< Previous20 INDUSTRY OUTLOOK oilandgasmiddleeast.com APRIL 2020 There are no signs of a slow- down in the near future with Shell recently announcing its intention to sell its onshore portfolio in the Western Desert worth $775 million, BP indicating that it is planning to invest $3 billion in Egypt in the near future and Chevron’s, Shell’s and Mubadala’s success in the Red Sea bid round. Many experts believe that Egyptian oil and gas M&A activity is set to con- tinue at a good pace due to a combina- tion of reasons, including the continu- ing economic growth, legal reforms aimed to attract foreign investment, the discovery of vast offshore gas reserves and a growing number of ageing oil and gas assets. Egypt is one of the largest economies in the Middle East and North Africa (MENA) region and the second-largest economy in Africa. With its popula- tion reaching 100 million in 2020, the country is also one of the biggest energy markets in the MENA and Africa re- gions. Previously, Egypt experienced a dras- tic fall in tourism and foreign direct in- vestment, according to the Internation- al Monetary Fund (IMF). Government energy subsidies led to the country’s high budget deficit and encouraged excessive consumption, which, coupled with the natural decline of gas produc- tion, resulted in a large gap between gas supply and demand and a shortage of gas supply for the domestic market. In addition, as a result of the high cost of such subsidies, EGPC, the national oil company, was unable to pay off its debt to foreign operators, resulting in foreign operators delaying investments in existing and new oil and gas projects. The Egyptian economy has been growing year-on-year for the past few years, with real GDP at 5.6% in 2019, compared to 5.2% in 2018 and 4.2% in 2017, and the IMF is expecting GDP to grow at a rate of 5.9% in 2020. The economic growth has been at- tributed to economic consolidation measures implemented since 2016, including the macro-economic reforms tied to a US$12 billion IMF extended fund facility. The conditions outlined by the IMF’s economic reform package included energy subsidy cuts, flotation of the exchange rate, increased taxes and fiscal consolidation. Following the energy subsidy reform, the fiscal deficit decreased to 8.2% in 2018-2019, compared to 9.7% in 2017- 2018 and 10.9% in 2016-2017. Govern- ment debt decreased to 90.50% of the country’s GDP in the fiscal year 2018- 2019, from 108% of GDP in 2017-2018. The devaluation of the Egyptian pound saw the country’s assets and securities lose more than 50% of their value, which, in combination with the increasing sense of political stability, made them more attractive to foreign investors. Egypt’s legislative reform aims to at- tract foreign investment in various sec- tors relevant to the country’s economy. The cornerstone of the reform is the Investment Law No. 72 for 2017 and its Executive Regulation, which introduces a number of changes to improve the investment climate. Also, Law No. 4 for 2018 and Decree No. 16 of 2018, amending Companies Law No. 159 of 1981, have introduced important changes, including recogni- tion of the concepts of a single share- holder company and a shareholders’ agreement and allowing a LLC to be managed by a single manager of any nationality. Additionally, the energy regulation was reformed by the New Gas Law No. 196 of 2017 (“Gas Law”), and its Executive Regulations. The primary significance of the Gas Law is granting the private sector an opportunity to participate in the downstream gas mar- ket after decades of state domination of the industry. Private sector players might potentially be able to undertake the activities of distribution, transmis- sion, liquefaction, storage, regasifica- tion, supply and shipping of natural Egyptian M&A 2020 outlook The M&A activity in Egypt increased by nearly 286% from $389 million in 2017 to US$1.5 billion in 2018, reaching $1.6 billion in 2019 “EGYPT IS ONE OF THE LARGEST ECONOMIES IN THE MIDDLE EAST AND NORTH AFRICA REGION... WITH ITS POPULATION REACHING 100 MILLION IN 2020, THE COUNTRY IS ALSO ONE OF THE BIGGEST ENERGY MARKETS IN THE MENA AND AFRICA REGIONS.” Slava Kiryushin, partner, global head of energy, DWF By: Slava Kiryushin and Edoardo Betto, DWF21 INDUSTRY OUTLOOK oilandgasmiddleeast.com APRIL 2020 Emergency Mobile No: 00971 50 3752010 Plot No S-50807, Jebel Ali, Free Zone (South), P.O. BOX 17729, Dubai-United Arab Emirates Telephone: +9714-8865119 Fax: +9714-8865118 