Egypt's Lure: Geology, Stability

Independent's Stake Grows

The Land of the Pharaohs, the Fertile Crescent, ancient power and glory.

Through the ages Egypt has been synonymous with riches — a tradition that continues today, and includes a U.S. independent oil company that is helping Egypt uncover those most precious modern commodities, oil and gas.

Ten years ago, when Houston-based Apache Corp. was scanning the globe looking for potential projects to expand its focus outside the United States, Egypt's political stability and favorable geology were attractive.

When an opportunity arose to take a 25 percent interest in the Western Desert Qarun concession operated by Phoenix Resources, Apache jumped at the chance.

Today, the company has parlayed those humble beginnings into a large Western Desert presence — as well as the firm's first ever deepwater venture that successfully uncovered large natural gas deposits earlier this year.

The Qarun Field is very large by Western Desert standards — about 90 million barrels of reserves — and is one of the largest discoveries in the desert in a decade.

"Egypt has favorable geology, which obviously is most important," said Rodney Eichler, Apache's regional vice president for Egypt. "The country also had the kind of projects that lend themselves to our core strengths, so we didn't have to step out and do things we weren't comfortable with."

Egypt also appeared to have the potential for yielding fields in the 10 to 20 million-barrel range, which would make a large impact on a company the size of Apache.

"All of those factors were further enhanced by the exceptional political stability in Egypt," Eichler added. "The government's concession agreements have been in place for years, and they hold those sacred."

Today Apache is the largest Western Desert oil and condensate producer and the second largest gas producer with daily gross production of 85,000 barrels of oil and 200 million cubic feet of gas. Egypt accounts for 13 percent of Apache's proven reserves and is the largest international venture for the firm. Apache has drilled or participated in 380 wells since 1996 with an exploratory success rate of 42 percent and a development success rate of 90 percent.

"We were fortunate when the first wildcat in our joint venture with Phoenix was a discovery, bringing in a field that produces almost 12,000 barrels of oil a day," Eichler said. "Needless to say, we were excited about the prospects in Egypt."

The Khalda Concession

Over the next year nothing dampened the firm's enthusiasm, and by May 1996 Apache was so excited about the Egyptian prospects that it acquired Phoenix and all its Egyptian properties and opened an office in Cairo.

As a result of the acquisition, Apache became 75 percent interest holder and operator of the Qarun concession and also picked up Phoenix's 40 percent interest in the large Western Desert Khalda concession, which was operated by Spain's Repsol.

Image Caption

Breathtaking and exotic evidence of Egypt's ancient glory remain strong attractions today — but the country's rich potential may be tied more closely to exploration for oil and gas.
Photo courtesy of Apache Corp.

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The Land of the Pharaohs, the Fertile Crescent, ancient power and glory.

Through the ages Egypt has been synonymous with riches — a tradition that continues today, and includes a U.S. independent oil company that is helping Egypt uncover those most precious modern commodities, oil and gas.

Ten years ago, when Houston-based Apache Corp. was scanning the globe looking for potential projects to expand its focus outside the United States, Egypt's political stability and favorable geology were attractive.

When an opportunity arose to take a 25 percent interest in the Western Desert Qarun concession operated by Phoenix Resources, Apache jumped at the chance.

Today, the company has parlayed those humble beginnings into a large Western Desert presence — as well as the firm's first ever deepwater venture that successfully uncovered large natural gas deposits earlier this year.

The Qarun Field is very large by Western Desert standards — about 90 million barrels of reserves — and is one of the largest discoveries in the desert in a decade.

"Egypt has favorable geology, which obviously is most important," said Rodney Eichler, Apache's regional vice president for Egypt. "The country also had the kind of projects that lend themselves to our core strengths, so we didn't have to step out and do things we weren't comfortable with."

Egypt also appeared to have the potential for yielding fields in the 10 to 20 million-barrel range, which would make a large impact on a company the size of Apache.

