RAK Petroleum, Petroleum Company in RAK

Oil prices headed into the busy Fourth of July break by racing past $145 a barrel for the first time last Thursday. Many say that higher oil prices are due to speculation, high consumption in emerging markets and so called peak oil theory, which states that the major fields are in the peak state and they are to decline in coming years. In your opinion what is the real reason behind the record oil prices? Why do we see such high oil prices?

First of all, my personal opinion is that it is really the high demand comparing to the available resource which is causing these high levels of prices. For many years, and I would say even for the last 20 years, the exploration results in the world have brought about 50 percent of what is produced that year. So that the stock of oil already discovered is getting lower and lower compared to the demand, which is going between 1 and 3 percent per year, depending on the world activity and gross. So it is no wonder that at a point in time we will arrive to a situation where we need to replace this oil. So the oil resource, and especially the commercial oil resource, is not infinite. And we have to prepare for the long term, to find new resources, energy resources to replace the commercial use of the oil. That is for the long term; we are sure of this situation. Of course, for many years we have also had an extra capacity available compared to the demand. And depending on what the world gross has been, and especially in the new developing countries, we have had some period with very low oil prices. Especially in the late 90s where we have seen some kind of reduction in activity in the developing countries, especially in China and the Far East. So this excess demand compared to these has caused some significant reshaping of the oil industry in the late 90s. A lot of investment has been deferred, and also a lot of experienced people have disappeared from the business. Entering into the new context where we now have stronger demand, and the lack of investment in the 90s is bringing effects later on, because our industry is quite heavy industry. When we decide to explore, before starting the exploration and starting the production, the situation may be as much as 10 years, so that we cannot react towards the demand so quickly. Of course, the current prices today are triggering a lot of investment to increase the output. It means that our industry is completely overheating, I would say. We are lacking experienced people at all levels. And training staff is rare. Same for reservoir engineers. There is of course the financial resource to fuel the needs for investments, but time is of the essence. I am sure that in the months and years to come, some expansion of the capacities will occur and will stabilize the current oil price. But, as a matter of fact, in the long term the energy price will be, I would say, defined by the new resource which will replace oil, whatever it will be, nuclear industry, coal industry, or alternative, because in some other, we have some advantage to commercial oil. These alternatives require significant investment and require some stringent environmental considerations, because when we use coal or when we use extra heavy oil, of course the CO2 production increases, it more than, I would say, doubles. So that we add some other concerns on our world, to take care of the environment. The situation will require careful monitoring. And at our level, a small company, I cannot tell you that we can change this overall context. We have to live with it. We are doing, of course, our maximum to increase production and to put some oil on the market, but again, in a difficult context, because we are lacking good acreage, a significant acreage today, which are of interest, which are still frozen in some prolific countries, and especially in the Middle East and only under the control of the national oil company. In some other countries, as, for instance, Iraq, we are coming back maybe to a normal situation, but it’s not tomorrow that new investment will be made. So that for some while we will stay in the situation, I think, where the demand is more or less exactly what is available as a resource for production. And in this context any small event, worldwide, the country rating of the oil and gas market, and especially for the commercial oil, we may be faced with some additional oil price increase. So it’s not for sure that it will remain as it is.

A complementary question: How do you see the future evolution of oil prices? Where are they heading towards the end of 2008 and 2009?

It’s difficult, because it’s relative to some incidents, political concerns about what will happen if there are some bombings in some part of the world, you know. So I cannot really predict what it could be. As it is a tight market, any political events might, of course, trigger some big concern on the oil prices. And then speculation could take these events as an option to drive the market towards a higher or lower price. But, frankly speaking, we’re in a context which is tight. And I cannot predict what political events could be which could make the market overall unstable or no.

What will be the effect of oil prices on the region and on your company in particular, on RAK Petroleum?

On price, on policing ourselves, petrol price is always going in some additional cash flow, so in this context it’s a benefit. But today, as most of the companies are willing to invest in order to increase their capacity, there is a lack of human resources and, I would say, skilled staff to join our companies. And this tight market, in terms of this expanded staff, is really causing problems today, so we have to deal with it. So there are benefits and there are drawbacks.

RAK Petroleum said, after the changes in the management, we are pleased to welcome Bijan Mossavar-Rahmani to RAK Petroleum and look forward to working together to take the company to the next level as a significant and successful regional oil and gas exploration and production player. How would you describe, in your own words, your strategy and your business development plan? In other words, where would you like to take the company?

