Tell us a bit about your experience in the petroleum sector.

I joined Shell after graduating with a M.Sc. in Physics in 1985. I started in upstream research and scientific computing, focusing on reservoir engineering, and from there I moved into joint venture operations in Brunei, Australia and Oman. In between these assignments, I had strategic and business planning roles in the head office in Netherlands. These jobs gave me a strong background in operational petroleum engineering and development whilst at the same time spending sufficient time in the head office to cover the important strategic and business planning aspects from our business. I believe that the combination of practical operational experience and head office experience is very good background for my current role as an allround country manager.

Where does Egypt rank within Shell’s worldwide operations?

Our operations in Egypt are relatively small, about 1% of Shell’s global upstream production. But small is often beautiful. We have a proud history of over 100 years in the country, a good asset base in the Western Desert, operated by Bapetco, a well run Joint Venture with EGPC, and a flourishing lubricants business that ranks in the top of the European sales cluster.

Tell us about Shell’s activities in Egypt.

We essentially have reviewed our strategy in the last few years. We had large concessions in the Mediterranean but we did not get the kind of discoveries and anticipated economic returns that we were expecting, so we have relinquished that acreage. We are now mainly focusing on the Western Desert, which we think is a rich basin with still a lot of good opportunities to develop oil and gas fields, close to existing infrastructure, that despite the exploration risk can create a profitable return on investment.

Shell has a 100-year history in Egypt and has invested significantly in the country. We look forward to playing a continued role in meeting the country’s energy needs and will continue building on our partnership with the Government of Egypt. This will be mainly through our Bapetco joint venture with EGPC, which is an indispensable element of our success.

To give some details, we are one of the major operators in the hydrocarbon-rich Western Desert. Our business portfolio includes stakes in 20 oil and gas producing development leases in the Badr El Din (BED), Northeast Abu El Gharadig (NEAG), Sitra, Obaiyed and Alam El Shawish West (AESW) areas and produce around 110,000 barrels of oil equivalent per day.

If the government makes any amendments in the agreement model to encourage investments in offshore operations, would Shell then be interested in investing in offshore again?

We always look at all opportunities, but they would have to be of sufficient interest to attract us—and that is not just within Egypt, but applicable on a global basis. Exploration budgets are constrained. Exploration wells are expensive, you really have to be selective. Any opportunity, anywhere in the world, has to be compared to others, and ranked. If it makes business sense we would be interested, however in the current climate, we are focusing our operations on the Western Desert.

How do you see the current situation in Egypt, and how do you see Shell’s presence here in 2015?

It has been a difficult three years in Egypt—for the Egyptian people, for the investors, and for the oil and gas sector. What we currently see is stabilization, but we have also seen a reduction in investment in the sector during the last three years. What we need to see are positive steps by the government to restore investor confidence, so that investments can return and the sector can flourish. Egypt needs foreign investment in order to increase oil and gas production.

There are some people who think that Egypt can do without the IOCs (International Oil Companies). I don’t believe this is possible at the moment. The amount of risk, the expertise and the large amounts of capital involved, is something that IOCs bring. But there needs to be a attractive investment climate for IOCs, and the current climate is not as positive as we would like to see it. We have unfortunately seen a reduction in investment over the last few years, and that needs to be turned around.

Can you elaborate more about positive investment planning policies?

An example in the Western Desert is the gas price. The gas price has been constant for fourteen years, yet the cost has gone up. Since the revolution, the costs have gone up by 10% or more per year. What we now see is that the investor margin is being squeezed, and there are some gas fields and opportunities in our portfolio at this point in time that we can no longer afford to develop. A change in gas price for the Western Desert is very important. The Mediterranean has its own issues in deepwater with expensive wells, so there you might have to look at a different fiscal regime—tax royalty versus PSC (production sharing contract).

In the Western Desert, the PSC system can work fine, as long as it’s applied intelligently, and as long as it changes with the time. I would say that the PSC system has worked well for the last 30 years, but without changes won’t for the next thirty years. It needs big revisions in license terms, cost oil and gas prices, because the easy and cheap oil and gas is gone and what you’re left with is more difficult and more expensive to extract. That’s what your [Egypt Oil & Gas] Brownfield roundtable was all about, so it’s an issue that NOCs, IOCs, and I’m sure the government, recognizes. The question now is: what are the next steps to take?

Have you talked to the government about the gas price issue?

Yes, we have, and constructively I must add: with regards to this issue, it’s very simple in my view; it has to happen. If the costs continue increasing, the IOCs will not be able to invest, which would put the JV (joint venture) budgets under tremendous pressure.

