with Maurizio La Noce, Chief Executive Officer, Mubadala Petroleum
What was the motivating factor behind the establishment of the state-owned Mubadala Petroleum, a subsidiary of the Mubadala Development Company?
The Mubadala Development Company wanted to create a platform in the oil and gas business which invests with an international scope. As a leading investment vehicle of the government of Abu Dhabi, Mubadala felt that creating such a platform, which is concentrated on the upstream oil and gas sector, would accomplish several strategic objectives for the Emirate since ADNOC is solely focused on the domestic market.
Precisely what are your strategic objectives?
Fundamentally, it is the establishment of a profitable organization. In addition to this, it is the investment in brotherly countries where Abu Dhabi aims to support their local economies. Leveraging and exporting the skill sets that the Capital has honed over the past 60 to 70 years as the major oil and gas holder and producer among the UAE’s seven emirates. Another objective is to provide UAE nationals with the opportunity to diversify their experiences in an international setting.
Last but not least, Mubadala Petroleum aims to support a very important strategic objective of Abu Dhabi which is the supplying the domestic gas requirements. As you might know, there is a deficit in the supply of gas to the UAE which has now partially been filled by the first phase of the Dolphin project, which is majority owned by Mubadala. Nonetheless, the UAE is still facing a shortage in the gas supply and we are the vehicle through which Abu Dhabi is now increasingly looking to expand its international footprint in terms of satisfying the growing domestic gas requirements.
Mubadala Petroleum in part credits its partnership-driven approach to its solid business performance. Who are your main partners and what synergies or competitive advantages have you been able to realize through these?
We have pursued the partnership model right from the outset of Mubadala Petroleum. Primarily, it was driven by the fact that when we started we were a small group of people that did not necessarily have the skill sets required to succeed in the business. It was therefore essential that we partnered with the best and the brightest in the industry.
Today, following our experiences in the development of a range of diverse projects including Dolphin Energy, we have established a number of skill sets and technical capabilities which enable us to tackle a variety of opportunities and realize our ambitions. However, we need to rely on the skill sets that have been developed over decades by the likes of Shell, Total or Occidental in areas such as enhanced recovery techniques, unconventionals, high pressure and temperature environments and deep water operations. Frankly speaking, we have not yet acquired these skill sets and have no short term ambitions to do so.
At the same time, through these partnerships, we are learning a lot in many areas and are developing our pool of skills which one day we will be able to deploy independently. How long this will take will depend on the complexity, the technology and the opportunities that materialize.
By contrast, what benefits are your international partners receiving in return?
Our partners benefit primarily in three ways. First, is through providing them with access to opportunities. That is, as an investor and an operator in the upstream segment, a strength that characterizes Mubadala Petroleum is its access to opportunities which are unlocked by the fact that we are an Abu Dhabi government owned company. In addition, there is a lot deal of goodwill out there that Abu Dhabi has developed over the years which translates into potential opportunities for us.
Second is the fact that we are a long term player and we are committed to remain in the business for the long run. Finally, as a government owned entity, we also have an in-depth understanding of what other governments and national oil companies want. For this reason we are perceived by them as the preferred partner because we are indeed just like them. Lastly, few international companies see partnering with us as a form of “political risk insurance” in certain countries.
The Dolphin Energy project has been a cornerstone in the development of your organization, what was the guiding force behind this project and what is its strategic value to the UAE?
I consider myself lucky to be a part of this project from the outset, together with the now CEO and Managing Director of Mubadala, H.E. Khaldoon Khalifa Al Mubarak. Most importantly, the project is a result of a very important characteristic of the UAE which is long term vision. Many people, including some of the IOC’s, were initially skeptical because we were a small group of people, at the time, who were trying to put together this mammoth project to import 2 billion cubic feet of gas into Abu Dhabi, the Emirate that already possessed the fifth largest known gas reserves in the world.
So again, the success of this project is a result of the vision of a few people including the chairman of Mubadala, H.H. Sheikh Mohammed bin Zayed Al Nahyan, who could see 20 years down the line and anticipate what would happen in the country in terms of development and related energy and gas demand. They had the understanding that, despite possessing a wealth of gas reserves, they are challenging to produce. The support and conviction of a small group of people made the Dolphin project a reality. Ironically, many of the initial doubters to the venture are now asking “why we didn’t bring more gas”….
Personally, the Dolphin project was one of the toughest projects I have been involved in because cross border pipelines, irrespective of their location, are extremely challenging. This is especially true in this part of the world. Every year we hear announcements of various pipeline projects, but the fact of the matter is that Dolphin was the only one to materialize. Another important factor to consider is that not only is the pipeline bringing gas from Qatar to the UAE, but also to Oman demonstrating the complex political and strategic nature of the project. The pipeline serves as an umbilical cord connecting the three countries, illustrating their brotherly relationships and increasingly interconnected economies.
