France and Angola: a positive partnership

What have been the highlights for the embassy in 2016?
On the economic level, our main goal this year was to help French companies implanted in Angola to find solutions concerning their financial transfers out of the country. There is today a great lack of foreign currency (dollars more precisely) in Angola directly linked to the fall of the oil price. Moreover, our Commercial and Economic departments organised sectoral business events – with French and Angolan companies – throughout the year in the sectors of oil and gas, water and agriculture. The Embassy also closely followed the negotiations of important bilateral agreements such as the return of the AFD (Agence Française de Développement) in Angola and an institutional agreement concerning co-operation in the tourism sector, among others.
On other levels, the co-operation and cultural department worked on developing collaboration in the fields of education and training, offering for example scholarships in French universities to Angolan student. Also, the Alliance Française organised several cultural events such as concerts, expositions, seminars (Semaine de la Francophonie, etc.) to promote French cultural heritage.
I arrived in October [2016] in Angola as well as the new economic and commercial heads of departments.

How have economic and trade relations improved between Angola and France since ‘Angolagate’ and the Civil War?

Economic and trade relations between France and Angola are developing well now. The several meetings between the heads of states ([José Eduardo] Dos Santos and [Nicolas] Sarkozy in New York in 2007 and in Luanda in 2008, Dos Santos and [François] Hollande in Paris in 2014 and Luanda in 2015), have greatly contributed to consolidating friendships and cooperation between our two countries, as well as bilateral exchanges. Through their own commitment, the presidents expressed several times along the years the desire and the need for a renewed and ambitious partnership between our two countries.

There are around 70 French companies operating in Angola, including majors such as Total and Technip, and France has invested over USD 10 billion in Angola. How important is Angola to France?
Angola is one of the fastest growing countries in Africa and has the second highest GDP of Southern Africa. The key sectors of interest for French companies are oil and gas, industry, energy, IT, agriculture, logistics, the food industry, FMCG [fast-moving consumer goods] and health.
Our presence here is manifested through some 70 French companies and more than 30 companies created by French businessmen. French companies represent one of the largest foreign employers in the country – with more than 25,000 indirect jobs – after Portugal, and the third foreign investment stock right behind the US and China.
More than 85% of these investments are directed to the oil and gas sector (Technip, Sonamet, Ponticelli, CGG, Vallourec, Spie, etc.) and Total remains by far the largest French investor with annual investments in exploration and production in excess of USD 2.5 billion dollars on average. Since 2012, Total is the largest producer of crude in Angola, with 40% of the country’s production. The other investments are distributed among the sectors of logistics services (CMA-CGM, Bolloré and AMT Necotrans) and [the] drinks industry with Castel, one of the largest employers in the country with around 12,000 jobs, owning seven breweries, glass factories and being the local representative of Coca-Cola Company (they produce the national beers Cuca, Nocal and Eka). France is also present in the water sector with the arrival of [French transnational] Veolia and [French water treatment company] Suez in 2013.

How does the embassy help promote the interests of French companies in Angola day-to-day?
The Embassy is composed of an economic department and a commercial department (Business France), which are both in charge of supporting the French companies already present in Angola, promoting the opportunities of the Angolan market to French companies and encouraging Angolan investments in France.
Business France is a semi-private consulting agency driven by a result-oriented working culture. Its main mission is to offer consulting services to small and intermediate-sized French companies in order to help them understand the Angolan market and find adequate local partners. It’s also in charge of the international volunteers present in Angola.
The economic department, dependent of the French Ministry of Economy and Finance, is devoted to supporting the important French companies present in Angola (exports, French investments and public projects) and animating economic and trade relations between the two countries. The department makes macroeconomic, financial and sectoral studies, follows major projects and contracts and acts as an intermediary between the French administration and companies and the Angolan government.

In 2014, France was the ninth most important destination for Angolan exports – how has this figure changed since 2014?
According to INE (Instituto Nacional das Estatisticas) figures, France is Angola’s eighth supplier in 2015, with 3% of Angola’s total imports, but also the eighth recipient with French imports accounting for 5% of total Angolan sales.
In 2015, bilateral trade between France and Angola decreased by 12% to EUR 2.06 billion compared to 2014, particularly due to the decrease of our exports by 21%, which were directly impacted by the economic crisis and more precisely the difficulties of access to foreign currency. French imports reached EUR 1.45 billion in 2015, a decrease of 7.6% compared to 2014. Concentrated exclusively on the oil and gas sector (99.7%), our imports from Angola have suffered a decline in value but not really in volume (due to fall of the barrel price).

How can Angola encourage greater foreign investment?
There are many ways for Angola to encourage greater foreign investment but the most important is to ameliorate its business environment in order to make it more attractive and more beneficial to foreign companies. Some examples of points to improve are better transparency (more information on the market), easier access to visas and better incentives in private investment law (renewed in August 2015 but still not very attractive) but also the negotiation of new international and bilateral economic and trade agreements.
The main problem in Angola is currently the access to foreign currency, which affects directly the financial transfers out of Angola. It is the priority number one to put the economy back on track.

Angola is in need of economic diversification. How can the know-how of French companies help in this regard?
Indeed, to reduce its dependence on oil, Angola is finally trying to diversify its economy and has clearly prioritised agriculture and agro-industry. Despite an ideal climate and land for agriculture (which was very developed before the 40 years of war), the country currently imports more than 80% of its food needs, a situation that it can no longer afford with the problems of payments abroad. France has considerable expertise in all aspects of the agri-food and livestock industries and is ready to co-operate with Angola by offering its know-how and technical assistance to redevelop this sector.

What is your economic and political outlook for Angola’s future?
Angola is a country with an extremely promising future: it has a very young population, it has a lot of natural resources, in particular agricultural soils, and it has a strong administrative backbone. I truly believe in this country.
On the economic level, Angola’s GDP is ranked third in Africa. I am sure that further steps will be taken to strengthen this position. Diversification of the Angolan economy is an absolute necessity. We must help Angola to achieve this goal and I see no reason why it could not progress further. Oil is a good source of revenue but it cannot be the only one, it is too risky and unsustainable. Angola must become again the great agricultural country it once was, in order to reduce its dependence on imports, on foreign currencies and oil production.
French companies are very keen to participate in this movement. They have a long track record of investment in this country and will be glad to invest further. We are very keen to continue our discussions with the Angolan government so that the business environment can be enhanced.
On the financial level, measures have been taken by the government and the central bank recently. One of the main results was the exit of the FATF [Financial Action Task Force] blacklist in February 2016. We hope that more will be done regarding the improvement of governance, compliance to international rules and more generally on improving the business environment.
On the political level, the next general elections will be held in summer [2017]. Angola is an important and strategic country in Austral Africa. France is convinced that the next elections will be a new stage for stability and democracy in this country and in the sub-region. We are willing to work to strengthen relationships between France and Angola, now and after the elections.

For more interviews, news and market insight on Angola, please click here.

Forge connections

What are some of the organisations achievements and milestones over the past two years?
The CBBC covers all industries that are important to the UK in terms of trade and investment. Under energy, we mainly cover three areas. The first is nuclear, where the relationship between China and the UK is quite strong. The second is offshore wind, which we have been pushing for the last four years. The last one is oil and gas. Within oil and gas, we are mostly looking at offshore oil and unconventional oil, including fracking and shale gas.
That is where the UK can really add benefit to existing solutions in China. We estimate that over the next ten years there will be roughly GBP 6 billion of potential trading volume possible between the UK and China in oil and gas. There is a potential of about GBP 43 billion in the energy sector, of which nuclear energy is a big part. Around GBP 6 billion will go to big players like BP and Shell. That is the estimate of UK Trade and Investment, or the Department for International Trade. It estimates there is a potential trading volume of roughly GBP 200 million possible for supply-chain players over the next ten years.
In terms of achievements, we are working with the UK Embassy in China as the delivery partner for anything trade-related, including research for UK companies interested in the Chinese market. We do bespoke research, market consulting and entry-level market studies. We also do events: we run all the events for the UK government in China and in the UK. For example, when you have a state visit to the UK, it is delivered by us. We also do one to one consulting. A company can call us to ask anything they want about energy, environment and infrastructure. We then use our network to provide them with the best support that we can. Our network includes 15 offices in China and 10 in the UK, and has specialists crossing all sectors.

