude Oil produced (BOPD)       than           US$60 - US$80      US$80 – US$100         than
    (quarterly average)      US$60/barrel          /barrel             /barrel       US$100/barrel

       < 10,000                    77                78                  79               81


    10,000 - 25,000                78                79                  80               82

       > 25,000                    79                80                  81               83


                                                     CONTRACTOR's Share (%)

                             Brent Price less                                       Brent Price more
 Crude Oil produced (BOPD)       than           US$60 - US$80      US$80 - US$100         than
    (quarterly average)      US$60/barrel          /barrel            /barrel        US$100/barrel

         < 10,000                  23                22                  21               19


      10,000 - 25,000              22                21                  20               18

          > 25,000                 21                20                  19               17
Egypt, Key Fiscal Terms

         Production Sharing (Gas and LPG)


          Gas and LPG produced (SCFD)     EGPC’s   CONTRACTOR’s
          (quarterly average)             SHARE       SHARE


          < 50,000,000 SCFD                80%         20%


          50,000,000 - 100,000,000 SCFD    82%         18%


          > 100,000,000 SCFD               85%         15%
Egypt, Fiscal Regime Economic Modeling


Assumptions:


 Production rate, qi = 2,500 BOPD @ June 1, 2010

 Well follows an exponential decline (a = 0.10/year)

 Oil price = $80 / Bbl

 Working interest = 100%

 Economic limit production rate, calculated = 78.32 BOPD

 Time to reach economic limit, calculated = 34.63 years

 Estimated reserves = 8,883,132 Bbl
Egypt, Fiscal Regime Economic Modeling

Asset Cash Flow
                                             Cum
                             Production   Production   Gross Revenue
    Year          q (BOPD)      (Bbl)        (Bbl)           ($)
     0             2,500         -             -             -
     1             2,262      868,359      868,359     69,468,684.83
     2             2,047      785,723     1,654,082    62,857,865.42
     3             1,852      710,952     2,365,034    56,876,148.65
     4             1,676      643,296     3,008,330    51,463,667.49
    ---              ---        ---           ---           ---
    31              113       43,233      8,713,926    3,458,642.16
    32              102       39,119      8,753,045    3,129,508.84
    33              92        35,396      8,788,441    2,831.696.70
    34              83        32,028      8,820,469    2,562,225.13
   34.63           78.32      18,663      8,839,132     1,493,04707
Egypt, Fiscal Regime - Sample Economics

Asset Valuation with Government / Contractor Take
                                                                   Gross Revenue
                Production     Gross Revenue   Gross Revenue ($)         ($)
    Year           (Bbl)             ($)        (Government)        (Contractor)
     0               -               -                   -               -
     1           868,359       69,468,684.83    54,880,261.02      14,588,423.82
     2           785,723       62,857,865.42    49,657,713.68      13,200,151.74
     3           710,952       56,876,148.65    44,932,157.43      11,943,991.22
     4           643,296       51,463,667.49    40,656,297.32      10,807,370.17
     ---            ---             ---                 ---             ---
     31           43,233        3,458,642.16        2,732,327.31    726,314.85
     32           39,119        3,129,508.84        2,472,311.99    657,196.86
     33           35,396        2,831.696.70        2,237,040.39    594,656.31
     34           32,028        2,562,225.13        2,024,157.85    538,067.28
    34.63         18,663        1,493,04707         1,179,507.19    313,539.88
Egypt, Fiscal Regime - Sample Asset Valuation

Asset Net Present Value
                    Gross
                   Revenue                                                                       New DNCF
 Year     n          ($)          OPEX ($)       NCF ($)      DNCF @15% ($)    New NCF ($)       @15% ($)
  0       0            -              -             -                -        (42,273,182.94)   (42,273,182.94

  1      0.5     14,588,423.82   480,000.00   14,108,423.82   13,156,173.04   14,108,423.82     13,156,173.04

  2      1.5     13,200,151.74   480,000.00   12,720,151.74   10,314,437.09   12,720,151.74     10,314,437.09

  3      2.5     11,943,991.22   480,000.00   11,463,991.22    8,083,347.40   11,463,991.22     8,083,347.40