Ultimately, the value of Dolphin Energy to the UAE is tremendous primarily because it facilitated the production of power and water for the local populations. In addition to this, it served as a catalyst to the development of other key projects such as Emirates Aluminum, for instance.
You mentioned that some see the room for growth in the pipeline project. What is the future for Dolphin Energy and the mix of the UAE’s energy sources?
Together with our partners, Total and Occidental, and in full cooperation with the Qatari’s, we are working to expand the pipelines’ capacity to deliver gas. Currently the project is contractually able to deliver 2.2 billion cubic feet per day (cfpd), while the capacity of the pipeline can be expanded up to 3.2 billion cfpd. We are currently building additional compression to enable the pipeline to reach its full capacity by 2016.
In parallel, we felt the need to diversify the supply of energy sources for Abu Dhabi and the UAE by building an LNG Terminal. To this end, we established Emirates LNG as a joint venture between Mubadala Petroleum and the state-owned International Petroleum Investment Company (IPIC) and are actively working to secure the final approvals to build the project. Currently, we are in the front end engineering and design phase. We expect to sanction the project before the end of the year and enter the construction phase with the aim of bringing it online by mid-2015.
How would you describe the strategic significance of locating the Emirates LNG project in Fujairah, bypassing the Strait of Hormuz?
The decision to locate the terminal in Fujairah was in part driven by the obvious strategic and security considerations given its position that avoids the problematic Strait of Hormuz. This provides the UAE with the option of acquiring gas from outside of the gulf.
In addition to this, Fujairah is far closer to what is expected to become one of the world’s major LNG provinces over the next decade; East Africa. In fact, we also have a footprint in Tanzania in terms of deep gas as a participant in Block 7. Furthermore, we are looking closely at Mozambique and Kenya to explore potential investment opportunities. Connecting the dots, it becomes easy to see how this can have a significant impact on the costs associated with the import of the resource from outside our region, particularly East Africa.
How do you assess the prospects of unconventional oil and gas in the Middle East and what steps is Mubadala Petroleum taking in this direction?
Over the long term, I believe there is potential for unconventional resources in the region. Generally speaking, it is often said that where ever there is oil & gas production, there is also a strong likelihood that unconventional sources could exist and be economically feasible. The genesis of unconventionals is where conventional oil and gas is.
As Mubadala Petroleum, we are taking steps to partner with some of the best companies in the business primarily to understand the specificities of these resources. We are aware that this is going to be a long term business and we have no expectations over the next five years or so. We intend to deploy some capital into this field to learn and better understand unconventional resources and bring some of that knowledge back to the UAE.
Having said that, ADNOC has already taken some steps to explore such opportunities by drilling a number of wells. But again, we realize that it is a long term prospect for many countries, including the UAE, and it is not one that we need to be too anxious about in the near term. Nevertheless, I believe it is all a question of time. Outside of North America, we should not expect to see substantial unconventional plays developing until a decade or two from now.
Mubadala Petroleum has communicated a clear geographic focus on the Middle East, Africa and Central and Southeast Asia. What are the fundamental motivating factors driving this geographic focus?
The key word here is focus, which has also been key to our success so far. It is very easy to be tempted into expanding our geographical footprint. In fact, we have had countless opportunities to do so in places like North and South America and from Russia to Australia and China. However we resisted this temptation to expand our geographical horizons because we firmly believe that focus is a critical success factor.
Moreover, this focus has given us the ability to manage our time zones and distances. Under our current scope, all our operations are within four time zones. This is important to us because it is within close reach from our base in Abu Dhabi. Similarly, Abu Dhabi is able to exercise the greatest influence within our geographical region of focus.
More obviously, I would say that up to 70% percent of the known oil reserves and production lies within our area of focus. In addition to this, we believe that there is a great deal of potential in Africa in terms of resources. On many counts, Africa possesses some of the least drilled basins in the world. Even oil provinces such as Algeria or Libya have been relatively under explored compared to the likes of the North Sea, North America or even Russia. Hence, the potential for Africa to emerge as the key supplier of energy for the next century is phenomenal. In order to take advantage of this, however, the prevailing business model of oil companies today must change into a more cooperative model that supports local governments and nations in Africa and supports them in developing their infrastructures in parallel to their resources. This involves the creation of better jobs and opportunities for their people to thrive instead of draining their resources while receiving relatively little in return.
