Quitting the ”cheaper is better” motto

The most prominent obstacles and challenges facing the petroleum services companies in Egypt

No one can deny that oil is a major source of energy and will remain as such for a long period to come. Both upstream and downstream services provided in this sector are aimed to facilitate the production, research, and exploration, refining and marketing processes, representing a strong and influential factor in finalizing a project.

Furthermore there is no doubt that the petroleum service sector is of paramount importance in the extraction of oil and gas. Perhaps the intensified competitions among the petroleum service companies and the absence of credible laws that ensure the continuation of small businesses; have caused some instability in the Egyptian petroleum service market. These companies provide technical, manufacturing, environmental safety, technical labor, and security services as well as supplying maintenance of equipment and drilling machines.

Egypt’s drilling service sector is currently wracked with the debate of whether low costs equipment best serves the needs of drilling operators or whether high quality, but high cost tools proves a better long-term investment. Such debate has generated a call by some for a protocol on quality standards in the domestic market.
Hassanein Youssef, Business Development Manager, MISWACO states, “Competition is tough because the Egyptian market is a price driven market where the cheaper gets the work”

Now service companies are faced with a dilemma regarding how to maximize profit while still delivering quality to its operators.  Here in the Egyptian market, there have been a series of complaints about the equipment, follow-up, engineering services and costs.

Some sources revealed that, the more advanced the quality of the service is, the higher its price. Therefore, drilling and production companies are trying to choose bids at the lowest price and the best quality in order to bring added value to their operations.

Eng. Osama Kamel, Khalda’s Drilling and operations General Manager explained, “ Among the most significant challenges and obstacles facing the petroleum service companies is the high cost of the drilling equipment which negatively affects the quality of the Egyptian tools and techniques.” 

As for affording the best technology at the lowest prices, he stated that it is very difficult to fully achieve this equation. Since, the more modernized the technology is, the higher its price and vice versa. But, Egypt is provided with the technology that suits its nature.

Some experts have highlighted the importance regarding the continuation of petroleum service companies in implementing programs that have been set to work in various specialized petroleum activities, and in maximizing the utilization of the Egyptian petroleum capacity. This led to an increase in the demand in services and focusing on the areas of drilling and maintenance of wells and the study of reservoirs and production so as to provide rehabilitation and training for specialized technical manpower.

The Mediterranean and Gulf of Suez are key locations for service firms that tackle the difficulty and higher costs of deep-water drilling. Drilling requires updated and sophisticated technology to avoid the standard risks that are part of such an endeavor; deep-water drilling especially takes a toll on equipment due to high temperatures and pressure. The environmental wear on drilling equipment creates incentive for both service and manufacturing companies to develop and provide a superior product.  Therefore there is a high level of competition to deliver state of the art deep-water drilling supplies at a competitive price in the service market. Yet many domestic companies advertise their prices without much guarantee of their product as a means of getting a foot in the service market door.

Concerning the challenges and obstacles that could face the service companies, some sources revealed that after the January 25th Revolution, the petroleum service sector faced many financial crises that negatively impacted their professional and financial performance.

Sami Ameen, Transocean’s Division Marketing Manager admits, “The recent political and economic instability has definitely had a major impact on investment decisions and, there has been no long-term visibility only short-term contracts”.

Eng, Ashraf Thabet Chairman and Managing Director of the Petroleum Services Company PISCO stated, “We have suffered a lot after the Revolution due to the unstable economic and political situations.”

Thabet  added that the company is establishing a huge factory for the manufacture of environmental and safety machinery instead of importing them from abroad. This factory will save us millions of dollars a year. But, the government terminated this project!!

As for the companies operating in the fields of equipment and machinery transportation, Eng, Khaled AbdelRahman TransEgypt’s General Manager adds, “ we can’t separate the stages of production from each other; since they all work in an integrated system, where the transportation element plays a major role in all stages. Additionally AbdelRahman believes that the absence of an independent regulator on the petroleum service companies, in addition to the delay of the dues that the EGPC owes to these companies are two of the most important challenges and obstacles that they face, concluding that permanence in the Egyptian market will be for large major companies alone.” Looking at the integrated services issue from a different pespective Hassanein Youssef doesn’t see a future for integrated services as the market is looking for the cheapest option i.e “price driven market”.
AbelRahman also mentioned that some companies reach agreements between each other due to the lack of sufficient services in the Egyptian market.

The implementation of such a reform would call for restructuring at every level as well as redefining strategic planning and goals.  A protocol lays the foundation for the expansion of exploration and production activities, thus benefiting all divisions working in the petroleum sector. In addition, an agreement between the production companies is needed for the supply of common high-quality services that will also exclude products that do not meet the market standards.

Each company has its own standards and policies but major companies tend to rotate around similar standards, with a different process of implementation. Yet such a trend indicates that they are not dependent on market set standards and instead of encaging the market in protocol debates, seek to create an internal system that regulates their performance in the service market and the standard of equipment they generate. This may indicate that increasingly, Halliburton and it’s like are signaling a trend in the service sector where companies turn inward to avoid market downfalls and a lack of access to market regulation

By Ahmed Farahat and Jermeen El-Baroudy


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