By Mariana Somensi
Cheiron is a rapidly growing independent exploration and production (E&P) company which has a portfolio of oil and gas assets in Egypt, Mexico, and Romania producing around 50,000 barrels of oil equivalent per day (b/d).
The Company operates all its fields and concessions and works in a range of different offshore and onshore operating environments. In Egypt, the assets are mainly located in shallow water in the Gulf of Suez, with some fields in the Mediterranean Sea and onshore in the Western Desert. The international fields are all to be found onshore in a variety of terrains.
Cheiron has a particular focus on maximizing reserves recovery from mature fields through the optimization of development plans (wells and facilities) and near-field exploration and appraisal drilling. As part of the optimization process, it seeks to apply the best available technology on all its assets and has a strong cost management ethos.
Egypt Oil & Gas had the opportunity to talk with Dave Thomas, Cheiron’s CEO, to discuss the company’s activities and future plans in Egypt. Thomas took over as Cheiron CEO in April 2017 after a long career in the oil and gas industry with companies including Conoco, Eni, and Melrose Resources.
Could you comment on the current operations and future plans at Cheiron’s most recent acquisitions in the North Bahariya and West El Burullus concessions?
The company completed the acquisition of a 50% interest in the North Bahariya oil concession in the Western Desert in spring last year, and, along with its partners, has been pursuing an active drilling and workover program on the fields.
In parallel with the field activity, we have been generating full field water flood plans for the two main fields (Abrar and Ganna) using advanced seismic analysis techniques to improve reservoir mapping and applying new technologies such as drilling with casing. The current production rate is running at a little under 9,000 b/d, and we believe we can increase this to around 18,000 b/d by drilling 50 to 60 low-cost wells and installing new production and water injection facilities. Ultimately, we plan to produce at least 50 million barrels of gross oil reserves from the area, which will bring the recovery factor more in line with other fields in the region. We are just starting to discuss the development plans with the government and our partners before moving into the implementation phase.
The West El Burullus (WEB) gas field development in the shallow water Mediterranean is a different type of project. This will involve the installation of two minimum facilities platforms tied back with a 35 km pipeline to the existing onshore West Delta Deep Marine (WDDM) processing plant. The development includes two separate fields (WEB and Papyrus), which will need a total of seven wells to access reserves of around 250 billion cubic feet (bcf).
The development is being executed by our Amapetco joint venture company and we expect the tenders for the main project works to be issued in May. The project is then expected to be sanctioned in the third quarter this year. First gas from the fields is due the first quarter of 2020; although, if possible, we will be seeking to accelerate this schedule.
Is the company facing any challenges at North Bahariya and West Burullus? If yes, how does Cheiron overcome them?
There are challenges associated with both developments, but nothing that I would characterize as being outside the normal issues that the industry has to manage to successfully execute these types of projects. These range from putting in place the processes to guarantee the highest levels of safety and environmental performance, to technical challenges relating to reservoir characterization and project management, all the way to raising financing.
To manage the process, we rely on the experience and professionalism of Cheiron’s and our joint venture company’s staff, the support of our external advisers, and our lenders.
We also have implemented a formal Project Management System, which provides assurance that at each major decision point along the project schedule all relevant factors (health and safety, technical, operational, commercial and financial) and risks are fully taken into consideration.
You mentioned health, safety and environmental standards (HSES) performance as a key element for your project planning. Could you expand on this?
Cheiron adheres to the highest international operating standards (with relevant ISO accreditation) and has HSES in line with the World Bank Equator Principles. As such, HSES planning forms an integral part of our business and project management processes.
We are also always looking to improve and, over the past two years, have made a step change in our environmental performance with the support of the International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD). A large number of projects have been completed across our various joint venture companies, including initiatives to improve discharge water quality, secondary containment, energy efficiency, waste management and personnel welfare, among others.
We also continually review our safety management systems and introduce enhancements as and when appropriate. This year we are launching a program designed to further strengthen the safety culture across the company.
We understand that Cheiron also has plans to redevelop the Zaafarana oil field in the Gulf of Suez. Could you provide us with an update on the status of this project?
This represents the third significant development project which Cheiron plans to execute in Egypt, and will involve the replacement of the Floating Production Storage and Offtake (FPSO) vessel, which is currently deployed on the field. This will allow the facilities capacity to be increased and new infill development wells to be drilled. There is also the potential for an appraisal drilling program, which could lead to further development activity in new reservoir horizons. A steering group has been established with government and company representation to help coordinate the project planning while necessary regulatory approvals are put in place.
