In­de­pen­dent oil firms chart course for re­gion

As a new wave of play­ers rushes to to tap into low-risk, low-cost hy­dro­car­bon as­sets in en­vi­ron­ments with lim­ited com­pe­ti­tion, the key ques­tion re­mains, where next?

Gulf News - - COMMENT & ANALYSIS - Spe­cial to Gulf News

he Mid­dle East was a re­gion first un­locked in the early 1900s by the world’s largest oil com­pa­nies which would even­tu­ally be­come BP, Shell, Chevron and ExxonMo­bil. The dis­cov­er­ies made by these com­pa­nies un­locked the Mid­dle East as the most pro­lific hy­dro­car­bons re­gion in the world.

The trend of in­de­pen­dent oil com­pa­nies (IOC) mar­ket dom­i­na­tion has mostly con­tin­ued through the past decade. Iraq’s first li­cens­ing round, in­clud­ing its su­per-gi­ant fields in 2009, was led by ExxonMo­bil, BP, Shell and ENI. Up un­til the sanc­tions, To­tal and Sta­toil were lead­ers in Iran.

Qatar’s gas is firmly in the hands of ExxonMo­bil. In Egypt, its ma­jor pro­duc­ers con­tinue to be BP, Shell and Apache. The mid-2000s saw a wave of in­de­pen­dents flock into the re­gion, seek­ing to catal­yse on the po­ten­tial to ac­quire sub-gi­ant fields in these no­to­ri­ously IOC-dom­i­nated coun­tries.

The most re­cent cy­cle took place in the Kur­dis­tan Re­gion of Iraq (KRI) around 2004, when Genel En­ergy and DNO moved into the re­gion to ac­quire large dis­cov­ered re­sources with low lift­ing costs. Only sev­eral years later were these ef­forts well re­warded with the dis­cov­er­ies of the Taq Taq and Tawke fields, two of the largest oil­fields in the KRI.

These dis­cov­er­ies trans­formed these com­pa­nies and pushed them into the top tier of in­de­pen­dent oil and gas pro­duc­ers.

Smaller one-off moves in the re­gion were made by Petro­celtic in Al­ge­ria for gas prospect­ing, Afren ele­phant hunt­ing in the KRI, and Dragon Oil which found great suc­cess on the drill bit in Turk­menistan and Egypt.

Not even a decade later, for a va­ri­ety of rea­sons — merg­ers, sales and vic­tims of oil price col­lapse — none of these in­de­pen­dents ex­ist, leav­ing a gap in the mar­ket for mid-sized in­de­pen­dent oil and gas com­pa­nies. With oil price now sta­bil­is­ing in the $50-$60 (Dh183Dh220) per bar­rel range for the fore­see­able fu­ture, a new wave of in­de­pen­dents has ven­tured to fill that void. These com­pa­nies have moved into the Mid­dle East for a few key rea­sons:

The re­gion is a known petroleum prov­ince which of­fers low risk on­shore as­sets with low op­er­at­ing costs and with ex­ist­ing in­fra­struc­ture able to quickly and cost ef­fec­tively move prod­uct to mar­ket.

There is the abil­ity to ac­quire pro­duc­tion or dis­cov­ered re­sources at com­pet­i­tive costs.

For the re­source size in­de­pen­dents seek (un­der 500 mil­lion bar­rels) there is lim­ited com­pe­ti­tion as it is too small for IOCs. And many in­de­pen­dents who would be the nat­u­ral com­pe­ti­tion are still lick­ing their wounds fol­low­ing the af­ter­math of the oil price col­lapse.

The coun­try see­ing the big­gest wave of in­de­pen­dents flock­ing to the mar­ket is Egypt. It is a well-known petroleum prov­ince, with a ro­bust lo­cal oil­field ser­vices mar­ket, and strong in­fra­struc­ture to cap­ture all new pro­duc­tion. Due to some chal­lenges around re­ceiv­ables from the na­tional oil and gas com­pa­nies, it has en­abled many com­pa­nies to come in dur­ing this cur­rent win­dow and ac­quire re­sources and con­sol­i­date a port­fo­lio to be in po­si­tion to be­come a sig­nif­i­cant pro­ducer as these are be­ing rec­ti­fied. Rock­hop­per Ex­plo­ration, SDX En­ergy and War­burg Pin­cus’ Apex In­ter­na­tional En­ergy are but a few that have made ac­qui­si­tions in the past sev­eral months and ac­tively in­vest­ing sig­nif­i­cant cap­i­tal into a coun­try where they aim to es­tab­lish a large re­source base.

Sound En­ergy is mak­ing waves as a first mover in Morocco. With mul­ti­ple small legacy dis­cov­er­ies, Sound is lead­ing the charge in rein­ter­pret­ing and de­vel­op­ing some of these dis­cov­er­ies into what may po­ten­tially be­come multi-TCF gas as­sets. Sound is con­sol­i­dat­ing fur­ther on­shore dis­cov­er­ies from dis­tressed sell­ers and has brought a new part­ner to Morocco in Sch­lum­berger.

As in­de­pen­dents con­tinue to seek lowrisk, low-cost hy­dro­car­bons re­sources the key ques­tion re­mains, where next?

So far as com­pa­nies are con­cerned, En­ergean has led the way as the first mid­sized in­de­pen­dent to en­ter Is­rael through pick­ing up over 2 TCF in the Tanin and Kar­ish gas­fields. DNO is in the early stages of du­pli­cat­ing its busi­ness plan from Kur­dis­tan into Iran around the Changuleh field.

Coun­try-wise, Oman could be the next domino to fall. PDO (Petroleum De­vel­op­ment Oman) pro­duces around 90 per cent of Oman’s daily pro­duc­tion and has long been ru­moured to di­vest ma­ture as­sets.

Some lo­cal com­pa­nies have be­gun to move in this di­rec­tion with pos­i­tive re­sults and a fur­ther shift from PDO could trans­form the E&P land­scape. In Iran and Iraq, new and po­ten­tially re­vised fis­cal terms, re­spec­tively, could yield what both coun­tries need — a wave of in­vest­ment in sub-gi­ant fields from fast mov­ing in­de­pen­dents. There is also the po­ten­tial for a sec­ond wave in Kur­dis­tan.

There is sig­nif­i­cant ap­petite for in­vest­ment and with a lack of choice from in­vestors, both in­de­pen­dent oil com­pa­nies and in­vestors are aligned to move in this re­gion to ef­fi­ciently build a port­fo­lio of size and scale which oth­er­wise would not be pos­si­ble in a short pe­riod of time. The ques­tion re­mains how long Egypt will en­joy a mo­nop­oly on in­vest­ment from in­de­pen­dents and which coun­tries will join.

The writer is vice-pres­i­dent at Han­nam & Part­ners.

Jose Bar­ros/©Gulf News

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