What is Expert Petroleum and its main business? What have been achieved since you started your business?
Expert Petroleum (XP) was founded in 2005 by two Schlumberger managers, Michel Louboutin and David Martinon. Their aim: to grow, extend and improve on the success of the Production Enhancement Contract they implemented with Romgaz in Romania. To build credential we decided to acquire first eight relinquished assets in Romania and with the financial support of private equity (Lime Rock Partners) to appraise and redevelop these assets. In 2010 we signed our first Production Enhancement Contract with MOL for the Sarkadkersztur gas field in Hungary. In 2012, XP has been awarded by OMV Petrom, a large Production Enhancement Service Contract for 15 years plus 10 years’ extension for all the mature oil and gas fields in the Timisoara area in Romania (13 fields in total with more than 250 active wells).
In 2013 the founders and GMS Holdings bought back Lime Rock Partners shares. The company is since then fully owned by the management and related parties. Three years later, in 2016, we acquired Petrofac SRL having a Production Enhancement Contract with OMV Petrom. Their PEC contract had a 15 years span plus extension, and produces from seven mature oil and gas fields in Craiova county, Romania. We are now extending our footprint to Ukraine, India, Angola, Congo, Kazakhstan, Uzbekistan, Mexico and North Africa. At a current glance, the company has almost 1,000 employees, is operating 25 mature fields, with 1,100 wells drilled, managing 8,500 boe/day.
This is impressive dynamics of Expert Petroleum, with plans to grow internationally. What was behind for gaining trust and reputation among your customers?
After doing production enhancement services for many years with Schlumberger we realized that there was need in the industry for a company that specializes and understands in depth the challenges of the fields in decline from a technical, social and environmental point of view. These challenges are very unique and specific and applying technologies, operating processes and management economics KPI used for the exploration and development phase did not work. Mature fields market is the biggest market in Oil and Gas and it will continue to grow in the years to come as exploration opportunities and discoveries are going down and the need to be more efficient with the limited resources that we have is becoming more and more important for the industry.
Expert Petroleum enhances mature oil and gas fields through long-term PEC, investing into maximizing the fields’ potential
Production Enhancement Contract (PEC) is a long-term 15+10 years’ risk service contract used in several countries, with no transfer of the field’s owner’s rights, reserves, assets and production. Expert Petroleum enhances mature oil & gas fields through long-term PEC, investing into maximizing the fields’ potential and making them safer, cleaner, more productive and more profitable for a longer period. Romania started to implement the PEC concept more than 18 years ago, and PEC definitely contribute positively to stabilize the oil and gas production in the fields contracted. In our case on the 25 fields we are working, we not only increased the fields’ production and extended their economic life, but also reduced the CO2 emission of these fields, reduced the freshwater withdrawal and increased the energy efficiency of these fields. We also started to rationalize the surface facilities and abandon and decommission the wells which were not needed anymore and reduced our operating footprint by around half. We want to go from mature assets back to nature.
How did you get to the idea to take over opportunities in Ukraine? What drove your decision to compete for PEC by UGV and Naftogaz? How do you evaluate the geological risks in Ukraine against those you might have met in other countries?
We have been coming to Ukraine for the past 3 years visiting fields, discussing with the field operators, and reviewing subsurface data, there is some similarity with Romania but each field has its specificity. This is not a one-size-fits-all business, each field has its particular issues that need a customized work program. This cannot be engineered from an office in Houston or Aberdeen, it has to be designed locally with the people operating the fields. Furthermore, Ukraine has a large pool of local service companies to assist us in our goals. You can feel a strong positive commitment in Ukraine these days to do the right things for the country. EBRD is one our financial support and advisor, we always listen carefully to their advices, and they have been quite supportive about our interests to invest in the oil and gas industry in Ukraine.
UGV is looking for partners for two blocks of gas fields in Western Ukraine. Are you interested in both of them? What is most appealing to Expert Petroleum?
Yes, we are interested and have submitted our tender bids to UGV on November 21 for both clusters of mature fields in Western Ukraine. From our experience, the larger scale ring-fenced projects are more economical for both the license holder and the service provider.
What are the advantages and strengths of Production Enhancement Contract? Approach to PEC of Expert Petroleum?
The PEC concept is becoming quite standard, and more and more popular around the world. Already 15 countries have been using it and more are considering it. The fact that we do not book and own reserves, which remain with the national or independent companies, and we do not own the production, makes it risk-free for our partner(s) for additional production, and extends economical life of their fields. Also, PEC requires us as the operator-investor to commit to a production guarantee and a minimum CAPEX for a certain period of time, usually 5 years, to take over the operating personnel from the asset owner, to fund CAPEX and OPEX, to propose Annual Work Program and budget, which is approved by the Joint Management Committee.
The PEC model provides for a license holder to keep the licenses and book their reserves, while involving a technically knowledgeable and financially capable operator-investor to operate these fields and invest into improving their overall performance: increasing production, improvement of field environmental conditions and safety, extension of the fields’ lifetime. While the license holder can concentrate his efforts on larger and new opportunities, and exploration. PEC is a 15+10-year contract mechanism, according to which an operator-investor earns from the license holder a baseline fee per boe for operating the field at the current production level, and earns an incremental fee per boe for increased production, which keeps him interested in increasing the field’s production for a longer time.
What results has Expert Petroleum achieved in the process of executing PEC contracts?
PEC mechanism has proved to be successful with OMV-Petrom in Romania, a former state-owned company, who has been contracting Expert Petroleum since 2013 though PEC to operate and enhance its old and mature fields, where XP doubled production on some of these fields, reduced the OPEX/boe by 50% (therefore extending the economic life of the fields and the reserves), reduced freshwater withdrawal intensity by 60%, the Green House Gas intensity (tCo2 eq/toe) by 75% and energy Intensity by a factor of 3 by using stranded gas for power generation and sales of electricity to the national grid.
Taking over the customer’s field personnel on board, Expert Petroleum applies all suitable best practices in the human resources area
Expert Petroleum’s approach is first to understand well the field history by listening carefully to the local operators, build an integrated reservoir and field model, then study (in some cases using artificial intelligence software) the best technologies from a reservoir, completion and surface facilities point of view to increase reserves and production (this can include new well design, customized hydraulic fracturing, water shut off techniques, etc). The fact that we focus on specialized help to ensure we go in details and in depth in all the options available. We strongly believe the knowledge is local. Taking over the customer’s field personnel on board, Expert Petroleum applies all suitable best practices in the human resources area, ensuring a safe, healthy and regulated work environment. Moreover, we maintain a permanent social dialogue with the representative trade union and with individuals. We are getting involved in local communities where we operate. In Romania we assist in bridge re-construction, local school assistance, university sponsorship, etc.
Do you plan to engage other service companies as subcontractors? For which services?
Definitely, we do not provide services as such, like drilling, construction, well stimulation. Therefore, we contract all the services necessary to perform the work for production enhancement. We strongly believe in using local knowledge and more than that, we typically work as partnership to develop new capabilities with them around new technologies related to production enhancement in mature fields. We have a long list of such technologies used in Romania with local subcontractors (cased-hole logging, drilling, artificial lift, stimulation, perforation, road construction, etc). We also work closely with local universities to sponsor special projects.
Have you ever thought about an upstream project to run solely by yourself in Ukraine? May you want, for example, to participate in an exploration and development special permit auction or participate in PSA projects?
No, we follow a strict business model and we are focused only on onshore mature assets rehabilitation.Author: ExPro