The Egyptian shale illusion

Jun 18, 2015 12:00 AM

Unconventional gas production in Egypt remains something of a pipe dream, but that has not stopped Apache Corp. and Shell from making use of shale drilling techniques to extract conventional gas from the country’s Western Desert.

Rather than exploring for shale, as was widely reported following a $30-40 million investment deal brokered in December, the two companies will use horizontal drilling and multi-stage fracturing technology to produce hard-to-access gas from the chalk Apollonia field in the Abu Gharadig Basin.

Although the field would not normally be classified as unconventional, the Egyptian government agreed to classify it as such to encourage its development – hence the confusion in local media. Cairo will also have to pay a higher price for gas from unconventional projects than from conventional ones.

"To make it economic we had to get higher gas prices – it’s still not up to international prices, but better than most concessions here in Egypt. So for political reasons the government and Shell are calling this an ‘unconventional’ play and the headlines read shale gas," a source within Apache, who wished to remain anonymous, told Interfax.

Apache and Shell will receive $5.45/MMBtu for any gas produced from the three horizontal wells due to be drilled this year by the operator Khalda Petroleum, Apache’s joint venture with the government of Egypt.

The government currently pays $2.65/MMBtu for gas produced onshore.

The field’s low permeability requires the use of expensive unconventional techniques to produce commercial quantities of gas.

Apache spokeswoman Castlen Kennedy said it took a year to develop a proposal and negotiate an acceptable price with the Egyptian government.

The reservoir itself is much younger than Apache’s other reserves in the country and lies at a depth of 1,150-1,280 metres. Apache hits depths of 3,050-4,270 metres in its highly productive Berenice and Ptah fields in the Western Desert and expects to reach 2,290 metres in its three pilot wells in the Apollonia formation. Drilling is expected to start in the fourth quarter of this year with first gas at the start of 2016.

Kennedy told Interfax the field was similar to the Austin Chalk formation in Texas in that it has sizeable capacity but low permeability. The existing vertical wells were only able to extract about 1% of the estimated 12.7 billion cubic metres buried under the sand.

Hydrocarbon basins with shale potential in Egypt’s Western Desert region.

Hydrocarbon basins with shale potential in Egypt’s Western Desert region

Shale potential

Egypt does have some shale oil and gas reserves, however. In 2013, the United States Energy Information Administration estimated the country’s shale oil reserves at 114 billion barrels – with 4.6 billion recoverable – and shale gas reserves at 15 trillion cubic metres, with 2.8 tcm likely to be recoverable.

The source at Apache said that, these hopeful numbers notwithstanding, there are good reasons why shale oil or gas production does not add up in Egypt.

Minimal infrastructure connecting the Western Desert to the national gas grid means startup costs will be much higher than in the US. Companies will have to invest in above-ground facilities, and drilling and completion costs will be too high because of government interference and duties on imported equipment.

Low gas prices not based on free-market movements mean the final price for gas cannot take these costs into account, he said.

"[And] there isn’t any legal framework for unconventional concessions and terms. How you define a field, for example, is totally different versus a regular reservoir with an oil/water contact," he said. He added that – even if the obstacles could be overcome – the rocks themselves either do not hold enough gas, contain too much clay, or are too deep.

Apache has investigated shale gas in Egypt before, drilling the vertical Amoun NE-3 well in January 2014, but did not use unconventional techniques. In November, Egyptian General Petroleum Co. (EGPC) Deputy Chief Executive Ahmed Abdel Fattah said the well had tested positive for shale gas.

Shell, Schlumberger and Halliburton have all experimented with shale wells in Egypt, with varying levels of success. After a flurry of activity in 2013, none have made any significant moves in the past 18 months.

Schlumberger’s shale gas Business Development Manager Samir Youssef did not respond to call for comment, but told Interfax previously the company’s tests for total organic content in Western Desert sites indicated mature fields that could be ready for production.

Up until March, Egypt’s Petroleum Minister Sherif Ismail was still saying the next EGPC bid round would specifically include four shale tenements in the Western Desert. Approved by the ministry in November, it will be a special bid co-hosted by EGPC and the Egyptian Natural Gas Holding Co., but as yet the former has not set a date for the round.

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