Rioting hits oil and gas exploration

Unrest in Cairo has led to halts in exploratory drilling at two sites, although production levels have remained steady.

Two exploration projects in Egypt have been put on hold as unrest continues in Cairo and unease in global markets briefly pushed the price of oil above US$103.

Exploration companies and traders are evaluating how to respond to the political unrest in Egypt. About 2.5 per cent of world oil production passes through the Suez Canal, which runs through Egyptian territory.

Oil production in Egypt has continued at normal levels of about 685,000 barrels per day even as major oil companies have evacuated international staff. "People are feeling the return of the risk premium with the Middle East," said Samuel Ciszuk, a Middle East energy analyst with IHS in London.

"Egypt has been sort of a stable constant in Middle East politics for over 30 years … When you start to doubt that a bit, you have to recalculate a lot of your basic assumptions."

The halts in Egyptian drilling, at an offshore gasfield and at an onshore oilfield, echo delays in Tunisian exploration, which has restarted after last month's protests and transfer of power. For now, long-term Egyptian production is not under threat, Mr Ciszuk said.

"It's only maybe if we start to see losing two, three months that we start to see proper investment being drained away," he said.

Production could be held up in the future by bottlenecks in refining and delivery of domestic fuel to petrol stations, some of which are short of supply in major cities, Mr Ciszuk said. Curfews imposed by the government have also kept workers from reaching shipping terminals, disrupting some port operations.

In one of the exploration projects halted in Egypt, a German company holding a large Mediterranean concession stopped the drilling that was being carried out by a US contractor, invoking force majeure, a legal provision that allows for changes to a contract because of uncontrollable events.

Either the German company, RWE Dea, or the US contractor, Atwood Oceanics of Houston, can exit from the contract if force majeure continues for 30 days, Dow Jones Newswires reported.