Nicolas KATCHAROV Egypt Country Manager ENERGEAN

As a general principle, the most economical approach is always to extend the life of existing assets.

Nicolas KATCHAROV Egypt Country Manager ENERGEAN

A leading role

June 13, 2019

TOGY talks to Nicolas Katcharov, Edison International’s vice-president for North Africa and Middle East operations, about Egypt’s hydrocarbons production targets and how work at the company’s upstream assets is progressing. Edison International has been involved in the Egyptian oil and gas industry for more than 20 years.

What is your view on Egypt’s upstream momentum and its ambition to grow production to 700,000 bopd and 225 mcm (7.95 bcf) of gas per day?
Egypt has become gas self-sufficient recently, with the entry into production of the latest major discoveries in the East Med. It is a real chance in the present moment of the country’s economic recovery after a decade of uncertainties.
With the current consumption forecast rates, the operating fields and new discoveries can ensure close to 20 years of supply, the period of which shall be in my view used for the redesign of the oil and gas market. The latter is crucial for creating a competitive environment over the full energy chain, from production up to the final customer, motivating efficiency and competitiveness in all aspects.
I believe that, due to its size, position and capacities, Egypt has a leading role to play in the East Mediterranean Basin, with the precondition of establishing an operating and transparent domestic market with non-discriminatory access to resources and infrastructure. Investors and operators must be confident in the stability and the competitive environment.
In the event of success, Egypt will be not only a transportation hub for regional gas, but also the price maker arbitrating between regional imports and exports and local consumptions. Of course, meanwhile exploring and attracting investment in the upstream will continue especially if the concessional rules follow the same process of adaptation to the competitive market conditions.
I think that in the coming years attention will mainly be focused on important gas offshore plays in the East Med, but also in the Gulf of Suez and Red Sea. The successful latest bid rounds have shown increasing investor interest and newcomers’ arrivals.

How many concessions do you currently have in Egypt, and what are the development plans for those?
At Edison, we’ve been contributing for decades to the development of energy in Egypt, in oil and gas but also in power generation. Since 2011 Edison has been operating, within a JV with EGPC, the Abu Qir concession, producing nowadays ca. 245 mcf [6.94 mcm] per day of gas and 4,500 barrels of condensate. Since 2016, with the latest ca. USD 300-million investment consisting of a new platform and six wells in the northern part of the field, we have doubled the production, contributing to the energy self-sufficiency of Egypt mentioned above.
Our efforts are now concentrated on the USD 200-million development of two new concessions, North Idku and North El Amriya, with proven reserves from which first volumes of 50 mcf [1.42 mcm] per day will flow through Abu Qir infrastructure at the project completion at the end of 2021. The adjunction of this new gas and new exploration potential near the well-known and mature Abu Qir field will not only compensate for the natural depletion of the latter, but also offer new perspectives for our teams working in the Abu Qir joint venture.
In exploration, Edison is currently committed in three concessions: South Idku, onshore in the Nile Delta, where the perforation is ongoing; the North Thekka deepwater offshore target in the East Med, for which final preparation works are ongoing for a spud planned before the end of 2019; and North East Hap’y, with similar parameters and in which concession Edison has 30% participation alongside Eni as operator, and for which the spud is expected in December 2019. All in all, Edison has committed nearly USD 100 million in exploration in the current year in Egypt.

How else has Edison been contributing to the Eastern Mediterranean gas hub?
We have been contributing for years to the Mediterranean undersea pipeline project connecting Israeli and Cypriot reserves to Europe. This is one of the possible scenarios for evacuation of the abundant regional gas to markets, perhaps not the cheapest but with some important advantages.
However, the bankability of such a project could be ensured, beyond all technical and environmental aspects, by long-term visibility in transiting gas volumes and prices. In this consideration, other scenarios – complementary or competitive – shall be carefully studied.
An obvious alternative would be the usage of existing LNG facilities in Egypt, complemented with undersea pipelines to be built connecting Cyprus and reinforcing the existing one with Israel. We are ready to consider such options, which, however, require clear commercial rules of access to the liquefaction services.
Egypt has developed a mature gas industry and owns infrastructure available immediately – based on this it can play as a gas transit hub and, more importantly, as I said before, as a main gas consuming market in the region. International gas prices are relatively low today and gas is abundant worldwide. If the local economy and demography continue growing, local demand for gas will increase and its market valorisation will remain high.