"All of those factors were further enhanced by the exceptional political stability in Egypt," Eichler added. "The government's concession agreements have been in place for years, and they hold those sacred."

Today Apache is the largest Western Desert oil and condensate producer and the second largest gas producer with daily gross production of 85,000 barrels of oil and 200 million cubic feet of gas. Egypt accounts for 13 percent of Apache's proven reserves and is the largest international venture for the firm. Apache has drilled or participated in 380 wells since 1996 with an exploratory success rate of 42 percent and a development success rate of 90 percent.

"We were fortunate when the first wildcat in our joint venture with Phoenix was a discovery, bringing in a field that produces almost 12,000 barrels of oil a day," Eichler said. "Needless to say, we were excited about the prospects in Egypt."

The Khalda Concession

Over the next year nothing dampened the firm's enthusiasm, and by May 1996 Apache was so excited about the Egyptian prospects that it acquired Phoenix and all its Egyptian properties and opened an office in Cairo.

As a result of the acquisition, Apache became 75 percent interest holder and operator of the Qarun concession and also picked up Phoenix's 40 percent interest in the large Western Desert Khalda concession, which was operated by Spain's Repsol.

Over the next few years Khalda yielded a treasure trove of oil field discoveries, and last year Apache expanded its position in Egypt with a $400 million acquisition of Repsol's interest in the Khalda concession.

Apache also traded $65 million worth of North American properties to an Australian company for its 10 percent stake in Khalda, which covers 2.5 million acres, including both development leases and exploration concessions.

"Today we operate and hold a 100 percent interest in the Khalda concession, with the exception of one small development lease where another company retains a 36 percent interest," Eichler said. "This is now Apache's largest individual core property."

As Apache became familiar with the Khalda concession area as a non-operator it became apparent that the acreage had significant geologic diversity that should yield far more reserves than had previously been found. Eichler said there are stacked pays with 58 different sandstone reservoirs, ranging in depth from 5,000 to 15,000 feet.

"Khalda offered us significant exploration exposure as well as good production enhancement opportunities," he said, "and production enhancement through exploitation operations is one of Apache's fortes."

Previously, the company and the government had been content to drill 10 to 12 wells per day, keeping production flat at about 20,000 barrels a day — but Apache "saw opportunities for infill drilling, development wells, stepout wildcats, fracture stimulation enhancements and waterflood reconfiguration," Eichler said.

Turning to 3-D Seismic

Apache also saw tremendous exploration exposure at Khalda.

"We have 45 major exploratory prospects we will be drilling over the next couple of years," Eichler said. "Our current exploration exposure on the Khalda properties is between 45 and 120 million barrels of oil and 180 to 500 billion cubic feet of gas."

When Apache took over the Khalda concession, one of the first things the firm did was institute an aggressive 3-D seismic program. Prior to 1998 there had been no 3-D seismic coverage over the area.

Apache and Repsol entered into an agreement that called for a two-year development program in which Apache would invest a minimum of $100 million at Khalda.

A portion of that investment was for a 1,000-square-kilometer 3-D seismic acquisition program over the core properties at the Khalda ridge area.

"This data was extremely useful and imaged things we were never able to see on old 2-D data or via well control," Eichler said. "So when we took over operatorship of the Khalda concession we immediately connected that 3-D seismic with existing data we traded for and shot a new 2,400- square-kilometer survey — the largest ever undertaken in the Western Desert."

Preliminary processing results on this newest 3-D continue to come in. Apache drilled a prospect this spring based on the data and it was a discovery.

"This particular feature was never seen on any of the previous data," Eichler commented, "and it's fairly close to an existing field."

The Selkit-1X discovery tested the top 31 feet of a 64-foot oil column, which represents the thickest, best developed Kharita sands yet encountered this far west of Qarun, which is 255 miles east of the new discovery. The well was drilled to a total depth of 10,370 feet and tested the Lower Kharita Formation between 9,523 feet and 9,554 feet.