Within the oil and gas industry, would you like to highlight any projects that you were involved in?

Our network of [more than] 1,000 Chinese and UK companies provides support through our events in both countries. We organise delegations with people interested in certain areas, everyone from local mayors to provincial leaders. We also support the UK government in producing reports on the Chinese market, such as the One Belt One Road initiative. Additionally, we support Scottish Development International with oil and gas reports.
We can help major oil companies, such as BP and Shell, by giving them visibility through their achievements. We arranged a ceremony for BP when they signed a 20-year contract with the China Huadian Group Corporation last year for the delivery of LNG to China. That is a massive deal for BP, one that they have been working on for many years. We gave them the platform to talk about [this agreement].

Can we elaborate on the opportunities for UK companies that add value to the Chinese oil and gas industry?
UK companies are very good at doing surveys, looking at safety aspects and training companies seeking to do exploration. They are very good at creating policy surrounding projects, including anything to do with Chinese companies and standards. Making sure Chinese companies adhere to international standards when abroad is one example of what they can do. That is where the UK is very strong.
The UK can bring a lot of soft skills into play. If we were to talk about this five to ten years ago, soft skills were very hard to sell in China. Engineering was what was needed most at that time. Soft skills were things that came with the package and Chinese companies were not willing to pay for them. Now, companies are getting more sophisticated which is opening new doors for UK companies with the required skills. There is now far more interest from the Chinese side in getting expertise into companies to help them to grow in a sustainable way.

Can we talk about some of the drivers behind this increase in sophistication?
As China’s onshore oil fields mature, companies are looking towards offshore fields. This is also true for the wind industry. They cannot just apply the technologies they have onshore to offshore sites. They need to up their game and the UK has lots of offshore oil experience in the North Sea.
The second driver is spending money on soft skills as a shortcut to [reach their] goals, especially to get outside expertise into your corporation. [This can either be done] through a merger with a company with those skills or by bringing people in for the education. This can help leapfrog the time that would have been spent building those skills organically.
Chinese companies are now going abroad, so they need to play by the rules. If they do not comply, they get a lot of pushback. This seems to be happening now and customers are not happy. In the end they are abroad for the long run so they need to pick up their game.

Can you please discuss some of the challenges that UK companies can face working in China for the oil and gas industry?
The biggest challenge is the fragmentation of the market. Although big market players are state-owned, and we have contacts with the CEOs and presidents of these companies, finding opportunities and getting contacts for companies in the Chinese supply chain is extremely difficult. You cannot just make cold calls to an engineering company in China and ask to talk to an engineer. It just does not work like that.
Also, the decision-making process is so different. The people in china who have knowledge of the processes are not the ones who are making decisions. A lot of decisions are made by politicians who do not know much about the matter. For us, it is really hard to convince UK companies that it is not for a lack of opportunities in China that they cannot get jobs and projects. It is the lack of transparency in the market that really hinders the process.
A lot of small and medium Enterprises (SMEs) in the UK might have 20 to 50 people working on the UK market and a team of five working globally. That team of five might have one person who comes to China to generate business. However, everyone on the team would need to work day and night to create something out of that one trip. Most companies cannot afford to spend on trips to China to properly explore the market and get acquainted with the key players there for the next five years.

What are some of the challenges in the geographical fragmentation China’s oil and gas industry?

China’s National Oil Companies (NOCs) have international and local arms. They basically have the whole supply chain covered. We know the resources we need are in those companies, but the top down approach used does not work. For example, the CEO does not know what is happening in their sub-companies in Sichuan, so we cannot try to work from our office there to approach them as they will probably revert us back to the HQ in Beijing.
There are also no tenders out for international bidding and the websites for tendering are mostly in Chinese, so UK companies cannot access or understand them. The time for handing in your tender bids in china is extremely short and can be anything from a weekend, to a week, to two weeks’ notice. You need to generate a great of paperwork, which most UK companies are not used to doing. It is a local tendering process with the word international attached to it. If you do not have local staff used to collecting all the information and stamps needed, you will never be able to get the bid ready in time.
There is a lack of transparency and a lack of adherence to international procedures, which means there is a steep learning curve for UK companies that want to work in China.

What are the opportunities that China going global generates for UK companies?
UK companies have been working for a long time on third market oil and gas exploration and production [E&P] projects in Commonwealth companies, such as on the African continent. They have built up a lot of networks and connections there. The local knowledge they have gathered over the last 50 to 80 years could be very beneficial to a joint corporation. They know the rules of the market and the way to approach stakeholders and they have accumulated a lot of engineering experience over the years.
By using their diplomacy and soft skills acquired over that time, and combining them with engineering skills from Chinese companies, there are excellent opportunities [available] to deliver projects of the highest international standards. This is one of the reasons the UK government signed an agreement with the Chinese government for international co-operation, called the Infrastructure Alliance. It began last year (2015), after the visit of Chinese Premier Xi Jinping to the UK. [The agreement] has now been formalised and is slowly being put into motion. The combination of soft skills and engineering skills will really be of benefit to stakeholders in the third market.

What are some of the challenges of the global initiative that China is undertaking?

[The initiative] touches on the soft skills side which China still somewhat lacks. Having worked in China for a long time, Chinese companies do not always adhere to international standards or processes either. This could become an issue, especially on paper as the projects you are undertaking have to be for the benefit of both local and Chinese companies coming in.
What we have seen so far is some of the projects undertaken on the Chinese side are making up most of the workforce. It is actually taking work away from local companies that are very excited about getting involved in China’s [One Belt One Road] initiative. This is a major challenge moving forward. We have to show Chinese companies that they have to engage and open up for co-operation, otherwise the vision of a new Silk Road is probably not going to be there for the long run.
This is where UK companies going into projects with Chinese stakeholders will make a big difference. They understand the subtleties of involving local communities and showing how their co-operation would be beneficial to them: new jobs, wages, the opportunity to work with Chinese companies. Some Chinese companies will have to make progress in this area.

How would you increase collaboration between UK and Chinese companies in China and overseas?

We would continue what the UK government has been doing and what we are already doing on the behalf of companies: engaging with and working on the network we have created, ensuring both sides understand each other’s needs. Making sure they are open to having conversations that are not just nice and courteous, but also ask the right questions.
We have seen UK companies be very direct in asking hard questions, not in oil and gas but in discussion around the nuclear supply chain. They ask: “What can we actually do in China?” and similar questions to the Chinese. “You do not really need us, but if you want to work with us in supply chain talks, please tells us where the opportunities are.” They challenge them directly.

Provincial potential

What have been the main energy industry management policies in Rio Negro?
[We have continued] on the path of adding value to the rich energy resources that exist in our territory. We have mining, oil and water resources, and also the possibility of developing solar and wind power. From the start of his administration, Governor Alberto Weretilneck worked towards highlighting their relevance, with the welfare of all Río Negro’s inhabitants on his mind.
We are working for a sustainable Río Negro on energy issues, based on the maximisation of all its potential. We are surrounded by rivers, we have strong winds, and now we can visualise another opportunity, thanks to solid waste treatment produced by our industries and cities. We have to think not only about their final disposition, but also about converting them into energy resources.
The macro conditions have been given after the passing of the national framework for the promotion of the use of renewable energy for the production of electricity, so we are at the right moment. We have to take advantage of these favourable conditions for the development of projects related to renewable energies. This will take place together with national and foreign companies, since they have both shown their willingness to associate with the province.

What is the status of the Río Negro’s upstream sector and what potential does it have?