Email: sales@sso.ae | info@sso.ae www. shreesteeloverseas.com Branches: • SHREE OILFIELD SUPPLY LLC MUSAFFAH - ABUDHABI - UAE TEL: +971 2 6214290, FAX: +971 2 6214289 • STEEL PIPING SOLUTIONS LLC GHALA - MUSCAT - OMAN TEL: +968 24230900, MOBILE: +968 92292370 gas, all of which have historically been carried out by state entities. Besides, under the Gas Law, private companies are permitted to import natural gas directly, which is expected to provide a useful boost to supply. Entrance into the market by private companies will be in accordance with the Gas Law’s third-party access poli- cies, with the process to be supervised by the new regulatory body: the Gas Market Regulatory Authority (GMRA). GMRA has been granted the powers to issue licences to gas market players, set tariff schedules, ensure the transpar- ency and competitiveness of the sector and settle competitor disputes. Other legislative developments in Egypt over the past decade include the following new laws: Electricity Law No. 81 of 2015, Bankruptcy Law No.11 of 2018, Importers Registry Law No. 7 of 2017 and Public Contracts Law No.182 of 2018. In addition, new renewable energy regulations are being drafted. With the global move towards decar- “MANY EXPERTS BELIEVE THAT EGYPTIAN OIL AND GAS M&A ACTIVITY IS SET TO CONTINUE AT A GOOD PACE DUE TO A COMBINATION OF REASONS.” bonisation, some experts believe that natural gas is set to play an important role in the energy sector transformation and the recent discoveries of natural gas coupled with the issuance of the Gas Law and other legislative develop- ments have made Egypt an attractive investment market. Egypt has seen growing foreign investor confidence with the increas- ing sense of political stability, economic growth and foreign investor-friendly legislative reforms. The country is aim- ing to become a regional energy hub to monetize its own natural resources and re-export oil and gas from existing and potential sources of supply in neigh- bouring countries through Suez Canal and SUMED Pipeline, with the new administrative capital of Egypt opening for business in 2019. With a healthy pool of investors willing to buy and a number of energy players willing to sell, Egypt’s M&A activity in the energy sector is expected to continue to grow. Edoardo Betto, partner, corporate, DWF22 THE MIDDLE EAST ENERGY AWARDS oilandgasmiddleeast.com APRIL 2020 SHORTLIST REVEALED! These are the companies, projects, and people that will compete to win at the Middle East Energy Awards! Oil & Gas Woman of the Year • Ezz Almannai, Director, Planning and Development, NOGA, Bahrain • Fatima Al Nuaimi, CEO, ADNOC LNG • Khadija Daghar, R&D Head, ADNOC • Reem Al-Ghanim, Head of HR & Support Services, Chemicals, Saudi Aramco • Tayba Al Hashemi, Chief Executive Officer, Al Yasat Petroleum Clean Energy Initiative of the Year • First Solar-powered Lubricants Blending Plant in the UAE by ENOC • Initiative to Reduce GHG Emissions Intensity by 25% by 2030 by ADNOC • Nimr Wetland Project by PDO • Sidrah 500 Project by KOC • Using Renewables to Power Unconventional Gas Wells in Wa’ad Al-Shamal, Saudi Aramco It has been a whirlwind year for the oil and gas sector, but despite turbulence in the market, leaders across the upstream, midstream, and downstream sectors have managed to create an impressive line-up of achievements across the Middle East. The Middle East Energy Awards, now in its 11th year, gathers industry leaders every year to recognise achievements across the value chain. This year, with the awards ceremony slated for 30 June 2020 in Abu Dhabi, we will celebrate winners in 15 categories. Aft er careful consideration of many candidates for each category, the editors of Oil & Gas Middle East and Refi ning & Petrochemicals Middle East have narrowed their choices down to a shortlist of fi ve nominees per category… Who will win? Book your seats and fi nd out! For more information about bookings, please contact Mark Grennell (mark.grennell@itp.com). CSR Initiative of the Year • Energy & Resource Management (E&RM) Programme, ENOC • Ithra, Saudi Aramco CSR Initiative • Project STOP, Borouge as Strategic Partner • RAISE, SABIC’s Global CSR Strategy • WFES CO2 Offsetting, Shell Abu Dhabi Digital Enabler of the Year • ABB • AVEVA • Honeywell • Rockwell Automation • Siemens Downstream Project of the Year • Clean Fuels Project by KNPC • Hydrogen Pipeline Network Project in Yanbu by Air Liquide Arabia23 THE MIDDLE EAST ENERGY AWARDS