Expertise in complex environmentsAugust 18, 2021
Ahmed El Araby, CEO of the Egyptian Mud Engineering and Chemicals Company (EMEC), talks to The Energy Year about prospects for ramping up production in Egypt as the pandemic eases, the value of the Egypt Upstream Gateway project and shifts in IOC involvement in the country’s plays. EMEC provides specialised drilling and production services to the oil and gas industry.
How has Egypt’s oil and gas industry been affected by the pandemic?
The pandemic brought a shift to the macroeconomics of the industry since it hit very close to the previous oil downturn, directly affecting how we operate. Oil and gas upstream extraction itself was affected as an activity directly impacting us – especially as we are in the business of drilling-fluid chemicals, which is very cashflow oriented.
With drilling plans being unclear and companies shifting to simpler workflows, production intervention and drilling environments were slowed down. Major project work declined sharply. The industry needed to survive only on what needed to be done due to the cost versus profitability formula. Anyone who could postpone the implementation of plans did so, because of the uncertainty.
The challenge for us was how to maintain profit without affecting our structure. There was no certainty about when things would start moving again, but it was clear to us late last year that there would not be much revival in 2021 since the industry would need stability that we do not foresee happening during the year.
What we struggled with most was how to keep our workforce balanced and avoid what other service companies around the world were going through. We succeeded in not shrinking our workforce and in keeping our people and expertise within the system, which was our priority.
Egyptian oil and condensate output at present is down to 560,000 boepd. Gas output around 7.5 bcf [around 212.4 mcm] per day. Crude oil production has been declining in Egypt for the last decade. That has led the country to shift towards having a petrochemicals industry and refineries. If you can’t add oil, add value. It’s a smart decision. But, being on the upstream side, we are affected.
Are you starting to feel the operators wanting to ramp up production?
We do see activity ramping up slowly in Egypt. We have a share of around 45% in the drilling fluids market, so we can detect this, but it’s not currently a drastic change, as it is land oriented. It is true that while the market has high numbers pledged for this year, my experience is that activating spending is what is important in the end, and it depends on availability of funds for small and medium-tier players. I believe that will happen in the second half of the year, perhaps especially in the fourth quarter. 2022 should see a shift change with some offshore activity coming alive.
What is your view on the Egypt Upstream Gateway project, aimed at attracting E&P investments?
The gateway is an excellent initiative, since we live in an internet-connected world. If we, in Egypt, don’t have a proper display of what we need, we won’t get the right investors. You want to attract investors that come in because they see an opportunity, and can source the funds needed when it comes to actually making an investment. Delays in attracting the right investors are delays for the country as a whole and mean that production will not recover, inherently affecting the budget.
The country has to ensure that the investors attracted are well-informed and help it move in a strategic direction. Availability of data to investors also allows you to have a bigger base of interested companies. The Gateway helps with all that, so I think it’s the right move, which I personally support.
In which areas do you see IOCs getting involved?
I believe we will not see IOC activity in the traditional play areas – the Western Desert and the Eastern Desert. We will see more medium-sized and more Egyptian players there, with some possible consolidation. The IOCs will be interested in the Mediterranean mainly. The previous Red Sea bid round in 2019 only led three out of the 10 blocks offered to be awarded. There was interest in others and maybe the conditions just weren’t right for IOC purposes.
The reality is that the IOC world is changing. IOCs are facing pressure about the way they operate. That will make them interested only in certain projects that have certain returns – and not in just any available projects. It’s not a matter of having a unified strategy, but of being able to achieve certain strategic objectives in a country and at the same time satisfy shareholders.
We find IOCs, even here in Egypt, relinquishing their mid-tier and low-tier fields, or consolidating. The same considerations will drive the new block strategy, which led to the interest in the Mediterranean off Egypt’s northwestern coast being higher than that in the Red Sea. I think we will see the same pattern in the next round.
How are you planning to tap into the opportunities arising in the Mediterranean?
Our achievements as a company drilling in horizontal, extended reach and deep well environments have been intensified recently. We are one of the players that does deep wells for KOC in Kuwait. That is a major achievement for us because it means we are no longer operating in traditional working environments. We can now show that we can operate in challenging environments with a solid service quality track record demonstrated in the Gulf region.
