The new fiscal year (2011/2012) has been described by experts in the field of petroleum industries as a major obstacle. Such difficult times are being attributed to the Revolution of January the 25th and its aftermath; the continuous protests and increased instability have negatively affected all industrial sectors in Egypt, and has put strain on the petroleum industry in particular.

Experts note that petroleum services companies are possibly the first lifelines that could be thrown to revitalize the Egyptian petroleum industry. These companies are currently receiving significant attention from the Ministry of Petroleum due to their crucial role in extracting oil and natural gas.  However, the increasing competition between the various companies has led to some problems in the petroleum services market.

Responding to such problems, experts have called for the instatement of a law that prevents competing companies from being an inadvertent detriment to the market. One of the issues emphasized is the process of renting drills from abroad. If the law were to pass, it would ensure that small petroleum companies could compete in the local market and remain profitable.

However, drilling companies encounter another major complication when it comes to settling the cost of drilling equipment rental. Therefore, there is a pressing need for the Ministry of Petroleum to work on resolving this problem since the petroleum sector is a primary source of national income, essential to the Egyptian national economy.

A solution to the aforementioned problem is in maintaining the expected petroleum reserves to avoid unnecessary financial losses.
The technological advancements in drilling equipment also play a substantial role in the development of the industry. Therefore, it is necessary to constantly upgrade the technologies employed in drilling and extracting oil and natural gas to allow the industry to cope with its international counterparts.

Another problem facing the market is the preference that some companies have in using services that are less costly over the more expensive ones. The latter actually raises the strategic oil and gas reserves and increases the volume of production, in comparison to the former, which yields negative results even in the short term. Veteran companies in the drilling field prefer the costly equipment because their use does not only result in increased production rates but also facilitates the exploratory operations.

Among other problems facing players in the drilling industry is their minimal knowledge and lack of transparency in regards to the tenders market. By increasing awareness, companies that aren’t initially successful is winning tenders would be provided assistance through technical and financial evaluation, allowing them to further develop themselves and strengthen their ability to compete in the market.

A Ministry source also warned against neglecting the instatement of proper laws to safeguard market of petroleum services. He proceeded to emphasize that renting drills from abroad costs companies large amounts of money.  Hence, setting laws to regulate the process of renting drills is essential.  One of the most important of these regulations should pertain to the drilling companies who own sufficient equipment and tools to becoming top players in the sector, which is only possible by partnering with other large players in the industry.

Another significant problem that frustrates most of the companies in the sector of petroleum services, our source adds, is payment delays.  He points out that standard contracts stipulate that companies are to be paid within 30 days from the commencement of the contract. However, in reality payments are often late, sometimes up to 6 months, which puts a considerable financial burden on the companies. These payment delays can sometimes cause further damage by forcing companies to seek more lucrative options abroad.

He additionally demanded drilling companies to provide their most sophisticated and technologically advanced drilling machinery and equipment exclusively to the Egyptian market; especially because the drilling and production companies are usually excluded from tenders, without being provided with a proper justification. The market needs standards of higher quality in order to increase the production of oil and natural gas.

He also stressed the need for stabilizing the petroleum services market in Egypt; a stable market will provide the foreign companies operating in Egypt, regardless of their size, with the needed security to operate, especially in the coming period. Such stability would eventually spark growth and increase in the rates of production and reserves. Moreover, he laid emphasis on the need for transparency in the decision-making processes that would regulate the market’s mechanisms in the future.

In addition, he highlighted the necessity of having a more organized set of market regulations pointing out that international companies that operate in Egypt possess all the tools they use abroad, yet the use of advanced technologies is contingent on the companies’ needs. Moreover, he explained that the consumer’s demand for quality is what drives the market towards higher standards, yet there are companies that produce an inferior product to cut cost, which harms the petroleum exploration operations. The larger producing companies deal with the biggest service providers to present a high quality product, as it drills a larger number of wells that require qualitative services.

Meanwhile, a source within the Ministry of Petroleum has confirmed that increasing production rates of pure oil and natural gas is a new priority for the Ministry. The current average rates, which are 700,000 barrels of oil and 6.5 billion cubic feet of natural gas a day, are not sufficient according to experts in the field.

In an exclusive comment to Egypt Oil & Gas Newspaper, the source added that the ministry is starting to pay significant attention to companies that own drilling equipment in Egypt to try to maintain the current production rates. He continued to elaborate that there are “several types of drills in Egypt ranging from large ones that could drill holes that are 20,000 feet deep, to small ones that could reach down to several thousand feet. 

Both drilling and services companies are in the process of recovering from the economic troubles caused by the Egyptian Revolution, and they’re positive the Egyptian investment milieu will soon be viable for making considerably great profits in the coming period, due to the increase in petroleum exploration operations in Egypt.

The source added that the current Minister of Petroleum, Abdullah Ghorab, is paying a great deal of attention to drilling companies in Egypt to support the implementation of their plan for the fiscal year 2011/2012, which entails drilling several developmental and exploratory wells in various hotspots that will increase investment and in turn raise growth rates.

Another source from a company that operates in the Egyptian petroleum services sector has confirmed that the Ministry of Petroleum is working hard towards resolving the problems facing both drilling and services companies in the domestic market. In doing so, the companies would acquire the necessary equipment and expertise to compete in both the domestic and the petroleum tenders market.

The source also pointed out the role that both drilling and services companies will play in benefiting the Egyptian oil sector; such companies can provide great assistance to exploration operations in Egypt. However, there are numerous companies whose sole aim is to decrease the expenditure of the foreign partner, especially since some of these companies invades the market in illegitimate ways which could result in a shortage of equipment leading to renting from abroad.

A table showing the different types of services

By: Shady Ahmad