A new model for flaring in Oman

What market inefficiencies does the F2V business model address?
When you produce crude oil, often associated gas is also produced with it. Associated gas can be turned into commodities, such as dry gas, LPG and condensate, or into energy, like steam and power. However, if there is no gas utilisation infrastructure in place, these gases are burned in flares, resulting in significant economic waste and air pollution. Flares also contribute to climate change.
Traditionally, oil and gas companies develop associated gas utilisation projects and own and operate these facilities. The industry has been making significant investments in this area for decades. However, the pace of development is too slow.
Despite efforts, the industry is still flaring about USD 30 billion worth of gas year after year according to the World Bank. If you had collected all this gas and put it into power stations, it would be enough to provide power to the whole continent of Africa. Despite of a global commitment to achieve zero routine flaring by 2030, flaring has been increasing over the last few years.
So why is this and what will we do differently to turn this negative trend around?
The stock market values oil and gas companies for their reserves and production. As a consequence, capital investment prioritises hydrocarbon growth opportunities. Second, oil and gas companies focus on the development of large, complex projects. Meanwhile, there are more than 10,000 flares around the world, requiring investment in a large number of smaller associated gas monetisation projects.
It is our view that for the large number of small/medium-sized flares, we need a different business model. Flare abatement ought to be farmed out to specialised companies that develop projects and own and operate associated gas monetisation plants. Second, we ought to keep solutions simple and replicable. We cannot have a bespoke solution for every flare, or every site. We have too many to deal with.

Could you explain the commercial model behind the company?
At F2V we believe that a shared company vision can lead to extraordinary achievements. So, let me start with our purpose. F2V’s purpose is to “Keep Our Planet Beautiful.” We focus on providing efficient energy and reducing the environmental footprint of the energy supply. Flaring in the oil and gas industry creates USD 30 billion per year in economic waste; it also contributes to climate change and air pollution. F2V’s business is to turn these waste gases into valuable commodities and to reduce our environmental footprint.
How do we do it? Our business model has three key building blocks: We are a “one stop” solution provider and we focus on one business: flare abatement. We develop projects, finance them and own and operate facilities that monetise associated gases that are otherwise are flared. For now, we only focus on flare gas monetisation. Second, we are market openers, demonstrating viability of outsourced flare reduction. Through demonstrating success of our outsourcing business model, we will help establish a new flare abatement sector, creating jobs in engineering, finance, trade, transport, operation and maintenance. Third, we focus on modular “plug and play” solutions that can be redeployed and allows us to reduce our cost base. We integrate fit-for-purpose and robust technical solutions with smart project management and efficient finance to maximise returns.
We are technology independent and our technical solutions involve mature modular prefabricated technologies. Solutions depend on the quality and quantity of associated gas and conditions of the product market. They typically involve gas compression, treatment, separation into products and transport of finished products. For small flares, we deploy even simpler solutions that often turn associated gas into energy. It really is simple.
So how does this all create value? Our waste-to-value business brings about multiple benefits.
We help oil and gas companies with a fully outsourced flare abatement solution and hence reduce their operational and reputational risk and environmental footprint without the need for investment from the oil company. We help host governments to create new enterprises and jobs locally through maximising local content of our developments and via demonstrating viability of the outsourced flare abatement model.
Hopefully, there will be other companies like ourselves who will do the same, and they can come with us to neighbouring countries that have flare reduction problems. F2V also delivers reductions in greenhouse gas emissions and hence contributes to the climate change commitment of countries.

What makes the business of flare abatement an attractive proposition in Oman?
The first reason we chose Oman was because the level of flaring in-country is substantial. If you use the World Bank numbers, the value of flared gases amounts to about 0.8% of the nation’s GDP. Therefore, if you captured all of that and put it to good use, you could increase Oman’s GDP significantly.
Secondly, there is a lot of political will and industry support to try the new business model. I believe we have a shared mental model of the future. In years to come, Oman could become a centre of excellence for flare abatement, supported through small, agile companies that turn out high-quality results. I am convinced that one day Oman will export flare abatement services to the region and beyond.
Third, there is a stable and business-friendly regulatory and financial environment here. Finally, and most importantly, it is one of our home countries; we have strong roots here and in the UK. We are a company with a base in Muscat and London; two of our founding partners are from Oman and one is from the UK.

What steps have you taken in order to launch your operations in Oman?
Our story started in London. In early 2017, a Shell/World Bank workshop addressed the question: “What should we do differently to significantly reduce flaring?” The workshop included oil and gas industry experts, financiers, equipment suppliers and politicians from around the world, including Oman. The workshop had come back with a simple answer: open the market to third parties and deploy standardised plug and play solutions. Fast forward to March 2017. We had a meeting with H.E. Salim bin Nasser Al Aufi, undersecretary to the Ministry of Oil and Gas, and shared with him the idea to outsource flare abatement to third parties. He encouraged us to go ahead and demonstrate that this outsourced business model could work.
Together with my partners in Oman, we set up the company in London and Muscat. We have also formed collaboration with Hema Energy, who are helping us to launch the business in Oman. We then
started looking for opportunities and have been working very closely with some of the operators. After initial scouting and many site visits, we have found attractive opportunities that can be done using standardised modularised units and we are now working towards realising these projects.
So, a year on, we have attractive projects, a brand that is getting recognised and a strong core team.

How are you funding your operations?
F2V is currently funded through investments from the founding partners. Going forward, we will fund our company and the projects via debt and equity.
We are in dialogue with equity investors, who are interested in taking a more strategic position and have longer-term plans with us. We are also in discussion with investors who are more interested in a particular project, want to be involved for a number of years and then step out. F2V is also in touch with sovereign wealth funds about coming aboard as investors.
For debt finance, we are in dialogue with banks and equipment suppliers. We are also looking at the UK government export finance scheme and similar schemes elsewhere.
In general, finance is an integral part of the solution and we are progressing towards an optimum mix of equity and debt finance. We welcome further dialogue with interested parties who share our vision, values and aspirations.

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