IPR EGYPT

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	24373
Company name	IPR Transoil Corporation
Country	Egypt
Sector	Oil, Gas and Mining
Environmental category	B
Department	Oil, Gas, Mining And Chemicals
Status	Active

Date SPI disclosed	November 29, 2006
Projected board date	December 29, 2006
Previous Events	Invested: August 7, 2007 Signed: June 6, 2007 Approved: February 16, 2007

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The IPR Group of Companies (IPR or the company) is a group of privately-held domestic and international companies that engages in exploration and production of oil primarily in Egypt, but also in Syria and Pakistan. IPR is headquartered in Dallas, Texas, where, besides being active in exploration and production through its affiliates in Egypt, Pakistan and Syria, it also provides petroleum consulting services through out the world. IPR’s existing production is largely concentrated in its Alamein Yidma concession in the Western Desert area of Egypt, but it also has existing production in the Gulf of Suez from the North July concession.

IFC has been asked to provide financing of up to $25 million to help fund a portion of IPR’s capital expenditure program for the 2006-2009 period. The program (drilling nine new wells and undertaking 51 well interventions or workovers, plus auxiliary facilities) will focus primarily on the further appraisal and development of its Almein Yidma field, but will also target exploration and development of five other oil fields in Egypt, namely, North Bahariya, North Ras Qattara and El Diyur all located in the Western Desert, and the Southwest Gebel El Zeit and North July fields offshore in the Gulf of Suez.

Project sponsor and major shareholders of project company

The company is privately held by the Dabbous family and headquartered in Dallas, Texas. Dr. Mahmoud K. Dabbous, the founder and principal owner, is the President and CEO, and Sam Dabbous is the Chief Operating Officer.

Total project cost and amount and nature of IFC's investment

Total project costs are estimated to be $90.8 million. The proposed IFC investment is a $25 million A Loan for IFC’s own account which will help finance the continued development, appraisal and exploration activities of the company in their Western Desert and Gulf of Suez assets.

Location of project and description of site

The project activities shall be undertaken in several locations in the Western Desert region of Egypt and the Gulf of Suez, including:

- the Alamein Yidma field located in north-central portion of the Western Desert about 15 kilometers south of the Mediterranean Sea, where a comprehensive work program which includes production enhancement plans, 3D seismic, and exploration drilling will be undertaken;
- the El Diyur field located 200 kilometers southwest of Cairo, operated by Apache which plans to conduct appraisal and development drilling;
- the North Bahariya field located 200 kilometers west of Cairo- appraisal and development of existing accumulations as well as the completion of the 3D seismic program;
- the North Ras Qattara field located in the north-central portion of the Western Desert about 39 kilometers south of the Mediterranean Sea where production shall commence from one well after approval of the application for a Development Lease;
- the North July field located in the central offshore Gulf of Suez region some 250 km southeast of Cairo where a well will be drilled; and
- the South West Gebel el Zeit field located in the southern offshore Gulf of Suez where an existing well will be developed for production.

IPR maintains corporate offices in Dallas, Texas, but also has project offices at its exploration and production sites.

Anticipated development impact of the project

Fit with World Bank Group Strategy:

Current World Bank Group (WBG) priorities in Egypt, as outlined in the FY06-09 Country Assistance Strategy (CAS) are:

- facilitating private sector development;
- enhancing the provision of public services; and
- promoting social and economic equity.

More specifically, IFC's strategy for Egypt focuses on:
- encouraging private investments in infrastructure, mining and hydrocarbon sector;
- supporting export-oriented manufacturing;
- technical assistance for SME development and the business enabling environment; and
- supporting financial sector activities.

In recent years, crude oil production in Egypt has declined from 700,000 bpd in 2001/2 to an estimated 640,000 bpd in 2005/2006 due to lower production from maturing fields, while domestic demand has been rising. This has resulted in significant ongoing efforts to raise oil and gas production to meet domestic needs as well as to step up natural gas exports. The WBG is actively supporting these efforts; IFC has four existing oil and gas investments, and the World Bank is currently engaged in providing technical assistance to the Government of Egypt (GoE), on strengthening domestic natural gas distribution in the country. The proposed project fits well within the WBG’s strategy for Egypt as it promotes the participation of the private sector and foreign direct investment in Egypt’s important hydrocarbons sector, especially in smaller fields that would otherwise be ignored by larger oil companies.
Anticipated Development Impact of the Project:

