Chairman of BP Egypt
Q: BP has been in Egypt for about 50 years, how long exactly? Could you tell me more about the history of BP's gas exploration in Egypt and how it's changed overtime?
Mekawi: BP has been in Egypt for 49 years, since 1963. Chapter one of our gas business began in the late 1980s, when the government changed the concession regime to allow companies to invest in gas for an economic return. At that time, gas exploration was mainly focused in the East Nile Delta, which is where we are currently producing from our fields Temsah, Hap'y, Baltim, and Nidoco. This is shallower, relatively easier-to-recover gas.
With the majority of the shallow gas already discovered, we are shifting our focus to the deeper fairways. Exploring these fairways is more challenging due to the high pressure, high temperature nature of the reservoirs, but we have the knowledge and the technology to explore these targets. We have already made great progress through our recent discoveries of Hodoa and Satis. Finding the right volume, with the right commercial and governance terms will make these huge investments attractive to investors and it will still be the cheapest source of energy for the country.
Q: What impact did political unrest have on your business?
Mekawi: During the revolution, our two joint ventures -- Gulf of Suez Petroleum Company (GUPCO) and Pharaonic Petroleum Co. -- did not stop operations at all and production has not been impacted in our existing business. Our parent company did not stop investments in Egypt. Actually, last year, with our partners in East Nile Delta, there were some opportunities that came up during the year and we increased our investment in some of our concessions up to 25%. This was not in our budget at the beginning of the year, but because we believed it was good business for all parties, we proceeded and it helped bring some additional gas production for Egypt over the last year. The same occurred in our oil business which is run through our joint venture, GUPCO. Its 2012-13 budget is the highest ever since it was formed. These decisions were driven by business needs and understanding of the country situation. The country is going through a transition, and we understand this.
BP has been in Egypt for 50 years, and we've remained committed to Egypt throughout those years, which included two wars. We have a long term relationship and partnership. Actually, the CEO of BP Bob Dudley was the first CEO to visit Egypt after the revolution in March 2011. He had two messages: We are committed to Egypt and ready to offer our support in any way during this transition period, because this is a partnership, and this is a relationship which will last for another 50-100 years and we are committed to stay.
Q: What else has changed in Egypt?
Mekawi: With an economy that was growing for some time at 6-7%, the demand for energy has likewise increased in order to fuel this growth. This increase in domestic gas demand will require huge investments in Egypt's gas industry in the coming period. Egypt's future energy demand will mainly be met by domestic gas supply. Any alternative source of energy that is imported into Egypt will be three to four times more expensive.
Q: Because gas is easier to recover when you compare it to oil?
Mekawi: No, because gas is the future of Egypt's energy since most oil basins in Egypt are 40-50 years old and mature. That said, we still continue to discover some oil; however the future energy industry in Egypt will be mainly driven by gas and it will require huge investments. From our perspective, we believe that over the next 10 years, the energy industry in Egypt will need investments of about $100 billion (LE 604.12 billion) in order to unlock the huge hydrocarbon potential of the Nile Delta and meet the growing domestic demand.
Q: In terms of $100 billion in necessary investments, could you elaborate on the time frame?
Mekawi: The investments are required because of the long-term nature of the industry and the various stages of development that must be passed through. For Greenfield gas projects for example, it takes 7-10 years for the gas to come on production which means we will need multiple projects of the scale and scope of BP's West Nile Delta project to come on stream over the next 20 years to maintain production and meet domestic demand.
Q: Because production has been declining already for natural gas?
Mekawi: Production is declining for oil, but not for gas. We and our partners are currently maintaining production at two billion cubic feet per day which is 40% of Egypt's total gas production sent to the domestic market. All of our existing gas production is now in the East Nile Delta with some assets operated by us and some by our partners.
Q: What about the potential of the Nile Delta basin?
Mekawi: It's a world-class gas basin and still not fully explored. The next phase of exploration there will be mainly deepwater and hard-to-recover, costly gas. However, it's still promising and with the right terms, it is something that makes sense for everyone.
Q: The West Nile Delta is a non-joint venture project. How did it come about? Is it the first in Egypt?
Mekawi: Since 1975, all agreements in Egypt have been through a joint venture structure. However, due to the nature of the West Nile Delta subsea wells which are the deepest ever in Egypt and the complex high pressure and high temperature fragmented reservoirs which need an unprecedented level of investment, a new structure which preserves the joint partnership approach was required to develop this gas on time.
Q: What are the advantages of the deal for Egypt?
Mekawi: We spent a year and a half on negotiations with EGPC and EGAS to conclude this deal and the new structure was developed as the negotiations developed. [...] This project will produce approximately 22% of the current gas domestic demand. Over the life of the project, it can save the country $50 billion (LE 302 billion) if the prices of oil continue at $100 (LE 604) and the savings could double if oil prices reach $200 (LE 1,208) Brent oil price.
Q: What are the advantages for you?
Mekawi: With this agreement, we have the right tools to deliver this complex project on time with acceptable economic return. This model exists all over the world.
Q: What if you don't deliver the gas on time?
Mekawi: We can lose the two concessions and all our past investments in addition to penalties that can reach up to $1.7 billion (LE 10.27 billion).
Q: Do you think it could become a good model for future agreements?
Mekawi: In my view, if there is another project of this size and this complexity, requiring specialized technology, and with the commitment to deliver the development plan -- I think this model could be more efficient.
Q: Do you have major issues with the project?
Mekawi: We have been unable to access the site identified for the onshore processing plant. However, we are working very closely with all parties involved with a very strong commitment from everyone to find a solution as we are all aligned that this is a national strategic project for the country.
Q: How do you see your commitment to Egypt as long term?
Mekawi: The gas business is long term. The future of Egypt is in the gas business. In the Nile Delta basin, we believe there is more gas to be found. Commitment should be translated by investing heavily in exploration, technology transfer to the country and development of the Egyptian talent through first class training and on-the-job development. This will create strategic national capabilities to unlock the country's future hydrocarbon potential with a special focus on the Nile Delta and deep water development.
Q: And the 25% investment that you mentioned ...
Mekawi: That is roughly 25% of additional investments in some producing concessions, mainly for drilling activities. We added a couple of rigs, between us and partners, optimized the schedule, and drilled more wells in the East Nile Delta, which came on line ahead of schedule. So overall, more investments, activities and production.
© Business Today Egypt 2012
