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Drilling partners

Chinese initiatives to invest in the Egyptian petroleum sector are bearing some lucrative results, reports Sherine Nasr

The Chinese are coming. There is no doubt that China is rapidly and surely venturing into various aspects of Egypt's economic life, mainly as a major exporter whose products are flooding the market. Over the past two years, however, the petroleum sector has managed to attract some major Chinese investments in the form of joint ventures which have significantly contributed to the sector. Fields of cooperation include oil exploration and drilling activities, in addition to manufacturing equipment and producing services which can invaluably contribute to the sector's growth.

"Although Egypt and China have long been good economic partners, cooperation in the petroleum sector between both countries is rather new," stated Wu Chunhua, China's ambassador to Cairo, this week . "However, it has shown some great prospects for growth." Chunhua was speaking at a seminar organised by Al-Ahram Centre for Petroleum and Power Studies.

On the exploration front, Tharwa Petroleum Company was established in 2004 with an authorised capital of $800 million and issued capital of $400 million, to explore, produce and transport oil inside and outside the country. The company was awarded five concession areas in the Western Desert and the Mediterranean; two more areas were handed in 2007.

"At present, the company is busy developing the new Rosa One deepwater discovery in the Mediterranean," revealed the company's chairman Atef Sadek. "In the meantime, exploration drilling of one of the five wells in the Western Desert is now underway."

Thanks to an improving investment climate, more Chinese companies are willing to pump in more investments in the sector. For example, the field of rig manufacturing was untapped in the past, but now gigantic oil rigs are being manufactured locally for the first time, with full technical support from Chinese partners. Earlier this year, the first Egyptian-made rig "Mubarak One" was manufactured by the Egyptian-Chinese Petroleum Co for Manufacturing Drilling Rigs, a consortium of Petrojet, Tharwa Drilling Co, Enppi and the Chinese partner HH Company. Fabricated at the company's plant in the northwest Gulf of Suez industrial zone, the rig is now successfully operating in the Western Desert.

According to chairman Mohamed El-Gohari, the company was contracted to produce three onshore drilling rigs for Sino Tharwa Company, another Egyptian-Chinese joint venture established in 2005 to own and operate drilling rigs. "The company is planning to produce 20 more drilling rigs, which is the factory's designed capacity by 2011," El-Gohari said.

Notably, the new industry will help provide the needs of petroleum sector companies and will meet the shortage in onshore rigs, in light of intensified oil and gas exploration operations to satisfy ever-growing demands.

In the field of operating rigs, Sino Tharwa Drilling Company was born in 2005, and according to chairman Ali Salem, it is a limited liability established with a total capital of $40 million. This is equally distributed between Tharwa Petroleum Co and EGAS on the Egyptian side, and the Sinopec Star Petroleum Company on the Chinese side, to locally own and operate a total of 21 rigs by 2011 at a total investment of $300 million.

"In less than two years, the company has grown to become the second largest rig operator in the Egyptian petroleum sector, following the Egyptian Drilling Company," stated Salem. He added that in 2007, Sino Tharwa's investments jumped to $184 million, with total revenues estimated at $32 million and total net profits of $5.11 million. "This month, total investments reached $237 million, while manpower has grown to 745 employees," he revealed.

At present, the company manages four existing land rigs and two work over rigs, while seven more are still under shipment test and fabrication. Recently, the company has been pursuing another challenge, namely building the first ever offshore jack-up rig to be used at significant underwater depth of 400 feet. The investment cost of the project is estimated at $250 million.

"This is a milestone in the history of oil and gas industry," commented Salem, adding that offshore rigs working in Egypt are estimated at 18 -- most of which belong to foreign companies. The process will not only achieve considerable savings to the sector, but will also help the country develop one of the most sophisticated services in the oil industry.

According to Abdel-Alim Taha, chairman of the Egyptian General Petroleum Corporation ( EGPC ), the massive growth in the Chinese economy is one of the main factors behind spiralling oil prices that have prevailed during the past two years. "In the meantime, more Chinese investment is expected to flow into the petroleum sector, especially that a memorandum of understanding was signed between both parties to build oil refineries, dig for oil and develop wells."

A massive trader, China generated 15 per cent of the total international trade volume at a worth of $2.2 trillion in 2007. It is also rapidly growing into one of Egypt's main economic partners, as the volume of trade between both countries was estimated at $4.6 billion in 2007 -- a 44 per cent increase compared to the previous year.

"The volume of trade is expected to reach $5 billion in 2008," said Ambassador Chunhua. He added that Chinese investment in Egypt has reached $400 million, which provided more than 6,000 job opportunities.

© Al Ahram Weekly 2008