  4      3.5     10,807,370.17   480,000.00   10,327,370.17    6,332,093.26   10,327,370.17     6,332,093.26

  ---    ---          ---            ---           ---              ---             ---              ---

  33     32.5     594,656.31     480,000.00    114,656.31        1,221.01       114,656.31        1,221.01

  34     33.5     538,067.28     480,000.00    58,067.28         537.72         58,067.28          537.72

 34.63   33.8     313,539.88     480,000.00   (166,460.12)      (1,474,.04)    (166,460.12)      (1,474,.04)

                                                              60,390,261.34                     18,117,078.40
Egypt, Fiscal Regime - Sample Asset Valuation



                                      Measures of Profitability

                                FNR                           $60,390,261.34
                                FMV                           $42,273,182.94

                                          Net Present Value
                            Undiscounted                      $89,424,234.66
                          Discounted @15%                     $18,117,078.40

                                            Pay Out Time
                            Undiscounted                           3.39 years
                          Discounted @15%                          4.88 years

                                      Profit to Investment Ratio
                            Undiscounted                             2.12
                          Discounted @15%                            0.43

                                               DCFROR
                                                23%
Egypt, Fiscal Regime - Sample Asset Valuation
Egypt, Fiscal Regime - Sample Asset Valuation
Summary



 Upstream E&P Fiscal Regime

 License Terms

 Key Fiscal Terms

 Sample Economics

 Sample Asset Valuation
Evaluation Of An Oil Property In Egypt
Evaluation Of An Oil Property In Egypt

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Evaluation Of An Oil Property In Egypt

