By paying off debt and shaking up the offshore gas sector, former Chevron man Tarek El-Molla is making his mark as oil minister.
Egypt’s upstream sector is shining once again after the 2011 revolution unleashed political and financial chaos, forcing international oil companies to put major projects on hold.
Much of the kudos for the revival must go to Oil Minister Tarek El-Molla, who has set about transforming the upstream sector in recent years by offering attractive returns on development projects, while tackling a backlog of debt that kept international players from investing.
El-Molla, who honed his skills as a petroleum strategist during a long career with US giant Chevron, is now introducing structural reforms to further enhance Egypt’s attraction as an upstream destination.
Egypt used to be a major exporter of liquefied natural gas before the popular uprising that toppled long-time president Hosni Mubarak, but soon halted gas exports in the face of rising local demand fuelled by energy subsidies and falling production due to lack of investment.
El-Molla’s star rose quickly during revolutionary turmoil as he emerged from relative obscurity to high office. A coup against Islamist President Mohamed Morsi in 2013 by then army strongman and current President Abdel Fattah El-Sisi proved a turning point in El-Molla’s professional and political career. He refers to Morsi’s ousting as the “Second Revolution”.
The 55-year-old mechanical engineer was appointed in 2013 as the chief executive of state-run Egyptian General Petroleum Corporation (EGPC), where he had worked in various senior posts since leaving Chevron in 2010 after 23 years.
He held various roles in engineering, operations, planning and sales at Chevron until he became sales manager and a board member in 1998.
Molla was promoted to the post of oil minister in September 2015. His rapid rise through the ranks was engineered by former oil minister and current Prime Minister Sherif Ismail who spotted his skills as a savvy, flexible and clear thinking strategist.
El-Molla has lived up to expectations, using his experience with Chevron to shake up the offshore gas sector, undoubtedly the brightest spot in Egypt’s post-revolution economy.
“Ismail and El-Molla are very close. Both are reform-minded but the real push behind transforming the energy sector has come from El-Molla,” says a senior EGPC executive.
“Our challenges really began with the revolution of 2011,” El-Molla says.
“We started to see a large decline in our production, mainly gas. After the second revolution in June 2013, we adopted an aggressive strategy to rebuild Egypt — to do business differently, be bolder and more progressive.
“On the energy front, we needed to quickly close the gap between supply and demand — and that meant, on a temporary basis, through importation. We received the first cargoes of LNG in April 2015.”
El-Molla, during his stewardship of EGPC and now as oil minister, has made repaying debt owed to international oil companies a priority.
“Over the past three years, the oil sector managed to reduce the arrears from $6.3 billion to $3.5 billion by the end of 2016,” says El-Molla. The Oil Ministry, he adds, is committed to repaying the arrears that had forced international players to delay major projects.
“This is of special importance because paying back foreign partners encourages them to inject more investment.,” he says.
Other measures aimed at encouraging major international companies to keep investing in costly projects include the introduction of a generous gas price for costly offshore developments.
The incentives yielded their first major success when a deal on pricing prompted BP to kickstart its long-delayed $12 billion West Nile Delta flagship project in March 2015. EGPC is a partner in WND.
Similarly, Italy’s Eni soon embarked on the development of its giant 2015 offshore Zohr field discovery thanks to the gas price reform — in addition, of course, to the huge size of the find. “The fruits of the new gas discoveries in the Mediterranean are already emerging. The first output from WND gas fields was placed on the production map recently, reaching 650 million cubic feet of gas per day from the first phase,” El-Molla explains.
“Output will rise gradually to 1.4 billion cubic feet of gas per day by mid 2018.
“This supports the plans of the petroleum sector to increase gas production, which will reach its peak once linking the output of Zohr field before the end of the year.
“The production capacity of the Zohr field will gradually increase to 2.7 billion cubic feet per day.
“The development of the field has become a unique model for giant gas field projects around the world, not only in terms of its size, but also in terms of the record time it took to develop.
“The strategy of the oil sector relies on achieving self-sufficiency in natural gas by the end of 2018. We also plan to achieve a surplus by 2020,” he says.
El-Molla is now overseeing efforts to shake up the hydrocarbon sector by introducing measures such as speedier decision making in block awards and offering fresh incentives to international oil companies to deepen their involvement in the country’s upstream sector.
The implementation of energy sector reforms remains a priority for Cairo, which moved to liberalise its exchange rate policy towards the end of 2016 as part of efforts to stimulate greater capital inflows and increase foreign exchange reserves.
The planned reforms should help El-Molla achieve his dream of turning Egypt once again into a leading gas exporter by reactivating multi-billion-dollar LNG facilities that have been gathering dust so far this decade.
(Source: Upstream Online)