What are your plans for your international assets in Romania and Mexico?
We have recently extended our concessions in Romania to provide additional time for the company to optimize the future appraisal and development work program on the main concessions, such as Silistea and Oporelu. To help support this activity, we are performing a number of integrated technical studies to incorporate new seismic and well data into the reservoir models and update our assessment of the field potential.
In Mexico, after the recent Cardenas Mora acquisition, we are now looking to consolidate our operating position around the main fields, adding value through drilling and completions, surface infrastructure, and commercial optimization.
As the company continues to build its business in Egypt, does Cheiron have plans to acquire new interests in different areas? Which areas would you focus on?
Given the number of high-quality new projects we have in the portfolio, Cheiron is in the fortunate position of not needing to acquire new assets to grow. In fact, we expect to be able to increase our production levels to over 60,000 b/d from the fields which we already have in the portfolio.
Like any ambitious company, however, we are always on the lookout for new opportunities and generally focus in our current areas of operation, where we can add value by identifying synergies and/or using specific technical and operational expertise. That means we tend to gravitate towards opportunities on the southern Gulf of Suez, shallow-water Mediterranean, and Western Desert. We would not, though, rule out considering any farm-in or asset acquisition that has the potential to add material value to the company.
Being able to make a profit from mature fields is a key factor of Cheiron’s success. What strategies and expertise does Cheiron implement in order to maximize the value and hydrocarbon recoveries from its mature fields?
Successful mature field development tends to involve focusing efforts on three main areas, including short-term production delivery, long-term reserves upgrades, and strict capital and operating cost control.
For production, the company places great importance on maintaining high well and facilities up-times, which means having a deep expertise in certain specific areas, well-managed preventative maintenance programs, and, perhaps most importantly, simple design philosophies. We also have a strong subsurface and production technology team, which continually looks for workover and recompletion opportunities.
For reserves upgrades, we place a strong emphasis on integrating geoscience input with reservoir performance monitoring to identify drilling opportunities (both infill and appraisal well locations). We also continually try to improve our understanding of the reservoirs. For example, at the moment, we are reprocessing old 3D seismic data on our main Gulf of Suez field, Amal, in an attempt to use new algorithms to improve the reservoir imaging and identify near-field appraisal well locations.
For cost management, we invite and expect challenge throughout the organization, both within the Cheiron team and our joint venture companies. This challenge starts at the beginning of a project or budget cycle, and continues until it is translated into cooperative action with our contractors and suppliers to find fit for purpose and minimum cost solutions.
With the ongoing modernization of the petroleum sector, as well as the national economic reform, how does Egypt compare to the other countries in Cheiron’s portfolio in terms of market environment?
In the broadest terms, the industry environment here compares favorably with many other countries worldwide. It is a mature operating environment, but it still presents a wide range of investment opportunities, from high-impact exploration in relatively new basins to mature onshore and offshore field development optimization projects. There is also a very well established industry support base in the country and a depth of professional talent to draw on, both in the public and private sectors, to help deliver the key projects.
With respect to the modernization program, we believe the direction has been well set, particularly with respect to the division of regulatory and partner responsibilities, deregulation in the gas markets and the very important strategic regional energy hub initiatives. We are also obviously very supportive of the government’s plans to address the longstanding issue of the international oil companies (IOCs) arrears. This still has the potential to distract the industry from fully focusing on the core business of finding and producing more oil and gas for the country.
Enhancing young professionals’ skills is a pillar of the Ministry of Petroleum’s modernization program. How does Cheiron optimize the skills and performance of its young professionals?
Cheiron places great importance on developing our young talent and, similar to most of our peers, seeks to address this in a number of different ways.
We have a fairly conventional appraisal and career development process, which helps to set performance standards and identify training and development needs. We also use mentoring relationships (where we have the organizational capacity) and place a strong emphasis on multidisciplinary teamwork, which helps to broaden out an individual’s understanding of the wider business environment.
Like most small or mid-sized companies, however, what Cheiron can really offer a young professional is an exposure to a wide range of responsibilities and experiences very early in their career. I do not believe there is any substitute for learning on the job, providing the appropriate level of support and encouragement by peers, mentors, and management.