On one side, we have recently renegotiated the areas where 90% of the gas production and 82% of the oil production are. These are contracts with demandable commitments with operators YPF, Ysur, Petrobras, Tecpetrol, Petrolera Entre Lomas, Petroleos Sudamericanos, Necon and Madalena Energy. This was a right that we didn’t enjoy before, we were one of the last provinces to undergo this process after the passing of the “Short Law,” which transferred the management of the hydrocarbons resources to the provincial jurisdiction.
Shortly, we hope to close three new deals so that the provincial legislature can give them the proper legal treatment and count on demandable and clear commitments. Up until now, this has given satisfactory results with over-accomplishment of the agreed investments in 2015.
With regards to exploratory terms, under this law we obtained concrete commitments so that every company can explore the remaining surface of the concession that was granted to them. Currently, we support the movement of oil activity towards the area of the Middle Valley, which is possible thanks to a public bid launched in 2015, and which was granted to YPF. Through this process, we created an exploratory block called Chelforó, which is the largest area of our hydrocarbons portfolio, spanning 6,800 square kilometres. YPF has started the exploratory activity there, which will extend initially for three years, and the company expects an investment of USD 8 million.
We hope that during 2017 we can launch similar bids in more than 15 blocks where we have gathered large and rich information.

How do you plan to increase the flow of foreign and national direct investments to the hydrocarbons industry? What fiscal advantages will you provide?
The renegotiation provides certitude for the next 10 years. This means that the companies involved with the production of oil and gas have their activity guaranteed for the next 10 years without any surprises. This has strongly impacted exploratory plans, generating greater activity by the licensees.
In the future, what we could do is establish base bidding documents and conditions adjusted to Law 27.007, with biddings that have international reach.
Regarding fiscal advantages, it is our intention that they adapt to the scope of the projects and the resulting investments. We do not believe in abstract additional advantages, but in special advantages for concrete projects that deserve them. We are willing to agree on those if necessary to [drive] activity in the province.

What is the importance of Vaca Muerta for Río Negro?

The characteristics of the Vaca Muerta formation that is beneath Rio Negro does not allow an intensive development of shale resources. In Río Negro, unconventional activity is associated with tight resources in other formations. Although, we are obviously within the range of activity impact of Vaca Muerta and we work daily to respond to that reality.

What role will Empresa de Desarrollo Hidrocarburífero Provincial (EDHIPSA), play in Rio Negro’s hydrocarbons industry?
EDHIPSA is one of Río Negro’s state agencies. It supports the state Secretariat of Energy, within the established framework of institutional strengthening with the aim of optimising the taxation in hydrocarbons issues. However, we are also working to exercise the full original mandate of the provincial state and manage the hydrocarbon resources we have in our territory.
This is why we hope that in the future, EDHIPSA will be able to proceed towards exploration, development and exploitation of non-renegotiated areas by itself, or with the assistance of or association with third parties – for example, through the formation of UTEs [transitory union of companies] or through bidding processes – and always within a framework of competition with private companies where EDHIPSA does not constitute an obstacle for foreign investments, and thus for development. In fact, we hope that the contrary will take place, that EDHIPSA as another actor with its capacity and expertise, can strengthen foreign investment through public-private partnerships.

How can the role of Río Negro’s SMEs be strengthened and their competitiveness increased in the oil and gas industry?
Together with the Secretariat of Science, Technology and Production Development of the province, we have generated working spaces with Río Negro’s SMEs, both in mining and in the oil industry, that have been very useful.
The goal of these meetings is to know the demands of the different productive sectors of Río Negro and look, from the scientific and technological side, for a solution that often times you can find in the province and is not known.
Under the law by which concessions were recently renegotiated, a “buy local” rate was established, which is audited through a follow-up commission, integrated by representatives of all the sectors involved in hydrocarbons activity. This plural space is a novelty in the national arena and is giving great results.

How can the provincial and federal governments co-operate to improve the performance of the provincial hydrocarbons industry and general socioeconomic development?
First of all, by respecting the areas of responsibility of each one for the industry. Also by promoting dialogue and encouraging the participation of all the jurisdictions in a federal arena, and which includes all the actors of the activity.

Where would you like the provincial hydrocarbons industry to be positioned by 2020?

Río Negro is the fifth-largest oil producer and seventh-largest gas producer [in the country], with a growing field in the area of Estacion Fernandez Oro, where half the provincial gas is produced and where today, four drilling rigs are working. We hope to consolidate these policies that we have had since early 2012, which certainly will allow us to have a more important role in the national context.

Positioned to grow

What are the main growth segments for Halliburton and will the company see shifts in the performance of these segments?
With Kuwait’s planned investments in downstream projects and early production facilities, we foresee growth in the downstream segment and associated product service lines.
We also anticipate a shift towards integrated project management – this trend is already underway and we expect it to continue. Integrated projects offer customers a mechanism to deliver complex project solutions while reducing uncertainty through a reliable, single point of contact.

How has digital oilfield technology evolved in Kuwait since its inception? What are the lessons learned and other possible fields for its future application?
Although oilfield workflow automation processes have been implemented in the oil and gas industry for more than a decade, the full impact and value of these technologies has yet to be realised.
In the quest to do more with less, reduce non-productive time and increase operational efficiency, Kuwait decided to implement pilot projects to evaluate different aspects of intelligent digital oilfield (iDOF) concepts.
Three pilot projects started at the end of 2009 and beginning in 2010. One of those pilot projects was the Kuwait Integrated Digital Oil Field in the Sabriyah field (KwIDF Sabriyah) which focused on the Mauddud reservoir. This area was chosen because it has unique characteristics and challenges and is a field where significant production growth is expected
Through the pilot, Halliburton successfully achieved integrated operations for measurement, modelling, and control of oilfield assets where informed decisions are made effectively in a multi-disciplinary, collaborative work environment. The availability of accurate real-time data aided in the pilot’s success.
Following the success of the pilot in Sabriyah, increased growth in the KwIDF concept was likely. Because the number of wells in the original pilot project covered only about 10% of the wells in that field, the project had to scale up to extend the value of the solution to the whole field and possibly others.
In collaboration with Kuwait, Halliburton continued to develop and refine business processes and workflows for the new way of doing business in the iDOF environment. The KwIDF project started with 49 wells and we thoroughly assessed these wells’ performance.
As a result of the pilots’ success, Halliburton will be carrying out the KwIDF Expansion Project in Sabriyah. KwIDF Expansion is the new generation in workflow automation and one of the most strategically important of Kuwait’s initiatives in terms of positioning the company to better manage its producing assets towards achieving its long-term strategy.

How has oilfield services technology developed to optimise extraction from Kuwait’s assets? What are some of the major subsurface challenges?
There are several technologies specifically used to optimise extraction in Kuwait and address some of the major subsurface challenges.
As part of Kuwait’s mature field strategy, there has been a focus on improving maximum oil recovery. One such field seeing an increased focus is the Bahrah field, located in the Mauddud formation. It is considered one of Kuwait’s most technically challenging fields.
Historically, vertical wells have been stimulated with acid fracturing with long-term hydrocarbons production supported by electric submersible pump (ESP) artificial lift. However, Halliburton experts recognised that this was not the most efficient way to complete wells in this field.
Halliburton’s commitment to delivering the lowest cost per boe through surface efficiency, custom chemistry, and subsurface insight enabled Kuwait to achieve its goal of maximising production while lowering cost through the deployment of multistage fracturing. Such treatments on Bahrah provided Kuwait with a game-changing field development strategy for future wells.
Another example is the use of intelligent completion and multilateral technology for cost effective field management solutions. Halliburton completed Kuwait’s first multilateral intelligent completion. Drilling several laterals from a single wellbore provided the ability to monitor and regulate production inflow by controlling water coning and premature water breakthrough. This delivered an economic advantage to our customer and resulted in an optimised and cost-effective field management solution.
Another technology is KwIDF, which automated workflows to monitor, diagnose, optimise, and perform multi-scenario forecasts of water flooding in low-permeability carbonate reservoirs.
Finally, Halliburton’s Autonomous Inflow Control Device, or AICD, addresses one of Kuwait’s key challenges of high water cuts and early water breakthrough. AICD helped improve recovery by reducing water cut from the high water saturation zones in the Burgan field, thereby increasing the overall oil recovery.

What are the viability and challenges of Kuwait’s ambitious 2020 production goals?
Kuwait has a priority of increasing production capacity to 4 million bopd to help it reach new markets and remain one of the world’s top oil producers. By adding more rigs, increasing EOR, hydraulic fracturing and heavy oil [production], as well as growing its plans for offshore expansion, Kuwait is taking aggressive steps to achieve this goal.
One of the challenges towards achieving this goal will be the surface facilities footprint and capacity in the country. However, we’ve seen Kuwait continue to invest in this area with early production facility projects.

