Q: What impact did the revolution have on your operations in general?
Wells: We’ve been here a long time, for over 100 years. We weren’t particularly phased by what happened in the last year because we’ve been here a long time and we’ve seen dramatic changes — maybe not equivalent [to this] — in the country before. Our operations did not change very much at all. Security is a bit more of a challenge. We had one of our shops extensively damaged during the revolutionary period; that was a first [for ExxonMobil] in Egypt.

Q: Which location was it?
Wells: The Corniche site. These locations are open 24 hours, they are not designed to be locked up and abandoned. This one got damaged and looted. We lost one site out of 350. It was shut down for three to four months while we repaired it. That happens from time to time in other parts of the world. It has never happened in Egypt. So that’s new.

But customers and our operations were surprisingly resilient. We supply lubricants to industrial customers and the demand for those products dipped a little bit during February, but then recovered. The demand for transportation fuels again dipped a little bit in February, but recovered. So overall, this year is not as high volume as last year was. And we’ve got some additional costs associated with security, but I would not want to quantify it as a big impact.

Q: And the additional costs only pertain to security or was there something else?
Wells: Again, not much. We just need to be smart at what we do and how we prepare sites to be left from time to time, investing in things like security cameras. When customers associate our sites with being safe, we need to maintain their safety. It’s small investments, looking after our cash in a more secure way. We’re obviously collecting cash so therefore we are potential targets for criminal activity. Therefore, we spend some time thinking about this and reducing exposure during a robbery or anything of the sort. Unfortunately, robberies are more common than they were in the past. Still, at a fairly low level compared to other parts of the world where we are used to dealing with that.

Q: What about disruptions of supply? I know there were disruptions in ExxonMobil’s crude oil supply in Libya.
Wells: It’s actually the government that sources the crude oil and the product, we buy those products from the government. But even in Libya, the network is so large it seldom translates into an actual shortage. Sometimes the market is reacting in a different way because they think there is going to be shortage. We actually did not see that here. We just encountered the normal problems. It got a little bit tight in May during the agricultural season when diesel was tight, which is not revolution-related.

Q: How long did this period last?
Wells: It was a few weeks. It’s not a systemic shortage by any means. I would be surprised if it was more than about 20 days that we had any shortages. If we have shortages they will be confined to a few sites. I don’t think it’s an emerging trend for us to be worried about.

Q: How do ExxonMobil’s operations in Egypt fit into ExxonMobil’s larger global strategy, as it focuses more and more on natural gas internationally?
Wells: We are a fuels marketing and lubricants manufacturer and distributor. ExxonMobil doesn’t presently have upstream activity.  However, we are always interested in assessing opportunities as they arise. We have a retail network of 350 service stations, some of which have the convenience retailing On the Run brand attached to them — mainly in the Greater Cairo area. We have the lubricants we blend and market for passenger cars for industrial customers.

Q: Where are the major production facilities?
Wells: At Alexandria and Tenth of Ramadan City, these are lubricant blending plants, really state of the art. They are among the best, most efficient, safest, lowest-cost in the world.

Q: What was the strategy behind bringing in this side of the business, basing it and keeping it in Egypt?
Wells: Cost is a driver; it’s an internationally marketed product. The lowest production costs are in your interest. But it’s also access to highly educated people who you need to build initially and operate these plants going forward. Those are the key drivers. Also, being close to our customers is important. There is a market in the Middle East, not just North Africa, and you try and site yourself close to where that demand is so you can supply it efficiently.

Q: What is your estimate of that demand over the next year or five years?
Wells: I think it’s flat. You’ve got a couple of drivers there for our products. There is the growth of the economy, for sure. As the economy stands to expand so does the consumption of our products. We don’t make predictions, but I would not expect that to be too different next year than it was this year. There are motor fuels in the region as well. More and more people aspire to own cars these days, but the cars they buy are more efficient than older ones. If you look at more developed markets like Europe, one cancels the other so the demand for motor fuels is approximately flat going forward.

Q: When did E&P stop being part of your operations here?
Wells: It was at least 10 to 15 years ago, not part of recent history. Maybe in the future[it will resume]. The investment selectivity is key. We are highly selective about where we invest. We need to be convinced there is a return there and we don’t develop everything we are offered, but we monitor.

Q: Where do you see ExxonMobil in Egypt vis-à-vis other competitors?
Wells: ExxonMobil Egypt builds on more than a 100 years of partnership in Egypt’s growth. During this time, we continued to be a premier fuel and lubricant marketer in Egypt. What is different about Egypt is that it is a regulated market from a fuels perspective, so we are not competing on price as we are in most countries. That has to come to an end at some point. I think everyone agrees that will happen eventually, but it will probably not be an immediate priority for the new government. The look of our shops is what we use to differentiate ourselves because we can’t on price.

Q: What about the cost of maintaining those shops?
Wells: It’s a challenge because we have to do that from our margin, and that margin is a regulated margin; it’s not something we have control over. The industry needs movement in that margin over time because there is old equipment that needs replacing and upgrading and renewing. Much of it was invested in many, many years ago. The whole industry faces this challenge. There are few shop sites that don’t look their best, and if you talk to anybody in the industry, they’ll tell you the industry needs an improvement to our margins so that we can address those longer-term investment needs.

Q: So what needs to happen?
Wells: From time to time, the government makes changes to the [gasoline] price. They can make a change in price, which will allow for improvement in margins that will allow for investments  necessary in the infrastructure to be continued. There haven’t been many sites [service stations] built in recent years, and we need to see that changed. We partnered in Egypt’s growth during these 100 years and we’ve reached 350 [service stations]. The whole industry has [grown]. Now as new areas develop, more service stations are needed.

Q: What about Egypt’s larger role in ExxonMobil operations and its percentage of revenue?
Wells: The contribution to revenue is relatively small. When you get into upstream business, the numbers get very large. Egypt has been a profitable business, that’s why we’ve been here over 100 years. Otherwise we wouldn’t be here. We look forward to keeping it a profitable business. bt