How is Shell’s debt settlement progressing with the government?

As you know, this is a big issue in Egypt, and we manage our position carefully. We have a good balance between oil and gas, and we have agreements with the government to manage our payments. We’re managing it fairly well, and so far it’s under control.

What is Shell’s biggest discovery or other achievement in Egypt?

In our history, that would be the Obaiyed field, which contained about 3 Tcf of gas that we discovered in the 80’s. Half of our gas production is still coming from the Obaiyed field.

What is the size of Shell’s booked reserves in Egypt?

Generally we don’t give out these hard numbers, but I can tell you, efforts over the last five years have replaced more into our reserves base that we produce.

How is your production?

Our production is stable at the moment. Shell’s production optimization and well intervention activities have helped our joint venture BAPETCO to maintain an average daily production of around 110,000 barrels of oil equivalent per day, offsetting the rapid decline in most of the oil and gas reservoirs.

Currently, we have one large project, the Assil and Karam project. In 2012, our partners and Shell took a final investment decision to develop the Assil and Karam gas project, set to reach 150 mmscf/d of production capacity, and we expect this to become on-stream in 2014

What other challenges does Shell face in Egypt besides gas prices?

It’s important to repeat the significance of the gas price issues. Gas prices have been constant since 2000, and due to the rising cost since then, there is an increasing number of gas fields that can no longer be developed at that price and if we want to stop the decline in Egypt’s gas production, the gas price for producers will have to go up.

As the case with any operating international company, there are some other challenges, such as:

Certainty on license renewals

Lack of suitable license terms for tight and shale and more complex oil and gas exploration and development, such as license duration, cost oil percentage

Cost recovery bureaucracy

Timely permits for operational activities

However, on the upside there are also a number of positive points worth mentioning:

Egypt is blessed with a rich hydrocarbon resource base that in principle can support domestic supplies as well as generate revenues to the state through export with the right investment climate.

Egypt will see an increase in energy demand as the population grows, the economy stabilizes and grows and the country develops.

There are sufficient foreign investors interested in Egypt that can assist Egypt in growing its oil and gas supply to meet the increasing demand and the government is keen to attract this foreign investment.

Do you see the current model agreements—concerning your operations in the Western Desert specifically—to be the best option? Or would you like to see tax/royalties applied there?

We work across the world. We work in tax/royalties, we work in PSCs—they can all be made to work. I would at this point say, for the Western Desert, the PSC is not broken, but some changes need to be made. I can see that for deepwater, unconventionals, or tight oil and gas, you will need a different model. The investments there are large, and the risks for the IOCs are a lot higher too.

Does Shell have plans to invest in Egypt in the coming years?

Yes, as I mentioned before, we have been in Egypt for over 100 years. Our operating company is Bapetco; it has an annual budget around $500 million and produces around 400 mmscf/d of gas which is just under 10% of Egypt’s daily gas production as well as 40,000 barrels of oil and condensate per day. Bapetco operates 10 rigs for drilling and well workovers and we expect to maintain this level of investment for the next few years.

In short, our strategy in the coming few years is to maximize the production of our current assets in the WD and rapid exploration of the three new exploration permits that Shell has acquired by starting seismic acquisition this year and drilling in 2016 and 2017.

Is Shell looking into unconventional oil and gas potentials in Egypt?

The word unconventionals means different things to different people—you have shale oil, shale gas, tight gas, so it’s often better to talk more specifically. We explored shale oil and found some presence of oil in those wells, which was not commercial. We will not pursue it at this point in time, but we’ve obtained some important data sets for the government and ourselves to utilize in the future.

We are also working on tight gas. For example the Apollonia field. We’ve drilled a number of wells and are producing them, but that is not a long-term commercial proposition. In order to develop that commercially you would need a much higher gas price. Shell and its partner Apache—we share the same permit there—are currently negotiating with the government for a better gas price for this particular tight gas resource. This negotiation is making good progress.

The government understands that for difficult oil and gas, the old terms and prices don’t work. They understand if there’s not a positive movement in terms, the gas will stay stuck in the ground. Then what is left? Importing coal, importing LNG, and power cuts? So the government understands this very well, and I am very appreciative of the way EGAS and EGPC, and in particular the Minister of Petroleum are approaching this. In order to develop the resources Egypt has in the ground, a different investment climate has to be developed, in this case, higher gas prices. To date we’re having very positive discussions and have a good communication flow going. As you can imagine, it is not just a single decision on a gas price, it depends on many other factors as well. Where it ends—I don’t know, but I am positive.

