HOUSTON—Egypt’s energy sector has come a long way in five years, resetting itself from unstable to energized with the gigantic Zohr discovery and Apache Corp.’s success in the Ptah and Berenice fields attracting attention to the country’s onshore and offshore hydrocarbon resource potential.

“We are aware of the challenges but we have a ground for success,” Egypt’s petroleum minister Tarek El-Molla told a crowd gathered Tuesday morning at OTC after explaining how the country’s energy sector is re-energized. “Egypt has a huge exploration potential, large undeveloped reserves and new strategies to overcome current challenges and boost upstream activities and secure sustainable energy supply.”

Having more flexible upstream agreements, a willingness to negotiate gas prices and fewer international oil company arrears—which have fallen from $6.3 billion to about $3 billion within 2½ years—is helping to move the sector forward and encourage oil and gas exploration, according to El-Molla.

His words came as the industry continues to cope with one of the worst downturns in recent history. Profits have been crushed and companies have, in turn, slashed exploration budgets as they seek out more efficient ways of doing business.

Hopes are momentum generated in Egypt in recent years will keep the country on companies’ radars.

Egypt also is expanding and upgrading infrastructure as it accelerates development of several oil and gas projects, looking to add about 6 Bcf/d (170 MMcm/d) in the next five years, and investments of more than $35 billion committed, he said. The country remains focused on energy security, financial sustainability and sector governance.

The Zohr discovery has heightened deepwater. The development, located in the Shorouk Block in the Mediterranean Sea, was sanctioned by Egyptian authorities in February. Startup is expected by year-end 2017. After an appraisal well delivered up to 44 MMscf/d (1.2 MMcm/d) of gas during a production test earlier this year, Eni said it plans to drill three more wells in 2016 as part of the program.

‘Bright Future’

Undiscovered potential and new opportunities could lie in other areas, including in the Herodotus Basin in the West Mediterranean, according to El-Molla, who announced Egypt is pursuing a new bid round for about 28 blocks in the coming weeks. Blocks will be offered in the Mediterranean, Western Desert, Gulf of Suez, Red Sea and south Egypt.

“Egypt is in a really good place and has a bright future,” said John Christmann, CEO and president of Apache Corp. “We value the fact that Egypt is the largest non-OPEC oil producer in Africa and the second-largest natural gas producer. With a population of more than 90 million people, Egypt is also the largest oil and natural gas consumer in Africa.”

Egypt’s location as a hub for major shipping routes between the Persian Gulf, Europe and Africa gives it a unique advantage in the supply chain for not only the energy sector but others, he said, later adding he will lead a delegation of companies to Egypt in October to explore commercial and investment opportunities. With Egyptian resources making up 19% of Apache’s overall reserves and 17% of its production, Apache has found success onshore Egypt.

“In a sub $50 world, the international portfolio really, really shines through,” Christmann said. “In Egypt, we have high-quality stacked pays. We have significant exploration potential as we’ve seen with our Ptah/Berenice fields. One of the big things here is the production-sharing contract arrangement provides a buffer to low price environments.”

But the big thing for Christmann is the attractive returns—even in today’s environment.

That’s perhaps why Egypt’s share of Apache’s $1.4 billion to $1.8 billion capital program for 2016 is 23%, although the amount is down 40% from 2015. Still, it’s not as much as the more than 60% reduction North American operations will see.

“As a percentage of our dollars today, we are spending more internationally than we were in 2014,” Christmann said, noting Apache has five rigs running in Egypt now compared to four in North America. “We expect to drill 60 to 70 wells and average about six rigs for the year.”

Production Outlook

Apache, the largest acreage holder in the Western Desert, has operated in Egypt for more than 20 years and averaged about 352,000 boe/d in 2015. Plus, there is potential for unconventional resource development, he added.

Ptah and Berenice have produced more than 10 MMbbl of oil. The production could help reverse declining oil production in Egypt.

Matthew Loffman of Douglas-Westwood Ltd. said Egypt’s oil production is forecast to drop below 600,000 bbl/d by 2022; however, gas production is set to jump from 900,000 boe/d to 1.5 MMboe/d by 2022. The firm also foresees Egypt’s offshore production growing, with Zohr contributing to medium-term growth.

Within six years, Egypt could overtake other countries, including Algeria, to become the fourth-largest natural gas producer in the Middle East and Africa. The economics of the fields still need to be tested, he said, but there is massive potential for Zohr and other discoveries to have an impact on Egypt’s energy security and economy.