The lucrative acquisition of a first-rate asset

A rising upstream player in Africa that has recently strengthened its position in Egypt and other regions in Africa is Centurion Petroleum Cooperation. On January 9, 2007, Dana Gas PJSC acquired the company’s shares. Dr. Hany Elsharkawi, President and General Manager of Centurion Petroleum Corporation in Egypt, agreed to talk with Egypt Oil and Gas Newspaper about the company’s ambitions and strategies. Dr. Elsharkawi holds a B.Sc (1967) from Alexandria University as well as an M.Sc (1971) and Ph. D. (1975) from the University of Manitoba. He has several technical publications and has instructed several technical courses at universities and oil and gas industry organizations. 

• Can you tell us the details of Dana Gas’s acquisition of Centurion International Corporation?
Dana Gas is the first public Joint Stock private sector gas company in the Middle East. It’s listed in Abu Dhabi Stock Market. Dana Gas has existing assets, pipelines and gas sweetening plant located in Sharjah-UAE, to transport and process gas for sale to the local power stations and industry. Thus, Centurion becomes an important upstream arm for Dana Gas in natural gas exploration and production. This is a strong strategic platform from which to grow throughout the Middle East and North Africa regions.
They have faith in our team, so I think it’s going to be business as usual as far as we’re concerned. All our operations will stay the same and we will be growing. Each outstanding common share was sold for $12, making the total value of the transaction $950 million. In a meeting held on January 8, 2007 the acquisition was completed after 94% of the securities voted in favor of the Plan of Agreement with Dana Gas.

• Will this acquisition accelerate Centurion’s expansion?
Yes we have accelerated our expansion. We are looking at areas outside Egypt and we will continue to do so. I’m sure the presence of Dana Gas in this region will help us in the expansion itself; especially that it has plans to expand its scope of operations into the GCC region and the wider Middle East and North Africa (MENA) region.

• Can you tell us about the recent agreement signed to utilize the exploitation of oil shales using Canadian expertise?
An agreement was singed between the Egyptian Mineral Resources Authority (EMRA) and a number of Canadian companies led by Centurion to conduct a feasibility study to determine the volume of oil shale reserves and the best way to commercially exploit it. This report shall be submitted to EMRA including the findings on the geological and chemical nature of the oil shale and the best methods to extract oil from oil shales. Oil shale is a kind of rich, solid organic mud rocks, from which oil products can be extracted by heating and distillation processes. This project will help in diversifying energy resources to save part of the oil and natural gas reserves.

• Where does Centurion’s investment currently stand in Egypt?
Our investment has been growing steadily in the past few years in Egypt. In 2005, we spent around $130 million and we ended 2006 with estimated gas reserves of almost 100 million boe, production of over 31,000 boe/day, expected revenues of approximately $165 million and expected operating cash flows of approximately $85 million.

• Centurion Egypt has recently strengthened its position in Egypt’s upstream sector by upgrading El-Wastani project (by installing a mechanical refrigerating unit). Can you comment on this please and the importance of gas developments for Centurion in Egypt?
We have just completed the first stage of the upgrade and we completed the final and second stage in November of 2006. These upgrades will allow us to produce gas, condensate and LPG, becoming one of the few plants having the capability to produce all products including LPG in Egypt.

• What were your major achievements in 2006?
For the past four to five years, we have been doubling production and doubling reserves. I don’t think that many oil companies in the world have done what we have done in the past few years. The company started in Egypt in the year 2000, with zero production. We started production in 2002 at a rate of 12 million a day out of two wells in El-Wastani field, less than four years later we are at a rate of 170 million a day out of three gas fields, which is quite a jump. The other achievement we are very proud of is the expansion of our land position, we started with a very small project and now we have several projects, including three producing fields that we are operating and three other fields that we are not operating. We also have three large exploration concessions, one of them is in the Upper Egypt area, between Luxor and Aswan, it is one of the frontier areas that we are very proud to be involved in. In addition to exploration blocks in the Nile Delta that we believe have very high potential.

• The company is engaged in oil and gas exploration in Egypt, Tunisia and offshore West Africa, are there any ambitions to expand into other African regions?
As a priority, our core focus is to expand in Egypt. Of course we are looking at adjacent areas; we have already established ourselves in Nigeria, and are looking for potential expansion opportunities in North Africa and the Middle East.

