How will your acquisition of the Western Desert assets from Shell affect the company’s position in the Egyptian market?

Following the acquisition of Shell’s onshore assets, Cheiron’s operated production in Egypt has increased to over 130 kboepd, establishing us as one of the four biggest E&P operators in the country. The acquisition has also diversified our asset portfolio and created a long term, core investment area for the company in the Western Desert, to complement our existing Gulf of Suez and emerging Nile Delta positions.

This change of scale has opened up many ways for us to add value including new exploration and development opportunities, technology transfer, the identification of operational synergies and various other initiatives. We have also built some important new relationships with the Bapetco joint operating company (JOC), our joint venture partners, crude oil traders and within the financial community.

Most importantly, though, the change brings a sense of increased responsibility. The Government has placed its trust in Cheiron and Cairn, our strategic partner in the acquisition, to increase the pace of investment across the Bapetco portfolio and build production quickly to help meet the country’s energy needs. We are committed to do just this.

What attracted you to this investment at such a time?

Cheiron (previously known as PICO) has been in the upstream business in Egypt for more than 30 years and has grown steadily through a series of targeted mature field acquisitions, coupled with some notable development and exploration successes.

Over these years, the company has built up considerable expertise in mature field management techniques in the Gulf of Suez and, most recently, in the Western Desert, where we have added over 50% to the production from the North Bahariya fields since taking over operatorship in 2017.

Hence, when Shell’s onshore portfolio came on the market it was a natural fit with our company’s investment strategy and operating capabilities. Then, as we looked at the assets in more detail, we became convinced that the concessions have significant remaining upside potential which can be realized through a combination of infill drilling, workovers, waterflood optimization, facilities debottlenecking and near field appraisal and exploration activity.  There are also capital, operating and G&A cost savings to be captured.

Another important attraction was the opportunity to work with the Bapetco organization, which is one of the most capable and pre-eminent JOCs in Egypt, and this gave us confidence that the assets were being managed safely and effectively.

What are your E&P plans for these assets in the coming 5 years?

The next few years are going to be exciting. Our ambition is to return Bapetco’s gross production to around 120 kboepd over the next year or so (levels not seen on a sustainable basis since 2018) and, with a reasonable level of appraisal and exploration drilling success, we believe production can be increased even higher.

To achieve this, we will be investing quickly in the assets and, with EGPC’s, Bapetco’s and our Partners’ support, we plan to increase the drilling rig count in the fields from 2 to 5 by early next year and bring in additional workover units.

In the current business environment, we can easily envisage sustaining this level of rig activity over the next five years and completing well over 200 new wells during this period.

Initially, the rigs will be mainly focused on infield and near field opportunities but, in the second half of 2022, one of the rigs will move to drill exploration wells in the three new exploration concessions which we acquired as part of the asset portfolio. These three blocks are operated by our partner, Cairn, and have some good exploration potential.

Alongside the rig program, we will be performing various facilities related projects, including the tieback of undeveloped gas discoveries to the existing infrastructure and debottlenecking some of the facilities and flowlines.

Beyond this, Cheiron has a very strong focus on safety and the environment and, more broadly, the global sustainability agenda.

Bapetco’s safety record is very good and we will be looking to help the organization continue or, if possible, even improve on their historic level of performance.

From an environmental perspective, we will be implementing a number of initiatives designed to reduce Green House Gas Emissions through the elimination of flaring and venting and minimizing the use of diesel fuel for power generation.  Another focus area will be enhancing the produced water disposal arrangement for all the fields.

Can you highlight some of the factors which can make a successful mature field operator?

In the Egyptian operating environment, I think the key is being able to work closely with the JOC management teams to create a common vision and motivate staff and contractors to continually find ways to improve the business.

It is also critically important to maintain a strong focus on HSES performance, which requires real commitment, coupled with appropriate policies, procedures and standards and the discipline to consistently apply them. This is true for any E&P operation, but particularly so for mature field operations where the infrastructure is often relatively old and failure risks can be higher.

A large part of the solution is to have good asset integrity management systems in place, including appropriate audit and inspection processes and rigorous preventative maintenance programs.

Once these fundamentals are there, one can start to think about the opportunities to add value through further reservoir development investments, the application of new technologies and streamlining work, contracting and procurement processes.

Finally, there has to be an exceptionally tight focus on cost control throughout the operations, but this also has to be balanced with a recognition that certain investments must be made for safety or environmental reasons or to deliver longer term operational efficiency.

Could you highlight some of the latest technologies and techniques that Cheiron applies in its assets?

We always try to keep abreast of any new technologies which can be used on our various fields and have seen some interesting new applications over the recent years.

For example, we have started to use composite pipelines in Norpetco and South Ramadan field operations, significantly reducing installation and procurement costs and improving the long-term operability of the flowlines.

On the drilling front, we are using remote real time data monitoring to help manage the operations and have been deploying some state-of-the-art directional drilling tools supported by our contractors. Advances in the remote monitoring and control of drilling tools means that it is now possible to drill directional wells without any specialist directional drilling support at the well site and this is an area we are keen to look into.

Other very interesting technologies we are actively using, and which are worth highlighting, include the use of artificial intelligence for seismic data interpretation and nano technology for EOR applications in Mexico.

Do you have any near-term plans for other acquisitions in Egypt or Internationally?

Cheiron’s main business priorities in Egypt today are to support Bapetco to safely deliver the full potential of the new asset portfolio, progress our three other existing strategic growth projects (the Geisum GNN oil field development, the WEB gas field development and the North Bahariya waterflood) and maximize the production volumes levels from all our fields.  Having said this, we are always planning for the future and I would not rule out the possibility of further acquisitions should the right opportunity arise, perhaps allowing us to consolidate or take advantage of synergies with our existing fields.

Beyond Egypt, Cheiron currently operates in two other countries, namely, Mexico and Romania. Naturally, the recent acquisition of Shell’s Western Desert assets has greatly increased our in-country focus but in the fullness of time, as the company grows, we may come to consider further international ventures.

How encouraging do you find the business atmosphere in Egypt currently?

In two words – very encouraging. From a macroeconomic perspective, under the stewardship of a Government driving to balance business incentives with social considerations, the Egyptian economy has been able to withstand the hardships imposed by the Covid-19 pandemic better than most others.  With the sustained progress made over the past several years on the economic reforms, inflation is largely under control, foreign reserves are stable and GDP, which remarkably stayed positive last year, is fair set to grow.

Within the Oil & Gas industry, the Ministry, EGPC, EGAS and Ganope are always ready to discuss issues and find pragmatic solutions to help promote investment and grow the country’s production. This approach, coupled with the stable fiscal and regulatory framework and hydrocarbon potential in the country, means that Egypt continues to be a very attractive investment area for the industry. This is clearly demonstrated by the recent entry (or return) of some of the Majors, the level of interest in the bid rounds, the active secondary asset market and the number of new projects related to the “Energy Hub” vision.

What is the basis upon which Cheiron defines its strategic priorities and capital allocation?

Our key strategic priorities are developed during Shareholder and Board discussions and cover areas such as the company’s growth ambitions, investment focus areas, technology strategy, risk management processes, approach to sustainability issues and people development.  Once this framework is set, our capital allocation process is very conventional and relies on economic screening to high grade the investment opportunities, coupled with various types of risk assessments depending on the investment under review.