It’s been a year since Cheiron acquired 50% of Shell assets in the Western Desert. How would you say the acquisition has gone?

Following the acquisition late last year, our first priority was to effect a smooth transfer of operatorship from Shell to Cheiron and to ensure that the Bapetco Joint Operating Company (JOC) did not suffer from any business disruption during the transition period.

I am pleased to say that with the kind support of the Ministry, EGPC, Bapetco, Shell, and Capricorn (our Partner in the acquisition) the transition period was managed very successfully. The highlights included the establishment of a new Cheiron team of secondees within the Bapetco organization (including many ex-Shell employees who we are pleased to welcome to our company); building new relationships with Bapetco and our Partners; achieving alignment on the planned work program; the novation of numerous commercial agreements and; the setting up new financial and management systems.

Throughout the process, the Bapetco team remained fully focused on safely running the field operations, demonstrating why Bapetco is one of the pre-eminent JOCs in Egypt.

How successful are your E&P plans for the assets so far, and how are they reflected in the company’s production levels?

When we originally evaluated the Bapetco portfolio, we identified that one of the most important value drivers for the acquisition was to increase the pace of investment in the assets. We, therefore, laid plans to rapidly raise the number of drilling rigs working in the fields from 2 to 5, whilst also maintaining a very active workover program using 5 workover rigs to reactivate, recomplete, and service the existing well stock.

In preparation for this ramp-up in activity, many technical workshops were held with Bapetco and our Partners to identify and prioritize the best development and near-field exploration and appraisal wells to drill in the program.

In parallel with the technical work, Bapetco moved very decisively to source the 3 additional drilling rigs that were required and succeeded in contracting them on competitive terms, just before the rig market tightened in Q1 this year.

Unfortunately, however, some delays were experienced in the rig delivery times and start-up operations which has impacted the pace of the drilling program and the production ramp-up during the course of the year.  I am pleased to say, though, that all the rigs are now operational and the work program is in full flow.

How have these assets successfully enhanced Cheiron’s position over its competitors?

The Bapetco assets have increased Cheiron’s gross production in Egypt to around 125 kboepd, establishing us as the fourth largest producer in the country. The acquisition has also given us a strong position in the prolific Western Desert, complimenting the rest of our asset portfolio, which is mainly held in two of the other main hydrocarbon basins in Egypt, namely, the Gulf of Suez and the Nile Delta.

From a strategic perspective, the acquisition has helped Cheiron build the scale required to be relevant in today’s E&P industry and to form many important new relationships. It has also allowed us to significantly strengthen the breadth and depth of the Cheiron team, access new technologies, and improve our supply chain management practices. The latter is an area where I believe we can still achieve much more by using economies of scale and optimizing contracting arrangements across the Company.

What are the Cheiron’s future plans in Egypt?

The Company is entering an exceptionally busy period with a significant amount of drilling and project activity planned over the next three years, leading to further production growth

Onshore, we are currently running with 7 drilling rigs and 8 workover units, working on the Bapetco and North Bahariya fields (also located in the Western Desert). Offshore, we expect to have 2 jack-up rigs active in the Gulf of Suez and the Mediterranean for the foreseeable future.

Our major projects include the Geisum GNN field development in the Gulf of Suez, where we are currently drilling development wells and preparing to install Early Production Facilities at the end of this year. We are also about to launch the West El Burullus gas development in the shallow waters of the Mediterranean Sea – this will be seven well, two platform development tied back to the WDDM onshore processing plant. Other projects include gas field tie-backs in Bapetco and the replacement of the Floating Production, Storage, and Offtake vessel on the Zaafarana field.

Though it seems that the pandemic is coming to an end, the Russia-Ukraine war rages on. How would you say that the performance of Cheiron’s assets has been affected given the current conditions and have they demonstrated endurance?

The tragic events that are occurring in Ukraine obviously had a direct and dramatic effect on energy prices and this has caused some dislocation in the oil and gas industry supply chains.

We have seen the onshore and offshore rig market tighten considerably, with rising costs and, in some cases, limited availability of high-quality rigs. Certain drilling materials are also in short supply and delivery times have become extended. Project costs have also escalated rapidly with the cost of materials, equipment, and services all increased markedly this year.

Fortunately, we managed to avoid some of the short-term issues since we placed several key drilling rigs and materials contracts, particularly for Bapetco, at the turn of the year. We have also managed to mitigate some of the market movements by working closely with our long-standing service providers and by coordinating materials requirements between our JOCs and Sister Companies.

One area, though, where the market conditions have had some material impact is on our major projects where the contractor community has had to revise cost estimates and offers as the year progressed in response to the rapidly changing commodity markets. This has understandably caused some delays and cost increases, and it has required a constructive and flexible approach from all parties in order to successfully complete contract negotiations.

How did the business environment and economic policies in Egypt help in the management and operation of the Western Desert assets?

The business environment for upstream oil and gas investments in Egypt remains very attractive for a number of reasons, perhaps most importantly, the stability of the regulatory framework and fiscal regime. During the transition period, as expected, we also found the Ministry, EGPC, and other Government Agencies to be very flexible on their requirements for Cheiron as the new Operator. In particular, there was a willingness to provide us with sufficient time to formulate a considered view on many key concession-related decisions which had been held in abeyance pending the completion of the acquisition.

His Excellency Minister Tarek El Molla has consistently asked companies to find ways to increase oil and gas production from brownfield areas. How is Cheiron responding to this request?

The Bapetco concession areas present a number of opportunities for “slightly unconventional” reservoir developments which could yield significant volumes of gas and oil. These include tight gas reservoirs in deep horizons, the Apollonia formation and around the flanks of the Obaiyed gas field, and there may also be some oil potential in the Abu Roash source rocks and carbonates.

In order to commercially produce these resources, it will require an integrated technical and commercial plan and we have been very encouraged recently by the Government’s willingness to consider gas price improvements for new gas in the Western Desert if these could help unlock the potential.

We also know that we will need to deploy the most up-to-date technology and it is interesting to note the speed with which oil field technology is developing, particularly in the areas of drilling and hydraulic fracturing (“fracking”). A good example of this is the Apollonia tight gas play that has been tested historically in the Bapetco concession areas, with some fairly limited success, using horizontal wells and multi-fracking. Today, with the recent technological advancements, the same tests could be run with a higher chance of success with much longer wellbores and more effective fracking.

With higher oil and gas prices, what are the best options for companies to make use of their increasing profits?

With the recent oil production cuts announced by OPEC+ and the continuing market disruption caused by the war in Ukraine, it appears as if high oil and gas prices will be with us for a while.  That gives companies like Cheiron, with a portfolio of attractive upstream projects, the opportunity to reinvest the majority of its free cash flow in the business and grow its production base. This is also what Egypt needs as a country since, as a net oil importer and net gas exporter, the health of the economy is highly dependent on oil and gas production levels.

A balance does need to be struck, however, since our industry is notoriously cyclical and there are certainly headwinds which could ultimately cause a downward correction to the current oil and gas prices. Many companies, will therefore be looking to strengthen their financial position and one could anticipate the industry at large entering into a period of de-gearing as companies seek to reduce risks and create more corporate flexibility.

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

Our main focus is on delivering the work programs we have planned in our various fields to drive the Company’s growth agenda. We obviously monitor the market closely, however, and if we were to identify a value accretive acquisition either in Egypt, Mexico, or Romania or the surrounding regions, where our core skills could give us a competitive advantage and add value we would always consider it.