For our issue devoted to the Egyptian service sector Egypt Oil and Gas obtained an exclusive interview with Hesham Fouad, Chief Executive Officer of Sahara Petroleum Services Company (SAPESCO).  The exclusive interview highlights SAPESCO’s role as a leading service provider and addresses various issues confronting the Egyptian energy sector. 

Can you highlight SAPESCO’S experience and achievements in the Egyptian service sector?
SAPESCO began investing in the Middle East in the 1980’s initially offering heavy service equipment for the petroleum sector. We gradually expanded our portfolio of services to include pumping, stimulation and industrial services, case hole logging, perforations and eventually, integrated services. 

Environmentally Egypt is not the largest oil-producing market however it is extremely diverse.  It has deep-water, shallow water, natural gas, heavy oil, light oil, as well as sandstone carbonate. We gained valuable experience in Egypt in consideration of its diverse geographic environment.  To capitalize on this diverse experience we devoted considerable energy and attention to expanding our service capabilities to meet our clients changing needs in Egypt and elsewhere.

Our goals in Egypt consist of renewed focus on the Mediterranean.  In accordance with developing technology and a market focus increasingly geared toward offshore drilling, we have expanded and refined our service portfolio to include offshore services. We are very proud of the fact that, in Egypt, SAPESCO offshore services holds eighty percent of the rig positioning service contracts in both shallow and deep water. We have enjoyed great success over the past four years with our GUPCO/BP survey service contract, as well as the ongoing contract with Gas DE France for deep waters analogue/digital site survey service.

The Egyptian petroleum sector is undergoing a challenging period.  How would characterize the current problems?
We fully understand that Egypt, in a broader sense, is in the midst of a challenging period, both politically and economically. The oil and gas sector is not immune to this, and the sector is currently confronted by numerous problems.  Liquidity, margins, quality versus cost, these are issues that must be addressed in short order.

I feel that the subsidization issue is the first problem.  We have to reduce the subsidies. We must come up with a plan. Without fixing and finalizing the issue of subsidization the oil and gas sector will face increasingly severe problems. The subsidization issue contributes greatly to the problem of delayed payments and I feel that perhaps certain entities take advantage of this.  EGPC doesn’t pay the IOC’s and that has a spillover effect, the IOC’s don’t pay us. This dynamic contributes to project delays and stagnation in the sector. 

The second problem, one that relates particularly to the service sector, concerns the continued emphasis on pricing.  Everyone is focused on how to reduce costs without consideration of the impact on quality.  This is shortsighted.  Pricing should consist of a weighted average evaluation based on technical expertise.  Higher technical elements mean greater challenges.  Higher technical challenges combined with higher costs for components, materials, and labor should logically translate to price increases. Currently there are many amateurs operating in the Egyptian service market and they are trying to pull prices down.  In addition, EGPC urges all service companies to give discounts for contract renewals.  They are attempting to push this agenda through the service sector when the attitude is contradictory to quality assurance. Cheaper is not always better. We are SAPESCO, a success story in Egypt, we have the expertise and we know what the IOC’s want, and they want quality.  The fixation on price to the continued detriment of quality will have long-term consequences. Capital, equipment and expertise will leave Egypt for more lucrative markets with higher prices and more liquidity, the Gulf for example. To avoid this, I urge EGPC and the IOC’s to come up with a new formula and process for tendering.

Furthermore, I think that the proper implementation of existing regulations could help Egyptian companies gain a competitive advantage in the domestic market. By law Egyptian companies should have a ten percent advantage. Meaning that by law EGPC should accept ten percent higher price estimates from domestic companies. Regionally, similar mechanisms are applied to level the playing field for local companies competing with huge multinational corporations. In the Omani market local companies are given a fifteen percent advantage.  In Libya there are regulations that state that local equipment should be used first. In the Kuwaiti market they ensure that all local companies are fully utilized before allowing foreign companies into the market. This is not a novel approach, such mechanisms are well established in the industry. In twenty-eight years of working in Egyptian energy sector, I have never seen these mechanisms applied.  I think the proper implementation of such regulations could go a long way in keeping companies here.

SAPESCO has achieved a considerable regional presence. How would you characterize your regional experience and expansion process?
In the early 1990’s we expanded regionally in order to actively broaden our operations.  One of our first stations was located in Syria where we operated successfully for nineteen years. Our second station was Libya.  Due to the political unrest we had to pull out. Consequently this had an impact on our core activities, which include remedial action to fix production problems.  We were amongst the first companies to reenter the Libyan market after the revolution.  Production levels are similar to what they were in 2010 and we hope to be back on track in Libya by the third quarter of 2013. 