What is your strategy regarding mature fields?
As a general principle, the most economical approach is always to extend the life of existing assets, using the infrastructure and lowering the risks with already acquired knowledge and experience. This is especially true in periods when the international oil price is too low to generate new investments.
In Abu Qir, which is a field that has been used for more than 40 years, we continue developing and exploring. The north area of the concession is still not completely explored, as well as the deeper geology offering a promising potential. Our efforts will be further concentrated on these two items, apart the usual workovers and extensions of existing wells and reservoirs.
The ongoing developments in North Idku and North El Amriya are also adhering to the same principle, benefitting from existing Abu Qir facilities and human potential with experience in a similar geological area. In the coming two years, we will develop and connect four wells in these two neighbouring concessions to increase Abu Qir gas and condensates output by 25%.

How are you planning to connect those wells?
To connect isolated wells to the existing massive Abu Qir infrastructure, we will proceed with a subsea development, in which subsea wells will be connected and remotely operated from the Abu Qir platforms.
For the implementation, we decided to call on the market for competitive FEED-plus-turnkey contract, in which the selected provider will execute the project following its own engineering. Later, we understood that such an approach is not usual in Egypt, where engineering and implementation are more often separate packages. In the present case, we analysed both and concluded that the most economical, secure and time-saving mode is the competitive FEED.

What aspects of Egypt’s energy scenario should be prioritised?
The improving chances for regional co-operation and energy trade are boosting the international appetite for exploration and development of more hydrocarbon resources, especially because a major point for investment decisions is the valorisation of possible new discoveries, and interconnecting national markets and infrastructure sharply lower the risk of bottlenecks between up- and downstream.
We are optimistic since serious steps have been undertaken recently between countries in the region for co-operating on energy deliveries and routes. Some concrete deals were recently announced, among them the gas delivery contract from Israel to Egypt, the intergovernmental agreement on connecting Cyprus gas to Egypt and the initiative of the Eastern Mediterranean Gas Forum.
The same trend is, I believe, ongoing on the electricity side. Within only three years, Egypt got past the electricity deficiency and became oversized in terms of power gen capacities, namely with the installation of new, efficient 14-GW combined-cycle gas plants.
Soon, with some necessary reinforcement of the grid and the interconnections, Egypt could be in a position to export its own gas or to re-export imported gas by transforming it into efficient electricity. We believe this regional thinking is the right way to motivate further investments but also to share the benefit of the great Mediterranean potential between neighbouring peoples and countries and, as you see, Egypt has a leading role to play in it.
As was recently announced, Edison has signed in July 2019 an agreement with Energean for the sale of its oil and gas activities. The transaction concerns all E&P productive assets of Edison in Europe, North Africa and the Middle East. This is a strategic move in alignment with our EDF Group strategy, reorienting investments exclusively to low-carbon power generation, energy sales and services.
Energean has great ambitions to become the most important independent E&P company in the Mediterranean Basin. Being already present in Israel with advanced projects and proven reserves, Energean will certainly contribute positively to the international development and co-operation mentioned above.
EDF Group is indeed paying more attention to assisting energy customers in their move from consuming more to consuming better, since we face a critical challenge related to the impact of the sector’s activities on the environment and the climate. This is a complementary and necessary approach to the oil and gas production, and fully integrated in the core business of our group.
We consider Egypt as a strategic country with high capacity for growth, presenting a potential of ca. 30% energy savings compared to the current levels. In terms of value this is equivalent to a mid-size gas giant discovery with an infinite reservoir. For this purpose, a dedicated company, Edison Egypt Energy Services, was registered in Cairo in 2016. We generate energy efficiency projects in which we design, invest, build and operate utilities close to high consuming industrial customers to generate primary energy savings. The resulting financial saving is shared with the customer.
We developed and used extensively this business model in Europe, and we see great potential in Egypt, especially in the context of progressive release of energy subsidies leading to energy price increases.

What are the challenges in developing this model in Egypt?
We have a full range of problems to overcome in this regard, because there are not precedents with such an approach. Neither is there any dedicated regulation motivating energy-saving projects and the competition with conventional power generation units is unequal. We are trying to convince all counterparts in this innovative win-win long-term co-operation.
From securing gas at a competitive price, through all necessary gas and power licences and authorisations and until the contract with the customer is signed, there is a long way in which sometimes we feel like we are in a vicious circle. We are currently developing two pilot projects to demonstrate the feasibility and interest of such developments for all concerned stakeholders.
Institutional and multilateral organisations, as well as private funds and investors are following us with interest, ready to bring funds in equity and in financing in case of success. Let’s wish for this, also for the benefit of the Egyptian economy and society!

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