Middle East Economic Digest, Oil & gas special report: Veba - A long-term commitment
This week's issue
MERGER mania has swept the oil industry in recent years. Giants such as France's TotalFinaElf and the US' ExxonMobil Corporation now dominate the international hydrocarbons business in terms of financial assets and people power. But some companies are bucking the 'bigger is better' trend. One such company is Veba Oil & Gas (VOG), a subsidiary of Veba Oel and one of Germany's three international exploration and production (E&P) firms.
With 256 employees and a turnover of Eur 1,800 million ($1,682 million) in 2000, VOG is a minnow in the world of multinational oil companies. However, its strategic approach of focussing on a select group of core countries and specialising in E&P has enabled it to remain one of Germany's most successful oil companies. For more than 40 years, it has managed to conduct and expand business activities in the Middle East and North Africa (MENA) and other key E&P areas across the globe.
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The company first moved into the Middle East and North Africa region in 1958, when it acquired a 25 per cent interest in Mobil's concessions in Libya. Then known as Gelsenkirchener Bergwerks-Aktiengesellschaft (Gelsenberg), the company discovered oil in the Jufra field in the same year.
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Libya remains one of its most important markets, where it trades under the name of its subsidiary Veba Oil Libya (VOL). Operations are carried out through a joint venture with Libya's National Oil Corporation, which produced about 90,000 barrels a day (b/d) last year.
"We have been in Libya for decades now and we want to be part of the future there," says a representative of VOG's MENA operations. "Libya is keen to encourage investment and we are keen to invest. Therefore, we have prepared plans to increase production, mostly by actively investing in old acreage."
VOG is carrying out some exploration in the country but its focus is on production. Its most important concession is the giant Amal oil field, about 200 kilometres south of Benghazi. Production, which began in 1966, is running at about 50,000 b/d, accounting for more than half of the joint ventures total output.
The company has been placing considerable emphasis on improving oil recovery from existing concessions. In 1986, the joint venture operating company introduced the first phase of a waterflood scheme to lift oil from the Ghani/Zenad field. The second phase of the ambitious project began in 1993, with a capacity of 100,000 b/d of water. The successful implementation resulted in the company pushing ahead with similar projects at Jufra and Amal.
Syria is the second pillar of VOG's activities in the region. The company first entered the market in 1979 as Deminex, when it acquired a 37.5 per cent interest in the Deir al-Zour production-sharing contract. Since 1985, VOG has been a partner in Al-Furat Petroleum Company (AFPC), an operating joint venture with the Royal Dutch/Shell Group and the Syrian Petroleum Company (SPC). AFPC produced slightly more than 300,000 b/d in 2000, a sharp decline from its 1993 production of over 400,000 b/d.
"Production is declining by about 10 per cent a year," says the spokesman. "We are now trying to maintain a plateau of 300,000 b/d. As in Libya, we mostly concentrate on existing fields in order to maintain and enhance existing production."
In 1999, Shell and VOG presented several proposals for oil field rehabilitation and further exploration in existing areas belonging to SPC. However, there has not yet been an official response to the proposals.
Small oil discoveries were made in 2000, when Shell and VOG drilled two more exploration wells in the Zenobia contract area. VOG says evaluation of the wells is still under way, with results expected later this year.
Similar to its approach in Libya, VOG has been pursuing a long-term strategy for its Syrian activities. The company says it plans to introduce new improved recovery schemes and integrated gas-to-power projects.
Egypt is the only MENA country where VOG conducts both onshore and offshore E&P. As Deminex, the company entered the country in 1973. VOG now operates through and holds a 49 per cent share in the German Oil & Gas Egypt Company, a joint venture with RWE-DEA. The company produces about 50,000 b/d from its Ras Budran, Ras Fanar and Zeit Bay fields, all located in the eastern part of the Gulf of Suez.
VOG is also active in oil and gas exploration, with interests in the onshore Assiut block and the offshore North Idku concession. In the latter, initial wildcat drillings in 1998 resulted in a first discovery of about 150,000 million cubic feet of gas. "We have done more exploration in the same block but are not there yet," says the representative. "We still need to completely finish the evaluation of the wells drilled. In addition, we will probably drill another exploration well this year."
Since 1999, VOG has also been eyeing developments in Iran. It is involved in a study covering the southern Caspian Sea between the National Iranian Oil Company, the UK's Lasmo and Shell. The agreement enables the partners to conduct geological and geophysical studies and to acquire seismic surveys in the area. In addition, it gives them the option for possible future exploration and development.
While expansion into other MENA countries is not excluded by VOG's long-term strategy, it is not imperative. Says the VOG representative: "We try to maintain and expand our activities in the countries where we are present and as of now there are no concrete plans to expand further. However, the region is one of the most important areas for us on a global level because there is so much potential." |
