UPSTREAM TECHNICAL CONVENTION Paving the Way for a Modernized Industry

UPSTREAM TECHNICAL CONVENTION Paving the Way for a Modernized Industry

With upstream activities as a core pillar on Egypt’s ambitious growth plans, petroleum leaders gathered at Cairo’s Sky Executive Resort on January 21st and 22nd to examine recent achievements and discuss ways of enhancing oil and gas production levels, reducing operational costs, and providing new opportunities for young industry professionals.

Under the patronage of H.E. Minister of Petroleum and Mineral Resources, Tarek El Molla, the two-day Upstream Technical Convention was launched in line with the ministry’s “Modernization Program,” offering important updates on the program’s activities and fruitful insights to meet the ministry’s expectations.

During his speech El Molla thanked the organizers for their efforts and commitment; he further praised the event’s importance in giving “an excellent opportunity to exchange ideas and insights on the challenges and opportunities of the recent developments in the oil and gas sector.” The minister expressed his expectation that the mindset-rich environment would promote “production increase and decrease costs,” as well as bring “significant recommendations on how to enhance opportunity and productivity of young professionals.”

The inaugural speech was presented by Egypt Oil & Gas Managing Director, Eng. Mohamed Fouad, who noted the industry’s responsibility to “continuously reinvent itself in order to keep up with the high competitive petroleum market.”

Achievements and Plans under the Modernization Program

The Upstream Technical Convention opened with the “Modernization Program Update” panel, providing valuable updates on the Egyptian oil and gas sector’s trajectory, as well as insights to ongoing projects within the Ministry’s Modernization. Due to a global crash in oil barrel prices and previous political turmoil that shook Egypt’s business environment, the country has gone through bold reforms to overcome the market challenges, which have resulted in solid accomplishments in the upstream sector.

“By early 2016, the petroleum sector had already achieved several successful stories. We had signed several concession agreements, with investment commitments of over $15 billion, started accelerating some of the gas development projects, discovered and signed development agreements for Zohr, put back on track North Alexandria, and started several downstream projects,” said Eng. Osama Mobarez, Undersecretary for Technical Office at the Ministry of Petroleum.

Despite the previous achievements, Mobarez noted the ministry’s ambition to be proactive and do more. “We wanted to set a vision for the sector that is contributing to the sustainability of the country and sector by being efficient and transparent.” To that purpose, a diagnostic phase with detailed analysis designed the sector’s vision to unlock the industry’s full potential as a growth and sustainable engine for Egypt, achieve financial sustainability, as well as become a regional oil and gas hub and role model for the future of modernized Egypt by 2022.

Production Increase

The Ministry’s First Undersecretary for Gas Affairs, Upstream Program Sponsor, Eng. Mohamed Mounes, noted that seven pillars sustain the Modernization Project. “Upstream is one of these pillars. The aim of Upstream is to boost oil and gas production, secure the local market with petroleum products and achieve sustainability.”

Mounes added that the ministry expects to increase production from existing wells, achieve new activities, build new facilities, improve efficiency, and adopt new technologies. To achieve this vision, production and exploration activity has been increased through signing around 83 agreements. Plateau production and sharing agreements are expected to drive, “an ambitious plan of around eight billion cubic feet of gas per day in 2021, which will be the double of 2015’s production.” He went on to add that, with an extensive exploration scheme, the ministry hopes to, “start the exploration of around 230 wells, starting from April until the end of 2018,” with around $2 billion in investments.

Eng. Hafez El Shamy, Assistant General Manager, Production Department at the Egyptian General Petroleum Corporation (EGPC), who made a valuable presentation within the panel, noted that for increasing production both short and long term, Egypt must enhance existing well productivity by identifying new initiatives to increase petroleum production from existing wells, improve surface facilities and pipeline integrity and study secondary recovery projects and unconventional resources. El Shamy further suggested the country should, “drill new wells from existing fields, promote new bid rounds, propose solutions for payment of arrears and internal debt, and drag investment from outside Egypt.”

