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Egyptian Enterprise in a Low-Cost Environment

27.03.2017 / Energyboardroom

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Egyptian oil and gas companies, as well as international outfits with operations in Egypt, have managed to come to terms with the problems of political instability and public debt; largely through expanding into new areas and adding value for clients.

“The [Egyptian] oil and gas industry has had to contend not just with low oil and gas prices globally but the issue of receivables, with an estimated USD 3.5 billion still owed to the private sector at the end of 2016.”

While the slump in oil prices in the past two years has depressed upstream activity globally, Egypt faces a serious shortage in domestic demand that has propelled its E&P sector even through the oil price rout.

However, the country faces her own set of challenges. With the specter of political instability only recently put to rest by two years of stable rule under H.E. President Sisi, the country has been facing a foreign reserves crunch with the fall in tourism and the increase in domestic demand for petroleum and petroleum products, fueled by a population of 92 million growing at 2.5 percent yearly. This means that the oil and gas industry has had to contend not just with low oil and gas prices globally but the issue of receivables, with an estimated USD 3.5 billion still owed to the private sector at the end of 2016.

Nonetheless, with a significant domestic need to be met and reassuring commitment from top-brass leadership, investment and activity in the upstream sector has continued. With characteristic Egyptian resilience, both local and international players have decided to seek out opportunities instead of lamenting challenges in the environment.

As Halliburton’s Area Manager (Egypt and Libya) Osama Halim explains, “as a technology provider, the Halliburton value proposition is that we collaborate and engineer solutions to maximize the asset value of our customers.” He outlines a noteworthy recent example: “Egypt has recently began to venture into unconventionals and we were in discussion with a customer for a well in the Apollonia formation, which covers almost 50 percent of the Western Desert. Fracturing is typically done by importing proppant to frack the well, which would require US dollars.” Given the difficulties Egypt was facing when it came to foreign currency, Halliburton decided to see if there was a way to mitigate the cost of imported materials. “We discovered a mine that had a type of local, natural sand … with the customer’s help, we proved that this local sand is API-certified and could be used in the well”, he added.

The result? “We drilled the first ever unconventional well in Egypt and fracked it in a multi-stage horizontal well using local natural sand – thereby lowering the cost significantly by around 30 percent. This does not just benefit the customer; by eliminating the need for spending foreign currency, it also saves millions of pounds within the country.”

Local oilfield service company, SAPESCO Africa, has also carved out a similar track to survive 2016. Eng Said Riad, CEO, admits that “SAPESCO struggled during this time … we had to implement a new strategy just to survive”. He said the company realized that they had to rethink their pricing strategy, lower their operating expenses and work harder to maintain their market share and retain their clients. The key realization was that “we had to focus on offering our customers new solutions to gain an edge over the market instead of just offering them a static portfolio of services and products.” This approach has undoubtedly brought rewards to the company.

Eng. Riad tells us about a recent success story. “Shell was facing a significant scaling problem in the Benfield system … No service company, not even the original manufacturer, managed to find a solution – in the entire world. SAPESCO’s chemical solutions division, which was relatively new at this point, spent six months working on this case and managed to devise a solution that works with a 100 percent success rate. Shell now considers this one of the top five best operations for its global operations last year and has moved forward with the planning and execution of the second Benfield system anticipating similar high quality results by utilizing SAPESCO technology”. Changing the company mentality to the downturn meant that “one of our biggest challenges in 2016 became one of our greatest successes of the year!

Egyptian creativity extends along the entire value chain, not just in E&P or oilfield services but also service and equipment providers, as local company Tartoussieh Engineering and Trading Company (TETCO) can testify to. Business Development Manager, Mostafa Tartoussieh, says that “as an OEM provider of heavy-duty equipment, we want our clients’ operators to feel comfortable operating the equipment. At the end of the day, if clients feel like you are a true partner to them, not just someone trying to sell as many spare parts or machines as possible, they will trust you more – and this often results in more business, very organically.” He adds that this is the sort of relationship-building that differentiates them from other companies working in the same field.

He highlights a new service they started to provide through the downturn. “What often happens, is that poor operating techniques result in damage to the equipment that must then be repaired or replaced. What we are doing now is engaging with our clients in order to manage their relationship with their equipment. For instance, we can analyze the trends in their usage patterns to see when the shut-downs occur and what the mean times between failure are. We can then use this information to create a training course for their operators; we have a training center in Alexandria that we invite companies to visit. We currently offer these services along the entire petroleum value chain.”

The thread running through these experiences? Adding value to clients is particularly essential during periods of downturn in order to convert challenges into opportunities.

Writer: Karen Xi

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