Our track record with Aramco speaks for itself, with almost 70 rigs operated by us, delivering utmost technical performance in challenging complex environments. The Mediterranean is our next natural step, especially with it being home. Going forward, we need to work more with the IOCs once interest in exploration and development activity comes back on the table. My understanding is that, for the 17 wells in the Mediterranean, exploration will start in the middle of next year.
Our technical expertise on the ground is strong, which gives us an edge. So does our agility: we can adapt quickly to different environments and projects. We are smaller, so our decision-making is faster.
What solutions have you developed in-house?
Our innovation as a company arises from the need to meet the challenges our customers face daily. A major part of our services is to develop solutions to meet those challenges and we do so by continuously collaborating directly with our customers and technology partners. Through our experienced research and development team, we continuously develop the necessary tools and products to meet the ever-evolving industry demands and challenges.
We have proudly developed three market-leading technical software packages completely in-house and with local resources to better serve our customers. These software packages are used daily to ensure proper service delivery. Our R&D lab is also continuously challenged to improve and sustain our chemical product portfolio where they have succeeded in creating EMEC’s own proprietary and patent-pending drilling fluids product range.
Not only so, but these products are to be manufactured locally through our sister company, the Egyptian Canadian Company (ECC), with locally procured materials thus empowering our local chemical manufacturing industry. EMEC’s goals do not stop there, where we strive to supply our Egyptian branded products regionally and globally.
How are you working towards reducing your environmental impact?
We in EMEC believe that our impact today will affect generations to come. EMEC considers itself an environmentally conscious and responsible company where we not only meet the stringent industry and local standards but strive to exceed them. All of our waste is properly disposed of as per local regulations and we have a dedicated waste management service to help our customers meet their environmental targets.
EMEC’s headquarters won the prestigious LEED (Leadership in Energy & Environmental Design) Gold New Construction certification and is one of the first green buildings of its kind in Egypt. Through its cutting-edge Building Management System (BMS) and design concept, the building reflects our commitment to the environment and sustainability through an iconic design and advanced green building technology to reduce our carbon footprint.
What is your view on Africa’s oil and gas potential?
Oil and gas will remain critical to economic activity and prosperity of Africa. 2020 has brought a lot of challenges for the oil and gas industry in sub-Saharan Africa due to downward revisions to customer budgets and Covid-19 disruptions. The industry locally still needs to achieve the right cost balance to allow for larger activity.
Africa is still largely unexploited, but on the other hand, the local economies do need the energy contribution with Covid-19 only slowing it down. The cost structure is a double-edged sword, whereby it also allows for alternative energy sources to be exploited, maybe for the better of the continent.
On the activity front, I believe it will slowly ramp up, possibly with a longer cycle as opposed to what we see in the Middle East. Certain hotspots will definitely come into play faster in East Africa, and there will be an increase in West Africa offshore activity.
Africa will always remain a high priority of EMEC. We believe we can transport our expertise and skill with little to no barriers, delivering a model that proved successful in our region.
We have had a special focus on entering Africa with ECC (Egyptian Canadian Company, an EMEC company), which specialises in production chemicals. Hopefully we will be able to advertise our entry into a couple of sub-Saharan African markets soon.
What is your outlook for 2021-2022?
The IEA projects that global oil demand will reach 100 million bopd and surpass pre-Covid levels by the end of 2022 in the absence of further policy change. We foresee that 2021 will be as flat as 2020. I think 2022 will bring in a different environment, not just in Egypt but in the region, and to the industry as a whole.
We believe conditions will be favourable for a more durable investment environment driven by the actions of the industry players, NOCs or IOCs, yet against the expected discipline of OPEC+ supply. Some analysts believe oil will rise to USD 80 per barrel by the end of this year/beginning of next year. I think that’s on the high side, and will pretty much depend on the demand versus supply cycle. We believe certain producers will not be able to continue at current levels and will have to ramp up production.
2022 should carry a positive outlook. The world is catching up with the previous drop due to the pandemic, requiring energy demand that should yield a positive pricing trend. Hopefully this will help producers stabilise the relationship between supply and demand, consequently leading to more exploration and sustained field development.