The hydrocarbon sector is important to the Egyptian economy, contributing nearly 10% of GDP and 53% of export earnings as well as drawing a significant share of foreign direct investment. IFC’s investment will continue to support foreign investment in Egypt’s hydrocarbon sector. The country recently went from an oil exporter to an oil importer. Finally, IPR specializes in enhanced oil recovery and management of marginal and declining production fields. This technology and expertise is being applied to extend the life of smaller fields that are of no interest to the larger oil companies. This technology is being shared with its partners, including the local oil company, Sahara Petroleum.

- Contributions to Government Revenue:

Direct economic benefits for GoE in the form of Egyptian General Petroleum Corporation’s (EGPC) production share (includes IPR’s share of royalties and income taxes).

- Creating and Providing Sustainable Local Employment:

IPR is an important source of local employment in the fields it operates, particularly in its largest field, Alamein Yidma, which, through the Joint Operating Company El Hamra Oil, employs 125 people, 90% of whom are Egyptian. Overall, IPR employs approximately 250 people in Egypt, with the majority (90%) locals. As the company has success in its exploration and development projects, it is likely that employment will grow.

- Local Purchases of Goods and Services:

Egypt has a thriving local oil services industry that will benefit from the project and will involve expenditures on local goods and services which will be tracked on an annual basis. Currently, IPR estimates that 70% of its annual purchases are spent locally.

IFC will monitor the project’s development impacts annually based on information provided by IPR in respect of:

- annual contributions to government revenue,
- local employment, and
- purchases of local goods and services from local suppliers.

Governance risks assessment

As mentioned above, benefits from this project accrue from a variety of sources, including employment, supply linkages, and contributions to government revenues. The project’s revenue contributions to the GoE form an insignificant share - less than 0.01% - of total government revenues. The GoE’s share of revenues partly accrues to the Ministry of Petroleum (MoP) and for income taxes to Ministry of Finance (MoF). The GoE manages these revenues through reinvestment in the sector, as well as through the provision of affordable petroleum products to the country’s population. The GoE is currently in the process of reforming its system of fuel subsidies, and has a target of reducing the fiscal deficit by 1 percent of GDP per year over the next few years.

In its assessment, IFC has considered the value of the project’s benefits, and governance and other risks to these benefits. It has considered in this respect a range of indicators of governance, and the current relationship between Egypt and the World Bank and IMF. IFC believes the risks to project benefits not being realized, is relatively small. The non-revenue benefits which are significant, such as strengthening domestic energy production, technology transfer, generating jobs, purchases of local goods and services are unlikely to be impacted by weak governance. The project is also consistent with overall WBG objectives in the oil and gas sector; including helping strengthen private sector participation in the sector.

To ensure transparency, IPR has agreed to publish their annual payments to EGPC.

IFC's expected development contribution

IFC has several important roles to play in this project, as follows:

- Capacity Building:

IFC has played an important capacity building role in this small independent privately-held company on a number of fronts. It has assisted IPR establish its longer-term capital investment and funding plan, and as part of this, IPR has had its financial statements and accounts independently audited and had its reserves independently certified.

- Development of an Integrated Environmental, Health, Safety and Social Management System:

IFC is working very closely with IPR to review their existing systems and to assist them in the development of a corporate Environmental and Social Management System (ESMS) that will include a new social component and improve IPR’s ability to manage these risks adequately across projects.

- Corporate Governance:

IFC has been sharing with IPR best practice approaches to corporate governance and is assisting them in establishing a corporate structure which will bring transparency to the organization thus allowing it to access external financing.

Environmental and social issues - Category B

This is a category B project because a limited number of specific environmental and social impacts may result which can be avoided by adhering to generally recognized performance standards, guidelines and the corrective action plan.

IPR has prepared the framework for an Integrated Health, Safety, Environment and Social Management System and is currently in the process of developing the Management System Procedures. The HSES will address the requirements of IFC's Performance Standards and will provide IPR with the necessary tools to apply the same level of standards in all of its operations. In addition, IPR has committed to hire an Environment and Social manager to implement the integrated management system and manage the environment and social aspects of their projects. A Corrective Action Plan (CAP) has been agreed with IPR.

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