Al-Howqal: Regardless delay of martial permits, Western Desert is full of potentials for investors

Since the initiation of its activities in Egypt, Kuwait Energy Company (KEC) has been strengthening its steps in the industry. However, its ambitious plans to further expand are hindered by some obstacles that slow down its investment wheel. Mohammed Al-Howqal, Kuwait Energy Chief Operation Officer, sheds light on these obstacles and reveals the company’s 2010 plan in Egypt

Operating in Egypt since 2006, how have the operations of KEC expanded in Egypt?
We started our operations in 2006 by acquiring 30% interest shares in Burg El Arab field from Krete Company, then increased it to 50%. Afterwards, Krete abandoned from Burg El Arab and they remained with Ghareb Company, an Egyptian service company, which was also their partner in that field.
In the meantime, Kuwait Energy signed a Sale & Purchase Agreement with Ghareb to acquire an additional 25% Working Interest in the Burg El Arab field. The purchase transaction also included the transfer of operatorship of the field to Kuwait Energy. After the completion of this transaction, KEC will have a total 75% Working Interest in the field.
KEC also completed the acquisition of an additional 12% working interest in Abu Sennan block and currently has a 72% working interest in the field. However, the company’s path in this area is still blocked; being subject to some military approvals, which they did not get so far despite the facilities and the positive response of the Egyptian Petroleum officials. The company planned to drill approximately 10 wells after obtaining the Military approvals.

Do you think that such a delay limits the flow of investments into the country?
Being one of the investors, we need to guarantee our rights. Although we have got the approvals of the Egyptian Ministry of Petroleum and the People’s Assembly in addition to the consent of the Egyptian cabinet, we are still waiting the martial authorization. Nevertheless, we are attuned to the issue of national security.

What do you think of the government’s intention to cancel the subsidy policy by 2014?
I totally agree with this decision, but some conditions should be put into consideration. It should be done, but nonetheless, there should be an increase in oil production, salaries, vacant posts and a development in the transportations which are all necessary aspects if your are planning to cancel the subsidy policy.

What about Area A that you acquired from Oil Search?
We have had a service contract with the General Petroleum Company (GPC), which was a brown field and it was the result of our deal with Oil Search. Consequently, we obtained all Oil Search’s field in Egypt and Yemen. Area “A” is one of these onshore fields located in the Gulf of Suez. When we first got this field in 2008, its production volume was 2.900 BOEPD and now it has more than doubled and reached 7.000 BOEPD. It is a promising area and we exerted a lot of work in it side by side with the GPC. However, we need to enhance the conditions of the contract with GPC to be of value for us in order to invest more in it as we are approaching more difficult areas that need more high technology as well as more capital and also because of the existence of natural gas. Currently, we are negotiating with the Egyptian General Petroleum Corporation (EGPC) and GPC to handle it.

What are KEC other fields in Egypt?
We have also the East Ras Qattara, in which the operator is Enap Sipetrol, a state-owned Chile Company. They are doing a very good job and exceeded our expectations.
This field was also obtained from Oil Search and its oil production was 900 BOEPD, but now we reached 5.700 BOEPD. Yet, our main obstacles there are the crew transportation capacity and storage space. Thus we are negotiating with Apache to get more facilities in this area, since they hold and control a large board of facilities in the Western Desert.
Our goal is to boost our production from the East Ras Qattara to 8000 BOEPD, as this field is promising and capable of gifting more.

How promising is the Western Desert?
The Western Desert is greatly fruitful. However, it needs more development, facilities and also requires more simplified laws. It is not familiar in any country to wait for a military permit to move a rig but in Egypt.
I believe that the Jurassic layer is the future of the Western Desert. As a matter of fact, all companies are now focusing on this layer. We ordered a rig to be moved there targeting this deep formation layer. IPR is operating there and produces 5000 BOEPD, but there is a huge amount of gas waiting for investors.

What is the production volume of KEC in Egypt?
KEC share of production in Egypt counts for more than 7000 BOEPD. We have interest shares in five concessions; Area “A”, East Ras Qattara, Mesaha, Burg El Arab and Abu Sennan. They are all oil fields except Area “A”, which has began to bring out a large amount of gas. Hence, we are about to perform a development plan as our contract in this field is only for oil and we need to exploit this gas by making a new contract.

In the shadow of the economic crisis, was KEC able to achieve its 2009 plan?
We achieved our plans in 2009 despite the global financial calamity. During the crisis, we did not halt any of our projects and we brought more investors to invest in Kuwait Energy. In addition, we were able to get a loan of the International Finance Corporation (IFC) in last September to carry on our operations. Besides, we did not lay off any of KEC workers as many other companies did and are still doing.
We expected the crisis early and planned for it right. We only rationalized our cost but not at the expense of our workers.

Regarding the $50 million IFC’s loan, what are the strategies of exploiting the loan in Egypt?
The loan was for our projects in Egypt and Yemen only and there was no ratio to divide it between the two countries, but it depended on the work, potential, development targets. It aimed mainly at developing the proven reserves.
Of course, there will be other loans in the future as long as we plan to widen our investments. We are keen on operating in more new concessions and aware if there are companies need to pull out so as to replace them like the case of Oil Search acquisition.

Despite being one of the very few local privately-owned oil and gas E&P companies in the MENA region, some news stated that the company is going public by next year, is that true?
No, it is not right. We have KUFPEC in Kuwait which is a state-owned company and it is also operating in Egypt. It might be revitalized and if so, we will acquire its share due to its successful projects and investments in the areas of Middle East, Africa, South East Asia, Far East and Australia. But we will not be public.
Kuwait Energy’s capital is 130 million Kuwaiti dinars, which is equal to 1.300 billion shares, and we are targeting to attract more investors within the company to increase the capital and shares of the company.  The current capital is worth almost 1 billion dinars.

What about the company’s commitment of setting new standards for environmental and social management in the region?
The environmental and social management is very important to us. It is important for the company to employ young generations to give them the experience, as they will be the future generation to manage and operate the operations wheel. Their loyalty will be for the company, because you gave them the opportunity from the beginning.
We are a Middle Eastern company, but our strategy is to stick to the international standards. And that reflects how we will be in London Stock Market in the first quarter of 2010.

By Ahmed Morsy


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