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Interview

Youcef Boukhalfa – CEO, Enageo – Algeria

21.07.2015 / Energyboardroom

The CEO of Algerian public seismic company Enageo sheds a light on the company’s strengths in seismic and its investments plan to support Sonatrach‘s 2015-2019 investment plan.

You have been heading Enageo since 2012, following a reshuffle. What are your priorities for Enageo? What main decisions have you taken since you arrived?

The decisions that have been taken were a continuation of the path traced by my predecessors. Still, there are a few significant decisions: a change program was initiated by my predecessor; therefore I focused on reviving and strengthening this dynamic to complete the transformation that is necessary for our future.

In the past, increasing the capacity of the company, through the multiplication of seismic teams, was for us the only way to sales and revenue growth. But to increase our capacity is not enough: team performance also must improve. We can observe the effects of this on the figures since 2011: variation is little, despite the enlargement of our teams, which means that our expenses increased while our performance declined. There was a real need to address this issue.

Thus we decided to reduce the number of teams, increase their performance, for in parallel the means are not readily available: it takes time for purchase contracts to materialize. So we needed to rationalize means, all the more so with the oil crisis happening.

We have invested 6.5 billion dinars [USD 70 million] per year, which is about 35 to 40 percent of sales. In this focus on performance, we work to continuously improve our investment strategy.

What are your investment niches?

In our business, investments mainly focus on seismic. The second item is transportation, because our teams have significant transportation means, which is expensive relatively to seismic acquisition equipment. A seismic unit can have up to 30 heavy duty vehicles, may often move 15 vibration devices, use some 40 light vehicles, bulldozers, and so on. We started to purchase bulldozers to ensure the realization of the ground works for our vibrating gear: we used to outsource this to private companies. In view of the problems with these contractors, which had a strong impact on our productivity, we decided to invest in this to become more responsive. This way, we avoid a clustering effect with our providers, and we increase the bottom line by providing the service internally. This being said, the means of maintenance and support for this activity remain very important, in terms of repairs and spare parts.

However, our priority remains the means of production. Everything that can be provided by an Algerian private company may be subcontracted. We channel our efforts onto our core business, with the support of maintenance on seismic gear, sensors. This is very specific hardware, meaning that spare parts are difficult to access. Keeping maintenance in-house is mandatory for us, since there is no outsourcing market specific to this type of equipment.

Enageo is a subsidiary of Sonatrach which plays a special role in exploration geophysics. What defines Enageo today? What place does the company hold in the exploration market in Algeria?

A little while ago, Enageo was still alone in this market. Today, our capacities remain greater than our competitors’, but some of them are very competitive in terms of performance.

In the past, Enageo was leading, but today we have many competitors: Sinopec and BGP, Western Geco, CGG… We are discussing with the latter to find a solution that would enable us to act jointly vis-à-vis Sonatrach, which is something hard to do with the private sector. We have been able, in the past, to form a consortium with Sinopec to place bids for Sonatrach tenders, and we would like to do the same with a private Algerian actor as well.

We discussed with CGG because they can provide equipment and resources. We have had to give thought to a way to put together a seismic team, to answer Sonatrach’s needs in exploration. At first, we agreed on a preliminary draft and then discussed on the means and revenue distribution between the two parties in the consortium. We will need to find a final agreement before we can finally submit it to Sonatrach and make bids for exploration related tenders.

Seismic activities account for up to 70 to 80 percent of Sonatrach’s workload in the acquisition and seismic exploration area. Everything depends on the trade-offs they decide upon. A study with heavy parameters may not necessarily produce large volumes every day, unless it is operated through high productivity methods, which we do use today but which are not yet fully implemented across our processes.

Our target point aims to generalize these methods in order to be able to deal with a much greater volume and integrally cover exploration for Sonatrach. For that is definitely our goal; foreign companies are present because of the fact that we cannot yet cover all the needs for seismic exploration, which must absolutely be done! It is the spearhead of the sector: without exploration and drilling, there is no oil or gas. Therefore, it should be developed as quickly and in the best way possible to meet demand: the country must cover every perimeter so as to renew its reserves, deal with domestic consumption and support the economy through exports.

