Egypt Oil and Gas had the opportunity to interview President of Kuwait Energy Egypt Harry Saul. Mr. Saul shared his thoughts on Egypt’s potential development of unconventional resources.

Do you feel Egypt has the potential to develop unconventional resources?
“Yes, there is potential but it needs to be proven. We need more data to prove it and then see if it’s commercially viable. There are rocks here that could be candidates we just need to study them. The key element is that you need to get core samples on some of the shale plays to determine how brittle they are. If they are soft and not very brittle it will not work when you fracture them. Therefore, basic information needs to be collected and examined. Then you need to have the infrastructure in place. I think Egypt has the water and has some fracturing equipment but there is not enough equipment if more than a few operators start drilling and completing shale gas wells.”

Do you think Egypt could replicate the US shale boom?
“I think part of the rapid success achieved in the US was attributed to the infrastructure that is vastly available within the US. The unusual thing about the US oil and gas infrastructure is that it is so enormous. In the US you can get supplies and equipment in days, which could arguably take a lot longer here. Historically, two million wells have been approximately drilled in the US; significantly more than the number of wells drilled in most other single countries in the world. This obviously can only happen during a similar time frame when the reach for massive infrastructure is readily available. With that being said, you cannot take what happened in the US and extrapolate it somewhere else, you have to look at the existing infrastructure and its capacity for rapid expansion.

Shale gas capital requirement can be significant. In the US they may spend millions on the fracas and results in elevated production levels initially followed by a rapid decline. However, there is still some discussion among reserve certification engineers in the US as to what the ultimate recovery is going to be…The shale gas plays in the US that are doing well are the ones with liquids because the gas prices are currently suppressed due to the oversupply of gas in the US gas market. A lot of companies have actually backed away from some of the dry gas plays. The gas price in the US fluctuates in the range of USD 3 to 4+, similar to the prices in Egypt, so I think it would be challenging to develop dry gas here but if you had some plays that have liquids in them there could be a potential. Fiscal regimes in the US and Egypt vary greatly but there is still room for enhancement in pricing and cost recovery in Egypt as the way to incentivize companies to move toward developing unconventional resources.”

How are operators in Egypt approaching potential shale resources here?
“Obviously, a lot of companies are probably looking at getting cores from the shale source rock and evaluating the potential. I think people are starting to gather information and the issue is that companies have an inventory of projects they want to do and you have to make sure that these shale projects are economically viable and competitive with other projects in each company’s inventory. The numbers might be large and exciting but at the end of the day you have to look at the returns. Companies internally rank the opportunities they can invest in and for money to be spent on shale gas these opportunities have to be competitive and rank favorably against other others.”

What role should the Egyptian government play in promoting unconventional resources?
“Egypt needs gas but the current gas prices here are low. If they were able to increase the gas prices I think companies would be more aggressive in exploring for and developing unconventional gas.”

Will the government need to revise fiscal terms to accommodate unconventional exploration and production?
“It needs to be a comprehensive process between the contractors and the government to determine what makes sense. You have to look at the numbers. Then you may have to sit down and talk to the government about the fiscal regime. The government officials are very reasonable, they understand the business and they are always working to overcome any of the challenges. Given the rocks and the thickness maybe you can find away to make it work under the current terms but that is speculation at this point because we do not have the data. I think the terms need to be flexible in case prices drop to keep projects viable, without passing new legislation every time prices change significantly. It is also suggested that the enhanced terms facilitate accelerated cost recovery. Countries like Canada have a sliding scale royalty that can adjust somewhat to prices. There is obviously a limit but it is a bit more flexible.”

Is Kuwait Energy looking into unconventional resources here?
“It is something of interest to us. We are looking at the source rocks in some of our fields and will be collecting data to further evaluate this potential.”

What operational challenges does Kuwait Energy face here?
“There are a lot of issues but nothing unusual for the business we are in. You always have a variety of issues with partners and the government but you sit down and work those issues out. We are very happy with the relationships we have with both the government and our partners. I cannot think of an instance where the government officials have not been helpful. Overall we enjoy a very good working relationship with our partners and the Egyptian Government. ”