Caspian Energy (CE): Mr. Rigas, Energean is a small, but flexible oil and gas company. How is the company surviving during the crisis at a time when investment funds are withdrawing money from the oil and gas industry, while the large majors lost up to 90% of their profits last year? Will the company’s investment program be implemented until 2018?
Mathios Rigas, Chairman and CEO of Energean Oil & Gas: Energean long before the oil price crisis engaged in a major cost reduction programme that resulted in being able to operate with breakeven prices below $30/bbl. This coupled with the fact that Energean has significant operating leverage through the use of facilities that can handle production of 30,000 bbls/day without additional capital investment allows Energean to continue investing in the Prinos field despite the drop in the oil price. In addition, we have managed to reduce drilling costs by over 30% compared to pre-oil price crisis levels. This, coupled by the fact that we own and operate the drilling rig operating in Prinos gives us the flexibility to be able to drill low cost wells and enjoy a low cost production cost. In conclusion, being prepared for the crisis, responding to the crisis by reducing costs and having shareholders that take a long term perspective on the business is what has allows Energean to be the only Company in the region committed to drilling 15 wells in the next two years.
(CE): Do you agree that the crisis has bottomed out and what scenarios for upstream development would you suggest? Do you expect positive movements in the market this year?
Mathios Rigas: It seems so, but it is not easy to judge. Falling under US$ 40 or even US$30 per barrel puts a lot of projects in danger and brings into question the feasibility of the majority of the fields worldwide. Major oil producers appear willing to freeze the output, even though such a move won’t be enough to cause a substantial price increase. I strongly believe that the smart money in the oil & gas industry has already been seeking opportunities in order to achieve first movers advantages in a market that has been in “shock and awe” for two years in a row.
(CE): Energean is engaged in operations on the shelf of the Aegean Sea, Eastern Adriatic Sea, Egypt, and the Israel’s sector of the Mediterranean Sea. Where gas resources were primarily discovered? Are they cost-effective in the current situation of the global gas market? Will they enable to meet the growing demand of Europe? How do you assess probable production potential of these regional projects?
Mathios Rigas: Major gas discoveries have been announced in the SE Mediterranean in the last years. Offshore gas fields like “Zohr” in Egypt, “Leviathan” and “Tamar” in Israel and “Aphrodite” in Cyprus, as well as onshore oil & gas fields in Albania, indicate huge hydrocarbon potential, the development of which will enhance Europe’s supply diversification and safety. We also strongly believe that Western Greece, which has the same geology as the Eastern Adriatic, has a significant potential exploration upside. But it is obvious, that huge investments are needed for the exploitation of the already discovered fields in an environment of low oil & gas prices. Governments should provide clear, stable and attractive legislation in order to secure that the industry will be able to make the investments required. In addition, all the countries involved must work to guarantee stability and peace in a region of crucial geostrategic importance which hosts prolonged tensions traditionally. Finally it is obvious that US gas landing in Europe through LNG cargoes will put significant pressure on gas prices that will result some of the projects to be uneconomic without incentives and attractive terms by host governments.
(CE): In his exclusive interview to Caspian Energy Mr. George Spanoudis, Chairman of the Board of DEPA Group, said the gas demand in Greece will increase up to 8 bcm of gas per year in 15 years. Do you share this opinion? Will the current level of investment into European upstream projects be enough to meet this rise?
Mathios Rigas: When Greece’s economy enters a growth trend, undoubtedly there will be an increase in energy consumption, albeit Greece will still be a small consumer on a global scale. Investment in upstream projects in the region has the potential to cover the needs of Greece and provide diversity of supply from the existing gas supply contracts, however, exploration carries significant risk and the commerciality of any new discovery depends on a number of factors the most important of which being gas prices and fiscal terms. Greece and the neighboring countries must provide the appropriate fiscal environment to ensure the viability of exploration and development of oil and gas in the region and at the same time regional cooperation is required to create the infrastructure that will allow the commercialization of discovered gas in the region. Greece can and must become a natural gas hub and promote all major gas infrastructure projects such as TAP, IGB, new LNG terminals, CNG, new onshore gas pipelines and last but not least its own Underground Gas Storage. Energean since 2011 has proposed to the Greek Government the conversion of the almost depleted natural gas field of South Kavala, into the first Underground Gas Storage which will be located at a crossroads of pipelines like TAP and IGB and have the ability to store up to 1 BCM of gas annually. This will not only provide security of supply for the country but also strengthen the country’s role while negotiating with its suppliers, as well as its strategic position in the wider area.
Greece and the SE. Mediterranean will receive natural gas quantities, as various routes will be usedfor gas transportation from the fields to the European consumers. New infrastructure such as pipelines, LNG and CNG terminals and, of course, storage has to be designed and implemented in a timely mannes, and it is certain that not all the projects will get financed.
(CE): How will Energean address the problem of transportation of crude hydrocarbons of Energean’s fields in the Mediterranean? How feasible is their connection to the Southern Gas Corridor?
Mathios Rigas: As I have already mentioned, Energean has signed an offtake agreement with British Petroleum, which purchases the entire oil production from the Prinos oil field – the only producing field in Greece. Our infrastructure is located at a crossroads of the planned Southern Gas Corridor, so I am sure that any future discoveries will act supportively towards the creation of this energy route.
(CE): There are lots of promising structures explored by foreign companies in the late 90s. Is Energean interested in working in the Caspian shelf?
Mathios Rigas: Energean is an emerging regional player in the wider area of the SE. Mediterranean and N. Africa, where it already holds five exploration and exploitation licenses in Greece and Egypt. Our company has been waiting for the results of ongoing tenders in Greece and Montenegro while seeking opportunities in Israel, Albania and other countries. The Caspian Shelf is a traditional hydrocarbon play which cannot be ignored by any upstream company in the region. It is certain that a possible focus on the Caspian Sea will require partnerships with other big oil & gas companies which will guarantee the success of any relevant plans. We are confident that Energean is perfectly placed to attract such partners, but it is pretty premature to say that we will target the region for future projects.
Thank you for the interview
Interview made by Zaur Hacizade, Emil Mammadov