Dr. Mahmoud Dabbous – Chairman and CEO, IPR Group, Egypt
Dr. Mahmoud Dabbous, founder, Chairman and CEO of IPR Group, tells us the inspiring story of how the IPR Group came into existence; its meteoric rise in the past three decades from a niche EOR company based in the U.S. to a global integrated upstream company operating in Egypt, Pakistan and the U.S.; and their ambitious strategy to grow by focusing on value-added technology and mature fields overlooked by their peers.
Dr. Dabbous, please tell us the story of IPR Group – what made you decide to found the company in 1980?
To appreciate the genesis of IPR Group, it is very important to understand the industry context of the time. The petroleum industry worldwide was going through a difficult time following the so-called energy crisis after the boycott of Middle Eastern oil exports. The Western world began to realize that the supply of this vital commodity is subject to global political fluctuations, so a Marshall Plan was initiated to maximize the recovery and production from existing oilfields by introducing new methods based on technological developments. This was called enhanced oil recovery (EOR) – which was, in the 1970s and 1980s, still an emerging technology evolving primarily within the research centers of major oil companies.
I happened to have completed my doctorate degree in this field, authoring several papers in the area of increasing production through advanced EOR methods, such as thermal methods utilizing steam and in-situ combustion, and chemical methods utilizing specially tailored fluids to be injected into the reservoirs. While such technologies already existed at the time, the problem was that many medium-sized operators and government-run operations, both in the U.S. and internationally, had no access in terms of applying them for field development.
This is how I came up with the idea of creating a unique company to utilize EOR and reservoir simulation technology in field development to optimize upstream activity. As you can imagine, this was a very attractive package for the global industry – particularly as many fields in the major oil-producing basins had gone through primary and secondary recoveries and were now approaching the end of their commercial lives. IPR was set up to bring those fields back to life.
While IPR Group was founded in the U.S., Egypt now represents the core of your global operations. How did this come to become the case?
Our first project as a company was with the U.S. Department of Energy to develop strategic naval petroleum reserves. Assisted by a group of scientists, we carried out extremely successful pilot field operations that validated the company. During this time, the US and Egypt were engaged in a joint technical assistance operation program that included the energy sector, so we were recommended to the Egyptian government as a company that could bring EOR techniques into Egypt – which, as you know, has a long history of oil and gas production and so despite its ample resources, was also facing the issue of declining production.
Our entrance into Egypt began with a big onshore field in the Gulf of Suez, Ras Gharib, owned by General Petroleum Company, which, in 1981, was depleting so much that it had been marked for decommissioning within the next few years. We implemented the first EOR demonstration project in Egypt with steam injection and unconventional gas injection. Water-oil ratios begin to subside, wells begin to produce more oil – and this field is today still in production! This project was considered one of the most successful gas injection projects in a carbonate reservoir and have since helped recover hundreds of millions of barrels more for Egypt.
Such resounding success secured our foothold in the country and the U.S. Agency for International Development (USAID) partnered with us to conduct similar projects in Egypt. Not only did we contribute our expertise, we conducted the entire operations – from design to engineering to procurement to supervision – ourselves. We also published papers on these projects in international publications that garnered a lot of attention and built our reputation.
In 1983, we further expanded our presence in Egypt by acquiring the assets of Phillips Petroleum, including the Alamein concession, which was then called the Western Desert concession representing the entire area; exploration acreage; a storage and shipping terminal, El Hamra Terminal, on the Mediterranean for receiving crude; and a 40-kilometer, 16-inch oil transmission pipeline – and full operatorship of all aforementioned assets, thereby establishing ourselves as a key player in the Egyptian industry.
Today, IPR is not just present in Egypt but is a diversified global company. What is IPR’s current positioning?
From those humble beginnings, IPR has grown into a global exploration and production (E&P) company providing advanced integrated petroleum engineering, geological and field management, and enhanced and tertiary recovery services and technology. Essentially, we are present in the fields of E&P, oilfield services and technology services like project management, consulting and reservoir consulting and modelling. We are headquartered in Dallas, Texas, in the U.S., and also present in Egypt, Pakistan and Chile.
My vision is driven by a mandate to grow and expand all three areas: optimize production, increase reserves, improve technology and expand service offerings.
For instance, in the E&P business, our strategy is based on organic growth through applying proprietary cutting-edge technology to optimize production and maximize reserves. We have a track record of seeing – and realizing – potential where others could not or have failed.
