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Interview

Gasser Hanter – VP Egypt, Country Chairman and Managing Director, Shell

Gasser Hanter, VP Egypt and Country Chairman highlights the remarkable strides Egypt has taken to modernize its petroleum sector, Shell’s significant presence in Egypt along the entire value chain, and the multiple levels on which Shell can support Egypt’s ambition to be a regional energy hub.

Having been appointed in December 2016 to return to your home country to lead operations here, what were your first impressions of the situation in Egypt?

“As Egypt undergoes a necessary economic transformation, we are determined to play our part to create a brighter economic future for the country.”

Having worked in Egypt previously as well as in the region and in Shell Headquarters in Europe, I was very pleasantly surprised when I returned. The market liberalization and economic reforms that have taken place in general, as well as within the sector, are key milestones that we have all been awaiting for quite some time. and I would like to congratulate the government for taking such bold steps. Reform is always painful, but it is also necessary in some cases. Program roll out is necessary for boosting the investors’ confidence; creating an impactful spillover on investment, and addressing the longstanding economic challenges that the country has been facing for the past years. As Egypt undergoes a necessary economic transformation, we are determined to play our part to create a brighter economic future for the country.

What I have personally found impressive was the determination with which the government has been driving the economic reform program forward. This is also reflected in the Ministry of Petroleum’s Modernization Program. – The six pillars highlighted for reform clearly show that the industry has been consulted, as they directly address various issues that players are facing within the Egyptian market today.

We were very comforted by the fact that the Ministry was very keen to listen to our perspectives on how the sector here could be improved.

Against this backdrop of reform, what was the significance of Shell’s global acquisition of BG Group in 2016 on the organization here?

Shell’s combination with BG has significantly increased our footprint in Egypt, returning us to the offshore Mediterranean, which we had exited a few years ago, bringing along concessions that are very interesting from both development and exploration perspectives. We are quite active in further understanding the acreage acquired and we see significant potential in them. Another key addition to our portfolio as a result of the integration with BG are the Egyptian LNG (ELNG) facilities in Idku (north of Egypt); one of the most strategic infrastructure pieces in the Mediterranean, linking very well to the vision of Egypt as an energy hub. We are also part of the Aphrodite discovery in Cyprus so we are very keen to explore the potential of bringing in regional gas, which would help meet the country’s energy requirements as well as turn Egypt into an energy hub.

That said, prior to this, Shell had already been in Egypt for over 100 years. We were one of the biggest companies in Egypt until the mid-1960s, and signs of that persist in Egypt today. For instance, Misr Petroleum, a local fuel retailing company, is still producing our formulation on lubricants, and the Suez refinery we built in 1911 refinery is still operational through the capable state ownership. Shell has enjoyed a very successful journey with Egypt and we are certain that we are Egypt’s future partner of choice.

We returned to the Egyptian market in the 1980s and have been quite active along the entire value chain. We are now one of the two biggest onshore players, at growing production rates, in the very prolific Western Desert and the biggest infrastructure operator. In the downstream we have a profitable lubricants business with a growing market share of around 20 percent.

From this perspective, the expanded footprint in Egypt with this acquisition came at a very opportune moment as Shell in Egypt has now all the ingredients to capture the full industry value chain: subsurface, facilities and the proper regulatory framework being developed.

What is the current strategy for Shell’s upstream assets in Egypt?

We are focused on organic growth of our existing concessions while ensuring safe operations. Our current portfolio offers us a lot of room to grow and we still have huge potential there. The strategy for Egypt is very unified and all about growing our different positions in the market, from our onshore assets in Western Desert to our offshore assets in the Mediterranean to deepwater with the West Delta Deep Marine (WDDM). Everything is seamlessly managed from our Shell Egypt NV organization, which oversees all operations in Egypt.

We like this onshore-offshore balance in our portfolio because there are benefits from having a relatively low-cost production region, which is the Western Desert, but ultimately the size of the prize is proportional to the investment. Offshore assets do have a higher investment profile but provides much higher returns.

Furthermore, if we come across an opportunity to un-organically grow our position here, we will explore that as well.

Speaking of the Western Desert, how important is the Apollonia pilot project to Shell, which I understand is the first unconventional play in Egypt?

This is quite important to Shell; being the majority shareholder – at 52 percent – we see, together with our partners, a lot of potential in this pilot project, which could be a game-changer for the Western Desert.

Through Apollonia, we test the potential of stranded gas fields using state-of-the-art technology to assess the future viability of tight gas reserves within the Northeast Abu Gharadig (NEAG) concession area, using horizontal multi-stage fracking, which is being done for the first time in Egypt.

Based on the outcome of this pilot, we would evaluate further opportunities within the unconventionals space. However there needs to be a ‘collaboration by all parties involved, including the government, for it to be commercially viable, this is something that has benefited from the Modernization Program as well. Unlocking unconventional opportunities require a different legal and fiscal framework compared to conventionals. With the pilot, we will be able to judge which is the best fiscal system for other unconventional projects, which would hopefully unlock further opportunities related to stranded gas in the desert. If everything proceeds smoothly, Shell is interested in pursuing other similar plays in the rest of our Western Desert acreage.

As a unified organization in Egypt with involvement across the entire value chain, what synergies can be harnessed by Shell here?

