Dr. Thomas Radwitz, GM of DEA Egypt, outlines the role of Egypt in DEA’s international portfolio and the company’s growth strategy.
Dr. Radwitz, having previously worked in Egypt for DEA, what were your first impressions of Egypt when you returned as GM for DEA Egypt in February 2016?
As it was the third time for me to work in Egypt, it felt a little like coming home; I found it easy to adapt to the country again, especially when welcomed by the kind and courteous people. What was new to me was managing the DEA corporate office in Egypt, as during the previous assignments I had only worked in our JV with the Egyptian General Petroleum Company (EGPC).
With regards to the economic situation in Egypt and as a result of recent sociopolitical developments, tremendous progress has been made by the Egyptian Government to create a better investment climate. This is due to the various financial packages the Government has successfully negotiated with various organizations like the World Bank, International Monetary Fund (IMF) and the African Development Bank. In addition, the review of the tax regime, reduction in state subsidies and last but not least the devaluation of the local currency in November 2016, are clear indications of the serious willingness of the government to re-build the Egyptian economy.
“Tremendous progress has been made by the Egyptian Government to create a better investment climate.”
There was a general expectation that the oil and gas industry would also be liberalized, which would send positive signals into this industry branch, as well. Due to financial shortcomings, Egypt is still facing the issue of arrears owed to IOCs – which includes DEA; collection of these arrears are important and necessary to IOCs to continue investing in Egypt. Our talks with the Egyptian authorities reveal the mutual understanding and need on both sides to resolve such matters as quickly as possible.
DEA globally has seen some changes itself in the past few years, in particular your acquisition by L1 Energy in March 2015. What does this mean for DEA in Egypt?
As an international upstream player, we continuously develop our strategy and optimize our worldwide portfolio.
For our activities in Egypt, we have evaluated the portfolio to determine which are the core assets to focus on. The goal is to have sound technical operations with qualified people at an acceptable opex level, so that we can generate sustainable revenues to be reinvested in new projects in Egypt.
You mention the evaluation of DEA’s Egyptian assets. What has that meant for DEA in Egypt?
What is important to emphasize is that Egypt continues to be an important factor in DEA’s portfolio. DEA was and is one of our core countries. We are currently streamlining our operations to become more efficient within the ongoing projects and to drive new developments.
DEA’s commitment to Egypt becomes clearer if you look at our stake in the West Nile Delta project, which is one of Egypt’s flagship gas projects at the moment; DEA holds 17.25 percent in it. Even considering the fact that we have reduced our share from the original 40 percent we held – to spread our eggs across more baskets, essentially – this is still the largest single investment that DEA currently has globally. WND is a mega project and our share of that is quite large for a mid-sized company, highlighting the importance of Egypt to DEA. With two of the five fields coming on stream now almost six months ahead of schedule on what was already a fast-tracked timeline, it is bringing new momentum to our activities here.
The DEA oil production is managed through the JV Suez Oil Company (SUCO), which has operated in the Gulf of Suez since the late-1970s. Having left the plateau production many years ago, we continue to employ EOR techniques to stabilize the natural decline of the field. The drop in oil prices as well as low project economics forced DEA to revise its investment philosophy within the recent period as we need to re-establish a profitable operation. This is also why we are currently renegotiating new concession terms – as they expire mid-2017 – for two concessions in the Gulf of Suez. The key is to achieve new terms that reflect factors like the changed market environment and the age of the fields. Mature fields require continuous investment to maintain production levels and to carry out the required maintenance of the equipment and facilities.
Next to the Gulf of Suez, DEA operates via its JV 100 percent of the Disouq concession. The onshore Nile Delta fields came online in 2013 and doubled our production in Egypt to around 40,000 boe/d.
Finally, DEA holds three exploration licenses in the Gulf of Suez. The maturity of the Gulf of Suez is of advantage here because the infrastructure is extremely well-developed, which means that once a discovery is being made, we can quickly tie it in and bring it to market.
What is the significance of DEA’s 100 percent operated concession, Disouq, in Egypt?
I have to say that DEA is proud to have 100 percent ownership in this concession. Not only for the reason that it was developed in 2011 during a period of instability for Egypt and later brought on stream in September 2013, but also because we were the only company to successfully develop a gas field in the Nile Delta that year.