oilandgasmiddleeast.com APRIL 2020 • Jazan Refinery and Terminal Project by Saudi Aramco • Liwa Plastics Industries Complex Project, OQ • MEGlobal Oyster Creek Project by EQUATE Group EPC Company of the Year • McDermott • NPCC • Petrofac • Saipem • TechnipFMC HSE Initiative of the Year • ADNOC’s 100% HSE • ENOC Cares Campaign • L&T’s Zero Incident Credo Initiative • SABIC Life Saving Rules (LSR) Programme • Saudi Aramco Joining the World Bank Initiative of ‘Zero Routine Flaring by 2030’ Logistics Service Provider of the Year • DP World • Horizon Terminals • Mammoet • RSA Global • Schmidt Middle East Oilfield Services Company of the Year • Baker Hughes • NOV • Schlumberger • Schneider Electric • Weir Talent Development Initiative of the Year • ELEVATE Programme by EQUATE Group • Global Graduate Development Programme by Petrofac • Overseas Undergraduate Further Studies Scholarship Scheme by PDO • STEM Education Programme by ADNOC • Upstream Professional Development Center by Saudi Aramco Technical Innovation Project of the Year • CCUS Programme by ADNOC • HyPR HoleSaver by Churchill Drilling Tools • Shallow Water Inspection and Monitoring Robot (SWIM-R) by Saudi Aramco • Thermally Assisted Gas-Oil Gravity Drainage (TAGOGD) Technique for Enhanced Oil Recovery by PDO • Unconventional Gas Stimulation by Halliburton Technology Provider of the Year • C3 Oleflex Technology from Honeywell UOP • FLEXICOKING Technology from ExxonMobil • HydroFlex Technology from Haldor Topsoe • Propane Dehydrogenation Technology K-PRO from KBR • STRATCO Alkylation Technology from DuPont Clean Technologies Upstream Project of the Year • Rabab Harweel by PDO • Jebel Ali Project by ADNOC • South Ratqa heavy crude by KOC • Mahani-1 Exploration Project by SNOC • Marjan & Berri Redevelopment Project by Saudi Aramco Young Oil & Gas Professional of the Year (TBA) Oil & Gas Executive of the Year (TBA)24 COVER STORY oilandgasmiddleeast.com APRIL 2020 Right now, it is difficult to look ahead at the future for the oil and gas sector. The coronavirus pandemic has spread to more than 300,000 people, grinding the economy to a halt and leading oil prices to plummet to $28 per barrel of Brent WORDS: CARLA SERTIN As the coronavirus spreads and oil prices plummet, Bahrain’s oil minister Sheikh Mohamed Al Khalifa comments on the state of the industry, his plans to sell stakes in nation’s energy assets, and how he plans to leverage tight gas on the path to self-sufficiency. crude (as of writing) after OPEC+ talks to further limit supply floundered. In a recent report, S&P Global’s economists predict a global recession in 2020, with GDP growth at 1% to 1.5% for the year, with downside risks. “The initial data from China suggests that its economy was hit far harder than projected, though a tentative stabilisation has begun,” said S&P Global’s Chief Economist Paul Gruenwald. “Europe and the U.S. are following a similar path, as increasing restrictions on person-to-person contacts presage a demand collapse that will take activity sharply lower in the second quarter before a recovery begins later in the year.” COVER STORY oilandgasmiddleeast.com APRIL 202025 COVER STORY oilandgasmiddleeast.com APRIL 2020 The market turbulence has created a heavy fog of uncertainty at a time when many countries are looking to expand their upstream presence. “We are going to have to reassess our investment plans and make sure that they still are viable under market conditions,” says Sheikh Mohamed bin Khalifa bin Ahmed Al Khalifa, oil minister of Bahrain, noting that the coronavirus pandemic and oil price drop have not impacted operations in Bahrain. He heads the National Oil and Gas Authority, which controls the Bahrain Petroleum Company (BAPCO), Tatweer Petroleum, and other oil and gas entities through its investment arm, nogaholding. “It is unprecedented,” he says in a phone interview. “Certainly the demand conditions are not favorable because of the coronavirus. Had there been an [OPEC+] agreement, markets would be better balanced.” The OPEC+ meeting came to a bitter end when Russia refused to further limit its production, to which Saudi oilandgasmiddleeast.com APRIL 202026 COVER STORY oilandgasmiddleeast.com APRIL 2020 Arabia responded by removing its own output limits. It is set to produce at its maximum sustained capacity of 12 million barrels per day (mbpd) in April, drawing an additional 300,000 bpd from its stocks. Meanwhile, the energy ministry has requested Aramco to increase its