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Cablegate: Oil Discovery in Upper Egypt

VZCZCXYZ0000
RR RUEHWEB

DE RUEHEG #2846/01 2631322
ZNR UUUUU ZZH
R 201322Z SEP 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 6967
INFO RUEHAD/AMEMBASSY ABU DHABI 0503
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

UNCLAS CAIRO 002846

SIPDIS

SENSITIVE
SIPDIS

STATE FOR NEA/ELA(NAFZIGER), EEB/ECS

E.O. 12958: N/A
TAGS: EPET ENRG ECON PINR EG
SUBJECT: OIL DISCOVERY IN UPPER EGYPT

Sensitive but Unclassified. Please protect accordingly.

-------
Summary
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1. (SBU) Egypt's Petroleum Minister is hailing a crude oil
discovery in Upper Egypt as a potential economic savior for
the region, but some industry experts, citing questions over
recoverable reserves, quality, and local refining capability,
have their doubts. Their skepticism meshes with broader
questions about the veracity of Ministry of Petroleum
estimates of Egypt's crude oil reserves. That said, even
modest production from the well will benefit the economy of
Upper Egypt. End summary.

----------------------------
Oil Discovery in Upper Egypt
----------------------------

2. (SBU) Minister of Petroleum Sameh Fahmy proudly announced
on September 3 that the upstream division of UAE-based Dana
Gas, Centurion Petroleum, had discovered commercial volumes
of oil in its Komombo concession near Aswan in Upper Egypt.
Fahmy, flanked by Governor of Aswan General Samir Yousef,
hailed the find as the first of its kind in the region, and
opined that it would boost the economic development of Upper
Egypt as a whole. Emphasizing the well's potential economic
impact, Fahmy officially renamed the well "Al Baraka" ("The
Blessing").

3. (SBU) The Komombo concession lies about 80 km north of
Aswan, 700 km south of Cairo, and 320 km from the nearest
refinery in the Nile Valley city of Assiut, well outside
Egypt's traditional oil-producing regions in the Gulf of
Suez, Mediterranean offshore, and Western Desert. Centurion
drilled the well to a total depth of 8,712 feet, and reported
penetrating several oil-bearing zones. Early tests produced
150 barrels per day from a thirty-nine foot perforated
interval. The company is currently evaluating the recovery
testing results and has not yet released a final estimate of
reserves, although some press reports have estimated
recoverable reserves at 8 million barrels. Dana Gas General
Manager Rashid Saif Al-Jarwan said they were working with
their GOE-owned partner Ganoub el Wadi Petroleum Company to
determine the recoverable reserves and productivity of the
find. The producer plans to bring the field into production
as soon as possible and transport the oil via rail or Nile
River barges to the Assiut refinery.

---------------------------------
Some Question the Impact, However
---------------------------------

4. (SBU) Some industry sources have told us, however, that
the apparent poor quality of the oil, uncertainty over the
quantity of recoverable reserves, and the distance to the
nearest refinery could impinge upon the impact of the
discovery on the Aswan region. The region is in great need
of economic development and job creation, and the ruling
National Democratic Party (NDP) has declared it a focus of
its national economic development strategy. The Ministry of
Petroleum reports the oil tested with a specific gravity of
37 degrees API and a wax content similar to that of Sudanese
export crude. Industry executives here tell us, though, that
the Al Baraka oil is waxy to the point of making
transportation tough and refining more costly. Other experts
question the MOP's fanfare surrounding the discovery given
the uncertainty over recoverable reserves and the fact that
three wells drilled by Spanish firm Repsol in the concession
in 1995-96 produced meager results. Centurion officials,
though, claim that the find is from a different
formation/layer than the Repsol wells. The skepticism from
within the industry meshes with a broader uncertainty over
Egypt's reported crude oil reserves.

-------------------------
Reserve Numbers Reliable?
-------------------------

5. (SBU) In contrast to Egypt's expanding natural gas
reserves and production, expatriate industry sources tell us
that the Ministry of Petroleum's statements regarding the
growth in proven crude oil reserves over the past five years
do not hold up against the reality of flat or declining
production. The MoP reports an increase in proven reserves
from less than 3 billion barrels in 2001 to over 3.7 billion
barrels by late 2005 due to increased exploration activity
and better recovery technology. Crude oil production,
however, has declined from over 920,000 barrels per day (BPD)
in 1995 to an average of 640,000 BPD in 2006.

6. (SBU) Some analysts here complain that no clear picture of
Egypt's reserves exists because Egypt does not require its
state-owned petroleum companies to perform certified reserve
audits, unlike publicly traded companies in the U.S. and
elsewhere that must perform annual reserve audits. One
expatriate oil executive told us that they have suggested to
the MoP on numerous occasions that they hire a reputable
international firm to conduct a reserve audit so that Egypt's
leadership can make informed decisions about the role
petroleum will play in the country's economic development.
The MoP has yet to heed the advice.

7. (SBU) Some opposition parliamentarians are questioning the
Ministry's estimates, including Muslim Brotherhood (MB) MP
Ibrahim al-Ja'fari. Al-Ja'fari recently tabled a formal
question for the Prime Minister and Minister of Petroleum
accusing the MoP of misrepresenting reserve amounts, and,
according the MB's website, demanded an investigation into
Egypt's petroleum sector "free from misleading (information)
and maneuvering."
RICCIARDONE

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