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The year 2015 will be remembered as a pivotal one for Egypt, with the recent announcement of a major deepwater hydrocarbon discovery. Eni has reportedly uncovered a vast gas accumulation in its Shorouk Block along the maritime border with Cyprus, some 200 km off the Egyptian coast. The Zohr 1 wildcat, drilled with the "Saipem 10000" drillship in 1,450 m of water to a total depth of 4,131 m, is estimated to have potentially discovered 30 Tcf (5.5 Bboe) of gas in place in a new Miocene play. Based on the well and seismic data available, the structure covers an area of 100 sq km and current resource estimates indicate the find is the largest gas discovery made so far in the country and potentially, in the Mediterranean Sea, if recoverable reserves prove to be larger than Noble's Leviathan and Tamar in Israeli waters. The Eni well intersected a gas column of 630 m in carbonates of excellent reservoir quality, including a minimum net pay of 400 m. Further potential is thought to exist deeper in the section, at the Cretaceous level, and plans call for a dedicated well to be drilled at a later date.

Covering 3,765 sq km in northeast offshore Egypt, the Shorouk Block was awarded to Eni in January 2014, following a competitive international tender (2012 EGAS Bid Round) which resulted in the allocation of eight tracts. The Italian company, which holds a 100% of the contractor's working interest in the permit through its subsidiary IEOC Production B.V., intends to immediately appraise the find in order to accelerate a fast-track development. Zohr 1 is expected to help significantly in meeting Egypt's gas demand, potentially over decades, while the export of a portion could also be considered, seeing the large volumes uncovered. During a visit to the Egyptian authorities, Eni's CEO Claudio Descalzi stated that "this historic discovery will be able to transform the energy scenario of Egypt". An increase in domestic production would strengthen both the country's economy and position among its neighbours, which could help stabilise the whole region.

Eni has been present in Egypt for over 60 years, since 1954, and is currently the main hydrocarbon producer in the country, with 200,000 boe/d and a liquids-gas split of 43-57 (2014). Eni's main producing liquid fields are located in the Gulf of Suez, primarily the Belayim field (Eni 100%), and in the Western Desert, mainly in the Meleiha and Ras Qattara concessions. Most of its gas production comes from the operated or participated concessions of North Port Said (Eni 100%), El Temsah, Baltim and Ras el Barr offshore in the Nile Delta. In March, Eni and the Egyptian Ministry of Petroleum and Mineral Resources signed a framework agreement to develop new oil and gas resources, 200 MMbbl of oil and 1.3 Tcf of gas, with an estimated investment of USD 5 billion over the next four years. A few months later, the company also announced a gas discovery in the Abu Madi West licence, with the Nidoco NW 2 well unlocking some 530 Bcf of gas in place in the Nooros prospect.

The Zhor 1 discovery is timely for Egypt, which continues to struggle with significant energy deficits. The country has been in an energy and cash flow crisis for a number of years now, with growing energy demand and decreasing oil and gas production turning it from a net exporter to a net importer. Most of the gas slated for exports has been diverted to meet domestic demand and delays in the government's payments to foreign E&P companies, including BP and BG Group, have strongly impacted further investments in the sector. According to BP's last Statistical Review of World Energy, Egypt used 48 Bcm (1.7 Tcf) of gas in 2014, almost the equivalent of what it produced that year. The country has so far been desperately seeking new gas supplies and 2015 saw the first LNG imports. However, with the discovery of new resources, the urgency has subsided and the MoUs signed with Israel and Cyprus on potential future gas imports may simply not materialise. The Leviathan development could particularly suffer from the situation, since Egypt was a key element in the project, with Noble and partners now having to face a more restricted market in addition to the multiple regulatory hurdles.

Outside of its size, the Eni find is notable since it opens a new play in the area. All deepwater finds made so far in the Nile Delta and Levantine basins had clastic reservoirs. The Zhor 1 wildcat targeted a prospect consisting of a carbonate build-up on a satellite structure of the Eratosthenes High. The well is located at the intersection of the Nile Delta and Levantine basins, south of the Eratosthenes High, which is a 110 km by 70 km seamount that rises 1 km above the continental rise in Cypriot waters. The source of the gas is unclear, but the accumulation could result from a lateral charge by Levantine biogenic gas.

The Shorouk Block discovery has boosted the potential of nearby exploration blocks, including the adjacent Karawan and North Port Fouad permits, respectively operated by Eni and Edison, as well as Total's Blocks 10 and 11 in Cypriot waters. None of these blocks have been drilled under the current contracts. Should the resource potential be confirmed, Zohr 1 will have a massive impact on Egypt's economy. The short term will certainly bring a renewed interest for the eastern part of the Mediterranean Sea.

To learn more about the International Oil Letter and additional Energy Technical Reporting Services including, Global Exploration & Production Service (GEPS), License Round Monitor (LRM), and Daily Exploration Alerts (DEA), please contact Tiziana Luzzi at Tiziana.Luzzi@ihsmarkit.com.

Tiziana Luzzi, Technical Research Associate Director, IHS Markit
Posted 27 October 2015

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.