Kuwait shuffles international interests
Thursday, Oct 19, 2017
Kuwait’s state oil firms were active in deals across Asia in late September and early October.

Kuwait Foreign Petroleum Exploration Co. (KUFPEC), the international upstream subsidiary of state-owned Kuwait Petroleum Corp. (KPC), suffered a reversal as a landmark deal to acquire a sizeable portion of Thai assets from Royal Dutch Shell collapsed. However, it then celebrated the commissioning of the company’s first LNG project.

Meanwhile, downstream counterpart Kuwait Petroleum International (KPI) registered a modest step forward in slower-moving Asian expansion plans by launching retail operations in Vietnam.

An agreement was announced in January for KUFPEC to acquire Shell’s interests in the Gulf of Thailand – comprising a 22.2% stake in the giant Bongkot gas and condensate field and in the adjoining blocks of the Greater Bongkot Area – for US$900 million. Contingent on unspecified “procedural matters”, completion had been anticipated the following month.

The deal was a particular landmark for the Kuwaiti firm – adding 39,000 boepd of equity production to take the company’s total beyond 100,000 boepd for the first time.

However, on October 5, the two companies announced the sale’s cancellation – as a result, according to a Shell statement, of “different interpretations [by the company and Bangkok] of the treatment of share sale transactions which were not resolved within Shell and KUFPEC’s agreed timeframe”. Rothschild was KUFPEC’s financial adviser on the transaction.

The Kuwaiti firm is still on a renewed expansion drive after a quiet period in 2015 and 2016. The second deal revealed alongside that with Shell – for KUFPEC to acquire a portfolio of non-operated interests in Norway’s offshore Greater Sleipner Area from France’s Total – has proved more successful.

This was built upon in August with a deal to double to 30% the Kuwaiti firm’s interest in the Gina Krog field, which came on stream in June and where gross output is being ramped up to 60,000 bpd.

Barely a week after the Thai reversal, KUFPEC was back in celebratory mode, as Australia’s Wheatstone LNG project – led by the US’ Chevron – came on stream.

The Kuwaiti firm was one of the original partners in the associated upstream project in 2008 and owns a 13.4% interest in the estimated US$45 billion export scheme – comprising an 8.9 million tpy, two-train liquefaction facility on the west coast.

The company will gain 40,000 boepd of equity production when the plant reaches full capacity in 2018. “The Wheatstone Project will provide us large-scale, stable production and strong cash flows for the next two decades,” KUFPEC CEO Nawaf Saud Nasir al-Sabah enthused.

However, the investment is also of particular significance as the company’s first entailing the production of LNG, and therefore for the project’s potential domestic benefits – with the company’s start-up announcement noting that a portion of the output was envisaged being exported back to Kuwait.

Despite plentiful oil reserves, the country’s scarce gas resources have forced it to resort to LNG imports through ‘temporary’ facilities at Al-Ahmadi since 2009.

The broader national importance was highlighted by the issue of a statement by Oil Minister and KPC chairman Essam al-Marzouq to mark the milestone. He said it “affirms the role of KUFPEC in securing an international presence for Kuwait’s hydrocarbon industry, and in providing energy solutions and diversification for the state of Kuwait”.

While local Jurassic reserves are belatedly being developed, acceptance of the likely long-term need for imports is evident in the construction now under way of a fixed LNG receiving and regasification terminal at the southern port of Al-Zour.

Eastern promise
KPI’s stated plans to expand into the fast-growing Asian refining sector have – as is typical for the country’s parastatals – moved more slowly and haltingly, with few of the mooted investments in the region having been consummated.

However, the 200,000 bpd Nghi Son refinery and petrochemicals complex in northern Vietnam is due for delayed completion in early 2018, around a decade since the signature of the original joint venture (JV) agreement.

The Kuwaiti firm is a 35.1% shareholder in Nghi Son, alongside Idemitsu Kosan and Mitsui Chemical, both of Japan, and Hanoi-owned PetroVietnam.

Kuwait will supply the entirety of the crude feedstock, and delivered the first 2 million barrel cargo in August.

In late September, KPI and Idemitsu expanded their collaboration further down the value chain by announcing plans to open the first of a proposed network of service stations under the 50:50 Idemitsu Q8 Petroleum JV established in April last year to engage in the wholesale and retail trade in petroleum products in Vietnam.

The outlet will be located in an industrial park near Hanoi and is the country’s first to be foreign-owned. Financial close is due to be reached by year-end on KPI’s first regional investment – comprising a 50% stake alongside Muscat-owned Oman Oil Co. (OOC) in the 230,000 bpd greenfield refinery planned at Duqm on the sultanate’s east-central coast.

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