How does working in Kuwait as an international services provider compare with other regional markets where Halliburton operates?
Working internationally and overseeing multiple countries and regions for the past 16 years has allowed me to objectively assess different markets and operating practices. From our experience in Kuwait, I see many opportunities for service providers to collaborate with customers and help them unlock their reservoirs’ full potential.
The competitive environment and landscape in Kuwait is very mature. This has been driven by Kuwait Petroleum Corporation (KPC) and its subsidiaries’ transparency in communicating expectations, contract award practices and sharing their future plans.
KPC and its subsidiaries understand the importance of maintaining a competitive landscape and have created a mechanism to govern and regulate market share, a practice that is not common in other parts of the world.
All of this, coupled with a customer that values the importance of strong service quality, execution performance and true business partnership, is certainly a catalyst for leading service providers such as Halliburton to strive, invest and grow in Kuwait.
It is KPC’s strategy to create sustained competitive trading relationships through awarding long-term contracts. This offers stability to service providers and encourages investment and growth in country. However, the challenge is that if a service provider does not succeed in tendering rounds, it is removed from the market segment being tendered and for the duration of the contract.
With that said, KPC’s openness to innovation and their understanding of the risk-value model has always been a potential entry point to the market.
So in essence, the Kuwaiti oil and gas operating practices create the environment for unsolicited innovation pre and post-award, develop real incentives for excellence, offer clarity on outcomes and allow for managing risks jointly. Realising these strategies has driven increased value delivery at a significantly lower cost base for KPC.

What is the importance of Kuwait in Halliburton’s global portfolio?

Kuwait remains an important strategic area for Halliburton because it is one of the top oil producers in the world with among the biggest oil reserves. It also has significant growth potential and an aggressive strategy to deliver on its growth goals. Finally, having a key position in Kuwait strengths Halliburton’s overall position in the Eastern hemisphere.

For more interviews, news and market insight on Kuwait, please click here.

A view of the GCC

What is your current assessment of the oil and gas industry in UAE and GCC?
Abu Dhabi remains one of the largest oil exporters in the world. It is not on the level of Saudi, but it produces about 3 million bopd, much of which is exported. After Saudi, the big four players are Iraq, Iran, Kuwait and Abu Dhabi. There are other big producers such as Algeria or Libya, which are important, but Libya has political problems and Algeria has high domestic consumption and also exports to a captured market in Europe. From the Gulf, companies export mostly to East Asia, but potentially to anywhere in the world, so it is a very important export market.
What makes Abu Dhabi unique compared to the other big oil exporting countries in the Gulf, is that there is a high level of foreign investment. Abu Dhabi has always considered it beneficial to have major multinationals involved in the upstream oil and gas industry. Supermajors like Exxon, Shell, BP and Total are all involved to this day.
Traditionally, there was a 75-year onshore oil production concession with Exxon, Shell, BP and Total as the main players. That concession began in 1939 and expired in 2014. Today, Total is the only one that has become involved. Exxon has firmly stated that it is not interested in the current structure. We do not hear much about BP. BP has become involved in offshore, so they have other interests in Abu Dhabi. Shell is the interesting one. Shell right now just has a small investment in Gasco, the LPG processing company. It will be interesting to see what Shell does in the future. It used to have a large involvement in Abu Dhabi, but now it is quite small.

How stable is the legal system in the UAE?
The country has a developing legal system and we are seeing improvements over time. The competition law in 2012 was an improvement. The new bankruptcy law, which is about to come in, should be a welcome improvement. We need something like an administrative procedures law that clearly sets up the publication of administrative rules; that is probably the most important thing we currently lack.
A lot of these places, like Japan, Singapore and Eastern Europe, grapple with these same problems as they modernise, which is to say that they have powerful government agencies that essentially have to give up that power as the economy and systems law develops. They must formalise the rules for what government can and cannot do. That is what we really need here. That would be the biggest thing to improving the legal climate: a systems law that formalises government procedures.

Do you see this changing the legal boundaries and changing the rules of the game?
Abu Dhabi’s system is unique in that it is largely established on precedent. There is a way of doing things here that everyone is familiar and comfortable with and there is little law out there. There are decrees regarding taxation that date back to before the UAE existed. There are also some laws from the 1970s that specify who owns natural gas and how drilling operations should be conducted.
The Supreme Petroleum Council (SPC) is the supreme regulator and decision making body of the industry. The SPC will make decisions and the SPC is chaired by the president and senior members of the government. Essentially, their decisions carry the force of law so that is where meaningful law is passed. Since the SPC was set up in 1988, there have been no significant laws concerning the oil and gas industry.
Many countries will pass new laws as a way of reforming the current ones to change the industry, or make environmental restrictions stricter, et cetera. You do not see that here. Here, you just see the SPC make decisions. It probably has a lot to do with politics. In a lot of countries new oil and gas laws come from the democratic process and people wanting a different outcome from the oil and gas business. Here, there are not the same societal pressures pushing for new law regulation.

How are tax reforms going to reshape the economy?
It is well-known worldwide that the UAE has no proper income tax and is therefore a very attractive place for people to live and for businesses to set up a base for operations. There is, in fact, a tax decree in every emirate, which in many cases dates back to even before the UAE was established, but, there has never been a federal law on tax. The law on the books of each emirate only applies to two sectors, however: oil and gas production and foreign banks with branches in the emirates. This is a unique system that we have.
Now, VAT is coming in as a GCC-wide agreement, so whether you are in Kuwait, Saudi, Bahrain, Oman, Qatar or the UAE, you are going to be under the same tax system. We are going to have a federal tax when it comes in and essentially every onshore invoice that goes out for services or goods will have to add 5% for this. It will not be permitted to keep the same price and force the invoicing party to absorb the tax cost. It is something that the market is going to have to pay for.

What are other reasons why FDI remains so high in the UAE?

What makes the UAE so attractive is lifestyle; it is very open. It has great schools. It has Emirates and Etihad airlines. When you look at the big factors for FDI, the UAE is more convenient for carrying out logistical operations between the Suez Canal and the Far East. And it is more attractive for people to live here than in, say, southern Sri Lanka or eastern Oman, which have similar – even superior – geographic advantages. Although those might be useful as a logistics hub, they simply don’t have the same international air connectivity. There are so many advantages in the UAE, and it should be able to maintain its advantages for a long time to come.

What challenges do newcomers experience when they establish their presence in the UAE?

The biggest challenge here is that there is an area of uncertainty that does not exist in many developed countries. Maybe the law is not written down, it is just a known rule. That rule may change without warning. You could be doing the same thing every day, but then suddenly one day it is different just because it is. When there is rule, there is often a gap between law and practice. Rules are not widely publicised, so there is uncertainty that pervades everything. It does not necessarily result in high cost, but it results in frustration and extra work. This frustration, however, is not what you would call a real business risk.
Bribery is not a way of life in the Gulf and a lot of these NGOs that do global rankings of corruption and perception of corruption demonstrate that the UAE ranks essentially on par with Western Europe. Saudi, Kuwait and Oman do not have the same ranking. I have been in the UAE for eight years and I have never been solicited for a bribe here.

How do you assess legal activates for the oil and gas industry in UAE?
The oil and gas work has definitely dropped off substantially. I would say that we are the busiest we have ever been, but it is in sectors such as automotive, not oil and gas. There is also a lot of work on debt collection. Nonetheless, the payment collection is on the rise now and that is a general activity without reference to any sector.

Is Iran a potential market for the oil and gas companies nowadays?
Iran is a major area of interest for many different businesses. It has fantastic potential because it has a large population, on par with Turkey or Egypt. It has a huge resource base in terms of proven reserves and its current production is relatively small. The population is relatively well-educated and it has a functioning domestic economy that does not really rely on anything foreign. It has its own homegrown technology and labour force. It is in a very strong position and it is a very interesting country.
Now, the biggest challenges are the ongoing sanctions. Despite the end of most secondary sanctions, and the end of most UN and EU sanctions, there remain US primary sanctions. Maintaining compliance with that is one of the biggest challenges for any non-US business seeking to do work in Iran. It is not that the Department of Justice is going to force you to stop doing business with Iran, but what is going to happen is that a bank will cut you off because you are doing business with Iran. US companies are cut off.

