Interview with Hesham Mekawi – Regional President, North Africa, BP, Egypt
Hesham Mekawi, Regional President, North Africa for BP, discusses the company’s extraordinary investment in Egypt, with one in three upstream dollars globally spent on Egypt, making the Country currently the highest receiver of investment within the group. He also highlights the track record of successful partnership BP has had with Egypt and the total alignment of vision between the two partners; and his expectations for BP to become the largest gas producer in Egypt in the next few years.
What is keeping you busy at the moment?
We recently announced the start up for two of our West Nile Delta (WND) fields, Taurus and Libra. We executed them as fast-track projects and we are proud that production startup came on stream almost eight months ahead of schedule, under budget and with higher-than-expected rates. This is extremely promising.
Following final approval in 2015, development of this first project was fast-tracked to enable delivery of an annual average of more than 600 million standard cubic feet of gas a day (mmscf/d) to the Egyptian national gas grid. The fields are currently producing more than 700 mmscf/d sales gas and 1000 barrels per day (bbls/d) condensate, which is 20 percent higher than the planned sales gas plateau.
Thanks to a clear focus on efficiency and capturing market deflation, this complex project has been delivered with lower capital levels compared to project sanction. We are also proudly investing in sustainable local community development projects, maximizing local content and creating thousands of jobs for Egyptians
In parallel, we are also developing three other fields in the WND: Giza, Fayoum and Raven. Raven is a more complicated field with high-pressure and high-temperature gas, which is why we are developing a new facility to accommodate it. This is in itself a major undertaking and we are trying to accelerate this project too. Naturally, this is in addition to accelerating Atoll field development as well as our recent acquisition of a 10 percent stake in Zohr.
BP also recently announced the Qattameya gas discovery, which is our third in the North Damietta concession, following the Atoll and Salamat discoveries. This once again reinforces our confidence that the Nile Delta is a world-class gas basin. A key advantage of this discovery is that it is very close to existing infrastructure – around 30 to 40 kilometers from our existing West Harbor gas processing facilities – which means it can be developed and monetized very quickly.
What was the rationale behind BP’s decision to undertake such significant projects in Egypt at this time?
The core decision was made a few years ago when the situation in Egypt was more challenging than it is today, especially for foreign investors. However, BP has since invested over USD 10 billion in the country.
We have an extremely successful partnership with the Egyptian government – possibly one of the most successful partnerships BP has had globally – built not just on 55 years of history, which is important, but also on the current and future alignment of vision on what Egypt needs and what BP can provide. The willingness of the current government to take decisive action has also boosted our confidence that we will be able to see the value of our investments quickly, for both the country and the company.
Egypt is extremely important to BP and we demonstrate this not only through words but action. Roughly a quarter of the group’s total worldwide spend and a third of BP’s Upstream budget worldwide is in Egypt. Last year, this year and probably next year, Egypt is the highest receiver of funds within the Group.
All this demonstrates our confidence in the partnership, our confidence in the resources and our confidence in the future of Egypt. As I mentioned, when all our Mediterranean projects come online, our production in Egypt will more than triple before 2020. No other country or region in the world is seeing this kind of growth. It is a decision based on trust, confidence, and partnership.
Given BP’s emphasis on partnership here in Egypt, and the innovations BP has brought to its global partnerships, for instance, exchanging shares with the Abu Dhabi National Oil Company (ADNOC), how has BP further developed its partnership with the government in Egypt?
What has been key to our success in Egypt in the past 55 years is our focus on business. We are here to deliver on what we promise.
At BP, we recognize that our industry is changing. New technology like digitization, increased competition, oversupply of resources and downward pressure on prices are driving companies to be more efficient. These are permanent, not cyclical changes, so BP has adjusted its strategy and daily operations to adapt. On this note, we have been completely aligned with the Ministry of Petroleum, which is leading a Modernization Program for the sector.
Modernization is an important strategy not only in the oil and gas industry but across all industries. The Ministry of Petroleum’s modernization program is a strategic initiative that will create a step change to transform the Egyptian oil and gas sector. The program can potentially turn Egypt’s oil and gas sector into an attractive, competitive, and business-oriented industry, while continuously unlocking the sector’s value chain potential as a growth engine for Egypt.
In fact, BP’s Upstream sector had launched in 2016 a highly focused Modernization & Transformation program at almost the same time as the Ministry, which we see as quite aligned with the Ministry’s program. BP’s program should sustainably create a huge change in our people’s mindset and company performance.
The WND project is a clear example of the importance of strategic partnership and alignment as it is not a traditional production-sharing agreement (PSA) – we are the project operator. While we continue to be very pleased to be working through joint ventures, this model allows us to move swiftly and with accountability to delivery. This is a mega-project in terms of investment, volumes and criticality to the Egyptian domestic market with numerous execution complexities that we have proudly managed successfully with our partners in the Egyptian General Petroleum Corporation (EGPC), Egyptian Natural Gas Holding Company (EGAS) and the Ministry.
There is continuous collaboration at the highest levels of management. For instance, the Minister himself chairs a Steering Committee that oversees the WND project progress through regular meetings. Issues are resolved and decisions are taken immediately during these meetings. We also have regular joint development committee (JDC) meetings with Egyptian General Petroleum Company (EGPC) and Egyptian National Gas Holding Company (EGAS). This approach builds alignment, proactivity and collaboration to bring everyone around the table with one unified target.