Do you see potential for unconventional oil and gas in Egypt? Will the country see investments in unconventional in the next 2-3 years?

We’ve learned from the US, we’ve learned from China, we are working in the Ukraine, in Russia—these shale plays are long-term plays. You don’t do it overnight. The US is unique, in terms of its service industry, in terms of rent ownership, in terms of the resource, so all the things in the US work for a very rapid resource development. It’s very difficult to duplicate this in other places.

In a place like Egypt, it will take much longer. So I think the efforts by the government to develop shale oil and gas regulatory framework is fairly important. Without that framework it’s very difficult to get people interested in shale oil/gas plays in Egypt.

If we see that, will we see Shell investing in unconventionals?

If we see that, we will look at it as any other opportunity, and see if we can make it work. Given our presence in the Western Desert, I think we have a few advantages compared to new entrants, but we still need to look at all the details and opportunities to see whether it makes commercial sense for us.

In your opinion, what are the main difficulties that the petroleum sector, as a whole, faces in Egypt?

I think there are a number of challenges. One main issue is security. Second is the payment and receivables issue. Third is the terms and gas price for more difficult and expensive oil and gas.

We need improved security in the Western Desert. There are a number of incidents, and the number of incidents is slowly on the increase. It’s manageable, but they are there. We would want to see an improved cooperation between the authorities, the Minister of Interior, the military, and the Ministry of Petroleum to make sure those incidents disappear.

The other issue is the payment issue. Although the Shell situation is currently manageable, it is still a very serious issue for the industry. We all know companies who are severely affected, so the sooner it is resolved the better.

And the third issue is, indeed, that a number of oil and gas fields are no longer being developed because the economic return is shrinking. Something really needs to happen there. So those, I believe are the three major issues that I would see affecting the sector.

Congratulations on your new campaign for energy conservation. Would you like to elaborate more and tell us what the initiative is, and what Shell’s role is?

Yes we’re very proud of this—it is very important. We work on the supply side of oil and gas to the Egyptian economy, and supply and demand is out of balance at the moment. Now, we have a shortage of energy and we all face power cuts. For the reasons we know, it’s difficult to increase supply, because a number of investments are being delayed and the supply decreases.

On the demand side, it keeps increasing and frankly speaking, we see so much waste of energy. When I met my colleagues from BG and Apache at the end of last year, we concluded that we should play a more active role, because it just doesn’t feel good if you produce a lot of energy and it’s not used right.

So with BG and Apache we founded an initiative— the Egyptian Initiative for Energy Conservation (EIEC). Our communications teams got together to develop the brand campaign for it, Belma32ol, and when we had landed on a concept and a plan, we broadened it and went to the Minister of Electricity and the Minister of Petroleum, and they embraced our idea. They wanted to add to it and make it a joint campaign, which we did andit has now been launched. There are TV/radio commercials, outdoor ads (billboards), social media, PR activities, and on ground activations.   —It’s been progressing, and it’s for the long haul. It’s really about changing behavior and making Egyptians aware of where the energy is coming from and how it should be spent to avoid suffering power cuts.

To practice what we preach, we took some very simple measures in this office. We increased the air temperature a bit, turned the lights out when nobody’s in the room, etc. In the year 2013, compared to 2012, we saved 17% of our [Shell] offices electricity bill. We even managed to save 25% of our electricity bill of Q1/2014 compared to the Q1/2013.   I hope we give a positive incentive to the Egyptian people to use less energy.

We can learn from Japan, because after the tsunami, Japan really had to take drastic measures to save energy. We still have a long way to go, but I think we’re on the right track. We are very proud to be   founding members of this initiative and campaign. It is not branded as Shell or BG or Apache; it has its own branding: Belma32ol. Now other IOCs are joining as well; I am very pleased with the additional support by GDF, Dana Gas, IPR, and Taqa Arabia. It is something we all think is so important for Egypt.

Closing Remarks

There are lots of challenges. But I think the government we currently have, the leaders in EGAS and EGPC, the MOP; they all understand the issue, and what needs to be done. It’s just a matter of how. I’m therefore positive about the future and I think that Egypt has a great future in terms of the resource, the markets, with very capable people. It’s now a matter of organizing ourselves.

There are still opportunities in Egypt. We focus on the Western Desert. Then there is the Mediterranean. There’s also the Gulf of Suez, you have the Nile Delta, and then you have the Red Sea and Upper Egypt. So there’s a whole suite of basins and opportunities.

With the right technology, with deviated and horizontal drilling, with more advanced seismic and better geological models, you can find and develop smaller accumulations in the right investment climate.

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