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Targeting new horizons

Muzaffar Rizvi
Filed on July 23, 2013

Crescent petroleum is shifting its focus back to the Middle East and Africa region and is planning to expand the company’s operations to exploit the business potential in local and regional markets, its top official said.

The Middle East’s oldest private oil and gas company looks set to strengthen its position at home base Sharjah and strong foothold Iraq and plans to explore opportunities in Lebanon, Yemen and East Africa.

“We are focusing on our major operations in Iraq and in Sharjah, as well as looking to new areas of expansion in other countries in the Middle East and North Africa [Mena] region and beyond,” Majid Jafar, chief executive of Crescent Petroleum, told Khaleej Times in an interview.

The region’s premier energy company, which has been an active industry player since its establishment in 1971, is engaged in the acquisition, exploration and development of petroleum concessions, and the production and sale of crude oil, petroleum products and natural gas. It is exploring energy opportunities in the Middle East, specifically within the Gulf region, but more widely also encompassing North Africa, the Caspian Sea and South Asia.

Sharing Crescent Petroleum history, Jafar said the company initially started as an operating company for the Mubarak Field offshore Sharjah, which was managed successfully for 40 years. Over the years the company has grown and expanded in other countries and regions, and has operated in Egypt, Yemen, Pakistan, Iraq, Yugoslavia, Argentina, Canada and other countries, he said.

“We are proud of our history as the oldest private oil and gas firm in the UAE, as it was established in the same year as the UAE,” he said.

Jafar is also a vice-chairman of the Crescent Group of companies, which includes interests in port management, logistics, contracting, private equity and real estate. He is also a managing director of the board of Dana Gas, the first regional, private sector integrated natural gas company in the Middle East.

“Crescent Petroleum was instrumental in establishing Dana Gas as the lead founder in late 2005. Dana Gas is the first private but publicly-listed energy company in the region and Crescent is the largest shareholder with 22 per cent,” he said.

To a question about listing Crescent Petroleum and launching an initial public offering, or IPO, to fund the company’s growth, he said there is no plan to list the energy firm at the moment.

“We are proud to have launched Dana Gas with major partners from across the GCC, and that is currently our listed affiliate company with which we partner also in some projects. We have no plans to list Crescent Petroleum, but we are studying other options to fund growth and investment in the oil and gas sector in our region.”

“There are other approaches that can be considered, including partnerships which is something we have always prided ourselves on — to be a partner of choice for governments and international private companies. Also, there are new models of private equity funds which are being followed in other regions, separate from an IPO, or public markets.”

Mena, Iraq investment

Jafar said Crescent Petroleum has for some time now been focused on the Mena region, where there is still a lot of potential but also volatility.

“We are also now expanding our horizons, with potential opportunities in Lebanon and Yemen, and further afield East Africa has become very interesting as a new region for oil and especially gas,” he said.

“Our region has 60 per cent of the world’s oil and 40 per cent of the world’s proven gas reserves, and this is even before full exploration has been carried out of important new areas like Iraq,” he added.

Elaborating, he said Crescent and its partner and affiliate company Dana Gas invested over $1 billion in the Kurdistan region of Iraq during past five years to explore the energy sector. The company’s current production in Iraq stands at over 80,000 barrels of oil equivalent per day, including 15,000 barrels of condensate plus LPG.

“We are the largest producers and investors in the Kurdistan region, which has become a major internationally recognised area for oil and gas investment. Also, on a social and economic level, the gas we produce feeds local power stations which now provide electricity for millions of people and this has transformed the economic climate, in contrast to other parts of Iraq which still have only a few hours of electricity per day. “We are currently in discussions with the Kurdistan Regional Government [KRG] to double our production with major new investments, since the demand for gas is increasing as the economy grows,” he said.

He said Dana Gas and Crescent Petroleum have restored full LPG capacity in Kurdistan following the rebuilding of the LPG loading and dispatch facilities at the Kor Mor LPG plant.

“The reconstruction and upgrading of the loading facilities was carried out at a cost of $15 million following an accident last year by a third party tanker operator, and incorporates the latest LPG loading safeguarding and control technology. The plant now has the capacity to produce up to 900 tonnes per day of LPG which is once again available to the Kurdistan region and surrounding markets.”

Challenges, incentives

Jafar said many countries in the region need to revise and update their energy policies, which have not changed much since the 1970s, and are not giving enough incentives to private sector to invest in the oil and gas sectors.

Citing political instability and conflict as main challenges facing the energy sector in the region, he said the governments need to put in place the right regulatory frameworks and incentives to encourage more private sector activity and investment in the sector.