What are the ups and downs in going public or privatising the key hydrocarbons assets in this region?

Every Middle Eastern country has its own NOC, but Abu Dhabi’s strategic investments outside of Abu Dhabi are done by IPIC, ADIA, TAQA or Mubadala. They are not done by ADNOC. ADNOC does not have any material investments outside of Abu Dhabi.
It is a very bold move to try to list a company like Aramco. Currently, Aramco dominates the supply chain from upstream operations and it does not publish anything about what it does. It is a very active oil and gas company and the world’s biggest by a long shot. So, how could we structure Aramco so that it could be listed? It may remain the concession holder of its oil fields or, more likely, it will sort of separate it so that the service side of the company will be listed, but the side that holds the concessions will not be. It will still be a massive company.
The strategy would basically be to sell the assets and monetise them. Aramco said that it will list 5%, which would be the biggest listing in history. In doing this, Aramco is not really giving up any real control. What it is giving up is a lot of information. It will have to disclose a lot of information to satisfy investors. It will have to disclose it in such a way that makes it subject to more scrutiny. Up until now, it has given out information piecemeal. That won’t be possible if it is publicly listed.

What is the legal framework like for renewable energy in the UAE?
Any solar programme will only function with a feed-in tariff system, by which the utility promises to buy solar energy at a higher price. Now, most countries will bring that in by law; that is the typical way to do it. What happened in Abu Dhabi with the first solar project that was financed was that the Abu Dhabi Department of Finance gave a promise to buy at a certain price, a so-called “green payment”. This functioned like a feed-in tariff.
This is a model for how it could be successful but, as a noted before, it is not something that is codified by law. There is a precedent based on this certain deal that was done and that is now the model for how it could be done. Essentially, it achieves the same result. Instead of having the utility buy it at a higher price, we have the Department of Finance come in and give a green payment. Now, if a company wants to come build a solar facility, it would expect the same generosity that Abu Dhabi offered back many years ago, but it is not a contract, per se.

What is your outlook for the next year ahead regarding Abu Dhabi and its hydrocarbons industry?
The nicest word to use is challenging. It is going to be very challenging so long as the oil price remains what it is today, which I anticipate to last for some time to come. There is going to be a lot of pressure on the industry to cut costs. There is reluctance on the part of banks to lend to companies involved in the industry. There is going to be a general lack of demand. We have already seen that affect the industry and we see it continuing for the foreseeable future. As has happened in the past, it will end at some point, but right now the oil and gas industry in the region is facing real challenges.

For more interviews, news and market insight on Abu Dhabi, please click here.

Fewer rigs, increased efficiency

How will the market evolve if the oil price stabilises around USD 50?
Markets react differently. In the US we are seeing a slight increase in the rig count. Generally, there is a lag in pickup of 18 months to two years between Western Hemisphere and Eastern Hemisphere markets. If the elections are calm, companies will likely continue to invest in Angola.
There are currently eight offshore rigs in the country, and this figure will drop to seven by the second quarter of 2017. It is unfortunate that the market will contract a bit more before it bounces back.
While positive signs are coming from Sonangol and its strong new leadership, some important factors should be considered. With the barrel trading around USD 50, onshore exploration could be lucrative, particularly because costs are lower.
On the other hand, exploration becomes more challenging and expensive in deepwater markets. However, customers were sanctioning projects in deepwater some years ago, when the price was around USD 25 or 30 a barrel. If they were able to make it work then, why can’t we make it work now?
The industry understands that it needs to improve efficiency. In the past years there has been inflation throughout a series of areas.

Could you describe Halliburton’s activity in Angola over the past year?
A retraction of activity has marked 2016, and almost every company has registered a slowdown. In 2015 the offshore rig count was just below 20, and this year the number of rigs will be in the high single digits. This figure provides a good example of the retraction in the industry.
As drilling stops and new rigs are not commissioned, we lose the chance to sign new contracts, while others have expired. Moreover, operators in Angola, including Sonangol, are pushing for further discounts in an attempt to reduce costs. It has been a difficult year for the Angolan oil industry.

Which contracts are you currently pursuing?
We have about 90 active contracts, with variable lengths that depend on the nature of the product or service we supply. We work with all the operators and are actively bidding on projects that span the services we offer in the country. At the moment our focus is to retain the contracts we currently hold, and then try to grow in new segments in which we can add value through technology or cost-saving strategies such as batch drilling.
We also manufacture equipment that can be adjusted to the design needs of a particular rig before it is transported offshore. We develop this kind of equipment at our tech centres, laboratories and factories, and it helps oil companies save money.
In addition, we have just supported an operator in deepwater with a technology called Thermomechanical Cuttings Cleaner, a direct response to the zero-discharge decree that prohibits the discharge of cuttings overboard. For several other operators we have used the expandable liner hanger technology called Versaflex®, which saves them a lot of time when it comes to casing running.

Do you have tech centres in Angola?
We have technical advisors, specialist technical managers and laboratory technicians. There is a lot of knowledge available in Angola, but our global manufacturing centres are in Singapore, the US, and Scotland. We build and assemble the finished products inside Angola. We also have the capacity to test and provide repair and maintenance in Angola, in Cabinda, Soyo and Luanda.

Why is Angola an important technological area for Halliburton?
There are a large number of IOCs in Angola, including several major operators. In spite of the current rig count, Angola remains a big and relatively busy market, particularly in comparison to markets of other West African countries. Angola seems to remain very important for operators focused on adjusting their costs to the environment of low pricing, becoming more efficient and breaking even.
For Halliburton, Angola is still a big business, and we want to maintain our presence here. If anything, the current market situation is pushing innovation. At Halliburton we are working to better collaborate and engineer solutions to maximize customers’ asset value, particularly in a deepwater market.

How has the new base in Malembo impacted operations for Halliburton?
It has been really important for us. It is a big facility that engages the local community through local supply of services and job creation. As we were the first to move out of our former base, and in terms of employee morale, it is a state-of-the-art working area, and that creates pride.
The equipment there is also a lot more efficient and has proven to be more effective in offshore areas.

To what extent is Angola’s oilfield services sector dominated by Halliburton, Schlumberger, Baker Hughes and Weatherford?
When companies come to Angola, they must be ready to commit to long-cycle contracts in order to establish themselves in the market. The contracting cycle is multi-year, which makes it difficult for new entrants. Then there is the question of timing. Anybody coming into the country now will struggle significantly, given the current market conditions, and the fact that there is not enough work for all service companies. The size of the incoming company also matters. In order to enter the Angolan market and provide offshore oilfield services, companies must be able to make a big investment.
Moreover, operators do not want to take a chance on a new company in an offshore environment when their rig costs up to USD 1 million per day. Instead, they look for a trustworthy, reliable brand that has experience in Angola. There are also logistical challenges, mainly because rigs are far from support bases, and being present in more than one logistics base requires a lot of financial muscle.

What is the potential of Angola’s onshore blocks?

They could complement Angola’s offshore blocks in an interesting way. Furthermore, the development of the newly awarded onshore exploration could be a great creator of jobs, particularly during a time when unemployment has soared due to the decline in offshore activity.
Thus, developing onshore activity has the potential to generate some interesting spillover effects, and could provide a good training ground for new Angolan engineers, as onshore activity could be viewed as a first step on the way to offshore experience.
Regarding available reserves, the fields seem to be fairly mature, some having been drilled and abandoned in the ‘90s. At the same time, other wells may be able to produce, but this would require some initial investment.

How has the slowdown in market activity affected workforce composition?
We have taken advantage of the market downturn and have promoted many nationals into senior and management positions. We have also tried to promote some nationals to go and work overseas, to gain experience outside of the country.
Halliburton has a competency programme through which we offer training on specific equipment or technology, prior to its assembly or use offshore. In terms of Angolanisation, about 75% of our staff is Angolan.

What is Halliburton’s strategy for the next few years?
We are trying to be collaborative with our customers to develop innovative solutions to better address their problems and increase their production. In order to do so, we ensure that the solutions we offer are competitive, proven and locally available. We are also focused on consolidating and trying to remove cost from our system to remain competitive.

