Kuwait Petroleum Corporation (KPC) has been one of the region’s most improved NOCs over the past five to 10 years, as it implements its largest ever capital expenditure programme to increase oil and gas output, modernises its upstream facilities and develops one of the world’s largest downstream investment projects.

Company	Kuwait Petroleum Corporation
Oil Reserves	101.5 billion barrels
Oil Production 2007	2.7 million barrels a day*
Gas Reserves	63 trillion cubic feet
Gas Production 2007	13.3 billion cubic metres
*includes NGLs. Source: KPC

The firm, which is the parent company of upstream operator Kuwait Oil Company (KOC) and refinery operator Kuwait National Petroleum Company (KNPC), plans to spend more than $50bn over the coming decade as it seeks to increase its oil production capacity to 3 million b/d by 2010 and 4 million b/d by 2020, from 2.7 million b/d in 2007.

It is due to hit its 2010 target a year early thanks to the completion of its $1.5bn export facilities project and its $2bn upstream facilities modernisation. “We will be able to hit 3 million b/d if needed by the end of the year,” says Mohamed Husain, deputy chairman of KOC.

Overseas, KPC has itself set a target of 100,000 b/d of oil production through its affiliate, Kuwait Foreign Petroleum & Exploration Company (Kufpec).

While oil has always been Kuwait’s mainstay - the state has roughly 10 per cent of the world’s proven crude reserves - over the past 12 months, gas has come to the fore. Since announcing the discovery of 34 trillion cubic feet of non-associated gas in 2006, KOC has developed a plan to produce more than 600 million cubic feet a year.

Its first ever non-associated gas production started recently, with 175 million cf/d being produced from an early production facility in north Kuwait. This will rise to 600 million cf/d by 2011. Husain says it may be able to revise its 2016 target upwards once it knows more about the potential of the fields. There is also the possibility of KOC starting gas exploration in Kuwait Bay.

Respondents to MEED’s NOC survey broadly agree that Kuwait has done a good job on the exploration and production front, especially with regard to non-associated gas production.

Kuwait has been at the forefront of regional efforts to explore alternative oil production options. The state was one of the first in the Middle East to experiment with the production of heavy oil and is conducting pilot projects to evaluate its potential.

Constitutional restrictions

However, it has not been so successful in attracting foreign partners. This is mainly because of constitutional restrictions on foreign ownership of the state’s natural resources. Project Kuwait, the landmark upstream initiative to bring in IOCs, has failed to get off the ground because of objections from the National Assembly (parliament).

The oil sector has had to do what it can within these constitutional limits. It has several technical service agreements with IOCs and is hoping to turn these into more developed enhanced technical service agreements that will provide for greater IOC input without breaking the law. In the long term, it is uncertain whether the 4 million-b/d target for 2020 can be met without further foreign involvement.

Where it can work with foreign partners unhindered, KPC has done so with much success. The Equate Petrochemical Company, a joint venture in which KPC affiliate Petroleum Industries Company (PIC) and the US’ Dow Chemical Company each have 42.5 per cent stakes, has made Dow the largest foreign investor in Kuwait and put the state on the petrochemicals map. The relationship has been developed further, with PIC expected to buy half of Dow’s interests in five operating areas later this year. Overseas, KPC has been successful in forming downstream joint ventures in the Far East.

Like most NOCs, KPC has had to adapt to rising construction costs, and the budget estimates for some projects have doubled. It has approached the issue by introducing more flexibility in contracting terms. In 2007, KOC launched its enhanced EPC contract model, which spreads contract risk more evenly.

KNPC succeeded in letting contracts for the massive Al-Zour refinery scheme through its own internal tender committee rather than the more stringent Central Tenders Committee. As a result, it was able to award the main contracts on a cost-reimbursable basis, attracting more competition and more favourable prices than the original lump-sum tender.

This appears to have made the state more attractive to contractors.

Survey respondents that have worked with KPC or its subsidiaries say they are generally paid on time, although a few report payment delays of up to three months. One consultant blames “a lack of internal agreement” for the delays it has experienced working with KPC. Others identify slow decision-making as a factor. About 50 per cent of respondents say they have experienced overruns in contract duration, in keeping with the general contracting environment across the region.

The reasons for the delays vary from waiting for equipment to be delivered to the poor productivity of local labour and, in the words of one respondent, “bureaucratic delays leading to wasted man days and higher material costs”.

KPC has arguably made its biggest impression over the past year in the downstream sector. It has a $30bn investment programme that will increase its refining capacity to more than 1.4 million b/d. The development of the 615,000-b/d Al-Zour refinery, one of the biggest grassroots refineries ever built, is a considerable achievement. The planned clean-fuels project to upgrade the existing Mina al-Ahmadi and Mina Abdulla refineries, estimated to be worth $16-18bn, is equally impressive.

KPC’s performance in the development of human resources is generally good, and more than 70 per cent of its staff are nationals. A total of 18,780 staff work at the firm, up from 15,093 a year ago. Staff are well trained and many are sent overseas for advanced technical study.

Generally, Kuwait has a well-run and ambitious oil sector that is in the process of transformation. It has the capital to fund its plans. The challenge going forward will be to find a way of implementing them.