Time for: Transparancy, Decenteralization and Long-term Business Model

Solving the negativities of the old regime and calling to bring all corrupted officials to justice should never obscure our vision for the prosperous future, we are dreaming of! This is the time to lay down the foundations of an industry that has been long outing for more reform!

As part of Egypt Oil & Gas Campaign entitled “Strengthen your investments, Listen to the FUTURE!”, EOG hosted a roundtable discussion that exposed the views of different petroleum experts who are visualizing a future image of the dynamic petroleum sector.  Eng. Said Zaki, Marketing Manager of Weatherford, Eng. Hazem El-Shafie, Country Manager of MI SWACO, Eng. Magdy Wedad, Managing Director of PICO Energy Petroleum Integrated Services and Eng. Ahmed Anwar, Assistant Deputy CEO for Dilling in EGPC, they all agreed on one main perception; specific basic elements should be firmly implemented in the industry or else all destructive aspects will remain the same! Noting that this roundtable discussion was held before the appointment of Eng. Mahmoud Latif as the new Petroleum Minister, the target behind it was to set the strategy we are desiring and being part of it instead of waiting for the new Ministry to disclose it.

Eng. Zaki began the discussion by affirming, “We should be an effective part of the change”. But, how will it be? What will be the changes we seek? This will be answered in the following lines?

Eng. Wedad said, “The Ministry of Petroleum lacks a clear policy to follow; what are the rules, objectives, long-term plans…etc? No one knows! All what we hear is that it is working hard to lure more investments into the country. But, how and what types of investments? This is undisclosed!”

He added, “The service companies in Egypt do lack the vision because all decisions are made internally. The announced targets of the Ministry are very vague and hence we cannot set our own goals for the petroleum industry!”

Wedad described the way the Ministry’s heads treated the companies as “aliens”. He clarified that they never had a role in the Ministry’s plans, though a healthy sector would gather all key companies to be part of a real fruitful strategy.

“How would I blindly allocate my investments into a sector that lacks the vision and has no exact long term strategy,” said Wedad. “Service companies have always been placed on the sideline, though they should be a key player in the petroleum industry.”

Have you tried before to address top officials concerning this issue?
“I did try several times, and without getting into details, unfortunately, all my attempts to complain or raise the issue were a complete failure,” answered Wedad. “I have tried to talk before, but there was no response!”

“I am wondering how do you expect me to set long-term plans to increase my investments in a sector that does not guide me. We do not know what kind of E&P program will take place? Where will be the drilling focus over the next five years? For instance, if you tell me explicitly that your target is workover, then I will prepare myself to provide the needed services for it. But this was not the case.”

Did the Ministry of Petroleum set publicly a clear long-term strategy?
Eng. Anwar believes that we should first ask what are our requirements? Where should the drilling be intensified? What companies should be involved…etc. “I want to clarify the Ministry’s plan for the fiscal year of 2010-2011. From July 1st, 2010 to January 31st, 2011, only 51% of the 2010/11 drilling plan of joint ventures were achieved, while the exploration companies achieved 40.5% only.

He further added that there were 12 companies drilling in the Western Desert, 9 in the Eastern Desert, 3 in the Gulf of Suez, 4 in the Mediterranean, 3 in Delta and one company in Sinai. “We can conclude from these figures that drilling operations are intensified in the Western and Eastern Deserts, led by the U.S Corporation Apache and its affiliates.”

The Joint ventures solely drilled a total of 207 development wells so far, out of planned 386 wells, in addition to 38 out of 94 exploratory wells. “If we divide the total drilled wells (exploration and development) of JV per area, we will have 165 wells (out of 318) in the Western Desert, 13 wells (out of 42) in the Gulf of Suez, 35 wells (out of 65) in the Eastern Desert, 13 wells (out of 23) in Sinai, 8 wells (out of 10) in Delta and 11 wells (out of 24) in the Mediterranean Sea,” highlighted Anwar.