In addition to these efforts, for the past three years we have aggressively focused on expansion in the Gulf.  We have a regional office located in Saudi Arabia and have major contracts with ARAMCO and KGO.  We have four contracts in Saudi Arabia and are continually looking for new opportunities. We recently finalized contracts in Kuwait, and established an office in Abu Dhabi. 

We are planning a move to Oman hopefully in 2013. In addition to these efforts we are actively seeking opportunities in the Kurdistan market and hope to soon establish a presence in that market.

SAPESCO has extensive experience operating in environments of political and economic instability.  What lessons have you learned?  Are those experiences advantageous considering the current unrest in Egypt?
We have gained valuable insight, knowledge and experience operating in Syria, Iraq, Libya and Egypt.  Cumulatively, we learned that we needed to develop our internal procedures related to security.  In a broader sense, I think our collective experience emphasized the necessity of diversification as a means to offset risk in terms of markets, services and projects. Continued diversification and geographic expansion affords us a degree of resilience in contending with the increased risk implicit in operating in these environments. 

As our experience relates to the current situation in Egypt, I feel everyone is doing their best to deal with the issues.  Security is a concern. Broader economic and political issues inevitably translate to increased difficulty in daily operations.  For example, Bedouin are now imposing mandatory tariffs for any truck that transits through the Western Desert and I’m afraid to say we have to pay it.  We are not alone. If you talk to other service companies and IOC’s they say the same thing, they pay as well.  Every single company is trying to contend with these problems individually and there is a palpable frustration concerning the absence of a centralized government authority to deal with such problems.  

Despite the current challenges we remain committed to our Egyptian operations. We are one of the largest service companies operating in the Western Desert.  We have substantial contracts with large multinational companies that have an entrenched and vested interest in Egypt.  We are here and we remain committed.  However, it is very challenging to provide the quality service that SAPESCO is known for given the broader fiscal problems.

SAPESCO has a stellar reputation for HSE. Are there unique challenges operating in this regard in Egypt?  What training procedures do you implement to ensure consistency with HSE?
I don’t see a unique challenge in terms of HSE compliance in Egypt. The laws are there.  I feel a company’s relative success or failure in terms of HSE is a representation of management’s commitment to implementation of processes and procedures.

We are very committed to environmental health and safety.  We feel at the end of the day safety comes first. Within the oil and gas sector I feel it is crucial to adhere to the latest standards in terms of quality and environmental safety.  We demand quality and HSE compliance from our employees, contractors and management.  We have mandatory rules and regulations that are in place on every project to minimize the environmental impact of our activities. We have a diverse mix of employees.  Certain countries have regulations in terms of percentages of domestic versus imported labor.  As such we employ Egyptian, Syrians, and Libyans. We implement rigid training and education that is unilaterally applied to all our laborers to ensure quality and compliance on all projects. We are currently certified for ISO 9000.   We are in the final stages of receiving accreditation for ISO 14000 and 18000. We feel that our continued efforts in the realm of HSE are very important given our domestic and regional presence.

What are SAPESCO’s goals for 2013?
In the Egyptian market we will continue to focus our efforts in the Mediterranean with continued emphasis on deepwater activity. Our offshore services will continue to aggressively promote ROV services that provide diver-less pipeline repairs.  We’ve had great success with this service in both Libya with MILLITAH / ENI, and Egypt with BP.  In addition to these activities we will continue to promote our ROV positioning services to the Gulf region.

While we remain committed to the Egyptian market, in consideration of the fixation on price and the lack of liquidity, not to mention the broader socioeconomic and political unrest, we feel our current business strategy would be best served by focusing on aggressive expansion and relocation to markets with higher margins and more quality emphasis.  As such, geographic expansion is one of our primary goals for 2013. 

In addition to this we have invested in considerable corporate development related to our uplift program and we will continue to test pilot cases of the program in Egypt.  We feel that there is potential for uplift in every single service that we offer.  We have enjoyed great success with GUPCO in the utilization of our extending reach drilling campaign in the Gulf of Suez and hope to continue efforts in that regard. 

In addition to these specific goals we will continue to provide the quality services that we are known for.  Since our inception in 2006 we have conducted business with a clear mission of providing international standards and bringing creative up-to-date solutions to our clients.  In 2013 we will continue to grow and develop by offering new market technologies and services.

By: Julie Herick

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