Developing expertise with the help of international oil companies to raise output

As the Kuwaiti government moves to invest billions in upgrading and expanding its oil production facilities, it has targeted an ambitious increase in crude output, with plans to produce 4m barrels per day (bpd) by 2020. New demand for enhanced oil recovery (EOR) in the Greater Burgan area has already facilitated further participation by international oil companies (IOCs). The nation’s vast, technically challenging northern fields hold high future production potential, with Kuwait’s human resources and innovation gaps requiring substantially more collaboration for effective development.

The country has already moved forward on investments in research and development (R&D) activities, establishing new R&D operations at the Kuwait Oil Company (KOC) and signing contracts with the private sector to provide knowledge transfer and engineering expertise. Project Kuwait has also sought to increase foreign participation by introducing new investment models for IOCs. Although political delays remain the most significant challenge to project implementation, this recent spate of domestic R&D advancements has led to a promising forecast for the creation of localised technological expertise, which will go far in boosting long-term production. The government’s move to overhaul its oil industry leadership also indicates commitment to expedient political decision-making and enhanced cooperation with IOCs, which will likely be an important factor in meeting production targets.

Background

The post-Gulf War recovery has been steady, with oil production reaching 2.9m bpd in 2011, up from 2.03m bpd in 2002. Output rose to a record 3.13m bpd in 2012, and despite a slight dip in 2013, the country maintains production of approximately 3m bpd as of March 2014. The Kuwait Petroleum Company (KPC) and the Ministry of Oil have been vocal about their intentions to boost production significantly over the next six years. For example, in May 2013 KPC announced it plans to invest $100bn in energy projects through 2018, with 60% of the funds allocated to upstream projects. This effort is expected to increase total oil production capacity to 4m bpd by 2020, a level projected to remain stable for the following decade. More recently, the KOC’s CEO, Hashem Hashem, set a mid-term target to boost production to 3.4m bpd by mid-2015, telling local media in March 2013 that the country’s current capacity stood at 3.25m bpd.

Production at Burgan, the world’s second-largest oilfield and the state’s mainstay producer, peaked in 2005 at 1.7m bpd, and has since declined to between 1.1m and 1.3m bpd, according to the EIA. The state’s oil expansion plans have involved utilising EOR within the Greater Burgan area, with the government successfully launching a low-salinity water-injection trial at the Wara oilfield in 2010. The KOC planned to commission a larger, $550m water-injection project at Wara, with South Korea’s GS Engineering & Construction emerging as a frontrunner in 2011, but the project was later shelved. In November 2013 the KOC said it will commission the project in the third or fourth quarter of 2014.

Northern Fields

Approximately 13bn barrels of reserves are located in the north of Kuwait, primarily in the fields of Al Ratqa and Abdali, which were obtained following the 1990-91 Gulf War; Raudhatain, which has a capacity of 350,000-450,000 bpd; as well as the Sabriya and Umm Niqa fields, which were discovered in 2005 and 2006, respectively. These fields hold the highest potential for new production, and will see significant investment and expansion in the coming years.

Project Kuwait

Project Kuwait was first introduced in 1998 in an effort to create attractive incentives for IOC participation in petroleum development. The project aims to increase production capacity in four northern oilfields – Raudhatain, Sabriya, Al Ratqa, and Abdali – and targets 1m bpd of output from these fields before 2016, up from current levels of about 525,000-575,000 bpd. Production of light crude in the northern Jurassic fields is expected to reach 300,000 bpd by 2020, compared to an earlier target of 350,000 bpd by 2015.

Heavy oil is also a major component of Project Kuwait, with the government hoping to expand production to 60,000 bpd by 2016, and 270,000 bpd by 2020. This is substantially lower than the original target of 700,000 bpd, but will nonetheless involve significant uptake of EOR technology. The partitioned neutral zone’s (PNZ) $5bn Joint Heavy Oil Project, for example, will produce 80,000 bpd by the end of phase one, which includes 133 injection wells, 67 observation wells and five storm water injection wells. An agreement to increase field technology transfer between KPC’s PNZ management arm, Kuwait Gas and Oil Company (KGOC), and its Saudi partner, Saudi Arabian Chevron, was finalised in 2013.

Outside Assistance

KPC recognises that Kuwait will need IOC assistance as it moves to meet its production targets, however; several major energy projects involving IOCs have been held up as a result of political wrangling between parliament and a succession of governments. This has delayed projects, including development of the PNZ’s Khafji field, a planned 615, 000-bpd refinery and the Clean Fuels Project. Combined with lower-than-expected output in the north, these challenges have led industry analysts to predict the country will not be able to meet its crude production targets by 2020. Enhanced technical service agreements (ETSAs) were introduced in 2010 when the KOC signed an $800m agreement with Royal Dutch Shell to assist in the development of the Jurassic fields, which will involve significant EOR. Since then, the country has signed a handful of ETSAs to implement EOR projects, with companies including the UK’s Petrofac and the Japan Oil, Gas and Metals National Corporation, although more are likely to be needed to meet the 2020 target.

The government’s move to shake up its oil industry leadership could lead to more efficient and effective project implementation in 2014. In the most recent Cabinet reshuffle in January 2014, Ali Al Omair was named oil minister. This followed the government’s move to promote new leadership across KPC and its subsidiaries in March 2013. “The past year has seen a huge seismic event, which was a reshuffle of the management of the whole oil sector. The contracts of most of the top management were not renewed and internal executives were promoted in their place,” Nader Sultan, chairman of Ikarus Petroleum, told OBG. “This is seen as a very positive development. For several years the oil sector had been like a ship without a captain, but leadership today is very proactive and involved, which will result in positive developments in the coming years.”

With calls for increased IOC participation growing louder, the government is also moving to develop its human capital and technological expertise to help meet production targets, which has presented a host of opportunities for private sector involvement.

“This challenge cannot be overcome without sophisticated technology and experience. If you want to increase production, you have to use technology,” Mazin Nayef, technical professional specialist in the KOC’s electrical division, told OBG. The efforts to increase IOC assistance should help secure long-term production.