Class project at Texas A&M University

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

7. Egypt, Key Fiscal Terms

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