  • 1. Oil Property Evaluation (Egypt) Cyril Iyasele Natural Gas Engineering May 06, 2010
  • 2. Outline  Introduction  Egypt, Upstream E&P Fiscal Regime  Egypt, License Terms  Egypt, Key Fiscal Terms  Egypt, Fiscal Regime Economic Modeling  Egypt, Fiscal Regime - Sample Economics  Egypt, Fiscal Regime - Sample Asset Valuation  Summary
  • 3. Egypt, Introduction  A middle eastern country in northeast Africa  The Arab Republic of Egypt is at the center of the Arab world  The petroleum industry plays a key role in the Egyptian economy  Egyptian oil production comes from four main areas: - Gulf of Suez - Western Desert - Eastern Desert - Sinai Peninsula
  • 4. Egypt, Upstream E&P Fiscal Regime Egypt, Petroleum Fiscal Environment  Governing law - The provisions of Law No. 86 of 1956 concerning mines and quarries  Licensing authority - Arab Republic of Egypt  National Oil Company - EGPC (Egyptian General Petroleum Corporation)
  • 5. Egypt, License Terms Concession agreement for petroleum exploration and exploitation  Exploration - Initial exploration period of 3 years - One extension to the exploration period, of 3 years - Termination of agreement if no discovery after 6th year  Production - Commercial oil discovery - Area capable of production to be converted to a ‘development lease’
  • 6. Egypt, Key Fiscal Terms  Type of contract - PSA (Production Sharing Agreement)  Bonuses - Signature bonus - Bonus per development block - Production bonus  Royalty - EGPC shall bear the entitled royalty  Income Tax - EGPC shall bear the entitled income tax  Deduction and depreciation - Cost recovery
  • 8. Egypt, Key Fiscal Terms Production Sharing (Crude Oil) EGPC's Share (%) Brent Price less Brent Price more Crude Oil produced (BOPD) than US$60 - US$80 US$80 – US$100 than (quarterly average) US$60/barrel /barrel /barrel US$100/barrel < 10,000 77 78 79 81 10,000 - 25,000 78 79 80 82 > 25,000 79 80 81 83 CONTRACTOR's Share (%) Brent Price less Brent Price more Crude Oil produced (BOPD) than US$60 - US$80 US$80 - US$100 than (quarterly average) US$60/barrel /barrel /barrel US$100/barrel < 10,000 23 22 21 19 10,000 - 25,000 22 21 20 18 > 25,000 21 20 19 17
  • 9. Egypt, Key Fiscal Terms Production Sharing (Gas and LPG) Gas and LPG produced (SCFD) EGPC’s CONTRACTOR’s (quarterly average) SHARE SHARE < 50,000,000 SCFD 80% 20% 50,000,000 - 100,000,000 SCFD 82% 18% > 100,000,000 SCFD 85% 15%
  • 10. Egypt, Fiscal Regime Economic Modeling Assumptions:  Production rate, qi = 2,500 BOPD @ June 1, 2010  Well follows an exponential decline (a = 0.10/year)  Oil price = $80 / Bbl  Working interest = 100%  Economic limit production rate, calculated = 78.32 BOPD  Time to reach economic limit, calculated = 34.63 years  Estimated reserves = 8,883,132 Bbl
  • 11. Egypt, Fiscal Regime Economic Modeling Asset Cash Flow Cum Production Production Gross Revenue Year q (BOPD) (Bbl) (Bbl) ($) 0 2,500 - - - 1 2,262 868,359 868,359 69,468,684.83 2 2,047 785,723 1,654,082 62,857,865.42 3 1,852 710,952 2,365,034 56,876,148.65 4 1,676 643,296 3,008,330 51,463,667.49 --- --- --- --- --- 31 113 43,233 8,713,926 3,458,642.16 32 102 39,119 8,753,045 3,129,508.84 33 92 35,396 8,788,441 2,831.696.70 34 83 32,028 8,820,469 2,562,225.13 34.63 78.32 18,663 8,839,132 1,493,04707
  • 12. Egypt, Fiscal Regime - Sample Economics Asset Valuation with Government / Contractor Take Gross Revenue Production Gross Revenue Gross Revenue ($) ($) Year (Bbl) ($) (Government) (Contractor) 0 - - - - 1 868,359 69,468,684.83 54,880,261.02 14,588,423.82 2 785,723 62,857,865.42 49,657,713.68 13,200,151.74 3 710,952 56,876,148.65 44,932,157.43 11,943,991.22 4 643,296 51,463,667.49 40,656,297.32 10,807,370.17 --- --- --- --- --- 31 43,233 3,458,642.16 2,732,327.31 726,314.85 32 39,119 3,129,508.84 2,472,311.99 657,196.86 33 35,396 2,831.696.70 2,237,040.39 594,656.31 34 32,028 2,562,225.13 2,024,157.85 538,067.28 34.63 18,663 1,493,04707 1,179,507.19 313,539.88
  • 13. Egypt, Fiscal Regime - Sample Asset Valuation Asset Net Present Value Gross Revenue New DNCF Year n ($) OPEX ($) NCF ($) DNCF @15% ($) New NCF ($) @15% ($) 0 0 - - - - (42,273,182.94) (42,273,182.94 1 0.5 14,588,423.82 480,000.00 14,108,423.82 13,156,173.04 14,108,423.82 13,156,173.04 2 1.5 13,200,151.74 480,000.00 12,720,151.74 10,314,437.09 12,720,151.74 10,314,437.09 3 2.5 11,943,991.22 480,000.00 11,463,991.22 8,083,347.40 11,463,991.22 8,083,347.40 4 3.5 10,807,370.17 480,000.00 10,327,370.17 6,332,093.26 10,327,370.17 6,332,093.26 --- --- --- --- --- --- --- --- 33 32.5 594,656.31 480,000.00 114,656.31 1,221.01 114,656.31 1,221.01 34 33.5 538,067.28 480,000.00 58,067.28 537.72 58,067.28 537.72 34.63 33.8 313,539.88 480,000.00 (166,460.12) (1,474,.04) (166,460.12) (1,474,.04) 60,390,261.34 18,117,078.40
  • 14. Egypt, Fiscal Regime - Sample Asset Valuation Measures of Profitability FNR $60,390,261.34 FMV $42,273,182.94 Net Present Value Undiscounted $89,424,234.66 Discounted @15% $18,117,078.40 Pay Out Time Undiscounted 3.39 years Discounted @15% 4.88 years Profit to Investment Ratio Undiscounted 2.12 Discounted @15% 0.43 DCFROR 23%
  • 15. Egypt, Fiscal Regime - Sample Asset Valuation
  • 16. Egypt, Fiscal Regime - Sample Asset Valuation
  • 17. Summary  Upstream E&P Fiscal Regime  License Terms  Key Fiscal Terms  Sample Economics  Sample Asset Valuation