What are the main projects that Enageo has achieved in recent years? What was the thread that connected them?

Enageo’s agreement with Sonatrach’s exploration unit is renewed every three years, they are the ones to define the operation permits granted to Enageo or put to tender. There are a lot of projects, relatively similar to one another; as soon as a team completes one, there is already a new project to carry on with, continuously, including when the project is to be run under the new productivity techniques.

Enageo will gradually shift all teams to these techniques in order to complete the projects faster than by conventional methods.

What about Enageo’s activities abroad?

Our presence abroad occurred supporting Sonatrach, mostly in our region, and covers geophysics needs for our partner. We also accompanied Sonatrach in Libya, Niger and Mali. However, our presence there, for instance in Mali, is not limited to Sonatrach’s projects but also consists of studies for foreign companies, AFEX and Heritage in this example. Our work with Sonatrach has served as the supporting base to carry out additional projects outside the group.

For the last three years, we have not had any projects outside Algeria. Sonatrach has hardly had any activity abroad, let alone on a project that would require seismic work. We are obviously always in tune with this partner and we will be ready if they need us, be it here or abroad. All our Algerian teams are dedicated to Sonatrach in priority.

As Sonatrach’s strategy now is to expand internationally, Enageo’s behavior models that dynamic and will get involved in these initiatives. Yet, there are more opportunities inside the country. The international activity is less compared to the initial desire, strengthened by the fall in oil prices and security conditions.

How does Enageo fit into the USD 90 billion investment plan driven by Sonatrach?

Enageo’s investment is based on Sonatrach’s requests, through the program they provide to us. This investment is carefully planned and amounts to 30 to 40 percent of our turnover. Enageo funds its investments on its own resources, and to date has no financial debt whatsoever. Moreover, the shareholder can also ask us to distribute dividends, or to make a special effort that would require a bank loan. So far, everything is self-financed.

In fact, the agreement, to be signed soon with Sonatrach, plans on USD 2 billion of orders for Enageo, an amount which is likely to change of course, especially according to the work that we will actually deliver.

Understand that for Sonatrach, it’s not just about exploration but also drilling, transportation and so on, which are significant items to cover with the amounts which were announced. Moreover, a great part may probably be dedicated to non-conventional hydrocarbons and new technologies. Non-conventional wells (100 wells per square kilometer) are quite expensive, between USD 10 to 12 million provided that the supporting infrastructure already exists.

We are called to make a shift towards these energies; we have actually even set up a non-conventional resources department for design and development purposes, in order to be well prepared for the change. All actors are called to evolve in this direction, since Algerian probable reserves are important on the one hand, and that on the other hand conventional reserves are declining. This should happen quickly, by 2020 or 2022 as expected by the government. We will have to work in concert to honor the rendezvous at this date. To our opinion, there are certain techniques that need to spread, such as low frequencies for instance.

What about you investments in technology?

Regarding seismic acquisition, we have developed many things in-house, including these techniques. For example, we developed a solution to record not after the vibration is over, but before the last vibrator stops vibrating, to mix the recordings afterwards. This requires filtering the noise on the successive recordings. This technique and the software attached to it have been designed and developed by Enageo: the anti-harmony filter and the software are integrated and make it possible to record despite harmonic noise. This technique, subject to two international patents, increases productivity per square kilometer and per day as well as acquisition time. In the conventional method, three or four km2 can be completed per day, when this new method increases the pace up to six or eight km2/d.

Only these techniques require that we use more recording gear, the number of vibrators changes from about ten to 15. This is a development, because we will have to complete much seismic work, and develop low frequency techniques. Today, only a few companies possess this low frequency vibrator technology, like CGG or Western Geco, plus Enageo of course. This technology is also interesting because it has a direct impact on reservoir characterization, for which low frequencies starting from three Hz are much needed. Now the vibrators we have been working with until today operate between five and 80 Hz. Therefore, we need frequencies between three and five Hz for better characterization.