For Mounes, a strong indicator that the program is being effective in enhancing output is the program’s quick wins, which correspond to aspects that increase production from three to six months. “One example is the last discovery of Badr Petroleum Company (Bapetco). It was supposed to be put into production by February or March. We succeeded to put it into production around ten days ago [early January].”

Economic Factors

In line with the government’s efforts to attract capital influx and boost the industry’s performance, the floatation of the Egyptian pound (EGP) was mentioned as a key factor to enable economic recovery. According to Economist Allen Sandeep, Director of Research at Naeem Holding, the currency devaluation represents a third revolution in Egypt’s recent history. “It was the best decision taken by the Egyptian government when it comes to macroeconomic stability and setting the books proper.”

Sandeep highlighted that although the currency floatation increased local prices and reduced levels of consumption and production in certain sectors – the sales of cars dropped by 60%, as he exemplified – the full economic picture has improved. Since the government took this daring step, it has eliminated the black market for currency, helped recover tourism and increased the country’s exports. “We are now in an ‘economic flu,’ and the floating of the EGP in 2016 was the first antibiotic. It is a long course that must be followed so we do not resort back to the flu.”

In addition, currency devaluation works as a main attractive for foreign direct investment (FDI) into the petroleum sector. “As long as the EGP remains weak, you will continue to see foreign investment coming into the market,” Sandeep said.

According to Mobarez, “One of the main objectives from the modernization is to have more investments, as well as to increase efficiency and decrease costs.” In an economic perspective, “Attracting more investments would definitely support the reserves of foreign currency in the country and at the same time, as production increases, it would limit imports, thus reducing spending of foreign currency,” he disclosed, further adding that the optimization of processes equally decreases costs, supporting the state budget and reducing the deficit.

Furthermore, Sandeep remarked that two factors would boost the oil and gas sector: lowering the price of natural gas and, as the petroleum industry contributes more than 30% of the country’s exports, channeling some of these exports to the downstream refineries.

Technology Transfer and Digitalization

Digging deeper on the technology’s fundamental part in the modernization of the sector, Eng. Moataz Darwish, Deputy Chairman of Shell Egypt, remarked that, as IOCs quickly advance in technology development, the challenge relies on how to transfer this technology to Egypt. “It has to be through a very efficient operating model of technology transfer to our joint ventures (JVs), and it will certainly enhance the collaboration through all the supply chain in the country.”

“What I would add as one of the key pillars of the program is digitalization,” Eng. Rami Qasem, BHGE’s President, CEO for MENA, Turkey and India, pointed out. He further questioned, “How can we make sure that upstream and downstream data are available in a very efficient manner that provides data in the right time, making sure we drive transparency and costs out?”

Based on BHGE’s experience and partnership with Apple, Microsoft, BP, Shell and others, Qasem believes digitalization, “is something we need to bring in to Egypt, leveraging everything we have in a way to fulfill the key pillars of the whole modernization program in the next three years.”

Private Sector Participation

With the remarkable presence of the private sector in the Egyptian petroleum industry and its fundamental role in the country’s economic sustainability, Qasem stressed the importance of the private companies’ contribution to three fundamental pillars within the Modernization Program: People, technology, and building the capability to serve the region.

“We believe the private sector today needs to use Egypt as hub for technology, partnering with different sectors within the ministry to create innovation, and work in collaboration with international oil companies (IOCs) and other services when it comes to building talents for the future,” Qasem noted.

Collaboration for Success

In order to meet the discussed expectations, the panelists unanimously indicated collaboration as an essential part of the process. “Even if it is an oil and gas hub, a hub has to go through all sectors of the economy. It has to be backed up by the banking sector, port facilities and by all the agencies in the government and the private sector. It is a collaborative work,” Qasem disclosed.

Mounes noted that there is a good agreement between the government and IOCs, to which Darwish, as a representative of the private sector, agreed by stating, “We believe we are truly one party [government and IOCs]. The relationship with the government is very strong and there is no doubt that this is a true partnership.”

