Expedited production in EgyptOctober 6, 2021
Mohamed Farouk, CEO of ADES International Holding, talks to The Energy Year about the recovery of activity in the regional oil and gas industry and new technologies that advance the production schedules of new offshore wells. ADES International Holding provides oil drilling services and well maintenance to Egypt and neighbouring markets.
How is Egypt’s upstream sector recovering from the pandemic?
The pandemic combined with low oil prices caused IOCs to significantly reduce their exploration investments. This has lowered overall activity in the sector – specifically for the operating JVs – and impacted drilling and workover activities. Oil production specifically has dropped in terms of numbers and balance. On the other hand, gas activities are high due to the Zohr gasfield project and other Mediterranean projects, which helped to ease the pressure of lower oil activity.
Because the country is a net oil importer, national oil companies like GPC [General Petroleum Company] were actively seeking to increase production, yet with minimal capex spend. So the target was to take advantage of lower oil price levels and higher inventory. We work with GPC on the offshore segment. And for Egypt it’s important to continue producing to fill the gap; oil prices don’t matter a great deal. This has pushed GPC to utilise untraditional ways of expediting oil production, specifically in offshore operations. It typically took three to five years to start producing after an initial discovery, but through collaboration and using new techniques we’ve managed to start producing in three to six months.
The Ministry of Petroleum’s focus is to encourage companies to find new ways to expedite production. With oil prices recovering and reaching USD 70 per barrel, there is a push to invigorate the sector. Apache has plans to reinvest and expand after reaching an agreement with EGPC and will start using some of the onshore rigs on the market. BAPETCO will also start expanding and investing in drilling activities when Shell completes the transaction [the sale of its 50% stake in BAPETCO to a Cairn-Cheiron consortium].
The market is coming back. There are new tenders in the Mediterranean and the Red Sea that will increase activity, especially in deepwater drilling. Things will start to roll in the right direction, not only in Egypt but around the world.
How competitive is Egypt’s oil and gas industry in relation to the region?
Egypt has a strategic geographical location. It has two LNG plants In the Mediterranean and a pipeline connecting it to Israel. It also enjoys good political relations with countries in the Eastern Mediterranean. Egypt has been in the oil and gas business since the 1950s and has the resources, knowledge and technical know-how compared to other countries in the region where the sector is not as mature. Egypt is a leader and hub for Eastern Mediterranean, with a specific focus on the gas sector.
Egypt while focusing on maximising oil production and providing the right agreements to encourage IOC investments. They are active with the new bidding rounds in the Red Sea and the Mediterranean, which will have a large impact on activity. Egypt is also focusing on the downstream sector, with new refineries and petrochemicals plants in the works as well as a revamp of existing refineries such as Midor and the Assiut oil refinery. The new ERC [Egyptian Refining Company] refinery recently began production. The sector is going to see growth in all aspects.
How has Saudi Arabia’s Public Investment Fund helped the company?
We’ve been listed on the London Stock Exchange since 2017, seeking equity and funding to allow us to grow. We have used capital wisely and expanded in the Gulf, specifically in Kuwait and Saudi Arabia. We are now one of the key regional players in the offshore and onshore drilling sectors.
Over the last couple of years, the European market became less interested in investing in the oil and gas sector as they were moving more towards renewables. It became a challenge for us to raise equity or find the right investors. We were approached by Saudi Arabia’s Public Investment Fund, which is one of the largest global sovereign funds and they acquired the floating shares listed on the London Stock Exchange. We became a private company again, although we still own the majority of our shares and manage the company.
It’s a testament to the strength of the company, as such funds only invest in a company that fits strict criteria. It also provides us with focus, as dealing with the stock exchange demands a lot of time and energy. It will help us grow organically and give us more room to spend time with our clients to do better work.
How has the Covid-19 pandemic affected the company’s operations?
In Egypt, we have been engaged in offshore services in the Gulf of Suez, which was not heavily impacted in terms of utilisation. We are working with major NOCs – such as Saudi Aramco and Kuwait Oil Company – that have continued their production activities. We’ve focused on workover and maintenance works, which were not heavily impacted by oil prices. We selected these areas by design. This has helped us navigate and weather these bad conditions and get out of the storm with minimum damage.
We’ve been moving through a V curve since early 2020, when we had the highest utilisation rates. Things have dropped due to the market and pandemic, with the worst point being the end of 2020. Since early 2021, we’ve been seeing things move in the right direction. We believe that by the end of 2021 or early 2022, we will reach the same point as where we were at the first quarter of 2020.
How are you working on digitising your operations?
We are looking at systems to help us in different areas, including monitoring assets in real time. We look at all aspects to make sure we have a full diagnosis and correct asset management to increase efficiencies and maximise productivity in terms of non-productive time while looking at the safety and sustainability of our assets and people. We are focusing on HSE. Real-time monitoring allows us to take corrective action in real time. Digital solutions are now available and affordable.
How have you secured and almost doubled your backlog compared to 2020?
One of the reasons we were chosen by the Public Investment Fund was our exemplary work with Saudi Aramco, who have recently renewed some of our contracts. Aramco looks at a rig’s last 36 months of performance on a rolling three-month basis. According to this average, we have one of the highest-performing rigs in Aramco in workover and drilling. This has allowed us the option of getting 5-10-year contracts and given us long-term stability, visibility and investment.
In Egypt, our focus is on offshore drilling. We have been working on a new concept that we call the fast production unit. Typically, clients would make a discovery and hand it over to the project team to build a typical offshore platform, pipeline and facilities to move their oil to the nearest onshore facility for processing. This requires a lot of investment and takes three to five years if all goes smoothly.
We developed a fast production unit that allows clients to begin producing barrels three to six months after the initial discovery. We are providing a way to produce without spending too much time and capital. There are two options. If the discovery is marginal, we take out our unit after two or three years and close the well once it is depleted then move on to another. If there is a big discovery that needs a permanent solution, we can build it in the typical three- or four-years’ time, but production will start four or five months after the initial discovery. This provides fast cashflow for our clients. This has been disruptive.
We have had two projects with GPC using this new technology. One is HH and the other is SH, where the two fields started producing in a short timeframe after completion of the fast production unity facility unit. This is new terrain for projects in the Gulf of Suez and in Mediterranean shallow waters.
What other markets is ADES International Holding looking at?
We have a new contract with Eni in Tunisia and will begin working on the project in early September. We are bidding in Libya; we believe Libya is ripe and will come back strong after the pandemic. We are also looking at markets such as Oman, Iraq and Qatar. There is a new political settlement between Qatar and Egypt. Before actively pursuing such opportunities, we evaluate the market and make sure our rigs are properly utilised. If there are any good opportunities, we are always open for acquisitions or partnerships.
We are trying to be the regional champion in drilling and services. There is a need for regional players. The normal paradigm is either big players from North America or local players. We want to form a third type of player that has a regional presence in key markets.