Flexibility’s value in escalating investments

“In fact, it is not a burden as working without a cost recovery is not risky for us since it has the shape of the usual investment projects in other countries,” Dr. Hans-Hermann Ecke, General Manager of RWE Egypt, told Egypt oil & gas in an interview describing the agreement of the West Nile Delta Project

Having the charge of RWE DEA Egypt since last year, can you explain the difference between that moment and meantime?
First of all, it’s the second time for me to be here in Egypt. I have been in here from 2001 to 2005 as an exploration manager and now observing some of the growing fruits which we planted in the previous years.
The current situation is significantly different than before and I think the most highlighted is the West Nile Delta Project as it plays an important role in the overall company’s international portfolio. It is one of the projects which we follow with high expectations here in Egypt and which also explains the fact why Egypt is a very important market for us.

What are RWE’s current projects in the Egyptian market?
All in all, we have 15 onshore and offshore concessions in Egypt, across a concession net area of about 15,500 square kilometers. Core regions of RWE Dea’s E&P activities are situated in the Nile Delta, Gulf of Suez and also in the Western Desert.

By investing 3.6 billion US-Dollars and with 50 billion cubic meters of natural gas which represents RWE Dea share in the fields in the North Alexandria and West Mediterranean Deep Water concessions, what are those two fields symbolize for RWE?
This project is one of the biggest in our local and international portfolio. Exactly in figures, within the next five years, we are going to spend $3 billion and later additional investments during the lifetime of the project which is covering a minimum of twenty years of production and it has the potential to be extended.

What are the most significant features of that amended agreement between RWE, BP, and EGPC?
First of all, this agreement is considered a unique one up till now in Egypt. It is deviating from the traditional PSA which in words means that we do not have cost any recovery scheme within the project.
The governance of the project is mostly with the operator which has to do with the fact that there is no cost recovery. Hence, the project has to be realized in a certain time frame.

Do you consider it risky to work without cost recovery or even as a heavy burden on your shoulders?
In fact, it is not a burden. Working without a cost recovery scheme is not risky for us since it has the shape of usual investment projects in other countries, for example. Moreover, we are used to deal with such kind of projects.
On the other hand, we have a single buyer which is the Egyptian General Petroleum Corporation (EGPC). They buy the gas, the whole amount of gas produced.

What’s RWE most preferred system for agreements to work within Egypt?
In general, I would like to give a statement that this agreement is a very balanced agreement which is between us and the Egyptian authority represented by EGPC. We took our time in negotiating to reach this balanced agreement. I can easily answer that it is better than the production-share agreement as it was the case before. The former agreements were not able to cover this kind of challenging project to be realized.
We have the offshore gas which is quite in a distance from shore and the project is technically very challenging.  It was not possible to be realized in an economical frame to develop such reserves under the previous terms.

What’s RWE Dea Egypt current production rate compared to last year?
The production rate, from our three joint-ventures in the Gulf of Suez together with partners’ production, is approximately 20.000 bpd.

Tell us about your plan for the next stage to increase your production rates from your concessions in Egypt?
Let me say that the big step will be to produce 3 billion cubic meters annually which represents our share within the plateau production phase from 2015. It will be considered as a huge jump in our company’s production rates.
In the time between, we are following up the project of the West Nile Delta onshore Disouq area were we are currently negotiating with the government about the development leases.

Is RWE planning to enter any new bids in the coming stage?
As usual, we will screen the offers in the new areas and we will then decide if enter with a bid or not. This decision will be opportunity driven.

What’s the total amount of investments of RWE in the current year? Was it decreased according to the global economic crisis?
Up till now, on the investments side, we have no major impact due to the global economic crisis but of course the fall in the prices affected revenues. Nevertheless, it hasn’t affected our investments last year or even this year.
The major discoveries in North Alexandria and West Mediterranean Deep Water concessions were achieved in 2004 and earlier. Now we are just starting the development project.

Regarding RWE, what did you do to avoid being affected by that global credit crunch?
We kept our eyes on the investment side and tried to avoid having an effect on the most important investments for the future. However, in the Oil and Gas business we always face all kinds of ups and downs like when the price of oil declined to be less than $14pb in the past. So, we had always to be very flexible.

To what extent do you think the Egyptian Petroleum sector was affected by the global economic crisis?
I wouldn’t like to talk about the Egyptian Government here. So, I can’t judge if the sector was affected or not. Regarding the other companies, it depends on the status of the company and the individuals and officials working in it. Thus, I have no idea whether they were affected or not.

How would you rank Egypt between the countries that RWE operates in? Why?
I would like say that Egypt is very important for us. We have a very long tradition here. In 1989, RWE Dea took over assets from Deminex in Egypt, which have been operating since 1974. Thus, the company can look back on more than three decades of oil production in the Gulf of Suez. It shows that we are quite confident of the country and its potential.

How can you see the future of the Egyptian petroleum sector in Egypt?
What I can say is that the Egyptian petroleum authority is very flexible in solving problems. And I’m sure that this flexibility will help us to invest more in Egypt.

What is your opinion about the government’s intention of canceling the subsidy system over the petroleum products?
It is a political question but from my economical point of view, I think they are going to follow the right path. It has to be taken into consideration that the petroleum products, hydro carbons, are always within international competition and the ups and downs of the prices. So, there would be somehow some problems on the long run if they are attached to a subsidy system.

In your opinion, what can be done in order to develop the Egyptian Petroleum sector?
I think if Egyptian authority stay within that flexibility in negotiating contracts for the benefit of the governmental parties as well as the foreign investing partners, than they are on the right track.
In addition, our agreement reflects such ability of the government and investors to come to economical and sustainable results for all parties involved.


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