As one of Ireland’s biggest investors in the Arab world, oil and gas exploration and production company Petroceltic recently expanded its presence in Egypt, Algeria and Iraq, as Lynne Nolan discovers
Headquartered in Dublin, with offices in Edinburgh, London, Algiers, Varna, Cairo, Constanta and Rome, Petroceltic’s shares are listed on the Alternative Investment Market (AIM) of the London Stock Exchange and on the Enterprise Securities Market (ESM) of the Irish Stock Exchange.
With its market capitalisation standing at just under US $500 million, it’s almost hard to believe this is the same company that had just four employees when Brian O’Cathain joined Petroceltic as Chief Executive in 2007.
A geologist and petroleum engineer with more than 25 years’ experience in senior technical and commercial roles in upstream oil and gas exploration and production companies, O’Cathain, who started his career with Shell in 1984, previously held the positions of Managing Director of Tullow Oil’s international business and Chief Executive of Afren.
“I started off in the North Sea, worked in New Zealand and Holland, and ended up as a petroleum engineer and team leader with Shell, drilling on the rigs for three years. Shell was a great place to start. I left Shell in 1990 and joined Enterprise Oil, a UK company. I started off in the exploration department and then I went into business development, buying and selling companies, and deal-making,” he recalls.
As Tullow Oil was expanding in Africa, O’Cathain’s work brought him to Sub-Saharan African, Algeria and Egypt. After that he was involved in setting up a company called Afren, listed on the London Stock Exchange and mainly focused on Nigeria.
Petroceltic’s first venture into North Africa was in 2003 when it applied for a license in Tunisia.
“We were awarded a license to drill and explore in Tunisia. On the back of that, we were able to go to Algeria. We made our first application in Tunisia in 2003, and we applied in Algeria in 2004. We’ve been building up ever since.”
When O’Cathain joined Petroceltic in April 2007, the company was present in just three countries: Tunisia, Algeria and Italy.
The company’s big break came two years later, when Petroceltic made a giant discovery in the Ain Tsila gas field in Algeria’s Illizi basin.
“That’s a world-class asset [discovery at the Ain Tsila field, Algeria]. That’s more than two trillion cubic feet, twice as big as Corrib and Corrib is the biggest thing to be found in Ireland in the last 30 years. The field itself that we’ve discovered is bigger than London inside the M25.”
“Up to that point, we were an exploration company and suddenly we’d made a major discovery; a discovery that required a lot of capital to develop and explore so we had to go out and raise a lot more money.”
“We’ve now drilled nine wells on that field. We’ve got a plan of development approved by the Government and we’re looking at spending in excess of US $2 billion to get that into production, so for a small Irish company that’s quite a big deal,” he enthuses.
The field that we’ve discovered in Algeria is bigger than London inside the M25.
The main focus in on Algeria: “we have a big project and we’re focused on bringing that into production. That’s due to come on-stream at the end of 2017 and at that point we’ll be producing a lot of oil and gas in Algeria and that production goes on for 14 or 15 years so it’s a huge undertaking for the company.”
Petroceltic recently secured three more exploration licenses in Egypt, where it has two blocks in the Nile Delta and currently produces about 20,000 barrels of oil a day, while in Kurdistan the company is currently drilling an exploration well, which has “a very big target. It could be a 500-million-barrel type target.”
“Last year we acquired a company called Melrose Resources, which had producing assets in Egypt. We also went into the Kurdistan Region of Iraq in 2011. Now we’re in three different Arab countries.”
Melrose boasts a history in Egypt going back to the 1990’s. “They had acquired another company, in turn, that was investing in Egypt since the 1990s, so our Egyptian joint venture is probably older than Petroceltic. Some of our Egyptian staff have been with the company for more than 20 years.”
“Most of our investment over the years has been spent in the Arab world; we’ve spent in excess of US $300 million in Algeria, probably more than that in Egypt; so we’ve made big investments. We’re probably one of Ireland’s biggest investors in the Arab world.”