“The interaction of the government with IOCs is a two-way exchange,” Mobarez pointed out. “For two to three years, the discussions with IOCs have been extensive. The investment attraction and the upstream program have a lot of interaction with the IOCs.”

Qasem added to the discussion the commitment to address some of the internal economical requirements to increase Egypt’s competitiveness in the market. “The question here is the timing. Today, with the prices going up, we will see more and more the need to build new talents and invest in resources, so the sooner we can have everyone supporting the Ministry of Oil, the easiest it is going to be to turn into a hub.”

Mobarez further stated that the main factors in making the Modernization Program successful is the support from the leadership of the country and the leadership of the sector. “During the first phase of the Modernization Program, we studied several experiences from other countries and companies. We noticed that a practical factor is the leadership support. If you do not have this, you cannot succeed in this transformation. I believe we already have this support.”

Positioning Egypt for Growth

The second day of the convention began with an in-depth look into Egypt’s current perspective on upstream oil and gas during the “Positioning Egypt for Growth” panel. The presentations and ensuing discussions focused on the domestic gas situation and the prospects of liquefied natural gas (LNG) exports, but also on the requirements for future growth of the sector in general. During the various exchanges, panelists addressed the need to reshape government policies and enhance investment opportunities, thus creating a more sustainable climate for investors.

Egypt’s Capex

Mr. Martijn Murphy, Research Manager Upstream at Wood Mackenzie, the event’s official research partner, pointed out that since 2012, Egypt’s discoveries have been tending more towards gas. According to him, “2015 was a pretty good year with the discovery of Zohr,” and “The outlook for natural gas production now is pretty bright as a record gas output is expected by 2019.”

“Within 2017 and 2018, there is record level suspending the capex across North Africa, reaching about $15 billion, from which around 70% is on gas projects in the region,” he continued. “By country, you can see that Egypt accounts for about 60% of spending across North Africa last year and this year, and of course a lot of that is concentrated in West Nile Delta and Zohr.”

Additionally, Wood Mackenzie’s data suggested that the global capex had decreased by 20% each year since the oil price downturn in 2014, before stabilizing in 2017. “In contrast, you can see that Egyptian capex is pretty much doubled in that period,” as low breakeven makes Egypt attractive despite low oil prices.

Challenges vs. Opportunities

Murphy further stressed that, with these numbers, Egypt competes globally despite high government share. Low cost recovery ceiling and the high starting government profit share create a highly effective royalty rate and a quite long payback period. “I believe the upstream sector is in a good place and in line with the reforms of the modernization program. I think the future is pretty bright.”

However, although Egypt is likely to be self-sufficient in natural gas until possibly the middle of next decade, beyond that, the gap between demand and supply begins to widen again. “We [Wood Mackenzie] think that in 2019 or sooner, Egypt will have a gas surplus. However, we think that Egypt will manage to be self-sufficient until 2023 or 2024, based on current reserves and our production forecast. Beyond that, it is going to be relying on yet-to-find potential,” Murphy added. In this line, he indicated, “Discovering new gas offshore and monetizing some of the existing discoveries, which might require a higher gas price, are some of the challenges in the future.”

From a service provider perspective, Eng. Hussein Fouad El Ghazzawy, Vice President and General Manager at Schlumberger, stated that, “One of the main challenges is the business model. I think new business models with service providers – looking at the total cost other than the individual service cost and more integrated deals – will help attract more business.”

Geologist Fabio Cavanna, General Manager at the Italian Egyptian Oil Company (IEOC), spoke from the perspective of Egypt having more opportunities than challenges. “First, because of the location of Egypt, which is very well positioned, geographically speaking. Second, because we have a very stable country and third, because we have very knowledgeable third parties and a very strong and robust industry. All this together is consolidating a very good situation for Egypt, which is boosting the future.”

One of the opportunities mentioned in the discussion was the continuous potential for offshore exploration and production. “We believe that the potential is still there for offshore, and Zohr unlocked this potential,” Eng. Osama El-Bakly, Chairman of EGAS, stated.