For more interviews, news and market insight on Angola, please click here.

Steady progress

What have been BP’s highlights in Angola throughout 2016?
The first thing is that we continue to produce just over 300,000 barrels of oil and gas a day from our operated blocks, which is almost 20% of the country’s production. On a net basis, when we factor in the production that BP shares in blocks 15, 17, 18 and 31, our production in 2016 was the highest it has ever been during the two decades we have been operating in Angola. This makes us one of the top net producers and contributors to the government’s take in the country.
The production from the PSVM FPSO in Block 31 has been on plateau for a third consecutive year and we continue to manage the base decline in Greater Plutonio in Block 18. Those two assets are performing very well with a reliability running at around 95%, which is the highest it has ever been. Our safety performance has improved dramatically year-on-year and is also at the highest level it has even been. We are actively, aggressively and responsively managing the cost structure of our business to ensure that we remain a safe, competitive and sustainable business in Angola.
In December 2016, we celebrated the production of our 500 millionth barrel of oil from Greater Plutonio. In addition to that, we recently celebrated the delivery of our 200th cargo of oil produced from PSVM.
Our challenge for the next few months and years is to figure out how we can safely sustain this 300,000-320,000 barrel per day gross production into 2017 and develop the next generation of projects to maintain production well into the future.

What potential do you see in the Kwanza Basin?
The Kwanza Basin is a tale of two cities. The good news about the Kwanza Basin is that we have found hydrocarbons there. However, the bad news is that there is a disproportionate amount of natural gas and carbon dioxide amongst those hydrocarbons discovered. Unfortunately, at present, IOCs do not have rights to gas in Angola and therefore are not able to develop and monetise those gas resources. On the other hand, the size of the resources in the Kwanza basin is only a fraction of what has been discovered in the Lower Congo Basin.
Year-to-date, the industry has discovered approximately 25 billion barrels of resource in Lower Congo basin whereas in the Kwanza and Benguela basins, we have only discovered about 5 billion barrels of resource. It is a young basin and there is still a lot more to do, but it is becoming clear that we have to create a gas solution for the basin in order to develop and monetise those gas resources. Natural gas is a huge part of the future, not only of Angola, but of the world. You see more and more projections around natural gas as a fuel of choice, as a hydrocarbon of choice, particularly on the back of the Paris agreement adopted in December 2015 and now signed by most countries.

How is BP extending the life of its oilfields?
There are a few things that can be done. The first one is to make sure that we are managing the reservoirs as best we can using water injection or gas injection to keep the pressure in the reservoirs at the appropriate level to sustain production.
The second thing is looking for opportunities for infill development. In 2018, we are going to shoot a seismic survey in Block 31 that will allow us to drill more infill wells in the PSVM structure.
The third thing is well work. For the first time in BP Angola’s 20 year history, we are going to start our first well work campaign in December 2016.
Another thing is technology. We have been working with Palantir, which uses big data to help understand where there may be opportunities to enhance recovery. We have had quite a bit of success on the Plutonio field in Block 18. In 2015, it allowed us to keep production flat in this seven-year-old field. We are working hard to do that again in 2017.
In Block 31, we are using drones to do inspections on the flare stack at the PSVM FPSO. They can eliminate an intervention done by a human using technology to see what’s going on with the various components at the PSVM facility. We are also using infrared cameras to detect any possible leakages that cannot be sensed by human eyes or noses.

How can Angola compete with the rest of the world with staggered low oil prices?
Firstly we have to look at the supply chain. If the oil price has dropped 60-70%, then we should ensure that we are seeing a corresponding reset of the supply chain costs associated with our business. We need to understand why and how costs have drifted over the past decade and work to get them back to a competitive level.
Companies, as well as the state, must spend every dollar as if it is their own, making sure that it is being spent wisely. We have to find an intersection between using local companies and getting the most competitive rate. There is a role for us to play in making sure that intersection occurs and that the pricing and quality remain competitive. I am sure there are some local companies that can help us create this new future
In our business, we have reduced our office and housing footprint by 50% by consolidating from two offices into one office, and moving our expatriated families into one compound versus a multitude of compounds. We also benchmarked our business in Angola with other businesses in BP worldwide, in order to leverage best practices and improve efficiency.
Today, Angola is one of the top oil producers in the African continent. That is something to be proud of. As Angola competes for capital with places like the USA, Russia or the Middle East, it has to be competitive.

What are your thoughts regarding onshore blocks in Angola?

I do believe there is a role for onshore oil and gas activity in Angola. However, I believe it will be dominated by local companies and start-ups that are interested in producing small accumulations of hydrocarbons. I believe the IOCs will continue to dominate the deepwater and the ultra-deepwater sectors of Angola, because that is where the bigger opportunities are, which need to be monetised using leading edge technology and large capital investments.

How will Sonangol’s restructuring benefit Angola?
I am encouraged by the restructuring of Sonangol. It is a big task for the new board of directors, which is composed of people who bring experience to the industry, from the oil and gas industry but also from consulting. There is a good mixture of skill sets and backgrounds. It is going to take some time to transform Sonangol, but I believe that it will be in the best interest of the industry and the country over the longer term. Our role as an industry is to be there as a resource to provide support throughout this transition.

What are your views on gas as an intermediate step between hydrocarbons and renewables?
Currently, around 50% of BP’s global production is natural gas and 50% is oil. By 2030, the natural gas production share will shift to 60% due to the big gas projects we are bringing on line in places like Oman, Trinidad, Indonesia and Azerbaijan. My hope is that, as we hit into the next decade and the one beyond that, there will be a gas story to be told in Angola.
We already produce a significant volume of associated gas, most of which is being monetised through the Angola LNG [plant] rather than flared. The Angola LNG [plant] has delivered 10 cargoes of LNG in 2016, as well as 29 of cargoes of butane and propane. The plan for 2017 is for the ALNG plant to deliver around 50 cargoes to the world. We recently celebrated the highest throughput into the facility ever, which is close to 900 mcf [25.5 mcm] of gas per day.
We are just beginning a multi-decade journey for gas in Angola. There is an opportunity to bring gas onshore to provide a continuous energy supply to the state. There is also an opportunity to put gas into the global market via LNG as gas is projected to be the fastest growing fossil fuel in the next 20 years.

How important is Angola to BP?
Angola is very important to BP. We currently have 15 regions around the world, and Angola is one of the top four regions in our company. BP Angola produces just over 10% of BP’s global production and is a very reliable and efficient business – a very important part of our global portfolio.

What does BP do to promote local content?

In 2012, when we brought the PSVM facility on line, our Angolanisation rate was around 69%. This has steadily increased over the course of the last four years. In 2015, Angolanisation was around 75% and we will exit 2016 at around 86%. Our target is 95% Angolanisation by 2020. The 5% of the workforce that will not be Angolanised will be used to create some flexibility for us to move Angolans into other BP sites and bring a few expatriates to Angola, in order to share experience and further develop our people.

What is your vision and strategy for BP for the next five years or so?

The main focus is to really ensure that we continue to run safe, reliable, responsible and compliant operations on behalf of the state and on behalf of BP, every single day. We must ensure that the 300,000 barrels of oil that we are currently producing stays on line safely for as long as possible.
The second job is to really think about the future, and to work to identify the next generation of projects in Angola. There is still a lot of oil and gas in the Lower Congo, Kwanza and Benguela basins. We are committed to working with the state to figure out how we can monetise and progress those resources over the next five years. In addition to that, we are also committed to looking for new oil and gas exploration opportunities. There are still untapped reservoirs within existing fields as well as ultra-deepwater areas.
Finally, we want to continue to build Angolan capability, whether be the staff inside our company or working with smaller companies and the local communities, so that they can make a bigger contribution to Angola’s economic and social development.

For more interviews, news and market insight on Angola, please click here.

High tension in Argentina’s power generation sector

How have you been able to maintain your investments in the sector?
The power generation and distribution sector experienced an important transformation between 2002 and 2013. It has gone from being a marginal sector that used to encourage investments in efficient turbines to being a cost-plus sector. In terms of generation, both the regulatory framework of the 1990s and the transition towards a cost-plus sector created the conditions for survival of the companies in the sector by paying operational costs plus a small margin.