First of all, I would say our focus area is the Middle East and North Africa. So it has been clear, it’s a principle which has been set at the board level. And it’s on these areas that we are focusing our activity. As we are, I would say, a company born in this region, it’s strong for us to deal with the countries of this region. We are in an Arabic country, we have Arabic-based shareholders, so we consider that it is strength to work with Arabic countries. So that afterwards the business model on which we are built, meaning to have private shareholders, is something which fits with many countries in the region, and it’s a clear opening for gross because there is the financial resource to build up the capital of the company. So that then after further opportunities we consider that being an Arabic-controlled company, it gives good opportunities to work with the neighboring countries. And there is still some acreage which is not fully explored, and in this respect we bring our experience, our know-how and our methodologies.

There are many players in the market, international, local, in the oil industry. What gives you the confidence that you will be able to outperform everyone else in the industry?

We are bringing the best of the international oil company competence. Most of the staff is coming from international oil companies, and so we consider we are using the best technologies, we are using the most up-to-date methodologies. That is one point. The other main strength, as I was telling you, is that we are an Arabic-based private company, and in this respect we consider that it will be much easier to deal with some neighboring countries which are not yet open to the big international oil companies. So I would say it is our plus.

How do you imagine the company, let’s say, in 2 years, in, like, 2010 and 2015? Where would you like to take the company?

Of course, we are targeting a significant gross on our sites. For this purpose, and again, I want to refer to the action of our chairman of the executive committee of the board, who is himself very well-introduced in the region and can trigger some business opportunities. I would not put any figure, because of course, we have to remain modest. We are oriented towards.., when it comes to the opportunities, they are there, because we are currently contemplating some opportunities. The size of our company may double, triple, maybe more, but it may also remain steady if we can’t achieve what we want to achieve. In terms of business development, I want to be prudent. It’s a difficult track, and any success is not predefined.

In terms of the sector, of the areas of focus, you would like to remain in your core business, which is oil exploration and gas?

Oh, definitely. Yes, oil and gas exploration and production. It’s a clear business model. However, because there is a special context contained in the Emirates, we can also play a role in the energy market, first of all by bringing some gas onto this market, which is currently tight. So we will, especially in the Emirates, make some additional efforts to explore for gas and to bring some gas on this market.

To fund these acquisitions and growth you would require a lot of funding. Where would you get all this money?

First and foremost, we would tap the local markets for increasing our capital. If eventually we decide to list the company, that would be another source for us. And then utilizing the liquidity of the banks and financial institutions to assist us in that issue. So are we talking about an initial public offering here? And when would you like to list public?I mean, the company is interested in listing, but they feel that we are still a young company. I think once we prove ourselves, and when the market conditions are ideal, then the board, with the approval of the shareholders, would be looking at determining an IPO.

As a private holding company, you are not obliged to disclose any financials. But could you chart the growth of the group and share some of the key financial figures?

Well, it’s been a steady growth. In our first year of operations we had a reasonable profit on our investments. But now we are looking more into the acquisitions and becoming a proper oil company. So, anticipated returns and growth on that would be down the line, years. So, we cannot really focus much at this moment.

Is your expansion going to me more through acquisitions or are you looking into organic growth?

We have some existing acreage, and on this acreage we are both, I would say, developing the exploration phase and accelerating the exploration phase. We have currently, for instance, an IV rig, which is driving on our Block 47, on the Zad well, the Zad 1 well. It’s a deep well but with an attractive target. When it comes to our producing assets, we are currently producing on the Block 8 offshore close to Musandam peninsula. We have one field which is under production, and another field which is under development. It’s our west Bukha Field well. We have currently successfully installed a jacket and platform around this site, and currently we are doing development works, so that within the three months to come we should sample first oil on this field at a rate of about 15000 barrels per day.

RAK is growing at a tremendous rate, and they will eventually face an energy shortage. What role does RAK Petroleum play in RAK energy development?

We can bring some contribution on two levels. First of all, as mentioned earlier, we want to explore more specifically for deep gas prospects in these regions. So we currently have some of these prospects under consideration and under study- not yet mature enough to be drilled, but clearly it’s one of the possibilities which we are carefully looking at, and we are targeting exploration wells as soon as possible. The second step is to maybe be involved in power generation, but specifically in this case we will reduce our involvement only with a gas power plant because we consider our main business line is oil and gas, so if we can help, it will be more in the downstream for any gas production.

You mentioned that you have some exploration, and that you are going to explore more. Can you comment on the potential of these new fields?

