StatoilHydro takes on the deep water challenges

Being a “late entrant” to the Egyptian oil and gas market has not hindered Norway’s leading company StatoilHydro in joining this “promising area”, but what are the challenges it is facing? How will it solve them? What are its plans? Per Johan Bugge, StatoilHydro General Manager in Egypt, exchanges with Egypt Oil & Gas the clarifications to all the queries and reveals the company’s target in strengthening its operations in the country.

The number of successful gas exploration wells that have been drilled in the Mediterranean Sea has been the reason why StatoilHydro was keen to take part and operate in the country. The development of LNG projects in Egypt has been another added value to attract Norway’s leading company to join the Egyptian arena.
“Since mid 1990s until 2005, the gas business has tremendously developed in a very impressive manner in Egypt,” highlighted Bugge.

The year 2006 symbolized the official entrance of StatoilHydro into the Egyptian sector through Egas Bid Round; it has been awarded the operatorship and an 80% interest in deepwater block 9 in the Mediterranean Sea and then shortly after, it got the operatorship and an 80% working interest in block 10. The remaining 20% in both blocks are held by Algeria’s Sonatrach International Petroleum Exploration & Production (Sipex).

Once receiving the final approval of the Egyptian parliament to activate the agreement, StatoilHydro completed 2600 km of offshore 2D seismic in the Mediterranean in December 2007. Currently, the company is shooting 4000 km2 of seismic studies, while analyzing and interpreting the acquired data on the spot.
“It took us almost a year to finalize the legal procedure with Egas and get the approval of the Egyptian Parliament… Yet, we set our time plan for the drilling phase of the first well which will hopefully start by late 2009 or the beginning of 2010,” added Bugge.

Having the blocks located approximately on the Western periphery of the Nile Delta, which is an area where no wells have been drilled before, StatoiHydro is facing a real challenge. No one has penetrated this area before, thus the Norwegian Company does not really know whether the area is fed with oil and gas, and this is where the risk lies.

“There are three main requirements in order to find oil or natural gas; there has to be a ceiling, which could be the salt in this deepwater area, secondly, reservoir that is normally sand stone and thirdly hydrocarbons, which supposedly have moved in this area. We do think there is ceiling and sands, but is there any hydrocarbon in large amount, that is what we can not identify before we have drilled a well,” clarified Bugge.
This is not the sole challenge StatoilHydro is facing, deep water drilling is yet another defy for the company.

“The area we are exploring is approximately 2000-3000 meters-deep and it is extremely expensive to operate there and requires costly technologies and special vessels to drill wells… the cost of drilling one well can count for nearly $100-200 million!”

The chances of success for StatoilHydro are in the average of 20 to 30%. “However, we do believe that there is a chance to succeed and find something that is economic and commercial. And to have a commercial discovery in such a water depth, a world-class discovery is needed. But, being both one of the leading gas companies in Europe and also the world’s leading deepwater company, we are up to this challenge,” declared Bugge.

Commenting on the new strategies implemented by the Egyptian Ministry of Petroleum set to encourage deepwater drilling development, Bugge believes that, “What is good about Egypt is that the administration is very business oriented; when they had the cap of gas price that counts for $2.65 per million BTU, and the international companies suspended their operations in the Mediterranean as their projects were no longer economically profitable, the Egyptian authorities has considered this problem and negotiated new prices since they aim at developing the production of natural gas in the country.”

When it comes to deep water, the company is characterized by its mega operations and being one step ahead of other companies, especially in water depth exceeding the 100 meter. As a matter of fact, in Norway, all the oil and gas operations are offshore; hence the acquired experience for StatoilHydro is offshore. Since the early 1990s, the company’s activities have not been limited to Norway; it has offshore operations in the Gulf of Mexico, Nigeria, Angola, Venezuela, Brazil, Azerbaijan and Caspian Sea…etc.

Egypt was not the first station for StatoilHydro in North Africa; the company moved to this continent in the 1990s through operations in Libya and Algeria. Taking part in the Egyptian sector is to support the company’s plan in founding a new position in the LNG business.
In Europe, StatoilHydro is the second largest gas supply to Europe with a 10-20% market share.
In December 2006, the international oil and gas sector has witnessed a stupendous merger between Statoil and Hydro, which was described as “the Start of new era” by the Norwegian Prime Minister, Jens Stoltenberg. “The merger provides a strong financial backbone for the new company; Statoil and Hydro were ranked as the no.1 and no. 2 top companies, respectively, in Norway and through merger, we have succeeded in doubling resources’ capacity, hence reducing costs and acquiring more projects. We have chosen to combine our forces rather than compete,” commented Bugge.
Both companies are well known for being among the best in the industry with regard to environmentally sound technology and corporate social responsibility.

“Egypt is our new challenge and StatoilHydro is capable of delivering on the expectations. Our ambition is to develop commercial reserves and further strengthen our foothold in the country through focused business development,” concluded Bugge. 

By Yomna Bassiouni


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