maximum sustained capacity to 13 mbpd. In doing so, Saudi Aramco also slashed its own crude oil prices, hoping to capture more market share, with Iraq, Kuwait, and the UAE following suit. “For anybody who has extra volume, this is the time to produce it,” he says. “As supply overtakes demand, inventories will start filling up. Structurally that will always be negatively impactful to supply/demand dynamics and ultimately the price. “The longer this continues, the worse it gets for the oil and gas sector in terms of price and investments,” Al Khalifa warns. “But eventually this will have a negative impact on future supplies, because at current market prices, most international oil prospects become uneconomic. And if you do not invest in oil, you will soon face a supply disruption.” Although a fraction of the scale of its Gulf neighbors, Bahrain has big growth plans which will be catalysed by a new approach to partnerships, as the region’s national oil companies open up to investments from the private sector. Most recently, Al Khalifa said that “HOPEFULLY THIS IS SHORT LIVED AND THE CORONAVIRUS EPIDEMIC IS CONTAINED SOON. IF IT ISN’T, IT IS GOING TO MEAN SOME TROUBLES AHEAD FOR THE OIL AND GAS SECTOR”.27 COVER STORY oilandgasmiddleeast.com APRIL 2020 Bahrain could move some energy assets to a state-run fund, selling shares to local investors. “The idea is to make some of the oil and gas assets available for the private sector,” he says. “We have been talking to the pension fund here, and the quality of the assets we have are certainly part of what they would regard as good investments; they have good returns.” “The idea behind the energy sector fund is to help us grow further and to expand downstream and upstream,” he adds. “Today we are in the initial stages.” When asked if this would be limited to local investors, Al Khalifa says that the local market is the initial scope, “but Bahrain being an open economy, we will always be open to international investment as well.” He believes this could accelerate existing development plans, while giving investors access to assets that were previously unavailable to them. “In light of the government looking at the private sector as a true engine of growth for the economy, this is one way of adding the private sector into the oil and gas industry.” This is part of a wider initiative to involve other players in the industry. In June 2019, the prime minister issued an edict which would allow foreign companies to own 100% of oil and gas drilling projects, with its offshore blocks in mind. It awarded offshore block one to Italian energy company ENI last year, which is planning to spud its first well in April. “We were successful in granting ENI their concession, and we have three other blocks that we are working on today,” Al Khalifa says. “Later in the year, we might be going through a road show, hopefully signing up a few more international oil companies for the remaining blocks.” He notes that with updated algorithms used for processing seismic data, they have reprocessed a lot of the existing data and have shot new seismic data for the offshore blocks. “Hopefully we can identify some prospects to interest international oil companies like we did ENI with block one,” he adds. While he expects that seismic interpretations and processing should be finished by mid-year, he is conscious of the current economic climate. “We are currently reassessing the best times and it has to be linked to market conditions.” 28 COVER STORY oilandgasmiddleeast.com APRIL 2020 In April 2018, it discovered a major offshore tight oil and deep gas field containing an estimated 80 billion barrels of oil, although the true amount of recoverable oil has yet to be determined. Still, it is a boon to the country’s upstream sector which produces approximately 40,000 bpd from the onshore Bahrain field, and a further 155,000 bpd from the offshore Abu Sa’afah field, which it shares with Saudi Arabia. Al Khalifa says that one well from the tight field, being managed by Tatweer Petroleum, is currently being assessed. Of course, it is being aided by a fleet of consultants and oilfield services companies, including Schlumberger, Halliburton, and Baker Hughes. “We are producing it and we are taking note of the data, assessing the flow rates, understanding the geological formations,” he says, noting that the information will be publicly available “in good time”. Tight resources can be more technically challenging than