* Oil firms reveal Egypt owes them $5 bln, half overdue
* Apache says has $1 bln political risk insurance for Egypt
* Upstream investments still strong, to exceed $8 bln
By Dmitry Zhdannikov
LONDON, April 12 Egypt owes at least $5 billion
to oil companies, half of it overdue, corporate reports have
revealed, in a development highlighting the country's struggle
to meet soaring energy bills while subsidising prices to avoid
Egypt has been delaying payments to firms producing oil and
gas on its territory as it has struggled with dwindling currency
reserves, rising food bills and sliding tourism revenues since
the 2011 revolution that overthrew Hosni Mubarak.
Most oil firms hope to recoup the debts in full, but they
acknowledge it could take years. While they are still planning
to invest in new projects in Egypt that will help it avoid an
energy meltdown, the debt situation remains a challenge.
The government's delay in paying its debts to oil and gas
producers could hold back investment in the sector and
potentially endanger Egypt's energy security.
"The delays in payments to the operators end up hurting
Egypt itself as a potential decline in investment and production
may lead to lower government revenues and a supply gap, in a
potential vicious circle," said Majid Jafar, managing director
of the board of Dana Gas.
Dana is owed $230 million by Egypt in overdue
payments for gas supplies and says it is in active dialogue with
the government over the debts.
Financial disclosures by firms such as BP, BG,
Apache, Edison and TransGlobe Energy
show Egypt owed them more than $5.2 billion at the end of 2012.
BP was owed $3 billion as of the end of 2012, of which
around $1 billion was overdue. BG was owed $1.3 billion, of
which $600 million was overdue. Edison has $400 million overdue,
followed by TransGlobe and Dana with over $200 million each.
Egyptian officials have never disclosed debt figures and
have challenged estimates ranging between $7-$9 billion.
Egyptian officials and oil company sources say some debts are
being repaid but the scale and speed are unknown.
At the end of December, Egypt owed TransGlobe, a small
Canadian oil explorer, $220 million. Company officials declined
to give the current number, saying it will be detailed in first
quarter financial results in early May. The company has stakes
in five concessions in the country.
Since the revolution, the government has been making its
payments for oil after about 8-1/2 months on average, which is
about a month longer than was the situation before, Chief
Financial Officer Randall Neely said.
"It's always an ongoing dialogue ... with them to make sure
we are a priority to get paid so that we can continue to
function appropriately in the country and grow production,"
"I wouldn't say it's shaken our confidence in terms of
working in the country. We continue to be positive in terms of
our ability to get things done and the opportunity set within
the country," he said.
POLITICAL RISK INSURANCE
Foreign companies dominate the energy sector in Egypt,
Africa's top oil producer outside OPEC and its No.2 gas producer
Output has been in decline in recent years. January oil
production fell 3 percent year-on-year, according to government
data, while gas output fell 9 percent.
Oil output was the lowest in three years and gas output the
lowest in five years, according to the Middle East Economic
Survey. Egypt's oil use has risen by a third in the past decade,
and exceeded oil output since 2008.
Driven by population growth and energy subsidies, which
account to $15 billion a year or a quarter of the budget,
Egypt's gas use has nearly doubled over the last decade to
nearly match production, thus limiting exports and hard currency
The Egyptian economy has been in crisis since the overthrow
of Mubarak in 2011, with President Mohamed Mursi grappling with
a weak economy and street protests. Rating agency Moody's puts
chances of a default at 10 percent within one year.
Some companies say they will have to wait for years before
recouping the debts. BG said it expects to fully recover $1.3
billion by the end of 2015, under a recent deal pegged to oil
and gas production levels.
As political and economic conditions deteriorate, some have
taken precautions. Apache has purchased a multi-year political
risk insurance from the Overseas Private Investment Corp and
other insurers to cover Egyptian risks.
"These insurance policies provide approximately $1 billion
of coverage to Apache for losses arising from confiscation,
nationalisation, and expropriation risks, with a $263 million
sub-limit for currency inconvertibility," Apache said.
It also has a $300 million coverage with OPIC for losses
arising from non-payment on past invoices.
"The coverage was critical to Apache's ongoing investment in
Egypt," said OPIC.
Oil companies say output declines will be reversed as
investment rises, despite the debt challenges.
Apache, the largest oil producer in Egypt, plans stable
investment in Egypt for 2013 at over $1 billion.
"We have not missed a day of production since the revolution
began in January 2011. We believe the Egyptian government
understands the value of our contribution, especially at a time
when other sectors of the economy are struggling," spokesman
Bill Mintz said.
Other major players also say investment will remain stable
or even rise despite the government caps on gas prices, which
are below U.S. prices and are a fraction of EU prices.
"There's been no impact on production, or investment
decisions," said a BP spokesman.
Apache, BP and Edison did not comment on the debts owed to
them by Egypt.
BP however identifies Egypt as a major development area as
it is planning to start drilling 18 wells as part of the $13
billion West Nile Delta project, which will ultimately produce
enough gas to meet around a fifth of Egypt's demand.
BG and partner Petronas have also sanctioned $1.5 billion in
new gas investments. The government hopes to eliminate energy
subsidies within five years, which could make its gas market
Egypt's ministry of investment has said the energy sector
will see a rise in investment in 2013 from $8.2 billion in 2012,
which was down $400 million on 2011.