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2018 Highlights

Kuwait Eyes Further Partnerships With IOCs To Secure Oil Production Gains

Kuwait Eyes Further Partnerships With IOCs To Secure Oil Production Gains

By Jamie Ingram, Gulf Editor MEES.

Kuwait is the fifth largest crude oil producer in Opec, and it notched up output of 2.71mn b/d last year. It has ambitious plans to ramp up production capacity to 4mn b/d by 2020, which would be a major increase from its current claimed capacity of 3.1mn b/d. With much of the gains slated to come from technically challenging sour and heavy fields, partnerships with international firms will be essential to unlocking the country’s rich reserves.

2018 is therefore set to be a major year for Kuwait’s upstream sector as a series of long-awaited projects come onstream, boosting oil and gas production capacity. Two early production facilities (EPFs) have been brought online in recent months and are currently being ramped up to full capacity, with a third due online in the second quarter of the year.

The three EPFs were constructed under contracts Kuwait signed with private firms in 2016 – two went to US-based contractor Schlumberger and the third to domestic firm Spetco – to develop Kuwait’s sour northern Jurassic fields. Once full capacity is reached, the three EPFs will produce a combined 120,000 b/d of ultra-light crude oil and more than 300mn cfd (cubic feet/day) of sour gas.

A number of such critical projects received the green light under the previous Kuwaiti parliament (July 2013 – October 2016) which enjoyed a more congenial relationship with the government than has been typical in recent years. That parliament also saw contracts awarded to international service firms to help develop heavy oil fields in the north, such as Ratqa, and critically, enhanced technical service agreements (ETSAs) to major IOCs Shell and BP.

Kuwait’s authorities are hopeful that they can maintain the momentum under the current parliament and are pushing ahead with a range of development plans. Along with a planned 220,000 b/d, 590mn cfd Jurassic production facility, Kuwait aims to award further ETSAs for heavy oil development and for increasing output from its western fields.

Rapid progress is certainly required if Kuwait is going to come close to achieving its ambitious 4mn b/d 2020 target. By comparison, the IEA’s latest estimate has Kuwaiti output capacity at just 3.1mn b/d in 2020.

The IEA’s estimate looks harsh, but Kuwait’s 2020 target does look out of reach. If it is to come close, then it cannot afford delays in its pipeline of upstream projects. And that will require signing further contracts with IOCs in the coming months. Without further partnerships with IOCs, Kuwaiti production capacity will not rise much above its current levels.

View the full article here: https://www.cwckuwait.com/wp-content/uploads/2018/04/Jamie-Ingram-CWC-Kuwait-Article-3.pdf

 

 

Kuwait’s Petroleum Sector: What Is the Right Strategy?

ABSTRACT — Kuwait owns the world’s seventh largest proven oil reserves and with an oil production capacity of 3.1 million barrels per day is one of the world’s most important oil-producing countries. The country’s economy is dominated by the oil sector because more than 50% of the G.D.P, 92% of export revenues, and 90% of the government income come all from the oil sector. Because of this single-pillar economy, it would be advisable that Kuwait succeed in diversifying the economy and boosting its private-sector hiring. However, with reference to the petroleum sector, the correct strategy, despite all the present uncertainties, must be continuity with the past. Here the logic must be to understand what Kuwait can and cannot do now and in the next years. In fact, notwithstanding all the ongoing discussions, it’s impossible for Kuwait not to rely on the revenues deriving from the sale of oil, which has been for the last decades and will continue to be, at least in the near future, the country’s most important asset.

Read the full article here: http://www.alessandrobacci.com/2018/04/kuwaits-petroleum-sector-what-is-the-right-strategy.html

Alessandro Bacci is an independent energy consultant in relation to business strategy and corporate diplomacy (policy, government, and public affairs). Much of his activity is linked to the MENA region, an area where he lived for four years. Alessandro is now based in London, United Kingdom (www.alessandrobacci.com), and he is a member of the Association of International Petroleum Negotiators (A.I.P.N.). A multilingual professional, Alessandro holds a Bachelor of Laws and Master of Laws from the University of Florence (Italy), a Master of Public Affairs from Sciences Po (France), and a Master in Public Policy from the Lee Kuan Yew School of Public Policy (Singapore).