What kind of challenges does the Argentinian market face?
The current situation of the sector does not encourage investment, because companies are not able to recover the invested capital. Over the past decade, Argentina has demonstrated a systematic incapacity to attract new investment for the sector. Some companies stayed and survived, but the key problem was that there was almost no investment from private entities, meaning that most of it had to be carried out by the state itself. When it would not come from the state, but instead from private investors, the state would direct and regulate those investments.

Given the recent shift in government, have you already seen any changes in the market?

There were two very successful tenders this year. The first one was for thermal energy and the government was looking for new investments for 2 GW. Offers for over 6 GW were received and 3 GW were awarded.
The second tender was for renewable energy and they were looking for 1 GW and there were offers for over 6.6 GW. Both tenders are positive instruments to address the problems Argentina currently faces in terms of power generation and in terms of diversification.

What power generation problems does Argentina face?
During demand peaks, the system has to import electricity from Brazil, Chile and Uruguay because there are almost no reserves. But the government has shown signs that it is willing to do things differently and move in the right direction. For example, it has set the goal of building 10 GW of renewable energy by the end of 2025 and the entire sector, both public and private players, have been discussing the development of new regulations that could encourage more private investment. There are reasons to be more optimistic about the future.

What changes in regulations do you think need to be made?

During the past decade, Law 24065 has been modified several times. In fact, we should return to the old law, which established clear parameters for a marginalised market, allowing and encouraging private investment.

Is there any interest in combined-cycles power plants?
The next tender that is being discussed will probably be for combined cycles. The entire sector is looking at it very positively. There is a particular topic under discussion and its participants believe that next tenders should allow for contracts between private players. Nowadays, tenders are focused with CAMMESA [Compañía Administradora del Mercado Mayorista Eléctrico].

How does the feedstock market for power generation work?
In electrical generation, we cannot buy our own fuels from privates companies or sell our megawatts to them. We receive fuels from CAMMESA in each at our plants. Once we generate electricity, CAMMESA distributes it. I believe that the system is inefficient and that the entire sector should stop working under it. Electric generation companies should be able to buy their own fuels and sell their own energy to the national grid.

Is AES looking for investment opportunities in renewable energy?
Yes. We are expanding our profile in the renewables sector at a global level and Argentina is a very interesting market. We have already carried out several studies to start producing wind and solar energy here.

At a time when the market is opening up, how are companies directing their technological investments?
We will have to go through a period of coexistence between conventional and renewable technologies, but there is a strong tendency for companies to invest more in renewables. However, conventional energy sources will still be around for a while.
In terms of innovation, there is a new discussion around the use of batteries. The combination of renewable energies and batteries could be a very interesting segment to invest in. The problem with renewable energies is that they are not constant. The sun and wind stop at certain times. However, this is where batteries could be useful, because they could cover those periods.

What are the necessary investments in the distribution sector?

The distribution sector needs even bigger investments than the generation sector to provide an adequate service. There was very little investment in the sector in the past 10 years and distribution networks in Buenos Aires are in quite a precarious state.

What have been AES’ latest developments?

Our latest investment was the thermal plant in Paraná, which has a combined cycle of 850 MW. The plant started its commercial activity at the end of 2001 and it was the last plant we built in Argentina. In the last decade, we have also been investing in the Foninvemem [Necessary Investment Fund for Energy Market] plants.
In terms of our capital distribution, AES has a 20% participation in the capital of San Martín de los Andes and Belgrano power plants, as well as a 30% capital share in the Guillermo Brown one, where the remaining 70% is owned by the state. Our company has also been investing in maintenance all the years. Figures may vary, but this is what we have been doing consistently for the past 23 years: investing in the economy.

What are your objectives for next year?

We want to grow and expand our service centre as well as the services we can offer. We have a service centre located in Buenos Aires that provides a wide range of services such as accounting, IT and human resources to other businesses of the corporation. One of our greatest objectives is to close the cycle for the Guillermo Brown thermal plant, where we hold a 30% interest. It is important to close the open cycles in the country, because we are talking about energy that goes into the network without utilising extra fuels.
The renewable energy sector is another front where we want to invest. Overall, we want to strengthen our position in the market, where we have about 12% electric generation capacity installed, and to maintain our operational excellence.
Our long-term objective is to remain leaders and to be at the forefront of innovations. Batteries are a very important matter for the sector. We are 100% capable of leading this change in the electrical sector.

Integration and innovation

Could you give us a brief overview of Repsol’s role in Bolivia, particularly in the country’s efforts to stimulate the growth of the energy industry?
Repsol has a very important role in Bolivia. The company has been mainly focused on gas exploration and production. Our E&P division has three main components. Firstly, the Caipipendi block where the Margarita-Huacaya field is. It has recently reached record production volumes: more than 19 mcm (670.9 mcf) per day. It is the most productive field in the country, accounting for a third of the national production. We lead a consortium that includes Pan American and Shell.
Secondly, we are unique because we have a strategic alliance with the state through YPFB Andina, the main hydrocarbons company in the country. Repsol has a participation of 48.33% [in YPFB Andina]. We are very happy with this.
Thirdly, we also operate in smaller fields for liquid fuels. There has been a great effort to improve efficiency and production in these areas in a sustainable manner. These are our main components. We have a great impact on the sector. We are making great efforts to encourage the growth of all these sectors.
In terms of the Caipipendi block, we are investing strongly in exploration. We have just signed an agreement with the government in order to invest USD 350 million in exploration and USD 500 million in developments based on the new incentives law for hydrocarbons. Together with our partners, we are committed to these significant investments, intended to tackle a very ambitious exploration plan. It will be mainly centred on two prospects: Boyuy in the southern part of the block (Tarija) and Boicobo Sur in the northern part of the block in Chuquisaca department. It is a difficult environment but we think we can contribute in this area. Thanks to a good predisposition from the state and the block’s potential, there is a positive attitude to carrying out this ambitious plan.
For YPFB Andina, we have a great portfolio of opportunities in exploration aside from the production that we manage. We will do seismic in certain blocks (Carohuaicho 8C and Oriental), exploratory wells in Río Grande Profundo and developments in Boquerón Norte. We have discovered the Boquerón field, which is now moving into the development phase.

What are the main operational risks and opportunities an operator faces in Bolivia?
We are operating in a gas country. A lot of the potential is in fields that are found in the sub-Andean region of the country. The geological structure is very complex and the wells are very deep (more than 6,000 metres). They have to be able to resist high pressure (more than 10,000 PSI). These are challenges that we are used to at Repsol.
The companies that operate in these areas need to have financial strength, technology, safety and environmental protection standards. Many of the areas in which we operate are very sensitive in terms of flora, fauna and communities. A lot of our efforts are directed towards operating without impacting the environment, [to] recuperating areas and respecting communities. It is crucial. We work in areas with indigenous communities, whether small or big, that need care. We also work in areas with farmers. It is important to make sure that our arrival brings a benefit to these areas.

How could infrastructure be optimised in the near future?
The country is moving in the right direction. However, there is still a lot to be done. Big investments have been announced in infrastructure, mainly in roads and railways. This will all be positive and continue the development of the sector. Until now, things have been moving well according to the limitations of the system. There are dirt roads that have allowed the development of huge fields in the south of the country. However, some extra development could accelerate things and improve efficiency.

Could you comment on the importance of developing strategic alliances in Bolivia, as you have done with companies such as Shell and Pan American?
Since 2006, the Bolivian hydrocarbons industry has been controlled by the state. Being able to co-ordinate with the state is fundamental for project efficiency and sustainability. It is very important to establish this relationship based on great results. We invest, we commit and we comply.
The Margarita-Huacaya field has been developed according to the initial development plans. We concluded the project before time, within budget and with production that exceeded the promised capacity. This feeds our relationship with the government, which is crucial if we are to continue developing projects.
Relationships with other companies are also very important. We have partners with whom we share risks and opportunities. It is a fundamental thing in an exploration portfolio. We also need to have technological collaboration. It is a way of sharing experiences and know-how. The synergies of the Caipipendi consortium assure us excellence.

