Egypt’s 2021 offers aim to use industry interest despite tax terms
Egypt offers upstream acreage in the form of production sharing agreements (PSAs) and, in some cases, through service contracts. Within the framework of the PSA, several bonuses are payable by the license holder to the NOC. Licensees can recover their costs up to 30% to 40% of gross production and excess cost recovery oil can either revert to NOC or be shared between NOC and the licensee under the terms. of the individual contract. Profit oil is shared between the licensee and the NOC in tranches, either based on production levels or based on prevailing production levels and Brent crude price. The state’s share of production is generally between 65% and 90%.
In most concession agreements, the NOC pays all royalties and taxes on behalf of the concessionaire on its share of profit oil, except in cases where the concessionaire individually has all or part of its share of the hydrocarbons and the recovery of the costs. excess costs. The royalty rate is levied at 10% on gross production and corporation tax for NOC and licensee is 40.55% and 40% respectively. The concession agreements exempt licensees from sales and value added taxes, customs duties, transfer duties and capital gains, stamp duty, income tax and withholding tax ( excluding dividends).
The PSA tax burden in Egypt can vary considerably due to the negotiability of the main production sharing conditions and the difference between the minimum supply thresholds set by the three main NOCs. EGAS is the Egyptian NOC responsible for managing natural gas activities with the Mediterranean Sea as its main area of interest. EGAS PSAs generally have the most attractive terms, reflecting the higher costs and risks of E&P activities in the deep waters of the Mediterranean. While these conditions are generally more onerous than those offered in neighboring Israeli, Cypriot and Greek waters, this is offset by the advantages of Egypt’s more developed sector, such as the availability of infrastructure and strong local demand for gas. GANOPE is the Egyptian NOC responsible for managing oil and gas activities between the lines of latitude 28 ° -22 ° (Upper Egypt). GANOPE’s PSAs are generally less attractive than those offered by EGAS. However, the terms are still incentivized to reflect the more borderline nature of the land area in Upper Egypt, and the level of state take remains slightly below the terms offered by neighboring Sudan. EGPC is the main Egyptian NOC and is responsible for the management of oil and gas activities in the Eastern Desert, Western Desert and Gulf of Suez. EGPC’s PSAs tend to achieve the highest takeover and second lowest returns compared to regional peers, reflecting the lower cost and more mature status of its focus areas. Despite this higher state participation, EGPC’s terms remain more attractive than those offered in neighboring Libya and obtaining licenses in recent tenders suggests that they are not a major obstacle to the investment. Regressive elements within the regime, including the effective royalty imposed through minimum profit sharing with the state, lead to increased tax taking when costs rise or the price of oil falls. Although there is a counter effect when prices increase or decrease costs, the change in tax intake is moderate.
Egypt has awarded several blocks in recent years due to renewed interest in investments following major gas discoveries in the Mediterranean, improving gas prices and broader energy sector reforms. Supermajors such as BP, ENI and Shell have strengthened their presence in the country while ExxonMobil and Chevron are some of the new entrants. In order to capitalize on this success, EGPC and EGAS opened a new bidding round between March and August 2021, offering three blocks in the Gulf of Suez, 12 blocks in the Western Desert and nine blocks in the Mediterranean Sea. This, along with the restart of the Damiette LNG plant in early 2021 after nine years, will further improve Egypt’s production capacity and export capacity. Although maritime border disputes in the Eastern Mediterranean continue, the agreement between Egypt and Greece in 2020, the cancellation of the Turkey-GNA Libya agreement in early 2021 and political criticism between Turkey and Greece may favor regional cooperation.