BP, which has been in Egypt for 50 years with investments totalling more than $25bn, is the biggest foreign investor in the key African energy hub.

AFP/London

British energy giant BP unveiled plans yesterday to invest a record $12bn in Egyptian gas fields with Russian partner DEA in a “vote of confidence” for the troubled nation.
The investment — equivalent to €11bn — will be on the West Nile Delta (WND), the company said in a statement, and comes despite concern over a surge in deadly militancy in Egypt.
The London-listed group holds a 65% stake in the project, while DEA owns the remaining 35%.
BP is seeking to rebalance its capital expenditure (capex) programme to combat the impact of slumping oil prices, which have slashed its profits and revenues.
“The project underlines BP’s commitment to the Egyptian market and is a vote of confidence in Egypt’s investment climate and economic potential,” BP said in a statement.
The aim is to develop five trillion cubic feet of gas resources and 55mn barrels of condensates, with production expected to begin in 2017, it added.
BP — which has been in Egypt for 50 years with investments totalling more than $25bn — is the biggest foreign investor in the key African energy hub.
“The WND project investment is the largest foreign direct investment in Egypt,” BP chief executive Bob Dudley said after final agreements were signed.
“WND production is key to Egypt’s energy security,” he said, with BP announcing that all the gas would be fed into the national grid and would eventually double BP’s supply to the domestic market.
Gas will be produced by two BP-operated offshore blocks — North Alexandria and West Mediterranean Deepwater — with a potential for future exploration.
“This is a critical milestone in the Egyptian oil and gas history,” said Hesham Mekawi, BP North Africa regional president.
However, BP’s share price dipped 0.49% to 450.40 pence yesterday afternoon deals on the London stock market, as investors mulled the announcement.
“Clearly, oil majors are still willing to take on geopoliticial risk,” said equities analyst Mike McCudden at online broker Interactive Investor.
“Pretty much every bit of capex carries some kind of country risk, just some more than others. And Egypt cannot be ignored.
“It is, after all, one of the biggest players in Africa, both in terms of oil and natural gas, and so highly lucrative.”
Analyst Atif Latif at Guardian Stockbrokers in London forecast that investor confidence in Egypt would improve further.
“The deal is important as it shows that geopolitical/macroeconomic risks in Egypt are starting to improve,” Latif told AFP.
“It allows Egypt to manage the severe crisis it faces after production declines, and shows that BP are looking at other heavy investment in alternatives” to oil.
“We have seen some concerns about a lack of investor confidence in Egypt (and some other Middle East regions) but this will allay investor concerns and in time should result in more inflows and other inward investment.”
The global energy sector is grappling with oil prices that plunged by about 60% between June and January, largely on global crude oversupply.
“With oil prices looking set to remain at their current lows for the foreseeable future, a further push into gas seems like a sensible diversification for the energy giant,” added Spreadex analyst Connor Campbell.
BP has existing operations in the Gulf of Suez and the East Nile Delta.
DEA was, meanwhile, the former oil and gas unit of German power giant RWE. The division was sold to Russian-controlled investment fund LetterOne in a deal that completed earlier this week.
LetterOne is based in Luxembourg, but controlled by Russia’s Alfa Group which belongs to billionaire entrepreneur Mikhail Fridman.