Within the WND model, we have made special efforts to commit ourselves to the training and development of local talent within our concession agreements and we are in fact surpassing our contractual minimum. We partner with local companies like PETROJET, who work on essentially all of our onshore operations. WND has provided around 2,500 jobs so far and this is expected to increase to 5,000 including subcontractors. We also focus on technology transfer; the rotation of expats through our projects in Egypt which actually helps to facilitate this. We are now aiming at reaching the point where we partner with Egyptian contractors on projects outside of Egypt, which will significantly increase their international exposure.
Can you highlight some of the interesting projects BP has worked on in Egypt recently?
BP has established an impressive track record in delivering projects very efficiently. We discovered Atoll two weeks before the March 2015 Sharm El Sheikh Egypt Economic Development Conference (EEDC). In November, our CEO and the Minister of Petroleum signed the Heads of Agreement in London after we finished contractual negotiations. I have been in negotiations that have taken two to three years, so this was incredibly fast. By February 2016, the project was sanctioned and we are now working towards early gas.
Another rather important project is the Noroos project, which we share with Eni. We had basically almost zero production in August 2015; it was a dying field. Today we produce almost 1 billion cubic feet of gas (bcf) per day, after only 1.5 years later! We are currently negotiating with our partners to extend the life of the field to increase its production to reach 1.2 billion cubic feet (bcf) a day for many more years to come. We will also develop the Baltim South West offshore discovery with our partners. In addition to the above, we are planning to invest in further infrastructure as we want to build a 135-kilometer onshore pipeline from Abu Madi plant to El Gamil gas production facility, where we have spare capacity to fully optimize production and utilization of available capacity. This will also direct Noroos gas to our Natural Gas Liquid (NGL) plant in Port Said to allow additional extraction of propane and LPG.
This pipeline will be quite strategic in an area rich in gas as well as both gas processing and NGL facilities, which allows us again to create more value from the gas that Egypt needs for a longer period. Going from 0 to almost 1 bcf in a year and half is quite spectacular and we are targeting to reach 1.2 bcf within the next few months. We achieved this by going full-speed on production after the initial discovery; even before we had even finalized our concession agreement changes with the Ministry – because we had total trust in the government and Eni as our partners.
BP both as an organization and in Egypt has shifted its focus increasingly from oil to gas. How has the organization here adapted to this?
While our involvement in gas here is not as old as our oil operations, we have been producing gas in Egypt for over 20 years. Once we started exploring and finding gas in the Nile Delta and realized the potential of it as a world-class gas basin 10 to 15 years ago, we increasingly focused our exploration efforts there. Success begets success. Exploration is a high-risk business but we saw the future potential, so we immediately acted by bringing in the best people, investing in their training and development and availing the optimum investment to progress exploration, appraisal and development programs.
All the major discoveries in Egypt in the past decade have been gas discoveries. Once we realized that, we adjusted our organization, strategy and focus. That said, companies have been producing gas in Egypt since 1990s, so many of the shallow and easily extracted gas has already been produced. This is why today we are dealing with deeper, more challenging, high-pressure and high-temperature gas. BP’s VP of Wells has said that the most difficult wells BP has ever drilled have been here in Egypt. Working in Egypt definitely involves technical challenges but we have the capabilities and we are driving our teams and technology to meet these challenges every day. We also work on developing the national talent to be proficient with these technologies; in fact, almost 80 percent of our wells staff is Egyptian.
BP is an excellent partner to support Egypt because we have proven ourselves to be able to deliver results efficiently and quickly. Every well we drill now is cheaper than the one before.
What is the strategic significance of BP’s 10 percent stake in the Zohr discovery?
Very simply: scale. We had to be part of such a significant discovery, given the importance of Egypt for BP. We also have the option to acquire 5 percent more as entailed by the agreement with ENI. Rosneft has a 30 percent stake in Zohr as well, and we see the three companies are completely aligned in terms of our objectives in Egypt, which creates a productive, healthy partnership as well as fosters efficient operations on the ground. We are also very aligned when it comes to safety, which is a core value for BP and is very important for the whole oil and gas industry.
As Egypt seeks to continue this momentum and attract more international investment, what are the main challenges to be overcome?
I like to see challenges as opportunities. You can identify true winners by how they manage challenges.
Egypt has the potential to become self-sufficient in gas by 2019 – and then there might even be excess gas that could be processed for export. There is also a lot of gas in the region that could come to Egypt, which has the facilities to receive it and is geographically close to the markets in Europe, Africa and Asia to export to. The main challenge is to ensure the continuous promotion of investment opportunities in Egypt.
“Egypt has the potential to become self-sufficient in gas by 2019 – and then there might even be excess gas that could be processed for export.”
Everyone that wants to enter Egypt’s oil and gas sector has the chance to do so, whether through bid rounds or farm-in opportunities. Part of Egypt’s success has been the continuity of its bid rounds; it holds two to three every year, compared to countries that may hold one every four to five years. Now is a good time for companies to enter Egypt because if companies miss out on the opportunities, it may become more difficult in the future as the market develops.
CEO Bob Dudley has said that 2017 will be a year of growth for the company. What will that mean for BP in Egypt?
BP has seven global projects starting up this year: Two of them have been announced, and more to come as 2017 is a pivotal year for BP. Globally we have announced that we will add 800,000 barrels of oil equivalent (boe) per day by 2020 and Egypt represents almost a quarter of this.
Once WND, Atoll and Zohr come to their peak production in addition to our existing production, BP will more than triple its production in Egypt by 2020. We are looking forward to maintaining this high rate of production as a plateau for as long as possible in the next few decades.
We are very aligned with the country’s objective to develop self-sufficiency in gas and security of supply. These projects are key to providing an economic source of energy to Egypt and help support the country’s progress and development.
Finally, we also expect to be the largest gas producer in country within the next few years.