This well opens up a new play for the Khalda concession. Two additional wells are planned to the test the Kharita sands in the next few months.

Apache now has more than 5,000 square kilometers, or just under 2,000 square miles, of 3-D seismic covering 98 percent of its Khalda development leases and 45 percent of the exploration acreage.

Synergy

Apache's reserve position in the Western Desert provides a great deal of synergy for new projects.

"We have everything from gas plants, oil gathering facilities, pipelines, air strips and permanent housing at both Khalda and Qarun," Eichler said. "As a result, we can find and develop accumulations as small as two to three million barrels of oil, which is unheard of in international plays."

For instance, at East Bahariya, Apache doesn't have enough reserves yet to justify a pipeline, but since the company is only 50 kilometers from Qarun it can economically run a trucking operation to get the oil to the Qarun processing facility.

This critical mass also means Apache has been successful in attracting service companies to Egypt on long-term contracts.

"We presently have 14 drilling and completion rigs operating in the Western Desert — 35 percent of Egypt's land fleet," Eichler said. "Plus, we just entered into a deal with Key Services to import five heavy workover rigs and pulling units that will allow us to more efficiently complete our wells."

Apache also has introduced rod pumping units to Egypt. All wells have been developed using electrical submersible pumps, and as a result many wells have been taken off production when rates drop below 100 barrels a day.

"ESPs don't effectively produce below that level," Eichler added. "In the United States we are just getting started with what we can do on a well at 100 barrels a day."

"To combat this situation Apache has purchased 450 rod pumping units over the last six months and are now in installing them. Using these units we've taken wells with no production to starting rates of 140 barrels of oil daily."

Deepwater Activity

Apache also has staked its claim in the Nile Delta's deepwater natural gas play.

In 1997 the firm acquired Mobil's concessions in the Western Desert when that company was exiting upstream operations in Egypt. Part of that deal included the West Mediterranean concession, which covers some acreage onshore, but mainly offshore.

A year later Apache bought Amoco's interest in the block and became the operator.

"At the time of the acquisition we felt the deepwater portion of the block would be the area we would relinquish as each exploration phase expired," Eichler said. "Of course, that was before British Gas' big discoveries (see accompanying story, page 10). Following their early success, it became apparent that our block was extremely well situated on the west side of the delta directly on strike with British Gas."

Apache acquired a 1,400-square-kilometer survey about 18 months ago, and in May of this year announced its first deepwater discovery in 1,000 meters or 3,255 feet of water. The Abu Sir-1X wildcat tested 17.4 million cubic feet of gas per day from perforations between 6,620 and 6,724 feet in the Pliocene-age Kafir El Sheikh Formation.

The well is 42 miles offshore.

"We are very encouraged with the results thus far," said Steven Farris, president and chief operating officer at the time of the discovery.

The test was conducted over a 104-foot interval that represents the least prospective portion of the 311-foot potential gas pay column. The flow rate was restricted by equipment limitations and the unconsolidated nature of the reservoir, "so we ran extensive pressure build-ups to establish the zone's productivity, calculating the absolute open flow potential at 90.4 million cubic feet of gas per day," Farris said.

"The West Mediterranean block has the best exploration potential of any play in Apache's worldwide inventory," he continued. "We have now identified seven prospects and leads in the deepwater portion of the concession, and have only scratched the surface on the 2.3 million acres in the concession."

Apache's second deepwater wildcat spudded this summer.

"These deepwater discoveries will be fairly simple to develop compared to deepwater projects in other parts of the world," Eichler said. "We are only 42 miles offshore, so the wells can be tied back to production facilities onshore. The real money comes in getting the gas to market."

Eichler concedes a certain amount of risk drilling for gas. Any project has to prove up enough gas to make a large development project viable.

"Our stated objective is to identify gross gas reserves of at least three trillion cubic feet on the West Mediterranean concession," he said. "If we can do that, then we will know what our market options are."

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