their conventional counterparts, but after recent tests of deeper gas zones, Al Khalifa is optimistic that it could be commercially viable. “We were successful with flow rates that are competitive in terms of cost, so we are fairly confident that the reserves can be produced at a fairly low cost. “We are currently assessing the size of the reserves and we are beginning early development already with drilling wells in those new formations,” he adds. “I think we have a better control of what the costs are going to be and they are way below the current market price here in Bahrain for gas.” Before moving into the development phase, a few more wells are typically required, and Al Khalifa says he is considering an additional well or two, although he notes that the timeline for development will hinge on market conditions. “Ultimately, to attract the right companies, we need to have the right market conditions,” he says. “Currently, with the oil price issues and what has transpired of late it is unclear, but hopefully towards the end of the year will be a clearer picture.” Generally, a key theme for Bahrain is supply security. Al Khalifa hopes the tight gas resources will make the nation self-sufficient in terms of gas reserves, and is working with international companies on an LNG supply terminal to be used during peak demand in the summer. The floating storage unit can also be chartered when not in use. Increasing supply also means optimising hydrocarbon recovery rates at more mature fields. Al Khalifa says enhanced oil recovery (EOR) is one focus area which serves the dual purpose of improving recovery while also enabling the circular carbon economy. “We are looking at the possibility of using [CO2] for enhanced oil recovery in the Bahrain field, and that is being tested technically with subsurface geologists,” he says. “THE IDEA IS TO MAKE SOME OF THE OIL AND GAS ASSETS AVAILABLE FOR THE PRIVATE SECTOR […] THE IDEA BEHIND THE ENERGY SECTOR FUND IS TO HELP US GROW FURTHER AND TO EXPAND DOWNSTREAM AND UPSTREAM. TODAY WE ARE IN THE INITIAL STAGES”.29 COVER STORY oilandgasmiddleeast.com APRIL 2020 “The Bahrain field has a substantial amount of oil in place, but because of its geological challenges, we are trying to apply technologies to increase the recovery rate.” Al Khalifa explains, noting that the field is split into multiple layers requiring different technologies including steam injection, CO2, mini fracs, and gas lift, with the latter currently used for production. Schlumberger was involved in an early pilot to improve recovery rates at Bahrain field, and Al Khalifa says that they “are soon to move into the development side.” Gulf Petrochemical Industries Company also currently reuses emitted CO2 to produce urea fertiliser, and Al Khalifa is considering other potential uses for CO2 with the goal of “ultimately creating a market for it.” He notes that all of these initiatives exist to transform CO2 emissions in CO2 reuse, achieving sustainability goals. On the downstream side, the BAPCO Refinery project, which Al Khalifa says is the biggest project to date in the history of Bahrain, could carry risks of supply chain disruption under current market conditions. “We are looking at a potential alternative rerouting of the supply chain in case we have some challenges there,” he says, noting that the upstream supply chain is also being examined for other alternatives. “So far, everything is smooth, but they are putting up plans in case there is disruption further down the line.” The oil and gas industry has built up its resilience to market turbulence, because it is impossible to predict what will happen in the future--in the past year, we have swung wildly from concerns about supply disruptions to fears about low demand. In 2019, geopolitics came into the forefront with the US-China trade war, US sanctions on Iran, and attacks on Saudi facilities deepening worries that supply would fall short of global demand. OPEC+ continued to monitor the market and adjusted its production, but with the alliance in disarray and leading producers rushing to grab more market share as demand is slashed by the coronavirus, it is unclear how the situation could play out if the pandemic continues without an end in sight. “Hopefully this is short lived and the coronavirus epidemic is contained soon,” Al Khalifa says. “If it isn’t, it is going to mean some troubles ahead for the oil and gas sector.” BAPCO Refinery upgrade, photo via BAPCONext >