Wintershall: Stepping up to the challenge
From the sour fields of the UAE, to conflict-torn Libya and hostile Iran, Wintershall is eyeing high-risk projects for high returns
For a European E&P company, Wintershall’s history in Abu Dhabi is fairly recent. The company entered into an agreement with ADNOC in 2012 to become the main operator in the technical appraisal for the ultra-sour Shuwaihat gas field.
Since then, it has spudded one well, studied numerous reservoir samples and is yet to drill a second well offshore, all of which to just determine the feasibility of a production project.
“We are in this for the long run,” Martin Bachmann, head of Exploration & Production for Europe and the Middle East at Wintershall, tells me at an informal media ‘get-together’ the night before Wintershall’s annual press conference in Kassel, Germany.
“I am looking for a 35-40 year relationship [with ADNOC]. Whether it takes three or four years at the beginning, it doesn’t really make a difference,” Bachmann says. Typical German patience, I thought. But then again patience is exactly what Wintershall needs now more than ever as more and more unconventional and capital intensive projects are taking a back seat - if not being scrapped altogether. And historically, ADNOC can be quite protective of its fields. Almost two years after the bidding process began, it is yet to decide who of the nine IOCs should be awarded the remaining shares in its 40-year onshore concession.
But Wintershall has an ace up its sleeve. Having spent years working on some of Germany’s most challenging fields, it might be the only drilling company in the region that knows how to unlock Shuwaihat’s difficult reserves.
“One of the reasons why we brought the field of EOR to ADNOC and to Abu Dhabi is because we’d been working on EOR for a long time. BASF is our mother company, the biggest chemical company in the world. Of course we have all the research capabilities, all the labs, everything that BASF does - at our disposal,” Bachmann said.
Shuwaihat field is known for its high concentration of sulphur and challenging geology, meaning enhanced oil recovery will be required to develop its reserves.
As an expert in the field of Enhanced Oil Recovery (EOR) and Improved Oil Recovery (IOR), Wintershall is well positioned to provide ADNOC with the technical know-how on EOR, while its access to special chemicals through its parent company BASF will prove essential in selecting or developing a tailor-made product that tackles the geological challenges at stake.
“We looked at the whole portfolio of BASF and said okay if we take this rock which of the chemicals actually works under the given temperature, pressure, salinity, etc. On the one hand we are looking at the fields in Abu Dhabi, on the other hand here in Germany at BASF we are looking at which chemicals will be the right chemicals for the special conditions there,” said Bachmann.
“One of the challenges that we have in the Middle East and I think this is why nobody is doing [EOR] yet on a big scale is that the reservoir rocks are mainly carbonates, it’s not sand; often there is [high content of] sulphur in the reservoir and the temperature is quite high. These three things make it quite challenging to find the right chemicals and I think that’s the first challenge we have.”
“The second challenge is — and we know that from [our experience in] Germany — how you apply it in the field. What sounds simple — I take the chemical, inject it in the reservoir and produce oil — is much more complex is practice so that you actually achieve the desired results in the end. But once we have selected a pilot that would be the next step.”
Wintershall is hoping to secure a 35 to 40-year contract to develop the field, with Bachmann saying a production agreement could be struck as early as next year.
“The contract that we have allows us to go into developing and operating the field so that’s been discussed already. Whether it is going to be done in a big development in the region that we will have to see. I think we’ve made a good first step to demonstrate that we can drill complicated oil and gas wells. I think the next step is to come up with a field development plan and create a concept for developing the field.”
Further to Shuwaihat, Wintershall is hoping to get involved in other EOR projects in Abu Dhabi, which last year announced plans to increase the recovery rate of its oilfields from 50% currently to 70%.
The German E&P company is also eyeing opportunities in Iran, where it recently signed an MoU for collaboration on energy and infrastructure projects. “Iran is opening up at the moment. Clearly we are looking at it like everybody else because the types of things we offer they need in Iran,” said Bachmann.
