Cruising into 2011, the most crucial requirements for the services companies are the need for transparency, a self-regulating organization, quality awareness as well as equal opportunities.
Owing to their crucial importance regarding the extraction of oil and gas, services companies have a great concern within the petroleum sector. As a result of the fact that they are many inside the sector and the competition among them became intensified, it caused turmoil in the service market due to the lack of adequate organizing laws, according to the sector’s figures.
These missing laws, if existed, should ensure the continuation of start-ups and small companies in the service market. Moreover, the demanded regulations are also essential in the light of the presence of state-owned companies that crowd out the private companies, trying to grab portions of their market share. Nevertheless, these state-owned companies have no previous experience.
Tanima being one of the most important state owned companies in this field snapped up some important projects in the last period, either through direct order or through tenders.
In spite of the companies’ competition in the provision of providing their advanced technology to reach the quality standards required by the exploration and production companies in Egypt, but those companies always hit the obsession of prices, which has become dominant on the market of services in Egypt away from the grasp of the quality standards.
Hence, experts and service providers in the sector urge that there should be an obligatory and standardized law to be implemented among the Egyptian service companies. For them, these regulated laws will limit down the linkups and connections which spread on the scene nowadays, which in accordance may destroy the market, either technically or materialistically.
From their side, the functioning companies requested more transparency in dealings. It is not reasonable that when a tender-winning company is declared, the reasons behind eliminating the other companies are always hidden and mysterious. They also highlighted that those eliminated companies from the tenders have to know the shortcomings of their loss in order to avoid or compensate them in other tenders.
Some of the services companies raised objections on the existence of Tanmia in the local market without having sufficient expertise or even equipments which are necessary for the competition.
In addition, they believe that its role maybe beneficial for the sector only if it provides those services which are offered by major services companies operating in the market.
On the other hand, the officials within Tanmia responded to these accusations by announcing that the primary goal of the company, upon which it was created for, is to reduce the cost-recovery and expenses of the foreign partners, which is considered as an inherent right of the country. Thus, the role of Tanmia is regarded to be a national one.
In addition to that, Tanmia’s officials added, it penetrates the services market in legitimate ways. While the companies that deal with it have the right to reject its services especially because that companies have a foreign partner in their board of directors.
“The Ministry of Petroleum tries to ensure equal opportunities between governmental and private companies alike,” an official source within the Ministry of Petroleum told Egypt Oil & Gas (EOG).
“It is not reasonable for the Ministry to dismiss the private companies for its favour. However, it is the time that there will be more of a national services company working in the local market,” the source emphasized.
“The Ministry had the door fully opened in front of either the private or state-owned companies to operate in the local market.
“As a result, it attracted over the past years a huge number of companies specializing in this field due to the plan initiated by the Ministry to expand in the implementation of integrated strategies for petroleum services by the investments and experiences of Egyptian companies and with the cooperation of international ones in fresh fields to meet the growing needs of the activities, services and drilling rigs to explore for oil and natural gas and develop the discovered fields, especially after the success of the petroleum Ministry in the signing of several agreements that will increase the Egyptian oil and gas reserves.”
Additionally, Eng. Hazem El-Shafie, MI SWACO Country Manager, stressed to that the services companies play a crucial role in the oil industry.
“Away from the vital part of the services companies, there must be a permanent development for them in order to match with the recent requirements and reflect the latest technologies used globally in order to increase the value added to the industry,” El-Shafie demanded during his exclusive statements to EOG.
He also pointed out that the service market in Egypt misses many vital principles.
“The local service market has many flaws. In the forefront of them comes the preference of service with the lowest price on the expense of the highly-cost ones. Although the latter aims at increasing the production and then working to increase strategic reserves of oil and gas in the long run,” El-Shafie explained.
As for the cheap services, they always have negative consequences in the short term, he added. Besides, El-Shafie tackled the fact that the higher cost services are always preferred by the leading E&P companies.
“The major E&P companies, which have a long history in this field, constantly prefer the costly services compared to their counterparts of low-cost ones because of their experience that proved the positivity of the Arabic colloquial proverb ‘Expensiveness worth every penny’, which must be followed by all companies in Egypt because of its positive impact on the sector,” he advised.
MI SWACO’s Country Manager also included that what is taken against the Egyptian market is that after the end of any tender, companies lossing the tender should be told about their technical and financial evaluation to be able to compensate or develop them in other tenders, which will be reflected in the status of the Egyptian market and consequently the competition will serve the sector.
“In reality, the service market in Egypt is completely different from what is mentioned above. After the oil sector was one of the largest sectors in terms of the income per person, it comes late nowadays in ranking compared to other sectors such as financial institutes. Although the oil sector has the assets needed to make it at the forefront of those sectors, the case is different now than it was 20 years ago,” El-Shafie added. He, furthermore, warned of taking central-decisions within the service market in Egypt which leads to bureaucracy, which is considered as a scourge of the labor market in Egypt. For him, It should disappear completely from the oil sector, because it cost the companies huge amounts of money due to delays in those decisions and its centrality.
Regarding the presence of emerging governmental services companies which jostle the major companies in the services market, El-Shafie said: “there is no problem at all from the presence of state-owned companies such as Tanmia in the Egyptian services market but some conditions have to be existed. They should have organizational rules, adequate equipments and tools required to make it one of the largest companies within the sector.”