Interviw with Mr. Jamal Jaafar, CEO, KOC

1. What do you think are the main opportunities and challenges in Kuwait’s energy industry?
Global oil and gas consumption continue growing and it represents 57% of total primary energy
consumption in the world, and both fuels will continue being the main source of energy for several years
to come. That represents a strong opportunity to expand our market share through OPEC. KOC
continues being recognized as one of the largest oil & gas companies in the world, and we have been,
for several years, focused at implementing a growth strategy, given our large reserves base and our
advantage of having the lowest costs in the world.

Certainly, these growth opportunities will face important challenges. We are moving to develop
production in more complex reservoirs onshore that will require the application of advanced production
techniques. We are also going to initiate the development of the offshore oil & gas resources in the
upcoming years. I would say that the most significant challenge would be to keep our staff updated in
the knowledge of the oil & gas business and in the implementation of new technologies that we will
need to develop our resources. That is requiring a strong effort in training and in the transfer of
technology from our technology-providing partners to the new generations of professionals through an
integrated and collaborative work environment. Knowledge and experience are critical success factors
to achieve our vision and our strategic targets.

2. How do you see the future of relationships between K companies and the 10Cs?
I can summarize this future in two words: Integration and Collaboration. The participation of the 10Cs
through the Enhanced Technical Service Agreements is becoming a win-win relationship with KOC, not
only through the technical support received from them, but also through the knowledge transfer that is
taking place that is certainly benefiting our Kuwaiti staff and organization. We need to go proceed in this
integrated and collaborative model of participation, and therefore, I can see a strong relationship with
them.

3. What are KOC’s main objectives for the next five years? How do you plan to achieve these?
KOC is targeting to increase the oil production capacity to 3,650 MBOPD by 2020, from current 3,150
MBOPD and Non-associated gas to grow from around 200 to 500 MMSCFPD. There are several projects
at different stages of implementation that are making Kuwait’s oil and gas industry one of the most
active in the world and fastest growing.
By the first quarter of 2018, three new facilities will allow KOC to increase light oil production by 120
MBOPD, together with additional 300 million standard cubic feet of non-associated gas from the Jurassic
reservoirs located in North Kuwait.
We are going to commission three gathering centers now under construction in North Kuwait. Overall,
these new GCs will add 330 MBOPD of capacity by 2018, providing a very important contribution to the
increase of total KOC production capacity.
We will start heavy oil production from Lower Fars in North Kuwait, and by 2020, we will be producing
85 MBOPD (60 MBOPD of Ratqa and 25 MBOPD from Un Niqa). The development of heavy oil
production is being done in parallel with the construction of AI-Zour refinery by our sister company
KIPIC. Both projects represent an important challenge to our companies, and a constant coordination
between us is taking place on a regular basis to ensure a complete success in their commissioning.
We are also undertaking water injection projects in South and East Kuwait; a new booster station to
increase gas-handling capacity and to continue reducing flaring in West Kuwait; and the power
substations needed to provide energy to these facilities.
At the same time, an intense drilling campaign is significantly increasing the rig count. Current drilling
activity across all fronts – existing reservoirs, new areas, heavy oil and Jurassic gas – is the highest in
KOC’s history.

All these projects constitute an immense effort carried out by KOC to ensure the achievement of our
strategic targets by 2020.

4. What are you expecting to get out of the Kuwait Oil and Gas Summit 2018?
I expect participants to go deeper in analysis and discussions that would identify feasible solutions to the
main challenges that KOC is and will be confronting in the future. This summit will be also a great
opportunity to move forward in the collaborative environment needed among our internal teams and
with the service companies and the 10Cs that are working together with KOC to help us achieving our
strategic targets.

Fiscal and economic reforms to support the diversification of Kuwait economy by Ernst & Young

Kuwait is petroleum-based economy with 6% of the world’s oil reserves. While the oil production cuts have weighed down growth, output should gradually recover supported by still buoyant non-oil activity and infrastructure spending. Key challenges therefore remain dependency on the Oil sector and implementation of deep structural reforms.

