Interview: Sara Akbar
In what areas will Kuwait need the help of international oil companies (IOCs) to reach the target of 4m barrels per day (bpd) by 2020?
SARA AKBAR: Over the last 10 years Kuwait has built additional capacity using domestic skillsets and capabilities, which have brought current production to 3m bpd. Going forward, we face two challenges. The first is to maintain production; as fields mature, they become more difficult to manage, so sustaining the current level is a challenge. The second issue is developing additional capacity. Even if the target were 3m bpd, there would still be challenges to maintain that production.
Furthermore, future capacity will also have to come from technologically challenging fields. Those currently in production are relatively easy to manage. New fields will require new technologies, especially the deep, ultra-deep, hot, sour gas and heavy oil fields. For these fields, the Kuwait Oil Company (KOC) needs help from international and independent companies.
We have yet to find a mechanism to make Kuwait more attractive for these companies to come and invest their time and expertise in existing fields. Some contracts have been awarded to IOCs, but I do not believe there is a long-term strategy in place to help the country achieve its production and exploration targets. Kuwait ultimately needs to be more innovative and creative in setting a structure for allowing companies to participate in a lucrative and fair manner.
How can changes to the structure of enhanced technical service agreements or incentivised buyback contracts raise IOC participation in Kuwait?
AKBAR: There is a change in the landscape that is not being taken into consideration. For IOCs today, these types of contracts will not be attractive. In the past, if IOCs wanted to enhance their production they would have to go to commercially unattractive places and accept mediocre returns. Now these companies have huge potential in better markets. In the US alone, shale gas and oil will attract most of their investments. As such, they can deploy their capabilities in more attractive places that will yield the best returns. For example, ExxonMobil is pulling out of its service contract in Iraq due to opportunities elsewhere. I am not sure that the Kuwait Petroleum Company (KPC) is seeing this.
Here in Kuwait, there is no real restraint in terms of the constitution, which states only that an investment in natural resources needs to be made within the law and for a given period. The constitution therefore does not rule out production sharing agreements, nor anything that will be beneficial for the country. It also states that to create such an agreement, parliament must be consulted to make it legal. The constitution actually allows this, assuming the established process is followed. In that past, the KPC would beat around the bush to avoid dealing with the parliament, even though consulting with legislators is the right thing to do. If there is really a need for more IOC participation, the country should pursue it via the appropriate channels.
What investment and operational opportunities exist for energy groups in the region, and how can Kuwait benefit from the development of Iraq?
AKBAR: Despite the political unrest and security concerns in Egypt, Libya, Iraq, Yemen and Afghanistan, all have great opportunities for us given we know how to work in those environments. When we look at expanding to new countries we consider many issues, mainly special advantages or relationships we can build upon.
Kuwait Energy was the flag bearer for encouraging Kuwaiti companies to invest in Iraq, as we believe that the private sector plays a big role in developing economic relationships to create partnerships with our neighbours. Owing to the history between Kuwait and Iraq, we know this will take time, which is why we went to Iraq in 2006. Nonetheless, the benefits are clear: Iraq has excess gas and Kuwait needs extra gas, so developing this relationship is mutually beneficial. In fact, we have already secured two gas fields for Kuwait. The next challenge for us is how to bring that gas to Kuwait.
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