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“Teamwork with no bureaucracy”

Interview - May 21, 2012
Shahrokh Etebar, CEO of CC Energy Development (CCED), speaks with United World about the important oil discoveries the company has made in Oman, a testament to the potential the Sultanate boasts in the energy sector

CCED is a privately owned oil and gas exploration and production company, and it is part of the larger Consolidated Contractors Group. Could you elaborate on the history of CCED and how you set up operations in Oman?

CCED is an associated company and has the same owner as Consolidated Contractors Company (CCC) and it is basically an oil company. CCC was already involved in the oil and gas business in Yemen, but only as a partner, not as an operator. They also had some offshore discoveries in Gaza, with BG as their operator. Then a few years back, CCC became an exploration operator in Yemen. But with CCED in Oman, it was the first time the group became an exploration, appraisal, development and producing company.
In 2007, CCED acquired blocks 3 and 4 in Oman. Over the last 40 years, a lot of major oil companies drilled many wells in these blocks trying to discover oil, but they were not successful. The last company before us was EnCana International and CCED purchased their 50% shares in the Exploration & Production Sharing Agreement. The other two partners are Tethys Oil AB with 30% shares and Mitsui E&P Middle East BV with 20% shares.
We started drilling and discovered two different reservoirs. We set up a plan for the early production testing to see the best way to develop the fields, and then we started further exploration and appraisal. We basically proved that there is still quite a bit of opportunity in Oman for an international oil company to come in, discover, develop, and produce oil to the mutual interests of both the company and the country.

CCED truly is an amazing success story in the oil and gas sector in Oman. What led you to believe that you would be successful in drilling if all your predecessors failed since 1972?

We knew that there was oil here because the Japanese oil company discovered a reservoir that produced 100 barrels a day in 1986. But it was not economic for them to further pursue this venture. We also knew that there was heavy oil and it required advanced oil recovery and new technology at a very high cost, so most companies just did not pursue it anymore.
But we came in with a different idea. We had a different approach from the geological point of view. We drilled a couple more wells and it proved that we were right. We’ve kept on drilling since then and so far our success rate has been over 80%, which is very unusual, particularly considering the failure of all the major companies before us.

What was different in your approach in terms of geology and how big are the reservoirs that you found?

The reservoirs that we found in Oman are not huge. They are difficult reservoirs unlike most of the reservoirs in the Middle East. But the oil is there, so if you jump out of the box and think in an unconventional and innovative way, then you can be successful, discover and produce oil.
We were successful because we thought differently than the previous companies from the geological point of view. They believed that the “kitchen” (the source that creates the oil) in this area was not mature enough, so the oil would start migrating from another area and then get trapped in a reservoir somewhere. They thought the oil was coming from the west so they drilled many wells in that direction. Normally, when there is a migration about 1% of oil per kilometer is lost, so if it travels 100 kilometers away from the source there will be not much oil left to make a reservoir.
But we saw that there was oil in one of the wells the Japanese drilled in 1986, so we thought it must be a different path of migration. Our philosophy was that the oil migration was vertical, and that the previous assumption that the kitchen in that area was not mature was not true. So we drilled and proved that there was a source rock and that the migration was vertical. Our discovery was in late 2009, and now we are producing about 12,000 barrels a day.

Can you tell us more about the different phases of your field development plan?

There are three phases in the life of an oil reservoir. In the beginning when we start developing an oil field, we produce primary oil which either comes flowing to the surface by itself, or we pump it up. When the pressure drops, we need to start with the secondary recovery where we inject water, or maybe natural gas, to maintain the pressure and be able to pump the oil up. In the third stage it is necessary to apply enhanced oil recovery (EOR) techniques and they come in many different forms.
In the phase 1, we started by putting in place early production facilities that we leased. We tested our wells and produced, and that gave us an idea of what is the best way to develop the fields. For example, in one of the reservoirs we found out that we will not need any secondary recovery because it has aquifer support and it will produce by itself, so there is no need to inject any water in it. However, in the other reservoir we discovered that the pressure depletes as we are producing, so in order to maintain the pressure we will have to inject water. So the first phase is the early production, which is where we are right now. In the second phase, we are building up the permanent facilities and they should be ready by September 2012. In this phase we will also do the necessary water injection in one of the reservoirs. Then the third phase will be enhanced oil recovery, in the future.

With 12,000 barrels a day, CCED is currently one of the leading oil producers in Oman. How big are the estimated reserves?

I understand that the largest producer in Oman is PDO (Petroleum Development Oman) with approximately 70% of the total production. After PDO comes Oxy. These two companies are the major producers, which produce approximately 93% of the Oman Oil, then Daleel Group, and then it is CCED. So we went from nothing to being maybe in fourth place, and that is something we are very proud of.
Currently, our estimated reserves are around 100 million barrels, but we are still in the process of appraising and finding more reserves every month. Our plan to drill 37 wells this year is on schedule, and even this year we have come up with many discoveries.

How much money have you invested so far in Oman?

