Interview: Ross Clarkson
What can be done to stimulate foreign direct investment in Egypt’s upstream segment?
ROSS CLARKSON: First of all, investor confidence has been severely impacted by the turbulence of recent years, which has led to some companies scaling back investment levels. Nevertheless, Egypt will certainly emerge from the current crisis and international oil companies (IOCs) will eventually have the opportunity to continue growing their businesses through asset acquisitions, bid round participation and aggressive drilling programmes on existing acreage.
The new government has also taken clear steps to encourage increased investment by awarding new blocks in bid rounds, clearing the backlog of development lease applications and paying down a large part of the outstanding debts to IOCs. If the government continues along this path, confidence will be restored and the country will again be an extremely attractive destination for investment in the oil and gas sector.
Furthermore, many IOCs have maintained a very positive relationship with the Egyptian state throughout the past few years. Frankly, most such companies have managed to increase their revenue year-on-year, indicating that they are more than capable of riding out the country’s current political and economic turmoil.
For new investors, exploring undeveloped blocks in Egypt is relatively straightforward, although there is no doubt that navigating the various permitting and approval processes with multiple government agencies, in addition to taking part in tendering processes, can be extremely time-consuming. If these processes were to be streamlined, exploration could start earlier.
In what way do outstanding payments impact Egypt’s energy sector?
CLARKSON: There is no doubt that overdue receivables are the single biggest concern for IOCs investing in Egypt, and the situation has caused much uncertainty in the sector. Nevertheless, a number of companies have worked closely with the Egyptian government to find short-term solutions that work for both parties, resulting in a reduction in outstanding payments. Collaboration between IOCs and the government to overcome existing challenges is vital to successfully manage the current crisis faced by the sector.
It is crucial for the government to understand that rising local demand requires either the import of products or increased local production. One way to address the issue is to enable investments by ensuring trust in payment schedules and creating a faster, easier and more efficient permitting and approval process.
What prospects do you envision for increased onshore oil and gas production in Egypt?
CLARKSON: There is considerable scope for onshore production over the medium to long term in both conventional and unconventional plays. Success in the Western Desert has shown attractive potential in deeper horizons, and the Eastern Desert will continue to benefit as seismic imaging technology improves.
Recent work indicates that there are likely also large shale resources in Egypt. Discussions are under way to find modified production-sharing contract terms that would make exploration and development of unconventional plays possible. That being said, gaining access to infrastructure to produce in onshore fields can be difficult once discoveries are made.
How much potential is there in maturing fields?
CLARKSON: It is important to view maturing fields as an opportunity rather than a concern. The exploitation of mature assets requires close attention to detail at every step of the workflow in order to identify bypassed or remaining oil targets, exploit them efficiently and maximise the ultimate recovery of the fields. This has been clearly demonstrated in the West Bakr and West Gharib areas of the Eastern Desert in terms of both drilling and secondary recovery. Furthermore, there is ongoing work on a tertiary recovery project to further increase the ultimate recovery of the reservoirs there.
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