Kuwait is coping up with the regulatory challenges in the other parts of the world, such as the OECD initiatives of Base Erosion and Profit Shifting (BEPS) action plans and Multilateral Instruments, CBCR and CRS reporting etc. In this respect, the Kuwait Government is taking reasonable steps to cooperate with the peers for a more tax transparent environment. With the current deficit of the Government, the Government has been forced to look for cost savings elsewhere, including reducing the subsidies, PPPs (public private partnerships) to finance infrastructure projects, the implementation of a VAT (expected in January 2018) and privatization of state assets.

The Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE) have implemented VAT with effect from 1 January 2018. VAT readiness initiatives in the four other Gulf Cooperation Council (GCC) countries are ongoing and all these countries are committed to adopting VAT during the course of 2018 and 2019. In Kuwait, the draft law is prepared and put for discussions with the concerned authorities. The law is expected to be discussed with the Council of Ministers and presented to the Kuwait National Assembly for approval to implement the VAT as early as January 2019.

Oil and Gas sector based business environment and the large size of the public sector have hindered the development of the private non-oil sector. Comprehensive reforms are therefore, needed to rebalance the economy away from the energy sector to a more diversified growth path underpinned by innovation, private sector entrepreneurship and job creation, and the quality of its labor force. A major change is the introduction of the Kuwait Direct Investment Promotion Law. The Kuwait Direct Investment Promotion Authority (KDIPA) was set up in 2014 that is making reasonable efforts to attract foreign companies to invest in Kuwait, offering them the ease of doing business in Kuwait. KDIPA’s objectives coincide with the overall key strategic objectives of Kuwait, the Vision 2035 of “New Kuwait”, i.e. increase the employment of Kuwaiti nationals in the private sector, privatization of a few sectors and support to small and medium enterprises etc. In this respect, KDIPA continues to improve their systems and bring together all the key stakeholders, such as Ministry of Commerce and Industry, Ministry of Social Affairs and Labor etc. to streamline the licensing procedures. In addition, KDIPA continue to improve their internal systems to evaluate the license applications. In this respect, they have also introduced the Point Scoring Mechanism for evaluation of the applications.

The other recent regulatory updates include the amendments to the agency law, the Inter- Governmental Agreements (IGA), and implementation of BEPS actions.

With respect to the OECD BEPS initiatives, in October 2015, the Organization for Economic Co-operation and Development (OECD) released the final reports on the 15 action items of the Base Erosion and Profit Shifting (BEPS) Action Plan. The final report concluded that it was not only feasible but also desirable, and, in light of this, a mandate was issued to create an ad hoc group to develop the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI), and to prevent the treaty abuse.

On 7 June 2017, 68 jurisdictions, including Kuwait, signed the MLI during a signing ceremony hosted by the OECD in Paris. Signatories submitted a list of their tax treaties in force that they would like to designate as Covered Tax Agreements (CTAs), i.e., to be amended through the MLI. At this stage, it is expected that over 1,100 tax treaties will be modified based on matching the specific provisions that jurisdictions wish to add or change within the CTAs nominated by the signatories.

Kuwait has also signed the IGA with the United States (US) for implementation of US FATCA. The financial institutions are required to do an annual FATCA reporting to the Ministry of Finance (MoF) and audit report prepared by a certified auditor is required to be submitted by the FIs on an annual basis.

Kuwait is also a signatory to CRS Multilateral Competent Authority Agreement (‘MCAA). The MoF has recently issued additional guidelines for CRS, which among other things include appointment of an auditor for CRS reporting purposes (similar to the requirements for FATCA reporting). The deadline to submit the auditor’s report is 31 May 2018, for the year ended 31 December 2017.

Furthermore, Kuwait has also introduced the New Agency Law (Law No 13 of 2016), which removed “exclusivity” and allows principals to have more than one agent /distributor in Kuwait. Franchises have expressly been covered within the scope of the new Law. Distributorship and dealership agreements may also be registered as commercial agency agreements. The new Law emphasizes on the need to register the agency agreement with the Ministry of Commerce and Industry (MOCI) – As per the new Law, only those commercial agencies that are registered with the MOCI will have the right to be heard by the Courts of Law in Kuwait. There is no express provision for compensation for termination. However, agents can still make a claim for compensation under the Commercial code.