• As the reserves increase everyday, where does Centurion stand amongst its competitors in the oil and gas industry?
From the success point of view, I think we are one of the most successful companies in the field in Egypt. Right now we are ranked number four in gas production and number seven in terms of oil equivalent production.

• Does Centurion have any plans for LNG exports?
When we have enough reserves, we definitely will have plans for LNG exports. At this time we don’t have enough reserves, but we are optimistic and there are areas of high potential that will hopefully provide us with enough reserves to pursue an LNG program. It is one of our future objectives.

• What is your current employee headcount?
We started this company in 2000, with seven people and now we are very close to 300 people, including our field operations and joint ventures.

• How do you see the future of the Egyptian oil and gas industry?
It is evident by looking at the amount of investment in the gas industry in Egypt that it growing, including fertilizer gas projects that are currently being finalized. The domestic market is growing and there is no doubt about it, the more industrialization you have in the country, the more gas you will require. By proximity to markets in Europe, Egypt is in a good position to supply gas through LNG. So I think the future of gas in Egypt is very bright and more gas producers and explorers are coming to invest in Egypt because they can see the potential here. There are many reserves yet to be found in Egypt, by virtue of being almost virgin in some areas, like offshore Mediterranean, which is a huge basin that has been explored very lightly so far.

• Egypt is known to be a tough place for E&P companies; however, Centurion has been able to expand despite the hardships. What is the biggest issue Centurion overcame in its dealings here in Egypt?
Of course just getting used to the business cycle and learning who to talk to and who to deal with in Egypt is a huge challenge for any company that comes here for the first time. We went through the learning curve and we understand the business fully in Egypt today. In the past few years we had an issue with getting material and equipment because of the worldwide boom in the oil industry, but we have been successful in securing enough material and equipment not to delay our exploration and production programs.

• Where does Centurion acquire its necessary equipment?
From all over the world. By law here in Egypt, acquisition of all the material and equipment has to go through a tender process, so we issue tenders all over the world. We have drilling rigs from China, Canada and the US and when we buy materials, it is from any where from Turkey to Brazil.

• Was Centurion affected by the lack of rigs in the market today?
We were lucky not to be. We had the vision, so we had contracts with three drilling rigs and one work over rig that we secured about two and a half years ago. Two rigs from the Egyptian Chinese Drilling Company (ECDC) and one from a Canadian company and another from a US company.

• Do you think the Egyptian-Chinese rig initiative will be fruitful?
I think that with the activities the Chinese are going through now, it is a good alliance. China is expanding in every direction, if you would have asked me 15 years ago if I would accept a Chinese rig, I would have said no, but today we know that they are capable of providing the service and the hardware. The Chinese have seen the markets and assessed them carefully.

• How does Centurion pursue it’s commitment to environment and sustainable development?
Health, safety and environment (HSE) are very important to Centurion. Environmental protection is number one priority in this company and we do have an HSE department that is overlooking all of our activities regardless of where they are; in Cairo, outside of Cairo, in the field. We have pioneered several things in HSE, such as how we deal with the company wastes from our drilling operations; we have special processing plants to protect the environment. We are very proud to say that we have achieved one million man hours, without any loss time due to injuries, because we emphasize safety. We are also applying for the ISO 14,001, and hopefully we will get that certification soon.

• Does Centurion participate in any social activities?
Yes, we have sponsored several social activities. Centurion is a major sponsor of the Breast Cancer Foundation, but we usually do not advertise the good causes we participate in.

• Coming to oil production, the government’s new strategy today is to focus mainly on optimizing production from mature wells. Do you think Egypt has the potential to discover new oil?
It is definitely not impossible, it is becoming difficult in some areas where it is a mature area when it comes to exploration, but with the new technologies introduced in the industry year after year, it has been proven that in some areas where there was no hope, discoveries have been made. This industry is very high technology oriented and we are expanding and acquiring new technologies rapidly.

• Finally, what would you like to see improved in the Egyptian oil and gas industry?
There are many things that can be done to enhance the productivity of companies in Egypt, to make life easier and to make the business environment friendlier than what it is today. The routine and red tape in Egypt is a phenomenon that all industries are suffering from, we need to expedite and have less control on activities of both foreign and Egyptian contractors. I think the government is going in that direction anyway, by easing controls and privatizing companies and services.


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