On the execution side, Shell sees a lot of synergies in the Western Desert because our JV, Badr Eldin Petroleum Company (BAPETCO), manages all the concessions there. Between onshore and offshore, it is a little difficult to capture synergies due to the different geographies and JVs. On that note, we are working closely with the MOP’s Modernization Program to look at the existing JV structure, identifying challenges and opportunities which would enable us to find more synergies in the future.

At the corporate Shell Egypt NV level, which manages all the assets, we can utilize synergies when it comes to allocating resources optimally, capitalizing on our footprint in our supply chain and contracting, and training and development our employees. As an overall organization in Egypt, we also benefit from Shell’s Global Frameworks Agreement, technology, training and people development, and management systems.

There is also merit from our activities across the entire value chain, particularly with the expected complete liberalization of the market. With deregulation of the gas market, we would be able to move our own molecule from production all the way to customers, which allows us to capture its full value across the value chain and tailor our developments in a more optimized way.  This is actually the model Shell had in Egypt prior to the 1960s, where we had upstream, refinery and distribution operations – so this model has been shown to be able to work successfully in Egypt.

You mention that Shell is a big supporter of Egypt’s ambition to become a regional energy hub. How can Shell contribute on this front?

We are in an advantaged position to help not just due to our size, positioning or acreage but also our experience and global involvement with a number of similar projects with our Aphrodite position and the infrastructure piece [Egyptian LNG].

Shell is one of the biggest players on the LNG front globally. Our Egyptian LNG plant at Idku remains one of the most strategic infrastructure pieces in the East Mediterranean opportunity, linking very well to the idea of Egypt as an energy hub. Moreover, we are part of the Aphrodite discovery in Cyprus so we are very keen to explore the potential of bringing in regional gas, which would help meet the country’s energy needs as well as turn Egypt into an energy hub.

But it is not just about Egypt’s potential to produce more gas and convert it into LNG for export. Egypt has a strategic location, a very developed gas market that is constantly growing – which interests all companies – and regional pipelines running to a number of neighboring markets, all of whom are short of gas. You also have a lot of stranded gas in the Mediterranean, which Egypt appears to be the best outlet for. Shell has upstream operations in Cyprus, which puts us in a good position to develop this idea.

But the most important piece that Shell can bring in is making sure that we develop the competences and talents Egypt needs. Within Shell Egypt office, we have a number of employees working locally and we have several Egyptians working abroad. This means we have a lot of Egyptian expertise that can be mobilized to Egypt.

Shell is probably one of the best companies when it comes to people development. We do not do that only for ourselves but also for our partners and our host governments. In our global operations, for instance, we have many employees from different countries in the region – countries like Oman, Kuwait, the UAE – working for us on a secondment basis in Shell for four years. With our operating companies in Egypt, we went through a journey to reduce the number of expats. BAPETCO probably has the smallest number of foreign employees for a company of its size in Egypt. We also develop secondees from the Egyptian General Petroleum Corporation (EGPC). As testament to our commitment to human development, we have one of the highest training budgets for a petroleum company in Egypt. This is because we believe that we are here for the long haul and we need to make sure we have the competence we need.

We are also active in technology and knowledge transfer, not just on production technology but also management systems, for instance, competency frameworks and project assurance systems. At the end of the day, the JVs are the ones that execute projects so you have to equip them with the necessary equipment.

Shell has had partnerships in the Middle East for over 75 years, which is testament to the fact that our partners see the value Shell brings to the industry and the country at large.

As politics is also part of this regional energy hub idea, what role do you think international oil and gas companies like Shell can play when it comes to creating bridges between Egypt and neighboring countries?

This is an interesting question; while I do not want to overstate our capabilities or potential involvement, I believe Shell does have a role to play when it comes to offering credible commercial and technical solutions. We are not in a position to solve political disputes, but shared commercial interests often bring people together. We can bring in a strong commercial case, show different parties the economic value, and help structure a win-win arrangement that delivers shared value for all stakeholders. This could go a long way in supporting Egypt’s transformation into a regional energy hub.

We are here to grow with our partners and countries. We understand what it takes to be a partner of choice with the government – it is not just about producing more oil and gas but rather collaborating on all fronts.

What about your CSR program in country?

Shell Egypt has a rich social investment program focusing on enterprise development. For instance, through our flagship program Intilaaqah, which has been successfully running for the past 12 years, we have delivered training to around 10,000 Egyptian youth across 14 governorates.

“Through our flagship program Intilaaqah, which has been successfully running for the past 12 years, we have delivered training to around 10,000 Egyptian youth across 14 governorates.”

Another theme we focus on is capacity building for geoscience and petroleum engineering university students, where we provide technical training and mentorship (including shadow training and field visits).

Shell Eco-Marathon is another Shell-owned initiative, which runs globally across 58 countries. Shell supports engineering university students to build and race fuel-efficient cars.

Road safety is a space that we truly believe in, especially in Egypt. We provide training to school bus drivers to ‘defensively’ drive. This is in line with Shell’s top priority of safety.

Do you have a final message?

Our program now is to significantly grow over the next five years, both onshore and offshore. We want to have a meaningful position in Egypt to support our aspirations in the country, so we are looking at existing assets through a new lens to see how we can be better positioned.

We have an ambitious target and I am confident we will be able to achieve it. Ultimately, for Shell, we are here to stay, we are here to grow and we will be a partner of choice to Egypt.

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