In the area of technical services, we continue to offer our expert resources like experienced professionals, reservoir modelling technology and EOR expertise, not just to our own fields but to our clients. For instance, our Profile Control Services company provides advanced techniques like the design, development and application of crosslinked polymers, tracer technology, microbial water treatments and near wellbore stimulation, to name a few.
In OFS, we continuously work to expand our portfolio. For instance, in 2015, we recently introduced a small fleet of state-of-the-art drilling and workover rigs in order to decrease drilling time and cost for producers, which gives us a competitive edge in a low-price environment.
What was your strategy for IPR being successful?
In a way, I view us as a smaller, technology-focused and integrated BP, meaning we have our own resources to develop our own assets in the most optimized way. We are not just investors or businessmen that simply buy and sell assets. We have a mandate for organic growth and we keep a keen eye on available opportunities for strategic acquisitions where we can employ our technology. Whenever we acquire something, we have a clear play concept in mind, which is why we so often choose fields that others have not been able to fully exploit – and we succeed, more often than not!
How has IPR tackled the industry challenges?
That said, there are always challenges. Sometimes you are not as successful but that is the nature of our business. Fortunately, adjusting to USD 50 oil was not too difficult for us as we have a history of managing low cost operations by optimizing all activities. We have also capitalized on Egypt’s competitive fiscal terms to allow for profitable operations in low commodity price environments. During downturns, IPR escalated its pursuit of low Capex operations to increase production with minimum investment, which has proven successful as production declines were arrested and capital calls were reduced. The crux is to avoid being overleveraged, which IPR has managed.
What is the full scope of IPR’s global operations?
We provide OFS and technical services globally. For E&P, we have oil and gas exploration and production leases and concessions in the USA, Pakistan and Chile.
We entered the U.S. with the acquisition of the Australian major Santos’ USA assets and now we have assets in the Texas State Waters of the Gulf of Mexico, the onshore Gulf Coast basin in Texas, and a working interest in a major coal bed methane (CBM) project in northwest Colorado. As a result, we also inherited partnerships with major international players like KNOC, CPC, Samsung, ExxonMobil, ConocoPhilllips and Apache.
Having conducted numerous field studies in Pakistan and establishing good relations with the Pakistani government, we were well-placed to partner with them by acquiring the former British Gas (BG) Guddu concession in the Sindh Province, which lies within one of the country’s major gas-producing basins. What is even more favorable is that there is a regional power station located in the center of the block, which provides an immediate gas buyer. To date, we have made five discoveries and gas production operations are running beautifully.
In Chile, we hold the Tranquilo exploration concession, which we are in the process of trading for assets in Colombia with the same partner, Geopark.
In Egypt, which represents the heart of our operations, we currently have ten concessions, six joint-ventures and five operatorships, including two recent acquisitions in the Nile Valley in Upper Egypt. Overall, in over three decades, IPR has succeeded to produce over 55 million barrels of oil and gas equivalent (boe) as an active American company in Egypt.
We continue to look for strategic opportunities for expansion, both in Egypt and internationally.
As you mentioned, IPR has a clear niche based on exploiting its EOR technology and niche. Can you tell us about a showcase example of this?
One of IPR’s greatest accomplishments is the Ei Diyur field in the Western Desert, which was deemed to have marginal or zero chances of oil. It was a total wildcat expedition for us! Everyone I spoke to in the industry asked me why we were wasting our efforts there. But we brought in a plane from the U.S. that flew over the entire territory to conduct aeromagnetic surveys taking aeromagnetic waves refraction/reflection and recording, which were processed and interpreted using special technology. Using this, we were able to identify areas within that vast, 14,000 square kilometers concession where we could potentially find structures – not even oil, just structures that could have trapped oil! We zeroed in on those spots, ran seismic surveys and drilled a number of exploration wells, before we finally struck gold.
Another key success is in the Alamein-Yidma concession in the Western Desert, where IPR has taken marginal fields and extended the economic life for many years behind predicted models. As an operator in the concession, IPR has been responsible for reinterpretation of old and new pressure and production tests and the development of validated reservoir simulators. Areas of bypassed oil were identified and new wells recommended as a result of which oil production increased several times. Through continued recompletions, fracturing, artificial lift optimization, workover schedules and other reservoir management schemes, IPR has not only increased but prolonged the concession’s production rate. IPR also acquired a major 3D seismic program, which proved to open new horizons for growth and development during aggressive phases of exploration.