In this regard, do you believe that the UAE and Africa perhaps share some similarities in their paths to development?
Indeed. Interestingly enough, approximately half a century ago Abu Dhabi was in the same position as some of these countries find themselves today in that it had realized its vast wealth in resources but had to figure out how to best develop them. In this respect, the UAE government, along with Mubadala Petroleum, is offering to share its experiences with these countries in a bid to support them to make the right decisions. We intend to help them avoid making the mistakes we have made and ultimately make better choices in terms of developing their infrastructures and industries that will in turn provide stability, security and employment to their people.
We have seen certain companies developing some African nations’ resources and exporting them to their domestic markets in return for profits. However, we believe it is far more effective and beneficial to deploy some of the resources, in parallel to exporting, to develop theses country’s domestic agendas by building power plants, aluminum smelters, ports and facilities, for instance.
This is what Abu Dhabi did and all one has to do is come and see how the country has developed in such a short period of time. The leadership here has made a concerted effort to develop the country’s infrastructure, educate its population and healthcare because that is the foundation of a very strong population and economy.
Having said that, what proportions of your international production is kept within their respective local markets to support internal development?
It is difficult to say as this varies from project to project. Dolphin, in which we have a 51% ownership, we are selling all the liquids to Qatar. This amounts to 100,000 barrels per day (bpd) of condensates, several million tons of propane, butane and ethane. In fact, the ethane is in turn applied into Qatar’s petrochemical industry, while the former two are to some degree exported from their country to farther destinations. In any case, Qatar has taken all the right steps in developing its industries as it boasts aluminum smelters, large power plants and significant petrochemical production.
On the other hand, in Thailand, all of our production stays within the country where it is processed in the local refineries and sold to their national company, PTT. However perhaps the best example is in Indonesia although we have not yet commenced production. There we are developing the Ruby gas project which we discovered few years ago and will operate. It is a $500 million development in which we are responsible for creating the offshore structures, while building a 350km pipeline and are selling the gas to a domestic fertilizer plant which in turn will support the agriculture industry and feed the local population. Interestingly, since most of the competitors were looking to export the gas through an LNG project, the Indonesian government was so excited by this opportunity that they gave us an attractive deal allowing for significant upside potential.
The end result is a great win-win situation that provides us with a very robust project along with our partners, Total and INPEX, who are supporting us in our effort. This demonstrates the level of maturity of our organization whereby some years ago we would have approached an IOC’s and partnered with them and taken a minority share. Whereas now, we are the operators of the project with a share of 70% of the project. Looking further ahead, we aim to take the lessons learnt from this project and export them to other geographies such as Vietnam and perhaps even in the Middle East where the smaller fields tend to be underdeveloped due to their unfeasible cost structures and the focus of both NOC’s and IOC’s on the larger discoveries.
Tatweer Petroleum is another great example. In Bahrain, we have upgraded a field that was initially producing 24,000 bpd to 43,000 bpd. More notably however, we have taken the gas production which serves the domestic market from around 500 million cubic feet per day (cfpd) to 1.2 billion cfpd. We are providing their government with this gas at attractive prices which in turn supports the expansion of their aluminum smelter, Alba, in addition to supporting their power generation capacity and their methanol project.
Fundamentally, these examples illustrate how choosing to invest in a country can generate a positive response. After all, we secured a price from the Indonesian government that is not far from that which we would have received if we were to export the gas. In turn, we are now viewed as a preferred partner there that will help us to easily secure future opportunities since we have clearly signaled to them that our focus is developing gas for the domestic market.
We believe in a deeper partnership with the local governments in the countries we are present, we believe that investing in other countries can generate healthy profits and we believe that model is the right model for the future. This is the very model we are exporting to South East Asia, North and East Africa and hopefully one day in the west of Africa.
oil companies often aspire to compare themselves to their international counterparts. Does Mubadala Petroleum benchmark itself to any other organization? And what does Mubadala Petroleum want to be famous for?
We do not liken ourselves to any company out there. We want to be known as Mubadala Petroleum because there is no one else that operates in the same way we do. We consider our organization as a hybrid national and international oil company, or an I-NOC. Indeed, there are other organizations that could be compared to ours such as Statoil, Petronas or Petrobras, but they are of a different flavor. Unlike us, these are companies with massive domestic production that go abroad. We are an international company owned by a national government.
We want to be recognized as a profitable organization. So far we have been extremely profitable and we intend to perpetuate that trend. We also want to be known for the quality of our people as well as our safety record. Moreover, we want to be perceived as the preferred partner of choice of governments as well as national and international oil companies.