Enageo is developing its techniques, innovating, and owns about 180 patents. We intend to market the various software related to this technology, including through a promotional web portal. It will be possible to rent or purchase these Enageo patented techniques and technologies, for the benefit of the actors of the sector.

Some commentators of the Algerian oil sector regret that Sonatrach’s subsidiaries have lost their substance, which previously ensured them excellence, especially in terms of human resources, gone abroad or to the private sector. Do you agree with that, and how do you counter this brain drain phenomenon?

The management brain drain is not new. In 2006 already, as the director of seismic operations, I could see this. We would have seismic projects that would be run by a single laboratory engineer only. Many left to Libya, where there was much activity at the time. So we recorded a loss in management staff.

So far, the loss is still ongoing – we still record departures of our engineers to competition. A great deal of CGG’s staff for instance originates from Enageo, which has become something of a big training school for the seismic industry. There is, still, a pride in that.

This is the engineers’ legitimate decision, and as policy makers, we need to motivate this staff, including through incentives: today there is not much difference between Enageo’s wages and wages in the private sector. It is up to the companies, and not to the engineers, to get in tune. The current generation is different from the previous ones; they seek variety, are relatively less loyal, and can change employers and countries. It is therefore for the companies to adapt to this dynamic.

The specialties affected by this are mainly technical ones. Recruitment and training are the two things that allowed us to contain this situation. Training has to adjust now so as for recruits to be operational as quickly as possible. In our case, we chose to build a training center with all the necessary equipment and programs to complete preliminary training prior to on-site work. The center is open and in the process of completing its equipment and furniture.

I am confident that this will allow faster getting off the bench, for seismic specialized recruits as well as other specialties.

What has been your career path?

I was recruited as a geophysicist by Enageo in September 1982. I progressed, held senior positions as an IT project manager and later as the head of the special operations department (non-seismic operations related to potentials geophysics). I participated in the implementation of these activities, including gallery-metry and magnetometry in 1989, well seismics in 1991, then in 1994 of the development of 3D which first campaign was launched in 1996 for the account of Sonatrach, hydraulic drilling operations, topography, applied geophysics, etc. Then, I held a few other senior positions until August 2012 when I was appointed CEO of Enageo. Until now, I have completed 31 years in Enageo.

As CEO of Enageo, what makes this company a unique actor and an inevitable partner in the country?

We have in total more than 40 years of experience in geophysics. When we started, we would use DTT on the first projects! Our experience is real; the company has trained a lot of people and developed significant capacities. The market needs this, there is a real demand, and Enageo’s response has never disappointed.

Enageo is actually a leader in its field, we adapt to technology, on which we must constantly improve our control. We have pioneered the field by introducing a number of technologies in Algeria.

Yet today, competition is there. Indeed, we are a national and public company, so we have to make sure that everything we purchase goes according to the existing trade rules, namely the tender system.

However, we do what it takes to improve our supply chain within this framework: it is our responsibility to avoid delays, anticipate, bring out the recommendations in time, and perform appropriate purchase management.

In the coming years, we will have to adapt to changing technologies to remain pioneers and face the competition.

Second, we need to promote our strengths and our products, which is not the case today: our marketing must improve so Enageo be appreciated up to its true worth. We have to make the most of our experience, especially regarding our enhanced productivity technology. Now it has already been five years since we started using it, but we performed only three studies with it. It is not enough, and I really want to showcase our expertise and innovative techniques: such development will allow additional investments, the upgrade of teams and equipment, as we are late on this issue by about two years.

It is time for Enageo to implement these means, and we will definitely be ready for our client, who is already convinced by these solutions. They will support us in this effort, so that their projects can be completed much faster. Our main customer is very eager to get to this level of control, and we will meet this demand so that the sector can save time and money, and gain efficiency.

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