By Salma Essam, Nataša Kubíková
chlumberger has had an impressive history working in Egypt and its commitment to the country has been translated into its recent major investment in Egypt’s Center of Efficiency (ECE) amounting to EGP 1 billion. In fact, it is the second largest investment of the company in 2016 worldwide. El Ghazzawi affirmed the company’s involvement in the country’s oil and gas sector. “We are committed to Egypt. We started building our new base three years ago and it is going to be completed in a few months.”The ECE “is an impressive place where we will reconcile our operational base for training and operation, a main operational base in Egypt.”
The appetite for such a long-term investment came as a result of positive steps that the Egyptian government in general and Petroleum Ministry in particular, have adopted to make the environment attractive for major players. Schlumberger’s VP stated: “I am very pleased with the environment, the passion, and the motive of the various JVs and the Ministry of Petroleum and Mineral Resources, EGPC, EGAS, and Ganope. Every entity is keen on making changes and we will be part of the change.” Accordingly, as El Ghazzawi further noted, “we are very optimistic about the potential of Egypt’s oil and gas industry, and we are excited about the activity in the Mediterranean and the Western Desert.”
Among the government’s achievements to date, transparency has been seen as the most significant move that the government has presented to old and new investors. “The ministry has been taking steps to consolidate transparency in the oil and gas sector. To make business, Egypt has to rise in the transparency index and I think the progress has been fantastic.”
As a result, El Ghazzawi added, “we are happy to invest, and we are happy with the environment and the encouragement coming from the ministry and all our partners.”
Challenges of Unconventional Drilling
In light of that Schlumberger has been expanding its portfolio in the country. One of the key areas of expertise that Schlumberger, as a service provider, has been bringing in to Egypt is the technology and expertise required to evaluate, drill and complete unconventional oil and gas plays such as the Apollonia field in the Western Desert.
According to Hussein El Ghazzawi, the prospects for unconventional drilling in Egypt are positive. “We are very pleased with the recent unconventional success. I think Egypt has a very good chance to succeed in this area once we improve the economics of this unconventional play. It stretches from east of the Delta across the Western Desert. It is enormous.”
Yet, this potential would need to come down to profitable economics. Therefore, Schlumberger is interested to “continue working with our partners to make it more economical through the two key processes – integration and efficiency.” VP & General Manager El Ghazzawi elaborated: “I think these two factors are crucial for a project like Apollonia. Integration and efficiency come obviously from the economy of scale, which implies to have multi wells done at the same time and this would help to generate more than a 15% saving that we are aiming for.”
In addition to economics of the Apollonia unconventional play, the service provider has been playing a key role in addressing the other challenges facing the operators such as the understanding and characterization of the geophysics of the area, providing the required technology, and competitive pricing.
As El Ghazzawi affirmed, in these early stages of unconventional drilling, “we are yet in the learning curve.” “The main challenge is definitely having operations done with competitive pricing. In this sense, we need to focus on qualifying the local sand,” as having the good sand may “help us cut almost 60% of the total cost.”
Schlumberger also brings the technology that enables the operators to address the challenges they encounter in understanding the complex geophysical structures of the terrain and acquiring the required data. “Technicalities are also part of these challenges. We are a technology company that brings more software, technological solutions, processes, and workflow. We bring all this together to reduce the cost and overcome the technical challenges,” explained El Ghazzawi. “But since there are only two horizontal wells, it is still an early stage to assess, but we will continue to improve.”
The company has, nonetheless, already marked a significant progress, according to its VP: “I think that the planning, designing, and execution exceeded everybody’s expectations. We are all pleased with the results.”
With these positive outcomes, Schlumberger also considers the effects of unconventional drilling on the environment and does its best to tackle them. “The environment is very important for us,” according to El Ghazzawi. In line with the company’s social responsibility, “in Schlumberger, we always tell our people that they are all empowered to stop the operation when they feel some unsafe acts are being conducted, including environmental hazards,” he emphasized. Indeed, as he continued, “it is our home and we are very careful about taking all the environmental standards into account and comply by them.” This is true not only of Schlumberger, in fact. The company’s VP further stated that “all stakeholders invest a lot in planning such big projects like Apollonia, and under this scheme, the environmental standards are always on top of our priorities.”
Profitable Models for Unconventionals
Yet, what is still left for Schlumberger to accomplish is to design an economic model that would prove profitable for unconventional exploration and production, not only for current operators in Egypt, but also for potential investors who may mull other unconventional projects across the country in a near or far future.
Hence, from an economic perspective, Schlumberger as a service company can offer solutions to the operators to generate profits from these unconventional fields, even when the cost of technology is high. “We need to establish a new business model; a model with stronger integration and more risk-and-reward type of contract,” said Hussein Fouad El Ghazzawi.
He confidently added: “I strongly believe that a new business model with our partners here will make a considerable difference and it will encourage us and other service providers to deliver a risk-reward contract, which will significantly improve the total cost as our main objective.”
While developing a new economic strategy, the unconventionals can bring in major benefits for Egypt. “Egypt needs gas. Developing this unconventional Apollonia gas field and producing more for local consumption and export, is good news,” as El Ghazzawi put it. “Egypt needs to have energy,” and thanks also to the current developments and progress, “by 2020 we will have enough gas.”
Nonetheless, “we have the volatility of changing oil prices, which sometimes discourages investors,” El Ghazzawi stated, and that may jeopardize a positive future of the industry in Egypt. Therefore, as he explained, “the industry needs to sustain the price,” which is likely to translate into a success story.
Judging by the situation as it evolved around the unconventional oil and gas in North America, Vice-President commented on lessons learnt that Egypt can extract from and utilize that experience. “We have seen North America as an example that had to stop drilling for unconventional hydrocarbons when oil prices decreased. But now they have managed to deliver cost-effective services, therefore, the unconventional drilling is starting again and the E&P sector is again investing in North America.”
Hence, also in Egypt, “the steadiness of the oil prices will make a huge difference in the industry,” Hussein El Ghazzawi concluded.