On the other side, the exploration companies drilled 24 wells out of 52 planned wells in the Western Desert, 3 wells in the Eastern Desert, another 2 in Sinai, 1 out of 4 in the Gulf of Suez, 6 out of 7 wells in the Mediterranean Sea and 2 in Delta. “The total drilled wells was 41 out of 75 planned wells,” added Anwar. “To some extent the 2010-2011 was not achieved so far and due to the current circumstances, I do not believe that it would be fully implemented.”

Answering a question by Eng. El-El-Shafie, “on which periodical basis does the Ministry set the drilling plan?”, Anwar explained that plans are built on the studies and history of each area and that is why there is no exact plan on which the service companies can build their investments. “This can be considered as a drawback, yet we try to provide a vision as a guide for companies to follow.”
El-Shafie emphasized that forming a complete plan based on the history of an area does not serve him, as a service company.

What are the other undesirable elements affecting the sector?
Wedad pointed out to the problem of “conflict of interest” as another major drawback threatening the fairness and objectivity of the sector. “For instance, weighing who is qualified and eligible for a tender is not solely limited to what you provide and how far do you abide by the requirements, but the top officials have used also to take into consideration some unrelated factors, which can be summarized in four words, personal conflict of interest!”

In addition, we should not relate the friendship and hater outside the sector to the workflow inside the sector and interfere it in the process of tender awards, warned Wedad.
How do you see the coming period?

Being in the kitchen of the EGPC future plans, Anwar explained that due to the current instabilities a lot of rigs, mostly land ones, were moved outside the country, especially to Libya, Iraq, Sudan and Syria. This migration out led to a drop in the market. Yet, some are seizing the opportunity and are contracting new rigs, as during times of drop, they can get better services at good prices. “What we are suffering for now is the shortage of land rigs, while we have around six stacked marine rigs (four in the Gulf of Suez) and cannot find anyone to rent them!” clarified Anwar. “Searching for an operator, he would be asked to pay around $10 million to get the rig back to its operating shape once again or instead he would ask to get a one-year secured agreement… the problem is that most of offshore drilling operations, whether in the Mediterranean Sea or the Gulf of Suez will not cover this one year condition.”

Moreover, though we managed to gather three companies to operate the same rig and hence reduce the cost, we faced a problem of operation priority and there was a schedule conflict between the three companies, he clarified.

“There was a conflict of interest once more,” added El-Shafie. However, Anwar prefers to call this problem as the result of appointing wrong personalities in leading positions.
From a different perspective, Zaki suggests to have a win-win strategy. “We have been through three main crisis so far and we can say that the trend of operators during those hard times was to drop the costs and prices as much as possible. In 1986 credit crunch, cutting costs was on the expenses of service companies by forcing them to reduce their prices (which in fact negatively affected the quality) and laying down experienced labor… once again in 1998, the budget cut off was a bit different as operators mostly reduced their expenditures.” Zaki spelled out that such trend negatively affected both operators and service companies and they should have applied the win-win strategy.

“In Egypt, the case is different. We are not a crude oil producer; we are an important natural gas producer. And, all the decisions and plans made are symbolized in one entity, which is the EGPC. So, when the head office asks us for a market forecast, we fail to provide any since the main industry body does not enlighten us!” wondered Zaki. “Due to the lack of transparency, we lost $5.6 million in Egypt,” he revealed.

To sum up, the pricing list of any service companies is aligned to the international oil prices, stated El-Shafie. “This concept is not understandable for most of operators. And, in order to address officials for this concept, you will confronted by the various governmental entities that rule the sector, such as the EGPC, EGAS, Ministry… etc. and you then lose track of who to speak to! You lose time addressing each entity individually. Hence, the long-term plans are mandatory for us. Another problem was the timing gap of the each fiscal year’s plan. The EGPC sets its annual plan in June, while most of the companies start finalizing their yearly plan in September.”

Besides, El-Shafie added that the petroleum sector in Egypt is a sector of connection, which is another drawback. “There is no sole company that can declare it was fairly treated all the time.” He further added that the company’s entire plan in Egypt was based on history.

