At first sight Egypt's oil sector appears to be a "sunset" industry, especially when viewed against the rapidly emerging "sunrise" natural gas industry.

In recent years oil production has declined from a record 922,000 barrels a day in 1996 to about 760,000-780,000 b/d last year: "Current oil production is going down," says one European oil executive in Cairo, who notes that "the last major discovery was 20 years ago".

But in spite of such pessimistic sentiments, there is the possibility that the inexorable decline from older, mature fields in the Gulf of Suez and Sinai can be slowed. And there is even a prospect - albeit a remote one - that the industry could rise Phoenix-like should a wildcat exploration programme due to start next year in the deep and "ultra- deep" areas of the Mediterranean Sea prove successful.

Earlier this year, Sameh Fahmy, Egypt's oil minister, announced sharp upwards revisions to the country's petroleum reserves, based in part on new discoveries, improved seismic analysis and enhanced oil recovery techniques at existing fields. Government estimates now place oil reserves at 8.2bn barrels, a sharp increase from the previous figure of 3.7bn barrels.

In recent years, oil revenues have represented about 40 per cent of export earnings, so the industry remains of strategic importance to the country, especially as large-scale revenues from any eventual natural gas export scheme are unlikely to appear until the second half of the decade.

Although the emphasis in the energy sector as a whole has clearly shifted to natural gas, investment in the oil sector remains significant. BP Amoco and the government reached an agreement last year to change the terms under which its oil operations are structured, from a joint venture to a production sharing contract. BP Amoco said the positive and constructive attitude of the Egyptian government enabled it to make a commitment to invest $450m in oil production over the next few years. BP Amoco is also continuing to explore for new oil reserves, with four exploration wells planned.

Although the bulk of Egypt's oil output still comes from the Gulf of Suez, new discoveries such as those made in recent years in the Western Desert are helping to offset the decline in older fields. Apache, the Houston-based US independent oil explorer, is one of the companies that has built a substantial presence in the area since it arrived in Egypt in the mid-1990s.

"The Western Desert has the potential for some significant reserves," Steven Ferris, Apache's president and chief executive officer. Apache has been blessed with a string of discoveries. It has invested $1bn in Egypt, which now accounts for 32,000 barrels a day of the company's total worldwide output of 115,000b/d.

Although the field sizes found so far in the Western Desert do not fall into the "elephant" category that the biggest oil companies focus their exploration efforts on, they are large enough and sufficiently low cost to remain attractive. Although weather conditions in the Western Desert can be harsh, the mainly flat landscape simplifies oil-related operations.

"It's the simplest place in the world to operate," says Mr Ferris. Huge, heavy drilling rigs can be easily rolled from one site to another.

In addition to oil, operators in the Western Desert are also finding non-associated natural gas, an added incentive to maintain exploration activity.

But if Egypt's oil industry is to enjoy a full-fledged renaissance it will probably be based more on the deepwater areas off the country's Mediterranean coast than on onshore prospects. Royal Dutch/Shell, the Anglo-Dutch oil group, is already active in the Western Desert. But much of its Egyptian exploration efforts in the next few years will be directed at its vast Northeast Mediterranean Deep Marine concession - one of the biggest single exploration blocks in the world - and over which it has conducted a 7,000 sq km three-dimensional seismic survey.

Some geologists believe the area may have the potential for large oil discoveries, in much the same way that big oil fields are being discovered in the deepwater sections of the US Gulf of Mexico.

But even if such fields exist, they may be hidden under salt structures, which pose a big barrier to seismic waves. Of the three offshore geologic "horizons" in the Mediterranean which interest oil companies, the Pleiocene - where most of the recent gas discoveries have been made - has proved the easiest to image.

"With Pleiocene gas there has been an 85 per cent success rate," says David Nagel, president of BP Amoco Egypt. "It shines out like a light bulb" on the seismic results. "But the deeper horizons are not easy to see. And in the deeper sections there may be oil."


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