“This will only come true when they have partners from the major companies operating in the sector in first. Then, they can be separated afterwards after they meet these previous conditions,” he necessitated.
He believes that the current role played by Tanmia can be described as a “double edged sword”. From one side, it is working to resolve all the problems that correspond to the companies dealing with them easily and without the wasting time. From the other side, it is working according to the sub-contracting strategy and therefore it may harm competition in case if there were no organizational rules to systematize the whole process.
Moreover, he praised the idea of establishing service companies similar to Tanmia, but warned of the error in the application. El-Shafie explained for example the existence of the sponsor strategy as was the case in the Gulf companies, headed by ESNAD, the Emirati services company which is one of Abu Dhabi National Oil Company’s companies (ADNOC). ESNAD’s volume of investments is estimated to be billions of dollars and then it can provide good quality services to the market alone or even with the participation of other companies. However, ESNAD’s situation can’t be matched with current situation of Tanmia.
“The existence of a separate organization within the service market in Egypt became a necessity nowadays than before,” El-Shafie stressed.
“Such organization will give more stability and security for service companies, whether small or large, which in accordance will achieve a growth in production rates and reserves alike,” he included.
Likewise, he urged that during the next phase the service market’s motto should be “more of transparency” in all the decisions that seek to regulate the market’s mechanisms in the future. Consequently, it will have a great positive impact on the service companies in particular, and the sector in general.
In addition, Tarek Mounir, Halliburton’s Accounting Manager, believes that the service market in Egypt needs to have more structured rules, pointing out that international companies operating in Egypt have all the tools that work in abroad.
“In Egypt, the service companies own the same advanced tools and services which are used abroad. However, the advanced technologies used in the local sector depends only on the needs of the E&P companies,” Mounir stated.
“The quality required by the costumer is what elevates the service market in Egypt. There are companies which turn to alternative services in order to save expenses, which is detrimental to the service market.
“While the leading E&P companies cooperate with the major service companies in order to provide the best quality in drilleing several wells that require superior quality.”
Regarding the most important obstacles facing the service companies in the sector, Mounir said: “Currently, collecting delayed payments is considered the most important problem facing the services companies, while the contract obliges companies to pay their dues within 30 days of the contract, but the process takes up to about six months, which overwhelms companies financially in the light of their huge obligations towards their employees.”
“The E&P companies delay in payment due to the lack of real financial liquidity,” Mounir justified.
He also called for solving such dilemma at the earliest time in order not to urge the services companies from escaping outside. Above and beyond, he noted that the administrative problems also represent another obstacle for service companies in terms of the entry of equipments to the sites of the fields. And he pointed out that there are equipments exempted from customs duties in accordance with the law, but when they go out from Egypt and come back again, we obliged to pay customs and taxes which are costly to the owners of companies operating in the service market.
“The entry of state-owned services companies with direct order, away from the bidding system which we lead, will result in erasing the currently used rules and principles.
“Tanmia was established for the development of idle wells and then began working in the field of services, which weakens the chances of competition between companies,” Mounir added.
He demanded that regulations should be existing to organize the market in order to support the small companies before the major ones, to bring about stability in the market of services s to meet the needs of the Egyptian market which is growing rapidly in a current period.
Elsewhere, an official within Baker Hughes said that the role of services companies became no longer limited only to perform their assigned duties in the projects but extended to do what is beyond that by providing some tips and guidelines for the advancement of the oil sector, as the renaissance of the sector will benefit those companies.
“There must be more transparency in decision-making rules in order to be binding on all companies alike. Hence, it will regulate the services market which contains many of other embedded industries,” Baker Hughes’ official added.
In a different place, an official source in a joint-venture company stressed to EOG that many of the oil companies called for reducing the prices of services of oil production, especially because some companies are currently thinking of directing to the services companies abroad to work with them under the low prices compared with high prices that are in Egypt.
“The service companies abroad work to achieve an integrated petroleum industry through advanced technical studies in drilling and the recovery of all types of oil wells, whether exploratory or development,” the source emphasized.
He added that the companies are calling for high quality of services, but with reasonable prices, as there are companies that burn rates in order to ensure its presence in the market to compensate that loss in other services in which it is impossible to cut prices.
From his part, Eng. Ezz El-Din Mohamed, Chairman of Wadi El Sahl Petroleum Company (WASPETCO), focused on the importance of developing a link between the oil companies and services providers to reveal more new explorations in the coming years.
“The services provided by major companies are good but expensive and not commensurate with today’s price of natural gas and crude oil,” Mohamed told EOG.
Afterwards, he praised the cooperation of Egypt and China in an attempt of the Petroleum Ministry for enhancing the Chinese investment in the oil sector in Egypt, which is an important step to provide many investment opportunities, which contribute effectively to attract major investments of Chinese companies to work in Egypt and the implementation of joint projects between them.
According to reports issued by the services market in Egypt, “Schlumberger”, “Halliburton”, “Baker Hughes” and “MI SWACO” accounts for the largest share of services market in Egypt because of the financial strength enjoyed by these companies as well as their considerable experience in addition to the contentious development of their services. Besides, they establish research centers and always held workshops and fund their research centres although they do not follow the same companies. In addition, they also organize ongoing training for their employees to raise their level of professionalism and technical support other than the ability to immediate response to up-and-coming incidents from the different processes related to the petroleum sector, making them the top services companies in Egypt.
By: Tamer Abdelaziz, Shady Ahmed