CAIRO: Egypt’s oil and gas industry has yet to see strong effects from the international financial crisis. According to Ahmad Atallah, chairman of Shell Companies in Egypt, the worst could be yet to come.
Despite the threat that dropping liquidity levels resulting from current economic turmoil pose to the oil and gas sector, which relies on large-scale investment over the long-term, the industry has continued to thrive in Egypt.
In the past year alone, Egypt’s reserves have increased to a historic high of 17.8 billion barrels and 76 trillion cubic feet of gas. This year also saw annual record production levels of crude oil, natural gas and condensates.
On June 13, thirteen new agreements were approved by the Egyptian People’s Assembly, paving the way for exploration in new areas of the country and the improvement of production capacity in existing facilities.
At the beginning of the month, Daily News Egypt reported positive year on year petroleum growth rates for April 2009, which showed production levels up 7.14 percent from April 2008.
Ahead of the release of year on year statistics for May, Daily News Egypt asked Shell’s Ahmad Atallah for his opinion on current growth rates, the impact of the financial crisis on the sector and what it will take to increase production over the long term.
Daily News Egypt: Was the April production growth rate healthy from Shell’s perspective? How does Shell’s output compare?
Ahmad Atallah: Egypt’s increased production rate is an indication of the high-level activities in the oil sector, which continues to attract international players and foreign direct investment. Shell’s strategy in Egypt continues to focus on growth as the country is technically showing good hydrocarbon potential in both the Western Desert and the Nile Delta. At present, we produce nearly 100,000-barrels equivalent of oil per day.
How has the financial crisis impacted production?
In the oil industry, development projects normally take two to five years to bring new discoveries into production. So today’s production may not have been strongly impacted by the financial crisis as the fields have already been developed in previous years. However, with the reduced oil price, revenues have reduced while the cost of project development remains relatively high. Hence, some operators may be delaying some investment decisions and development activities. We will, therefore, likely see the bigger share of the economic crisis’s impact on oil production in the coming years rather than today.
What factors are holding back higher rates of production growth?
Each company manages its strategy and capital allocation process in its own way. Much of the funding needed for new development projects and for oil trading for that matter, comes from credit and borrowing from financial institutions. With the latter being deeply impacted by the crisis, less external funding is available for some companies to produce and trade in oil and oil products. The reduced availability of cash impacts the activity in various sectors of the oil industry as a whole. Some of the more challenging fields require higher cost, so some operators may decide to defer production from more costly fields while the oil price remains low.