Another factor that is destructing the sector is the abusive farm-out of tenders.

“Looking to all the mentioned factors, we can see how they lead the investor to seek only profit, without having for instance adequate human development trainings to the employees or providing high wages… Also, have you ever read a recruiting ad in a newspaper? Definitely NO! It is a sector of connections and most of employees are appointed, whether qualified or not for the job vacancy, through connections.”

What are the drawbacks hindering the petroleum sector?
El-Shafie angrily replied that there are three main drawbacks; absence of long-term plans, connections and lack of transparency. “Even if you try to refuse the connections to employ unqualified candidate, you will be threatened of facing problems in your operations.”
Although Said disagrees with El-Shafie and declared that this problem of connection is found in every sector worldwide, all participants believe that the rate is really high in Egypt, specifically in Egypt.

If you are appointed the Minister of Petroleum, name one decision you will add or change?
Zaki: I would call for transparency as the fundamental element for the petroleum system and abolish the “circle of trust” system. I believe that the petroleum sector enjoys plenty of qualified heads, which we should depend on instead of the “circle of trust”. We should appoint the right qualified member in the right place, no matter who is he/she. Due to the so-called trusty people, many occupied top and critical positions, while they were in fact unqualified for it! Also, we should pay more attention to the 2nd class labor force, which should one day replace the old aging figures. There is a severe shortage of skilled and well-trained generations to take over the senior positions. We do have a huge gap in this matter. Our future is already behind us; it is time now for the youth to build their own future. Our role should be limited to passing our long years of experience to the young generations.

Wedad: as I mentioned earlier, first thing I will work hard to lay down in the sector is transparency. Besides, the Ministry of Petroleum should apply the Business Concept that should takes into consideration the political as well as the commerciality aspects. This sector has always been following a one sided vision, however, this dynamic sector should be based on a multi-considerations that combine political, commercial and social aspects at one time.

If all I am suggesting applied, we will ensure a state of fairness in the release and awards of tenders, for instance. There would avoid the long-suffered problem of unexplained farms in and out and the abusing right of undisclosed explanations behind a tender’s awards…etc. Everything should be built on transparency, which would leave no room for any corruptive entities.

I cannot deny the fact that this sector has a perfect system and laws, but it is all on papers! When it comes to implementation, no one does apply or follow any!
My third decision as a Minister, I would develop the new generations to be ready to take over the lead and do not keep relying on the old faces. We should pass on our expertise to the young petroleum personnel; create steady knowledgeable and skilled calibers that can take the lead. We should no longer monopolize the top positions to the old faces.

Anwar: in my opinion, I will first address the delegation of authority problem, which I have been suffering from personally. I know a manager’s responsibilities is to be in control of his department and the work process, yet this does not necessarily mean that he has the needed technical background, hence there should be the role of his technical team members, who should be given some space to make a decision. There should be no centralization of authority or decision-making. Such attitude oppresses the skills of the manager’s team under the pretext of position hierarchy. Everyone should be given the right to share, comment and be part of whatever decision based on his specialty. Moreover, I believe there should be a succession plan, which would not be achieved without the implementation of a concrete career development program in each entity.

Also, I would abolish the idea of having a governmental observing entity that establishes service companies and holds part of its shares, and yet asked to be objective! This creates a conflict of interest.

El-Shafie: definitely, I will call for transparency as a basic tool in this sector, upon which, we can avoid any possible negativity or corruption generated by anyone in the industry. Besides, I would strengthen the concept of “lead by example” that would help produce a brand new generation of skilled engineers, managers and labor in general who can be the adequate replacement for any senior position and have the know-how to be in leading positions.

At the end of this fruitful discussion, all participants agreed on a common belief; this is not the time to take revenge, it is time to build, correct and reshape the petroleum sector for a better country. “Let’s give the lead to the youth who is capable enough to write a more prosperous future”.