Due to the reservoir properties, new technologies need to be implemented in order to produce the gas at high rates without mobilizing the reservoir sand, which may lead to erosion in the wells and installations. The Disouq concession is actually a combination of six fields, each with different characteristics. In the north, for instance, the fields show a higher condensate yield, which requires a slightly different production method and an upgrade to the existing process facilities at a later stage.
The technical challenges mean also that Disouq is a very interesting concession for our reservoir, production and facility engineers. Together with our team in the JV, we are monitoring the field performance to decide on possible production enhancement and further development measures.
Given the diversity in DEA’s Egyptian assets, what other challenges do you have to manage, for instance, when it comes to operating in a mature basin like Gulf of Suez?
Having first worked in SUCO 20 years ago, I was pleased to return to DEA Egypt and see the facilities in a good condition and still in operation. The team is doing a spectacular job in maintaining the equipment operational according to international standards. We are applying strict HSE standards to ensure safe operations of the equipment; this includes the protection of the environment and to avoid any release or spillage of oil into the environment. Regular audits and certifications shall maintain the high awareness of all personnel.
While it is a challenge to work with aging equipment and facilities, it also represents an excellent training opportunity for young engineers and technicians learning and experiencing hands-on operation in the fields. Practical know-how and experience is of importance to continuously train younger generations to step into the jobs when older colleagues leave the company.
Egypt is known for having a vast and highly skilled oil and gas workforce, not just in E&P companies but also within oilfield service and contractor companies. What we do need to do is provide adequate training, supervision and motivation for these employees to deliver their best.
Usually, maturing fields and assets come along with higher operating cost and dropping production rates; this can be due to the need for applying more sophisticated reservoir management techniques or higher expenditures for maintenance measures, for instance. In the recent past, DEA Egypt has started to streamline its operations. We have motivated our employees to challenge the status quo and to being flexible and creative when it comes to proposing new and more cost-effective methods and technologies.
We have also transferred more responsibilities to our national staff and reduced our expatriate personnel to demonstrate that we are committed to increasing our efficiency. I conduct regular talks with our employees to communicate our strategy and the rationales behind the necessary changes.
What type of technology and expertise is DEA bringing to Egypt?
Besides some project specialties, onshore oil and gas production installations are quite simple and much like off-the-shelf technology. Offshore drilling and subsea completions are also becoming increasingly more standardized but require a different level of engineering and project execution. What we are focusing on is more high-tech remote-operated technology. In this sense, WND is definitely a technical lighthouse project for us.
Together with our JV, we are testing new well intervention techniques and installations to reduce workover cost. Here, for instance, we are installing new downhole sand control measures in the wells, which we have not done in Egypt before.
There is significant value in working in a JV and I strongly encourage young engineers to spend some time in our JV, get their hands dirty and understand how oil and gas exploration really works. It is still a hands-on industry and it is important to experience first-hand the cultural, environmental and physical challenges of working in the field, onshore and offshore, also to fully understand the risks involved in any operation.
With Egypt now looking to increase foreign investment, what more can be done?
As stated earlier, we recognize and appreciate the undertakings of the Egyptian Government to improve the investment climate, the efforts to strengthen the economy and to review laws and regulations to further promote business. We trust that these improvements also support creating a stable environment for foreign companies in terms of revenue generation. This is especially important for non-majors, who need to see economic returns within a shorter time frame.
An incredible amount has been achieved in the recent past, and I do believe that the restructure of the oil and gas business is on the verge of success. Continuing with such steps will re-establish international confidence in Egypt’s economic future.
Where do you hope to see DEA Egypt in a few years?
I definitely see DEA on a growth path with a focus on profit-generating projects. DEA is currently active in Northern Europe in Norway, Germany and in North Africa. The DEA M&A team is actively managing our portfolio to turn new opportunities into new activities. DEA Egypt is well-positioned and in a few years’ time could act as a hub for DEA’s North Africa activities. We have capabilities and personnel that can be drawn upon. This has the potential to deliver further growth in this region. On a more personal note, I hope to be able to continue contributing to the pursuit of these potential new opportunities in the future.