While, the country is adopting a safe and prosper approach to coincide with a renewed appetite for investment and reform that has promising endeavors for private sector players, funding mechanisms such as public-private partnership agreements, as well as capital projects funded by state-owned enterprises, are set to provide opportunities for international firms. With the government, actively seeking to attract foreign direct investment and highlighting the ICT, renewable energy and finance as sectors it would like to see development using the international expertise over the next few years.

By Alok Chugh
Partner
MENA Government and Public Sector Tax Leader
Ernst & Young (Al Aiban, Al Osaimi & Partners)

Alok will be speaking at the 5th Kuwait Oil & Gas Summit on Session 6

Kuwait Ministry of Oil & KPC to host 5th Kuwait Oil & Gas Summit alongside CWC Group in Kuwait City

Kuwait is planning to invest $112 billion in the next five years in the oil and gas sector to boost production, the CEO of Kuwait Petroleum Corporation said, therefore now is the ideal time to explore business opportunities in Kuwait. Mr Jamal Abdulaziz Jaafar, CEO, KOC who will be speaking on Day 1, Session 3 stated in a recently in an interview with CWC: “Global oil and gas consumption continue growing and it represents 57% of total primary energy consumption in the world, and both fuels will continue being the main source of energy for several years to come. That represents a strong opportunity to expand our market share through OPEC. KOC continues being recognized as one of the largest oil & gas companies in the world, and we have been, for several years, focused at implementing a growth strategy, given our large reserves base and our advantage of having the lowest costs in the world.”

The Regional CWC 5th Kuwait Oil & Gas Summit under the Patronage of H.E. Bakheet Al-Rashidi, Kuwait Minister of Oil, will take place from 16-17 April 2018 in Jumeirah Hotel, and is officially hosted by KPC and its subsidiaries. The summit will welcome regional government and key industry players coming together in one meeting place to announce new project opportunities and discuss innovative solutions. Sponsors include: EQUATE, Schlumberger, Total, Shell, Weatherford, GOFSCO, Petrofac, FLUOR, Dow, ABB, Glasspoint, Hot Engineering & Construction Co. and Kuwait Airways.

Distinguished speakers include:

H.E. Bakheet Al-Rashidi, Minister of Oil, Kuwait
Nizar Al-Adsani, Deputy Chairman & CEO, KPC
HE Dr. Mohammed bin Hamad AI Rumhi, Minister of Oil & Gas, Oman
Mohammed Qahtani, Senior Vice President of Upstream, Saudi Aramco
Khalid M. Abuleif, Sustainability Advisor to the Minister and Chief Negotiator for Climate Change Agreements, Ministry of Energy, Industry and Mineral Resources, Saudi Arabia
Jamal Abdulaziz Jaafar, CEO, KOC
Sami Iskander, Executive Vice President, Upstream Joint Ventures, Shell
Maen Razouqi, President Northern Middle East, Schlumberger
Mohammad Husain, Former President & CEO, EQUATE Petrochemical Company
Havard Devold, Group Vice President, ABB
Luciano Poli, President – Dow Chemical India, Middle East, North Africa & Turkey (IMET), Dow Chemicals Company
Dr Claus-Peter Hoelsig, Vice President Process & Technology, Fluor
Dr. Xingshan Zhu, Secretary-General, Petroleum Economic Commission of Chinese Petroleum Society
May Alzanki, Director of Sales & Business Development, GlassPoint Solar Kuwait
Michael Townshend, Regional President, Middle East, BP
Pedro Neiva Botelho, Geomarket HR Manager – Northern Middle East (NME), Schlumberger
Mohammad Al-Sharhan, Global HR Leader, EQUATE Petrochemical Company
Majed Essa AlAjeel, Chairman, Kuwait Banking Association
Philippe Khoury, Vice-Chairman, Oil & Gas, HSBC
Dr Samira S. Omar Asem, Director General, Kuwait Institute for Scientific Research
Olga Labai, Director, Oil and Gas Consultant
Jamie Ingram, Gulf Editor, MEES

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