In terms of the future of the company, what is Repsol’s role in relation to increasing the country’s gas reserves and production as one of the main objectives the current government has laid out for 2025?
Increasing production and reserves is a shared objective. In the short term, we have been working on eliminating bottlenecks in our plants in order to maximise the current production capacity. The well capacity of Margarita-Huacaya has exceeded the processing capacity. This is how we have grown from 14 million cubic metres [494.4 mcf] to 19 million cubic metres [670.9 mcf].
For the mid- and long term we are working on strengthening the country’s reserves and production through exploration projects, which take into account the volumes that the state needs to negotiate contracts with Brazil and expand its internal market. This is the country’s main objective. There is an ambitious plan in place which is based on maintaining and expanding internal consumption markets, exports to Brazil and Argentina, entering new markets and progressing in the industrialisation of gas to obtain extra added value. The base of this pyramid is the reserves, which depend on exploration. This is what we are working on. We hope to discover important volumes in Caipipendi. The fields are quite big in this area. We hope to find volumes of several tcf [trillion cubic feet]. We will be able to negotiate good terms in order to extend contracts.

What is Bolivia’s importance at a regional and global level?
Bolivia is a key country for Repsol. We have seen great results in the past years with a great impact for the country and for the company. It will always be a very important part of our strategy.
In terms of regional integration, Bolivia plays a key role. It provides gas for very important markets such as Argentina and Brazil. These countries will keep on demanding [Bolivian gas] in the future. There is an important equilibrium between exports and other necessities. It is a country with a lot of potential in terms of gas reserves.
Bolivia is very strategic for Repsol. The company is focused on three global regions. Bolivia is in the middle of one of the main regions, South America. Two-thirds of our production and three-quarters of our reserves are in gas. It prepares and helps us through this transition period.
There is also something about our technological capacities and strategic advantages. Specifically, we are experts in development and exploration especially for complex geological formations. There is a perfect strategic fit between Bolivia and Repsol. For the past year, we have been involved in an efficiency process. We dedicated ourselves to this after the commodity crisis. The results have been extraordinary. Repsol is leading this transformation. We can now be more efficient at lower costs. Our finances have been great these past months.
Bolivia has made great efforts to adapt to the new circumstances and it has found new ways of doing things. It has implemented new technologies, processes and business strategies. We are very well positioned here.
For the next four or five years, we are focused on exploration. This country needs early production in order to increase volumes. Our block is close to reaching its installed processing capacity. Bolivia has 100 mcf (2.83 mcm) of installed capacity. With a production of 60 mcf (1.69 mcm), there is a very good opportunity for using it. We have important projects close to plants with adequate capacity. It accelerates the availability of those new volumes and also the financial returns.

What is your long-term vision for the country?

Looking to the long term, our vision is to focus on sustainability in every single aspect of our activities as a company. We prioritise the development of local talent. More than 95% of our talent is from Bolivia. We promote teamwork. Development and constant improvement is part of our culture. We look at sustainability in our relationships with communities. We also look beyond our business activities. We try to bring immediate and long-term benefits to the areas we operate in. We finish projects before time and within budget.
Repsol is also a pioneer in taking care of the environment. There is a strong focus in reducing our carbon emissions. One-third of the country’s production comes from eight wells. So each one of these wells is very important. During the initial production, that gas is burnt. We have found a way not to do that. We are always a step ahead.

Struggles below the mud line

Could you highlight the scope of what’s changed for Baker Hughes in Malaysia over the past year and a half?
Our headquarters has been centred in Malaysia for a third decade now, so we’ve had a great presence here and across the region. We also manufacture in the country, as well as in Singapore, and are continuing to expand in the region. We offer a full-service line that includes downstream support, all the upstream performance drilling and completion systems as well as upstream chemicals.
We have recently come out of a potential acquisition with Halliburton that has enabled us to relaunch a go-to-market strategy as of the beginning of May. Rather than being simply a full-service company, we have entered into the go-to-market sales line to collaborate with local service companies to enable them to mature in the local economy.

What has motivated this change to encourage and employ small-scale companies in the region’s oil and gas industry?
The landscape is changing. The local capabilities and competencies in a lot of local regions have grown. While we continue to advance technologically, in a downturn market in particular, some of the lower-tech ideas are considered enough to fulfil some of the applications of many wells that are being drilled. A lot of those can be performed by local service companies. It’s a way for us to help with investment in the local economy, beyond just retailing our services and products.

How would you describe competition with the local service providers?
There are two levels of competition in Malaysia. You have the local service providers, which we look at as not necessarily competitors but collaborators. There is also the historical competition, which, like in every other part of the world, is incredibly saturated.
We all have a lot of capacity and there is a very fixed finite demand. Customers’ budgets are not increasing, and if anything, we expect them to decrease here in the Asia Pacific region over the next year. That will be a bit of a challenge for us from a competition perspective.

What kind of major players are you currently working with?
We’re working with Petronas and many of the IOCs that are still present here. As you are aware, the rig count is down substantially in Malaysia, but we work on joint consortium projects with the likes of Hess, Shell and ConocoPhilips. We help support a lot of those entities with a variety of historical services as well as some of our new technology and new geomechanics activity.

What new technology is advancing the regional oil and gas industry?

What we’ve seen over the past year is a real embracing of geomechanics, and what is called pre-drill pour. Basically, this allows us to do geomechanical studies within the well itself, along with real-time monitoring of the asset.
You can get insight into the rock formations and layers, how you are moving through these layers and what the porosity might be. Ultimately, this real-time monitoring allows you to make adjustments on the fly.
Companies such as Petronas have been on the cutting edge of embracing that technology. I think the downturn only makes that more important, because it’s still very costly to drill a well. The return on the well is challenged given the current oil price, so you can’t afford any mistakes. If you can make adjustments on the fly to make sure that you can get the most production out of that particular reservoir, it is advantageous for everyone.
We’ve had a significant advancement in that part of strategic data acquisition and the utilisation of that strategic data. That’s been one of the most dramatic changes in Malaysia, which ultimately has driven down not only the cost of products that we’re putting in the well, but the overall well cost for the provider.
In terms of EOR techniques, the main one is the water injection technique to separate the oil and help it to proliferate. Other people have used carbon dioxide flooding, but we are not using that here at the moment. Water alternate gas is one that a couple of providers are using here, but we do not have an application for that.

How would you describe the reservoirs located in Malaysia?
We have a big offshore area off the eastern coast of Malaysia in the state of Sabah. Pressures here are a little over 4,500 psi [310 bars] at around 3,200 m below the mud line.
In the Malay Basin, there’s a large depth variation in the basin, between 3,500 feet [1,070 metres] and 14,000 feet [4,270 metres]. It’s a deepwater play. It has a lot of variable levels and we have some restricted marine areas, which make it a little more challenging.
This basin probably has one of the more detailed technical requirements and requires some of our high-end technical products and services. That would challenge some of these local service companies, hence the need to partner with them to enable local entities to work in some of these larger areas. Our wireline services, logging while drilling and long-life welding programmes allow them to do a lot of testing and sampling.
We’re using some of that technology in the water injection programme today, and we’re also considering using coal tubing drilling [CTD]. We employed a lot of CTD in Saudi Arabia, USA and Australia. We’re still advancing with the concepts for CTD in these fields. It’s a more economical way to drill; sometimes we will produce while we are drilling.

What kind of projects are upstream companies mainly focused on in the Malaysian market?
Obviously, greenfield projects and new explorations are costly and take a lot of time. Right now, most funding and activities are taking place in brownfield projects and the rejuvenation of existing fields. We expect this to continue in 2017.

What is your forecast for Malaysia’s rig count over the next year?
We anticipate rig count to be relatively flat next year in Malaysia and down a couple of percentage points between this year and next year in the Asia Pacific region. This is due to NOCs continuing to tighten their funding. This region is high in NOC-directed content; nearly everybody you deal with is a national oil company.

Does this high level of government-controlled activity make it easier or harder in terms of the ease of doing business in the region?

It depends. Countries are like businesses; some are run better than others. I think Malaysia does a really nice job in terms of its economic and social responsibility as well as managing its funding appropriately.
In some other countries, NOCs are just coming to grips with the fall in oil price and the impact it is having on their economy. I think that Malaysia does a very good job with regards to that. We have a pretty good view of what Petronas is going to do over the next couple of years.