Pharos Energy (LON:PHAR) is strengthening its presence in Egypt, following the approval of a new consolidated concession agreement by the Egyptian General Petroleum Corporation (EGPC). This deal marks a turning point for the company’s operations in the region, aligning with its strategic aim to boost production and maximise long-term value.
The agreement, which merges Pharos’ existing 45% interests in the El Fayam and North Beni Suef concessions with three additional exploration areas, is expected to bring immediate and tangible benefits. Shore Capital views this as a value-accretive move, highlighting that Egypt currently represents approximately 27% of its 38p per share fair value estimate for Pharos Energy.
One of the key advantages of the new concession is its extended duration – a 20-year term comprising an initial 15 years plus a five-year extension option. This provides a longer runway for development and investment. Most notably, management anticipates a boost of around 3 million barrels to net 2P reserves in Egypt. That’s a 25% increase over the previous year-end estimate of approximately 12 mmboe.
Crucially, the fiscal terms have also improved. Under the new framework, Pharos expects a significantly higher entitlement interest. As explained in the research note, “Key terms include a cost recovery ceiling of 40% of revenue (vs. 30–40%) and a new contractor profit share of 27–28% at current oil prices and production rates (vs. 18–22.5%).” These changes increase the company’s incentive to ramp up investment and production.
According to Shore Capital’s James Hosie, “We expect the new concession to immediately enhance the value of Pharos’ Egyptian portfolio.” His statement underlines the strategic importance of this development not only for Pharos’ balance sheet but also for its future production plans.
In terms of investment commitments, Pharos has pledged to drill 11 wells over the next four years and to carry out exploration work. This translates into a gross capital spend of $20–23 million, or $9–10.5 million net to Pharos. Given the company’s existing budget of $7–8.5 million for Egypt in FY25, the commitment is considered modest and manageable.
Yet, the company remains mindful of one critical challenge – payment flows. Management has made it clear that further investment hinges on improvements in payment regularity from EGPC and a reduction in outstanding receivables, which stood at approximately $33.5 million as of mid-2025. The new agreement should reinforce the importance of timely payments from EGPC, particularly as investment activity ramps up.
FY24 Key Financial Highlights:
- Revenue: $136.0 million
- EBITDAX: $86.1 million
- Funds From Operations: $44.3 million
- Net Cash Position: $16.5 million
- Dividend: 1.21p per share
- Free Cash Flow Yield: 20.2%
On a Final Note
Pharos Energy’s new concession deal in Egypt marks a strategically important milestone that not only adds reserves but also creates a stronger incentive structure to invest and grow production. With improved fiscal terms, extended licence duration, and a clear investment roadmap, the company appears well-positioned to unlock further value from its Egyptian assets – provided payment challenges are addressed. Investors and market watchers will be looking closely at the H1 FY25 results presentation for further details on execution and timelines.