“Today, governments now want from their energy resources than just export revenues — they want to ensure more investment in other sectors, more internal economic growth and diversification, and above all more jobs to be created for the young generation. This is where as regional private sector companies with wide relationships and better understanding of local markets, we can add more value,” he said.

Iran gas project

Jafar said the National Iranian Oil Company, or NIOC, failed to deliver gas to the UAE on time and the company has no choice but to take the matter to international arbitration to protect its legal rights.

He said Crescent Petroleum has always prided itself on being a pioneer in the regional natural gas business, and was involved in the very first cross-border agreements between Sharjah and Dubai in the 1980s, both onshore and offshore.

“In 2001, we signed a contract to buy gas from the NIOC, which was supposed to commence at the end of 2005 for 25 years. Unfortunately, due to some technical delays the NIOC failed to deliver the gas on time and in 2009, we were forced to take the matter to international arbitration.”

“Despite some attempts in 2010 to resolve their issues and deliver the gas, they then discovered leaks in their pipelines and were unable to complete the plan, and we were forced to resume the arbitration, which is now proceeding in The Hague under international rules. This was necessary to protect the legal rights due to non-performance of the contract,” he said.

Oil prices stable

Jafar said current oil prices are stable and both consumers and producers have become used to this level.

Asked whether the current oil prices are fair, he said it depends on what “fair” means, and that itself means different things to different people. It is naturally a function of market demand and supply, so the oil price is fair in as much as the price reflects the balance or tension between the two.

“The oil price is a complex function of many variables however, including the market’s perception of risk — both in terms of national or regional political instability and of macroeconomic clouds on the horizons.

“Whether or not it is fair — or ‘accurate’, to be more accurate — I will however say that it is stable, and has been for some time. This is important both for oil producers and end users too, as volatility and uncertainty hurts everyone — except perhaps speculators.”

About oil price projections, he said the one thing is sure that all projections are wrong. “Only 10 to 15 years ago we had a period where oil was as low as $9 per barrel, and now $100 per barrel has become the new norm. Both consumers and producers have become used to this level.”

To a question about the Opec’s role in stabilising oil prices, he said the group still plays a relevant role, but forecasting a long-term pricing and production is especially difficult, and this means oil is a less efficient market than it could otherwise be, due to the Opec’s role.

“The geopolitical complexity within the region, instability and the aftershocks in the global economy post-2008 make forecasting the oil price especially challenging — and the expansion of US shale and Saudi production are examples of the complexity of forecasting,” he said.

“Despite an unstable political and economic environment — particularly in the Middle East, oil has remained steady at around $100, which is unprecedented. A key factor today, when compared with the 1970s, is that the majority of oil traded today is ‘paper’ trades rather than ‘physical’ trades, so market traders have more influence over the price setting mechanism than the governments of the Opec, although their role in giving direction on supply intentions is still important,” he added.

Gas exporting group

Jafar said establishing a gas exporting group similar to the Opec in order to influence the market is difficult because gas resources are well distributed globally and above all it is not easy to store and transport unlike oil.

“There is already a forum for gas exporting countries, but gas differs from oil in several ways. Major investments are required in pipelines, processing and in some cases the liquefied natural gas facilities.”

Giving an example, he said there are many thousands of oil tankers around the world, with many owned by traders, but only a few hundred LNG tankers and they are almost all owned by governments and committed to long-term trades.

“The high transportation cost and difficulty of storage means there are different market prices for gas — it is always local. For example today there are big differences between the prices in the US market and Europe and Asia. Even within the Middle East there are different prices — though overall the prices are too low in this region due to subsidies and this is threatening long-term supplies and investment, as well as government budgets of course.”

Shale revolution

Jafar said it is unlikely that the US shale gas revolution is a local phenomenon. Today, from Argentina to China, each country is trying to explore for shale gas and this includes the Mena region countries such as Algeria and Saudi Arabia. For example, China is estimated to hold, at 1,200 trillion cubic feet, even more shale gas resources than the US. In this context, matching resource to markets in the most cost effective way is a critical question facing the industry.

He said the drivers of the shale gas revolution included the sustained high US gas price, creating the environment for entrepreneurialism to flourish — something the US has always been very good at capitalising upon.

“About 80 per cent of the gas produced today in the US and over 60 per cent of the oil comes from smaller independent companies. It is the independents that are not only adding new reserves, new discoveries and new production, but adding the value in stock markets,” Jafar concluded.

— muzaffarrizvi@khaleejtimes.com


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