Sensitive situation
A move from North America to North Africa changed the fortunes of oil and gas exploration company Dana Gas Egypt (DGE)ÔÇöformally acknowledged as Centurion Petroleum CorporationÔÇöbut created a few headaches in the process, as Alan Swaby learns.
Centurion, the exploration and development arm of Dana Gas PSJC, has its roots in Canada, where Centurion was established in 1997 by the merger of two small oil exploration companies. Listed on the Toronto Stock Exchange, it had properties in Argentina and Canada. A change of senior management with knowledge of North Africa, its geology, culture and policies made the strategic decision to switch focus there. North and South American assets were sold and new assets were acquired in Tunisia. Shortly afterwards, Centurion bought some of MarathonÔÇÖs assets and started work in Egypt. Later, in 2007, Centurion became wholly owned by Dana Gas, the UAE based company.
Dana Gas is the first regional private-sector natural gas company in the Middle East, established with over 300 founder shareholders from across the Gulf region. In addition, there are some 400,000 investors from over 100 nations worldwide who submitted applications of almost US$80 billion over a ten-day period when Dana launched its regional IPO in late 2005.
Headquartered in Sharjah in the UAE and listed on the Abu Dhabi Securities Exchange, Dana Gas already possesses a network of offices in Saudi Arabia, Iraq, Egypt and the UK, with further offices opening throughout the Middle East. Dana Gas currently has assets and gas exploration, production, processing or distribution projects in several countries as far afield as South Asia.
Gas from the Egyptian Nile Delta fields is of a particularly desirable quality, enriched with various other hydrocarbon products such as condensate and LPG, both of which are sold on the open market at international prices. Gas, on the other hand, all goes into the Egyptian domestic market, which has a government-imposed price cap. Egypt is now in the fortunate position of being self-sufficient in gas and exports to neighboring countries such as Jordon, Syria and Lebanon.
DGE seems to have a liking for doing things the hard way. On the one hand, the most productive wells it has brought in so far are smack in the centre of the Nile Delta. On the other, the latest and highly promising oil findÔÇö50 kilometres north-west of Aswan, deep in the south of EgyptÔÇöis literally miles from nowhere, with nothing in the way of infrastructure to support the enterprise.
ItÔÇÖs debatable whether drilling in such a sensitive and highly populated area as the Nile Delta would have got past the ecological activists in some countries. As it is, DGE has the eyes of the world on it and is obliged to work to strict standards to protect the environment, in addition to the overwhelming need not to cause harm to the local population surrounding the drilling locations.
ÔÇ£This is a highly populated area,ÔÇØ explains Dana Gas Egypt President, Dr. Hany Elsharkawi, ÔÇ£with thousands of people engaged in agriculture. Leakage or explosion from our gas operations would be devastating, so we are working to the strictest possible procedures. To date, we are pleased to say that not a single incident threatening humans, wildlife or land has occurred.ÔÇØ
DGEÔÇÖs average daily production has increased almost 15-fold from 2,400 barrels of oil equivalent per day (boed) in 2002 to 36,000 boed in 2009, with over 80 per cent of current production (on a boe basis) going to gas sales and the remainder being oil, condensates and LPG sales. This makes DGE EgyptÔÇÖs sixth-largest gas producer. To maximise the potential of its holdings, exploration continues unabated in the Nile Delta, with a multi-well drilling program under way on around 800,000 acres of land owned by the company.
At the other end of the country, way down in the south of Egypt, the Al Baraka field is currently not large but definitely significant. ÔÇ£WeÔÇÖre proud to say itÔÇÖs the first oil found in southern Egypt,ÔÇØ says Elsharkawi, ÔÇ£and any time oil is found in commercial quantities in virgin territory, itÔÇÖs an important moment.ÔÇØ
The area is so remote with so little in the way of infrastructure that it has been ignored by other exploration companies, but having a high-risk, high-reward component in its portfolio encouraged DGE to investigate, especially having seen the discovery of oil in Sudan and being struck by the geological similarities.
Proven reserves so far at Al Baraka amount to just 7 million barrels, and at the moment extracted oil is being sent by tankerÔÇöjust one or two a dayÔÇöto a government-owned refinery 400 kilometres away. When and if critical mass is found, DGE will invest in a pipeline. Currently, more seismic data is being collected, providing the geologists with a clearer picture of the subsurface. More exploration drilling is planned to be conducted later in the year, as well as additional development wells to increase production.
As well as its Egyptian activities, Dana Gas has interests in Tunisia and Nigeria. It is also in the process of starting a lucrative trade, importing sour gas via its own pipeline. After sweetening the gas, it will be distributed to customers in the Gulf region.
Dana Gas is also busy in Kurdistan in northern Iraq, where it is developing two giant gas fields producing good-quality rich gas. This project alone has seen investments of $650 million while, in total, Dana Gas has spent another $1.6 billion acquiring Centurion and developing the Egyptian gas fields, including their associated pipelines and processing plants. Over the next couple of years there are plans to spend a further half billion dollars.
ÔÇ£DGE has ambitious plans for the future,ÔÇØ says Elsharkawi. ÔÇ£North Africa and the Middle East still account for half the remaining reserves that the world knows of. We expect to expand our ongoing projects and to enter into exploration and development arrangements with other countries in the region. For an oil and gas company, this is the best place on earth to be.ÔÇØ