In addition, speeding up processes was brought up as a main target to sustain Egypt’s growth. “Among the 83 concession agreements signed since 2013, around 20 are just amending terms and conditions, and gas pricing. This will save a lot of time and a lot of effort,” Eng. Abed Ezz El Regal, CEO at EGPC, commented, subsequently noting that, “There is a lot of liquid hydrocarbon waiting just for just a small investment and a timeframe to be brought on stream, especially in the Gulf of Suez.”

In terms of technology, Ghazzawy believes it is “…definitely a challenge and opportunity at the same time,” disclosing that Schlumberger has made big investments on its central of efficiency, reaching almost $60 million of investments.

Opening the Way for Gas Exports

Since Egypt began importing LNG in 2015, the country has incorporated floating storage regasification unites (FSRUs) to its infrastructure. As imports gradually decrease due to the hike in domestic natural gas output, the petroleum sector rethinks FSRUs’ usage in order to incorporate the existing facilities to Egypt’s future market position.

“When we say we are putting effort in turning Egypt into a gas hub, it means we have to maintain our infrastructure,” El-Bakly defended. “Our infrastructure is the entire asset we have to cover whatever [options arise], concerning exporting [in the near future].”

The ambitious plan of gaining back the country’s position as a gas supplier has brought international partnership into the equation. When it comes to the construction of strategic pipelines between Egypt and Turkey, Greece, Cyprus, or Israel, El-Bakly and El Regal affirmed all options remain open. “We have the project itself coming first and the methodology coming after. We are talking about being a hub, so it is a major project. Methodology could be decided during initiation and all the options are open,” El Regal added.

He further reminded that, in order to achieve this plan, the country must keep an eye on the generation of power. “The main consumer of gas in the country is power generation. There is a plan for utilizing renewable energy, which will have a considerable impact in the country, but we cannot drop maximizing the efficiency of power plants.”

Growing Oil Production

As oil fields mature and production falls behind the boom in natural gas, IOCs’ representatives discussed ways of enhancing oil activities. “We [IEOC] are trying to maximize our oil recovery and, in the Western Desert, we never stop investing,” Cavanna stated. “We are also interested in expanding our activities in new areas. We know there will be bid rounds in the Red Sea in the near future. We hope that it will open new frontiers.”

As for Schlumberger, El Ghazzawy disclosed the company will be more selective and focus is specific areas. “We are very pleased that we signed, in July, the multiple agreement in the Red Sea. The Red Sea will bring a lot of potential to Egypt.”

Speaking on this potential, Murphy believes the Red Sea is an interesting area. However, “It is still a very early case, probably too early to comment on production levels.”

According to El-Bakly, the country does not lack facilities to boost offshore output. “We are facing a downturn of oil production and some activities in the industry have slowed down, so some facilities are more available.”

Commenting on further exploration drilling in Shorouk concession, Cavanna explained it is still an early call. “We are looking at the exploration data and I cannot confirm now.”

Young Professionals

Human capabilities and human development stand as top priorities in the Modernization Program. In this line, the Upstream Technical Convention’s third and last panel “Young Professionals” provided successful stories and insights on tailored training sessions to narrow skill gap, programs in building human capital, equal opportunity policies in the petroleum sector, as well as strategies to keep young professionals motivated and the oil and gas sector attractive.


Skill Gap: Academics vs. Practice

In order to prepare undergrad petroleum engineers, technicians, and geologists to face the open market, oil and gas leaders pointed out the need of closing the gap between academic studies and actual practice. “Petroleum engineering education has to show that they give students skills to work in the working environment,” noted Dr. Ahmed ElBanbi, Professor and Chair of the Department of Petroleum and Energy Engineering at the American University in Cairo. “Before they graduate and join the industry, they must have the skills to educate themselves.”

Eng. Osama A. Halim, Egypt & Libya Area Manager at Halliburton, believes Egyptian young professionals can deliver when placed in the right working environment, and that universities have a major role in building skills and encouragement. “Our education system is a highly technical system. We are missing the practical training and soft skills,” he added.

