Proposed Operating Service Agreement

Transcription

1 Kuwait Petroleum Corporation Kuwait Future Oil Strategies and the Proposed Operating Service Agreement Abdulaziz E. Alattar Baker Institute Conference in Abu Dhabi March 2nd, 2010 ABU Dhabi, UAE

2 Outline The Kuwait Petroleum Corporation Strategy; The outlook for crude oil production; The objectives to increase production; Theschemes to open the upstream sector; The mutual dependence between NOC and IOC; The factors that delineate the type of Agreement; The proposed Kuwait Operating Service Agreement model;

3 KPC Role in the World Oil Market Mission Market worldwide Kuwaiti crude oil, petroleum products, gas and gas liquids in secure, diversified and commercially viable markets (Overseas & Local) in order to grow value to the shareholder while maximizing revenues to the state of Kuwait, and to participate fully in the development of efficient and professional Kuwaiti manpower. Vision Reputed as a leading marketer of high quality products and services in the Arabian Gulf region. Recognized as a reliable, secure and efficient supplier fully responsive to customer needs. Proactive to oil market dynamics, opportunities and challenges.

4 KPC Upstream Industry Strategy Domestically: achieve a crude oil production capacity of 3.5 million b/d by 2015 and 4 million b/d by 2020 and maintain i it through to Increase non associated natural gas explorations, and development domestically, to achieve 1.2 Bcf per day by Domestically, achieve full deployment of the natural gas that produces during the explorations and production (on shore and off shore) and reach 1 per cent of gas flaring. Internationally achieve a crude oil and national gas production capacity of 130,000 BOEPD by 2015.

5 The Mechanisms to Increase Crude oil Production: In Kuwait Build new crude oil export facilities. Build new gathering centers (north and south Kuwait city). Development and access to critical Heavy Oil/Light Oil/ EOR technical capabilities with the assistance of IOCs. Full Field implementation of EOR projects in Divided Zone. Access to secure supplies of required injecting sources.

6 Kuwait Future Crude Oil Production Capacity millio on b/d

7 Kuwait Heavy Sour Crude Production b/d 1,

8 Kuwait Total Oil Demand Products Natural Gas Population Barrel Per Day Mil lion

9 Kuwait Petroleum Products Seasonal Consumption ,000 0 b/d Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

10 World Oil Supply and Demand Demand Supply Conventional Oil Million barr rel Per Day

11 The Schemes The schemes to increase oil production: 1. Autonomy: Through the National Oil Company (NOC), however, many risks (Technical and Financial) are involved. Usually public entity do not like to take risk. 2.Win Win situation: Through upstream petroleum contract with international ti oil company (IOC). The objective is to share the risks and obtain capital and technology needed to develop difficult oilfields as well as explore new frontier areas. 3.Mutual Dependence: Upstream petroleum contract with NOC participation, p,partnership por joint venture. To permit the NOC to play a major role in regulating production and operation. By sharing capital, risks and uncertainties, moreover, transfer technology and Know how.

12 The Advantages Maximize Minimize Access new Recovery Cost Resources IOC Provides all Increase Focus on other issues Costs Capital and Production such as Gas or fuel oil Operating and electricity Increase Revenues IOC takes all cost Risk during the development Build a new Domestic Refinery and develop a new source of energy

13 Types of Upstream Petroleum Contracts Types of Contract Petroleum ownership IOC control Royalty/Tax system (R/T) At Point of Production Extensive Production Sharing Agreement (PSA) At point of export Proportional Risk Service Agreement (RSA) No title transfer Fractional Normative Question: What type of Agreement should IOC be granted?

14 Factors that delineate the Type of Agreement The main factors to influence that type of upstream petroleum agreement: Low E&P costs: host country adopts RSA and seeks more control over the operation production and management (example, Venezuela, Iran and Kuwait proposed Model OSA ). Medium E&P costs: the host country adopts PSA and NOC participation to share the risks (example Nigeria, Kazakhstan, and Indonesia). High E&P costs: where exploration costs are much higher than production costs, where all risks are carried by the IOCs withno NOC participation (example US Gulf coast and the North Sea).

15 Kuwait E&P Costs Kuwait s proven reserves accounted 10 percent of total world oil reserves. Kuwait has the second lowest E&P costs after Saudi diarabia,at $ 355/b 3.55/b. Kuwait planned to increase oil production, this required substantial capital and technology. Therefore, considering teaming up with IOCs to develop the upstream oil sector. Low E&P Cost Countries Country Explo. Cost ($) Prod. Cost ($) Total costs ($) Type Saudi Arabia Kuwait RSA Iraq RSA Iran RSA Venezuela, extra heavy RSA Venezuela, Conventional RSA Algeria RSA/PSA

16 Kuwait OSA Model The proposed agreement OSA is for a limited period 25 years. The IOCs willnot ownthe petroleum or the title to hydrocarbon, in accordance with the Kuwaiti constitution Article 21 The OSA aims to increase Kuwait s oil production by improve recovery factors for specific oil fields. The IOCs recover their costs through a fixed fee per barrel and their profit based on the rate of return on the investment. The IOC is responsible for providing technical and financial reports in every accounting period, as well as health, safety and environmental reports. The agreement stipulates that the IOCs hire Kuwaiti nationals and providing training i programmers. The technical risks are borne by the IOCs while oil price risk borne to KPC.

17 The Technical Challenges Reservoir Drives (easy or difficult) Easy: Recovery Factor is between 30 to 50%. Difficult: Recovery Factor is between 20 to 40%. Very Difficult: Recovery Factor is between 10 to 30%. Easy and difficult oil fields depend on Reservoir Drive Mechanisms, either Dissolved Gas Drive, Gas Cap Drive, Water Drive or Combination Drive. OSA Improve Recovery Factor 10% 60% 70% Difficult Reservoirs NOC with IOC Bad Good With Technology (North Sea)

18 Increase Oil Reserves & Production Contract Start Plateau And Production extended EOR Build up Plateau Decline Primary Recovery 37% Time Part I Recovery 15%

19 Conclusion Kuwait is a reliable source of oil at present and in the future. The main objective of KPC s strategy is to achieve its production target and maximize reserves. Via the proposed OSA, KPC will improve recovery factors by utilizing the latest aes technology ogy and dachieve e savings in both operation costs and capital investments. This will also create job and training opportunities for Kuwaiti nationals. The principle of the OSA is based on the convergence of interests between KPC and IOCs and consumer countries, for securing oil supply to consumer countries and securing of demand for oil producing countries. Through transferring capital and technology.

20 Thank You