By the end of 2012, we will have spent about $350-370 million. That is excluding the operational costs. This is mainly investment in infrastructure, building roads, pipelines, facilities, drilling wells, etc. so basically setting up the early production facilities and building the permanent facilities, which we are in the process of doing right now.
At the same time, we anticipate we will find more oil, so we will move ahead and plan to invest another $400-500 million in the next four or five years in Oman.

Speaking of infrastructure, how do you transport the oil from the wells to your clients?

We have two fields – Farha South in Block 3 and Saiwan East in Block 4. We have completed a 50-kilometer pipeline between the two fields and the oil comes from Farha to Saiwan where it gets mixed. The oil from Farha is about 42º API gravity, while Saiwan is about 33º API, so it is a premium crude.
We then transport the oil from Saiwan to the PDO’s facility where we hand it over to PDO. Currently, we are transporting the oil to PDO by truck, while we are waiting for the newly constructed 16-inch pipeline to be commissioned. The pipeline is at a late stage of completion and should be operational by July 2012 when we will stop trucking. Then PDO transports the oil through the main pipeline to the port where we load the crude on tankers, and because our crude is mixed with the others, we get premium for the crude. At the moment, we sell it to Mitsui, one of the partners, and they market it.

What are the main challenges you face at this stage?

We are a very young company and we are trying to explore, appraise, develop and produce at the same time, which is what we call parallel growth. We have been able to do things in such a short time because we do not wait to explore, then appraise and then develop; we do everything simultaneously, and it is not an easy thing to do. We have to be constantly planning, and we have to be very flexible. If we find out that our appraisal plan is not as we expected, we have to be able to quickly change the plan. This is a challenging thing to do.
Another challenge is building up the team. As I pointed out, we were only a handful of people in 2010, so we are still building a team and we want to employ as many Omanis as we can. We are currently at about 70% Omanization, but we still have to bring some of the experts from outside to do the job.

Creating employment is one of the major priorities of Oman’s government, in order to boost economic growth and maintain the stability of the country. How does CCED contribute to creating direct and indirect jobs?

We currently employ about 200-250 people directly and we plan to grow up to 300 staff by end 2012. But in our line of business, we create many indirect jobs and opportunities. We create jobs for the people providing services, such as trucking the oil, the water, the diesel; we provide jobs for the drilling companies; we provide jobs for people that build pipelines and other necessary infrastructure, etc. So we have about 3,000 to 4,000 people working in our fields as contractors at this time.

What would you say are the main lessons to be learnt from your success?

The way we do our job is teamwork with no bureaucracy. We work in an open environment, we are empowered, we make the decisions, we communicate, we have good relations with our board, with our partners, with the government, and we keep them abreast of all the information. We have quite a few meetings, and everyone that needs to know, knows what we are doing so we get approvals very quickly and we move forward.
Then we also do lessons learned. We review what we did well and what needs improvement. I think that the most important things in any project are skilled people, planning, teamwork, leadership, communication, and good relationships. If you have that, you will be successful.

Is the success in Blocks 3 and 4 inspiring you to look at other opportunities to purchase in Oman?

Yes, we are always looking at opportunities. Whenever something becomes available we take a look at it and do our studies. At the same time, our blocks are very large and we still have many opportunities in our own blocks, which we pursue aggressively with a lot of studies and exploration.
But we are definitely interested in other opportunities, because we strongly believe that Oman is a stable and peaceful country, and a very pleasant place to live in. Furthermore, the Ministry of Oil & Gas and other organizations are very helpful in doing business, so Oman is a very good country for us to work in.

There are many questions about the sustainability of the current level of oil production in Oman and the future of the industry. How do you see the market shaping up in the coming years?

There is still a lot of exploration potential. At the same time, the oil companies need to concentrate more on enhanced oil recovery. Plenty of oil has been discovered, and the maximum oil you can recover in the primary and secondary phases is about 40%. Thus 60% still remains in the reservoir and even if you can produce additional 10% with enhanced oil recovery it is going to be a tremendous amount.
Probably someday we will come up with the technology to recover even higher percentage of oil in the reservoir, but with the current technology we are able to pump up about 50-60% out of the reservoir, which is still a huge amount of oil. With 10%, increased by enhanced oil recovery, we are talking about billions and billions of barrels.

One of your concerns is to keep all the shareholders happy, including the local community. What are the main areas you focus on in terms of corporate social responsibility?

We believe that by extracting the oil, we profit from the area where we work, and therefore we have to give back to that community. We create a lot of employment opportunities for the local community; we train them and help them to advance their education, as we want to give them technical jobs. We try to award as many contracts as possible to the local contractors, if it is in their capability. We also make efforts to be safe and environmentally friendly, and we invest a lot in the infrastructure of the area where we work, such as building roads, etc.

What do you think the international community should know about Oman today?

Oman is a stable country with friendly people, and a very pleasant place to live and work in. Also it is a beautiful country to come and visit as a tourist, and there is room for expansion in the tourism industry as well. Also, I believe that there are many opportunities to invest in the oil and gas business, so people should come and discover Oman for themselves.