“I attribute our success to our technology and perseverance.”
I attribute our success to our technology and perseverance. In fact, our partner then for three Western Desert concessions had exited because they deemed the possibilities to be minimal. Today, all three are producing concessions!
Dr. Dabbous, drawing upon your decades of international experience in oil and gas, having conducted extensive operations in Egypt and witnessing developments in Egypt in the past few years, where would you say the Egyptian oil and gas industry stands today?
Interest in Egypt’s oil and gas industry remains strong for a number of reasons. Firstly, the fiscal terms offered to investors under concession agreements are very attractive, as long as investors are able to optimize their activities and costs. There is also a stable and established system here for dealing with joint-venture investments. The current leadership also deals with foreign investments very professionally, especially H.E. President Sisi, who has done a fantastic job in exposing the potential in Egypt to the world. A key demonstration of this is the impressive participation in the recently concluded Egypt Petroleum Show (EGYPS) 2017 in February. Egypt can also offer a formidable workforce that is trained and experience in all elements of the oil and gas value chain. Finally, Egypt’s geographical advantage is enviable, being strategically located at the crossroads of three continents with lengthy coasts stretching along the Red Sea and Mediterranean and an extensive infrastructure network, from the Suez Canal to the SUMED pipeline and the various ports along the coasts.
Taken as a whole, Egypt offers a very attractive package that stands out within the region: profitable operations, established industry and mature leadership.
However, the industry continues to face challenges. An obvious one is the foreign currency situation. Oil and gas is inherently an international industry so companies need to have access to foreign resources, services and equipment, and the shortage of foreign currency is hitting medium and small investors particularly hard. IPR has managed by optimizing our Egyptian operations to support a reasonable percentage of our activities here in local currency.
That said, it is only a matter of time before the situation readjusts. Ultimately, I think the global oil industry is very intelligent and well-aware of the developments and potential in Egypt. The Modernization Program announced by H.E. Eng. Tarek El Molla, Minister of Petroleum includes an impressive suite of reforms that will be very well-received by the international investor community. As a small example, for instance, the conditions of concession agreements will be further improved to be made more fair and attractive, which is good because the current terms in some areas make it somewhat difficult for companies like us to justify major investments in this low-price environment.
In Egypt, how has IPR contributed to the national production and economy?
I believe IPR has historically been an excellent partner to Egypt and we are fully committed to remaining so. Not only have we produced significant amounts of otherwise unproducible oil and gas – around 25 million barrels, adding no less than USD 1 billion to the Egyptian economy – we are also contributing in terms of employment and social support. In 2016, for instance, we acquired two concessions in Upper Egypt, which has historically been undeveloped compared to the rest of Egypt. When these are developed, local communities will benefit from new job opportunities, infrastructure and increased investment. In the past fifteen years, we have invested USD 700 million in Egypt to build an infrastructure network of facilities, pipelines, terminals, offshore platforms and seismic studies supporting our aggressive exploration and expansion programs.
In addition, we are attracting other companies that see in our history a model for success – we act as ambassadors for this sector abroad! Additionally, we have trained many engineers, geologists and managers over the years, increasing technology transfer to the global industry.
IPR strongly supports these efforts as a national objective because after all, the Egyptian government, people and country will benefit from this.
“My main advice to potential investors looking to Egypt is to have long breath – our industry is not a short-term business and you cannot expect quick profits in this investment environment.”
My main advice to potential investors looking to Egypt is to have long breath – our industry is not a short-term business and you cannot expect quick profits in this investment environment. They need to have tolerance for the system, engage as much as possible with local expertise while remaining guided by their company mandates, and not to be hesitant in investing in technology to maximize their operations.
Finally, where could we expect to see IPR in five years?
Hopefully a much bigger building! We would also like to double the number of concessions and leases we own, and to at least double our production, if not more. We would also like to expand our portfolio of services and our modest fleet of drilling and workover rigs to a more sizable fleet. Finally, we hope to see more EOR projects being implemented in the country, be it by IPR or other companies.
Success requires determination, vision, guts and hard work. Egypt offers many opportunities and the industry is always dynamic and evolving – traits that IPR has adhered to for over 30 years and will continue to follow.