“They have a lot of the big oilfields which need to increase recovery. I don’t think they are quite at the stage where they would need EOR, first thing is conventional IOR, water injection, gas injection I think that’s one. EOR will eventually be one of the things. There are also new fields to develop.”
On the question of whether Wintershall is looking at any specific projects, Bachmann reveals: “They have published a list of fields which we are looking at but we have very little data this is a question of getting data first and looking at what needs to be done.
Bachmann appears to have done his homework as the majority of Iran’s assets require complex recovery methods and heavy use of technology to come on stream.
Although less numerous, gas fields are the biggest projects on offer currently in Iran. Out of the potential for 28bn barrels of oil equivalent (boe), gas represents 17bn boe, almost all of which are greenfield developments. In fact, 19 of the 20 gas assets are greenfield compared to 19 of the 29 crude oil projects. With gas comprising some two thirds of Wintershall’s portfolio, the company has significant capabilities to develop Iran’s gas fields.
In addition to greenfield projects, many of Iran’s hydrocarbons are trapped in challenging formations that demand investment in infrastructure and technology.
However, much uncertainty continues to surround the terms and conditions on which foreign companies would operate, leading them to adopt a rather cautious approach.
“We are basically very careful, we are going into it step-by-step. It is easier for European companies to do business [with Iran] than American companies; some sanctions which apply to American companies don’t apply to others,” Bachmann says.
“You can see that most European companies are looking and talking and that’s what we are doing - trying to find out what the opportunities are, what’s the environment, learn about the oil industry there. That’s what we are doing but in a very careful and in a very measured way,” he says.
To go into Iran, like every commercial entity, Wintershall would want to see the economic incentives and so far, though an improvement to the old buy-back contracts, the new Iran Petroleum Contract doesn’t offer awfully much. Foreign E&P companies would not be entitled to a production share in a field, but rather receive a floating remuneration fee linked to oil prices, similarly to a PSC.
On the plus side, there will be opportunities for 20 to 25-year long term contracts, setting up joint ventures with Iranian companies, and sharing risk. Priority or riskier projects will have higher returns, while exploration terms have also been made more attractive.
Furthermore, the new terms are more competitive with no ceiling for cost recovery and a floating remuneration fee per boe based on oil price, exposing investors to upside oil price risk.
“The ambitions they have are quite clear but they still haven’t fully published the Iran Petroleum Contract. There you see there is still a debate going on inside the country on how to do it and I think we need to give the country some time to have this debate and decide what it wants to do,” said Bachmann.
“The old contracts were not economic and that’s the first thing we will be looking at - does this actually provide an economic framework for the development of oilfields and for operations because we will only invest in a country that provides economic [incentives] and that makes sense to us from a business point of view,” he added.
But Wintershall isn’t unfamiliar with operating on high risk ground. The German E&P company has been in conflict-torn Libya since the times of Moammar Gaddafi and remains one of the very few European firms in the country after the political and social unrest began.
Its installations and fields haven’t been targeted by militias and are ready to start production any time the ports are safe to use. Last year the company produced 30,000-35,000 barrels per day (bpd) for a total of 125 days, utilising one third of its capacity. In fact, it is still operating on contracts it signed during the time of King Idris, the first and only Libyan King, reigning from 1951 to 1969.
“We’ve been there for a very long time and we have an excellent pool of people. In fact, we are now at a point when our Libyan staff can operate the installation themselves. They don’t need any of us. We have all of the installations equipped with remote access, fibre optic cables, etc. So we can actually talk to them via video calls, can look at the plant from here (in Germany) and help them if they need help,” Bachmann says.
“As Wintershall, we are embedded in society; that’s why for us it’s not a question of saying: ‘Okay, we are out, close the door and come back later’. We are much closer to the society, our people are part of the Libyan fabric that’s how we see ourselves,” he says.