This gap could be closed through true partnerships between universities and the industry, David Chi, Vice President & General Manager at Apache, stated. “The industry is the one who has a better idea of what it needs in terms of human resources.” Thus, universities can benefit from the industry’s insights to improve its educational system.

Chi further noted that students should learn how to make decisions, emphasizing project management and problem solving skills. With internships consisting of a one-month formation, Chi proclaimed that this timeframe is not long enough to develop the students’ abilities, suggesting lengthier internships for bigger impacts.

ElBanbi agreed that internships should be extensive, noting that students are highly pressured to finish university fast to join the work force. “I think we could discuss a one-year off to acquire experience.”

Joint programs between the private and the public sector were highly suggested by the industry’s representatives as a means of enhancing human development. “A few months ago, we [OGS] announced a very promising program as a capacity building program for middle management and young professionals. We are aiming to invite more IOCs in order to join the implementation. More than 3,000 applicants already submitted their applications in this program,” Osama ElSaadawi, Research & Development –Marketing General Manager at Oil & Gas Skills (OGS) stated.

Equal Opportunity

In an industry dominated by men, the discussion progressed toward equality. “We need to give male and females equal opportunities when we talk about hiring processes,” Halim stressed.

“As our industry continues to evolve, we need to be more inclusive,” Chi continued. “A lot of female employees are mothers, but that does not mean they cannot make a significant contribution to our industry. As an industry, we have to be supportive and identify the strength of our female employees.”

Keeping the Sector Attractive and Motivated

With a downturn in petroleum engineering enrollment, ElBanbi pointed out that volatility affects both the industry and the universities. “The last three years have been really tough on geoscientists and petroleum engineer undergrads. What I suggest is that companies should continue hiring, in bad and good times, especially in these two majors,” he added.

“The oil and gas industry plays, in many countries, a very critical role. We are a global industry for people with a spirit and taste for adventure. We have to communicate the importance of the industry, its financial reward, and the opportunity of applying technology and making an impact on the society. When we do a better job at that, I believe we will be able to introduce our industry to a lot of talent that young people want to bring in,” said Chi.

Halim further stressed the role of senior management in fostering young talent. “People in different levels are the key for the success of every company.” According to Halim, people quit their jobs when they do not see a career progression for themselves. In order to keep people attracted, there must be a clear succession plan, as well as a fruitful working environment. “If you have an unfair environment, you will leave. We, in Halliburton, sit with our people from day one and tell them, ‘This is where you are now and this is where you are going.’ This transparency leads people to continue in the company.”

Recommendations within the Modernization Program

In a people development perspective, Chi suggested the Modernization Program should focus on empowering young talents. “We need to empower young people, so that they are able to make decisions and come up with new ideas that will make us move forward.”

Geol. Samir Ab. Moaty, Rockhopper Country Manager and Founder of Al-Amal Program, insisted the Modernization Program should direct its efforts toward universities. “What I am looking for is a collaboration between IOCs, JVs, and NOCs and to help with internships and summer training. Those young professionals will be the future leaders. We do not have to wait for them to come to us. We need to go to them and prepare them to be ready upon graduation.”

Halim agreed with Moaty and stressed the need of a national training program that covers a good proportion of fresh graduated employees, with “…technical training and soft skill trainings to educate the students on what they are expected when they come out of university.”

ElSaadawi pointed out the industry needs to understand that it is working in complexity. In that line, ElBanbi commented, “Educating the young generation is something we do not do for the young generation, but to ourselves. A very important thing to do is leading by example.”

The Upstream Technical Convention was concluded with a series of presentations showcasing initiatives to enhance young professionals’ formation, including Al Amal, Shell’s NXplorer, Schlumberger’s Technician Development Training Program, as well as the Ministry’s Subsea Development Program and Zohr Training Project. The convention marked the beginning of important discussions within the ministry’s Modernization Program for 2018.


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