With the three new exploration licenses in Egypt, Petroceltic plans to invest more money into and expand in Egypt, O’Cathain reveals.
“We’re continuing to invest in Egypt, while in Algeria we’re investing hand over fist at the moment, doing our development project, but there’s a new exploration licensing round coming up in Algeria later this year. We’re planning to look at that as well. It’s a great place to invest,” he says.
Does the company plan to expand further? “Absolutely,” O’Cathain responds, without hesitation.
North Africa is a hugely significant market for Petroceltic, accounting for “probably half our revenue and most of our spend this year (2013).”
Commenting on the main draws of North Africa for the company, O’Cathain describes it as an attractive place to grow, with a lot of oil and gas which Petroceltic can access, and plenty of scope for doing more business there.
In line with its strategy, Petroceltic seeks to develop its operations in North Africa, as well as in the Mediterranean Basin and Black Sea.
The company has built a strong operations team which covers this area and which provides exploration skills in geology, geophysics, petrophysics, reservoir engineering, petroleum engineering, well design, drilling operations and project management.
The company, which recently entered offshore Greece, is present in Romania and Bulgaria, as well as developing its business in Italy.
“We’ve just started a big well in Kurdistan, we’ve another one coming up in Romania and we’re about to award the front end engineering and design contract for our project in Algeria, so we’re really beefing up the Algeria team,” he says.
The company has already expanded from “a small number of people to about 30 or 40 people” in Algeria, with that figure set to increase again.
It’s a very exciting team for the company, he says. “We’re expanding across the portfolio and there should be an exploration licensing round in Algeria later this year, which we hope to participate in as well, so that will be something for the future.”
The challenges of doing business in the Middle East and African markets are unique in every place, he says.
“In Egypt now, the Government has a problem because it is subsidising gas prices and it doesn’t have enough gas to supply it to the market, so it’s having to buy gas externally at a market price and then sell it at a subsidised price, which means that Egypt is nearly running out of money and they’re very short of dollars,” he explains.
“Although the Government has goodwill and wants to pay us, sometimes they’re not able to pay us as much as they owe us, so we’re currently owed about US $110 million by the Egyptian Government, and although they are trying to reschedule their debt, this is quite a lot of money for a small company like us.”
In Algeria, however, the issue is the length of time involved in waiting for decisions to be made.
“With the best will in the world, everybody wants to make the project go forward but sometimes for local, social reasons it just takes longer to get agreement than you’d expect and that can have an impact on the project,” comments O’Cathain.
One of the more unusual facts about Petroceltic’s operations in Egypt is that the company does not have any expats, hiring only Egyptian staff.
“We’re probably the only international company there that operates like that. That gets us a lot of kudos and respect from EGPC, the state-owned company. We try to employ local people as much as we can in the markets we go into,” O’Cathain comments.
“It gives us an edge in Egypt. In Algeria, we would be one of the smallest operators,” he says, with Petroceltic operating alongside bigger players there including Hess, Shell, BHP, ConocoPhillips and Anadarko.
“We’re a small company, but I think because we’re small the host country Governments don’t see us as being arrogant and we actually get along fine with our counter-parties in Algeria, because we’re not a threat. We try to work very constructively and very openly, and to be honest and transparent, as relationships are hugely important, not only in Ireland but also in North Africa,” he says.
North Africa offers a lot of opportunity for Irish companies, he believes, stating his willingness to facilitate or help people to access Algeria.
“It’s great that Ireland is represented in Egypt with an Embassy, but we’re not represented in Algeria and one thing I would like to see is us having a consulate or an embassy in Algeria,” he says. “Algeria is a huge market for a Ireland, not just in oil and gas but it is also one of the largest markets for milk products from An Bord Bainne”.
O’Cathain, who employs many Francophones, believes there should be a greater willingness among people in Ireland to learn other languages.
“If you look at where Irish businesses go overseas and where we have embassies, it tends to be in English-speaking countries. We ought to be looking at where the business is, not just where we speak the language.”
Published in December 2013.