Time to get rid of restrictions

Believing that the Egyptian petroleum sector bears heavy burdens that are challenging its prosperity, Geologist Samy Shahine, former deputy chief of exploration and petroleum agreements at the EGPC, advisor of the Industry and Energy Committee of the People’s Assembly and member of the Energy Committee of the National Democratic Party (NDP) opens his chest and shares his views for a favorable environment of investments and petroleum activities in Egypt

What are your expectations for the future plans Ministry of Petroleum?
The government has on the top of its list of priorities the commitment to provide the country’s petroleum needs and secure its sources. This commitment is implemented through two main angles. The first is to secure the energy requirements for two decades and the second is to secure them for a longer period of time, which is until 2050. Both directions will be achieved through the intensification of exploration and production operations in various areas of the country, increase the volume of reserves in addition to maintaining a sustainable raise of oil and gas production. In fact, such strategies require large investments that the government could not bear; here then comes the role of the Ministry of Petroleum. The latter is responsible for creating a favorable environment to lure foreign investments and invade more new areas in bid rounds. Such role is mandatory to get the needed funds to put the Ministry projects on operation line. It is worth mentioning that Egypt has to a great extent succeeded to attract a considerable volume of investment despite the vigorous competition from neighboring countries, such as Libya, Kuwait and Iraq.

How to face this vigorous competition?
In order to win the biggest share of the investment cake, we depend on marketing Egypt’s promising areas and seeking experienced petroleum engineers and geologists characterized by their skills to utilize latest exploration technologies in order to re-discover the areas where foreign companies did not succeed to generate any kind of production.

Can you state examples of re-discovered areas?
When I occupied the position of Exploration Manager at Dmaersk, the company acquired an area that was previously held by the Gulf of Suez Petroleum Company (GUPCO). Although GUPCO could not reach any positive results due to the unavailability of 3D Seismic technologies, we succeeded to hit the Ras Badran discovery, where reserves counted for nearly 850 million barrels during that time.

What were the most important procedures you applied while being the vice president of the EGPC?
First of all, as teamwork, we aimed at ameliorating the agreements conditions and approach various companies and organizations from different parts of the world such as London, Houston, and Dallas in addition to Korea. Moreover, we succeeded to attract multinationals to explore the deep water of the Mediterranean Sea.

In your opinion, what are the barriers facing the petroleum sector?
I believe that the bill of subsidies is the heaviest burden on the petroleum sector, though it was gradually decreased due to the global economic crunch.  The sector had to allocate enormous part of its treasury for the subsidies bill, which counted for LE72 billion and yet we misused it by the inefficient consumption.

Egypt has become a net importer of petroleum products. Comment
I totally disagree. Egypt is in fact a producer, exporter and also importer of petroleum products. However, if we compared between the volumes of importation and exportation, we will find out that the country is more of an exporter than importer.  Basically, the list of imported products includes Mazot and Soular; this latter costs over LE 19 billion. This is not a drawback; many major countries do need to import petroleum products despite being large producer such as the U.S.A. the problem lies in the rate of consumption that is continuously increasing and is not met with an adequate rate of production increase. For instance, our rate of fuel consumption inexplicitly augmented by 17%, while there was no production increase.

Do you consider the petrochemical industry as the future racehorse of the sector?
There is a special national plan for developing the petrochemical industry in Egypt that will be implemented over two phases. This industry is of a great added value to the petroleum sector. In fact, the plan is to turn the country into a hub for marketing, production and exchange of petroleum products as in the SUMED Pipeline and the Arab Gas Pipeline. There are various positive factors that serve the implementation of this plan; three gas liquefaction plants, facilities grid and experienced personnel.

Would Egypt adopt the Turkish experience to achieve this plan?
Being a member of the Energy Committee of the NDP, we did suggest to adopt the Turkish model two years ago, especially that Egypt enjoys a strategic location in addition to its strong relationships with other countries. Currently, Israel is attempting to adopt the same Turkish concept of being a petroleum products hub, therefore who makes the faster accurate movements is the one to win. That is why Eng. Sameh Fahmy is speeding up the steps to achieve this hub goal.

Deep-water exploration is still economically unfeasible. Is there any strategy to amend agreements concerning this kind of operations?
We cannot say that deep-water exploration is not feasible or else we would not have companies already operating in the deep waters. The issue is that such operations require high technologies in order to gather data and develop the achieved discoveries. I believe that British Gas (BG) is considered as a successful model in terms of gas investments in deep waters, while Shell is not as successful as this British company. Most companies weigh the pros and cons of exploring in the deep waters and estimate the benefits of spending part of its investments in such economically and technologically demanding offshore areas. And, even if a company fails to hit discoveries in offshore areas, it can still compensate this loss through other projects it is conducting in other areas. However, the case is completely different for the government, as it cannot afford the high costs of offshore E&P solely.

If you can change only one term in the agreements signed with the foreign partner. What would it be?
First of all, we should admit that the present terms of contracts are the best work frames compared to all previous systems since the first system of Tax Royal through which foreign partner had to pay specific taxes and an annual rent for land rights. This type of conventions had negatively affected the Egyptian employment rate. This system was later on substituted in 1973 with the Participation System based on the equal division of production. This latter scheme led to nowadays’ system, the Production Sharing Agreement through which areas are released in bid rounds and winners accept to share their production and to pay a signature commitment at the beginning of its operations. This year, this type of agreements secured a $1.5 billion deal with Italy’s Edison S.p.A, which is one of the largest agreements ever signed, especially with the deteriorating market conditions worldwide due to the economic crisis.

What term would you like to add to agreements?
Actually, it is not a term, but rather the way of marketing the less attractive areas. I believe instead of organizing bid rounds for these areas and waste lot of time, we should initiate direct negotiations with investors and facilitate the procedure of acquiring interests. For instance, allowing investors to start their operations before signing a formal agreement and accept to assume all risks and not to recover any amount in the case of non-approval of the Convention. However, this suggestion has been refused by the Departments of Legal Affairs.

Is there a delay in the payment of debts to the foreign partners?
There is no delay; the Ministry is currently negotiating this debt issue with companies like BP and Apache in order to solve the problem. The petroleum sector bears what others must endure! For instance, the Ministry of Social Solidarity is supposed to be the one responsible for subsidizing the butane gas pipe.

Being a former vice president at EGAS, how do we calculate the gas prices?
To calculate the price of gas, you have to divide the Brent price over 2.5 to get the real price of gas worldwide. However, there are some factors controlling gas price calculation, such as the rate of inflation and its relation to oil price and the Basket Price in addition to some political pressure.

What are the areas that need more development?
The fields of the General Petroleum Company (GPC), especially the one located in the Eastern Desert

What are the promising E&P areas?
From a geological point of view, the Western Desert is one of the most promising areas in Egypt. Drilling in this area has expanded to include the Jurassic layers after it was limited too the Alkritaoi layers, which would increase Egypt’s reserves to 140 trillion cubic feet of gas. Moreover, the technological development has contributed to better accomplishments in the areas as the one made by the Greek Vegas Oil and Gas Company that achieved 23 producing wells.
However, we should not neglect the importance of exploration activities in Upper Egypt as well.

By Mohamed Fouad and Tamer Abdel Aziz


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