During the previous year, gas was widely available in these countries, so the gas price was low, and there was no incentive for gas exploration. So, oil exploration is much more advanced, I would say, in this part of the world. Some gas, and especially deep gas resources. Of course, deep gas exploration means deeper wells, more expensive wells and more difficult wells. But gas being an issue today for the country and for the neighboring countries, there is a clear incentive because the gas price is currently increasing, and there is a clear incentive for ourselves and other gas players in the region to explore for gas and to develop gas. Currently, you may be aware, there is a big gas development project in Abu Dhabi which is several billion dollars. We think that investments now will be made to fulfill the gas needs for the country.

As an oil company, how do you address corporate social responsibility, which is one of the major issues in today’s world?

I want just to start with the basics. As an oil and gas industry is an industry with some significant risks, because we are handling products which are quite dangerous. So safety is important for us, and a priority in terms of our way of operating at the essence. So at all levels, starting from the board to the operators. So all levels of this company are significantly committed to maintain a very good record in terms of health, safety and environment. Afterwards, I would say we have to be as professional as possible so that at all levels, of course technical, but also corporate, financial, we have to work according to good practice, and that’s what we are doing. And we are doing our best to accomplish good performance in all these domains.

As a newly-established or start-up company, how are you going to build your brand image and international recognition?

Well, we utilize here the connections of the media services with international companies. We advertise in professional oil and gas, we join conferences, we establish conferences in Ras Al Khaimah and sponsor them. Which we did last year; we were part of the sponsors of the MEED conference in Ras Al Khaimah. And through the international associations that we have. we hope to establish a name for ourselves and a reputation in the field.

With all these companies, what would you like to achieve? Where would you like to take RAK Petroleum’s image and brand? What would you like it to be associated with?

We would like to be known internationally as a developing and highly reputable oil and gas company.

RAK continues to share exploration assets in Oman with Indago, including Block 31 Jebel Hafit, a 104 square kilometer mountain area estimated to hold one billion barrels of oil equivalent to the Omani side. After the Jebel Hafit, the company is targeting the Zad 1 wellhead in block 47 in Oman. Can you shed some light on your exploration and drilling activities? And when can we see these new exploration and fields coming online?

Hopefully, I would say, being optimistic, the Zad 1 well will bring us discovery. That is our objective and it is why we are drilling. We consider that we currently have an acreage which can afford to keep one rig busy for most of the forthcoming three years, so we will maintain our effort for exploration. After the Zad 1 well, if it is a discovery, we will on first rank appraise the well and drill some other wells to have good assessment of the gas in place and start production, I would say, quite fast. Because we are close to the gas network, we have all the resources to develop any discovery. But again, the exploration is bringing some risk. And I would say significant risks, so we have to be prepared for any setback and we will continue exploration because we have other prospects and the rule of the game, I would say, is to continue exploration as long as we have valuable prospects to drill. When it comes to the quantities, frankly speaking, Jebel Hafit is a huge target. Plus it’s straddling the border so both ADNOC on the Abu Dhabi side and ourselves on the Omani side are still targeting to drill a new well on Jebel Hafit. The first well has been a failure, a technical failure because it’s very difficult conditions, high pressure, high temperature, difficult, with H2S which is a gas that brings a lot of difficulties when it comes to safety, and when it comes to technical feasibility. We have to manage with it, because at the end of this process, there is a big stake. So we will continue to drill these deep prospects.

I have a question. As I see it, most major fields have already been discovered. Do you think that you can still discover some of the major oil fields or gas fields? Is there still a chance to discover something new?

In our present portfolio we don’t have significant oil prospects, because, as you say, the exploration that has been done is shallow exploration. But for deep gas prospects, because there was no incentive previously to drill these prospects, the exploration is not yet completed. So we have still deep prospects to be drilled, which could bring significant gas quantities on the market. Not oil for the time being.

By how much do you expect these fields, this new exploration to boost your capacity?

As long as the exploration and appraisal has not been completed, you know, it’s very difficult, and I would not be serious to give you any accurate figures. But let’s say that for us it’s a really big stake, so in case of success, it will be a tremendous increase compared to our present production.

To wrap things up for me, to finalize the interview, what is your ambition? You just joined the company one month ago. Where would you like to take the company, and what is your vision?

I would say the person for this position is not so important. Everyone knows that he is not in the company forever. What is important is the company’s future. I am here to help this company for gross and adopt professional practices. It will last for, I would say a normal duration when it comes to the habitual use of these positions: it’s not for six months but it’s also not for ten years. I would say it will be in between.