Davies was on the beach at the time – with his mobile phone, the size of a brick in those days – mulling over the company’s frustrating attempts to drill for hydrocarbon reserves at Sidi el-Kilani. He certainly wasn’t expecting such good news. ‘We had kept our fingers crossed,’ he said. ‘As previous results had been disappointing, we did not expect success.’ There was another reason for his scepticism: ‘It was April Fools’ Day and I wouldn’t have a joke played on me.’

But the Sidi el-Kilani find was no joke, and remains a landmark for state-owned Kufpec. At 204 square kilometres, it is the third-largest oil producing field in Tunisia.

Kufpec was set up in 1981 as part of a Kuwait Petroleum Corporation (KPC) strategy to further grow in its core business, diversify its income sources and gain access to world-class drilling and production technology and management processes. The company faced tough challenges from the beginning.

The 10-year period starting in 1980 was difficult for the upstream oil industry, with oil prices fluctuating between $10-31 a barrel. ‘Oil was still a buyer’s market. Non-OPEC production, conservation and alternative fuels had continued to grow. the OPEC quota system was in a shambles,’ says Bader al-Khashti, current Kufpec chairman and managing director. Unpredictable oil prices did not deter the company’s investment plans, however. It embarked on a long-term mission of emerging as an international oil company (IOC). Capitalised at about $330 million, the Kuwaiti firm spread its wings – from Europe to Australia. A two-pronged strategy was adopted: bidding in joint ventures with IOCs to operate existing/new assets; and taking on the role of operator for greenfield/brownfield concessions.

In the former, Kufpec’s role was limited to just being a non-operator. ‘The idea was to work with IOCs in the international arena and learn ways to operate oil businesses,’ Al-Khashti says. IOCs also assumed the responsibility of marketing hydrocarbon products for Kufpec, for a fee.

Despite initial hiccups, the overall story in the past two decades has been one of success. At present, Kufpec has interests in concessions in Australia, China, Indonesia, Malaysia, Pakistan, Egypt, Yemen, Algeria, Tunisia and Sudan (see table).

Total production is about 34,000 barrels of oil equivalent a day (boe/d), of which 42 per cent is crude oil and the remaining 58 per cent is natural gas. The major oil-producing areas are in Tunisia, Yemen and Australia, while large volumes of gas are produced in Pakistan, China and Malaysia.

Kufpec plans to produce 50,000 boe/d by 2006, doubling to 100,000 boe/d four years later. Huge capital investment is planned in existing fields, as well as in acquiring new concessions. ‘We may increase our capital base, which stands at $660 million, to fund the increased target,’ says Al-Khashti.

For 2003, Kufpec has allocated $108 million for exploration and drilling and a further $105 million for field development. It plans a number of major schemes, including:

the Mutineer-Exeter and Talisman blocks in Australia, where field development is due to start by the summer with the aim of producing 20,000 boe/d by 2006

the Seram concession in Indonesia, where production is due to start by end 2003 at flow rates of 14,000 boe/d

finalising a 3D seismic programme for Block 15 Mukalla in Yemen, and

drawing up a development plan for the North Bardawil concession in Egypt.

Kufpec will also be seeking opportunities to bid for concessions in what it terms three thrust areas: the Middle East and North Africa (Oman, Iran and Libya); the Far East (Thailand and Myanmar); and South East Asia (Papua New Guinea). ‘We are also looking at Iraq. We can provide financial help in the development of fields, depending on the contracts to be let out,’ Al-Khashti adds.

Looking further ahead, Kufpec plans to increase its role as operator in some of the proposed new acquisitions. At present, it is the operator in only two concessions (see table).

The plan will be for the upstream firm to form joint ventures with IOCs, taking equity positions of at least 35 per cent. ‘This will be the [new] baseline. It will give us a right to say what we want. We will not jump in with anybody. We will select IOCs that are active, economically viable and have the experience of being good operators,’ says the chairman.

Al-Khashti is well aware of the challenges that lie ahead. ‘This [assuming the role of operator] will call for finance and technology, experience in operations and maintenance and handling of manpower. We hope to build on our capabilities in stages.’

There is also another issue that will have to be addressed: the low rate of returns in the upstream oil business. ‘There may be initial losses, but we will see it as an investment in the future,’ he says.

Emerging as an operator may take a while. However, when it happens, it will take Kufpec a step closer to its mission of acquiring IOC status. ‘We want to challenge global oil giants. We are now a small company backed by a giant in KPC and our aim will be to become stronger and more stable,’ says Al-Khashti.

In the meantime, policy planners at KPC will continue to accrue benefits from Kufpec. Foremost is its targeted production of 100,000 boe/d by 2010, which will be kept outside the purview of Kuwait’s OPEC quota. KPC may also draw benefits from Kufpec’s experience in handling three pipeline projects to supply natural gas to Singapore, Malaysia and Hong Kong. The state-owned conglomerate plans the import of natural gas from Qatar through a subsea pipeline.

Kufpec remains a source of some pride for Kuwait. As former oil minister Adel Khaled al-Sabeeh put it: ‘It has survived against all odds. From an opening portfolio not of its choice, through the collapse of oil prices in the 1980s and 1990s and the disruption by the Iraqi invasion. We salute the achievements of the past.’

Ashok Dutta