The Mediterranean: A Treasure Trove of Natural Gas for Egypt

The Suez Oil Company (SUCO) is regarded as one of the major players in the Egyptian petroleum sector when it comes to both oil and natural gas. A joint-venture company between the Egyptian General Petroleum Company (EGPC) and German giant RWE DEA, SUCO has been a key petroleum operator in Egypt. Through its development strategies and emphasis on Quality, Health, Safety and Environment (QHSE), SUCO has cleverly placed itself among the most environment-friendly operators in the country.

SUCO owns three major fields, two of which are located in the Gulf of Suez basin (East Ras Budran and Ras Fanar blocks.) In addition, the company has added the block of North Idku, located in the Mediterranean, to its portfolio, and plans to acquire the block of North Desouq, located in the town of Desouq in the city of Kafr Al-Sehikh.
Eng. Nabil Aly Zaky, Chairman of SUCO talks to Egypt Oil & Gas about the company’s achievements and discusses some of sector’s crippling problems.

How long has SUCO been operating in Egypt and what are the company’s major achievements thus far?
SUCO conducted its first string of drilling operations in Egypt 32 years ago. Throughout this period, the company has added several new concessions to its portfolio in the Sinai Peninsula and the Gulf of Suez.

What are the company’s most significant projects for the coming period?
Our most recent project was the acquisition of the North Idku concession, located in the Mediterranean, as well as our newest concession in North Desouq; these areas have yielded a fruitful outcome in terms of natural gas discoveries, which has prompted SUCO to invest further in these locations. The company is currently in the process of constructing a pipeline network in Desouq with the aim of connecting it to the National Natural Gas Network. The project is expected to become operational by May 2013.

Due to your vast experience in the field of E&P of natural gas acquired during your long years at EGAS, do you think exploration of natural gas merits more focus than oil? 
In my opinion, E&P of both oil and gas are of equal importance. Assessing the potential of increasing exploration and production operations in any new location is instrumental to ensuring rewarding economic gains, the primary driving force for foreign investment.

In previous years, exploration and development of natural gas was not a priority; foreign companies would abandon gas fields after concluding drilling operations, as the government did not offer cost-effective production and development policies for investors. That dynamic changed as the government started facilitating the process for investors by giving them the freedom to sell their shares in both domestic and international markets. As a result, international companies started pumping massive investments into the exploration, production and development of Egyptian natural gas.

In your opinion, is the current contractual regime of Production Sharing Contracts (PSCs) the most suitable system for Egypt?
The system of Production Sharing Contracts has been in place for many years and has proven reliable and effective. However, the development of contractual regimes in mature international markets, especially in the wake of the 2008 global financial crisis, prompted several countries such as Turkey and Germany to adopt new contractual systems. In Egypt, the cost of offshore drilling greatly exceeds that of onshore drilling, a fact that led to the adoption of new systems allowing for the successful formulation of mutually profitable deals for both the government and the IOCs.

What is the company’s extant production rate?
Currently, SUCO produces 20,000 barrels oil and gas equivalent a day, in addition to separating the various gases that accompany the extraction of crude in order to produce condensate through treatment. SUCO is keen to maintain its production levels for the fiscal year 2011/2012. 

What is the company’s drilling plan for the current fiscal year?
The company plans on drilling several wells, both onshore and offshore, in its Sinai concession. Among these are the offshore Ras Budran B12 and Ras Budran B13 wells, in addition to a forthcoming well to be drilled in the Ras Budran C Block.

So far, we’ve invested $30 million out of $97 million designated for drilling operations in this fiscal year’s budget, fulfilling 60% of our plan. In the 2010/2011 fiscal year, we successfully met 99% of the targets set in the company’s drilling strategy, which was set by SUCO and its partners the EGPC and RWE DEA.

Operating in the Gulf of Suez and Sinai has become extremely challenging lately due to the security problems the country is facing. What is your company’s strategy in dealing with this issue?
We’ve been cooperating with Sinai’s Bedouin tribes and we’ve met with tribe leaders in order to ensure the security of our operations. We’ve concluded several agreements with Bedouin leaders and hired men from their tribes to provide security for our locations in Sinai as well as to ensure the safety of our company’s transportation vehicles.

We understand that SUCO has undertaken several projects to enhance the expertise of its human resources? Can you elaborate on this initiative?
SUCO is currently implementing a project in conjunction with Oil & Gas Skills (OGS) to train our company’s engineers and provide simulation programs aimed at preparing them for real-life scenarios. We also fund their participation in international petroleum workshops designed for the exchange of expertise in a variety of fields within the petroleum industry.
This year, the company has also started a development plan incorporating the renowned SAP business model in cooperation with our foreign partner. The purpose of the program is to facilitate technical, financial and managerial dealings with our partners. SAP has yielded wide success with other companies such as Bapetco, which prompted us to undertake the program.

What is your take on the current LNG crisis?
The problem should not be blamed in its entirety on the Ministry of Petroleum, since there are several other factors contributing to the crisis. Contrary to popular belief, the dramatic surge in the price of LNG cylinders is a problem of distribution more than it is one of production. I am not saying that Egyptian LNG production is sufficient to meet domestic demand, as the government imports a significant portion of natural gas from neighboring countires. I am rather alluding to the lack of a coordinated delivery strategy, which  complicates the matter further.
The petroleum ministry has confirmed allocating a sizeable budget for the importation and distribution that should be implemented in the very near future.

By Shady Ahmed Mohamed El-Bahrawi


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