Dragon Oil CEO Ali Al-Jarwan on the company's $13bn expansion plan and its 2019 acquisition budget of $500mn
Industry veteran and Dragon Oil CEO Ali Al-Jarwan talks about the company's $13bn plan to expand existing projects, and the $500mn it will spend in 2019 to acquire new assets
In 2017, with 37 years of experience in the oil and gas industry behind him, Ali Al-Jarwan took on a new challenge. His career up until that point had centred around developing assets in the UAE with Abu Dhabi National Oil Company (ADNOC)—for the previous ten years as the CEO of Abu Dhabi Marine Operating Company (ADMA-OPCO).
But when he became the CEO of Dragon Oil, the exploration and production arm of Emirates National Oil Company (ENOC), his primary production area moved 1700 kilometres away, to the Cheleken Peninsula in Turkmenistan.
“We have to adapt to the laws of the country in which we operate, and we have to struggle a little bit on any new deal to make it really resilient in terms of value for money,” Al-Jarwan says. It was different from working in Abu Dhabi, where producing fields were easily accessible. “You could fly and come back to the office in one day, it was a very mature industry,” he adds, recalling his time at ADNOC.
After he joined Dragon Oil in 2017, he wrote in ENOC’s annual report for that year that “the constant goal must be to continue running a safe and sustainable operation, focusing on cost discipline to maximise effective financial management.”
But 2018 was a good year for Dragon Oil—its main producing fields, Dzheitune and Dzhygalybeg in the Cheleken Peninsula, produced an average of 93,000 barrels of oil per day (bpd), up from almost 84,000 bpd in 2017. He says part of the growth is because of increased knowledge of the reservoir and wells.
“At the beginning, Dragon Oil was just drilling and producing,” Al-Jarwan says. “Now, we have more information about the field performance, so we would like to have a scientific approach to produce for a longer time.” He notes that this includes figuring out the best techniques to increase production from a given well.
Greater experience, along with stabilising oil prices, spurred a shift in strategy, and at the company’s GOTECH conference in October 2018, Al-Jarwan announced that Dragon Oil had set a budget of $500mn for acquisitions in 2019, and plans to invest $13bn over the next decade to develop its existing projects.
“In the coming five years, we are supposed to produce 300,000 bpd of oil and oil equivalent,” Al-Jarwan says. “That means 100,000 bpd of sustainable production from the Cheleken block in Turkmenistan. This requires investment for both oil and gas, which have been defined and shared with the government in Turkmenistan.”
The plan: Increase production in the Cheleken block to 100,000 bpd, and invest more into the Al Faihaa field in south Iraq, where the company has operations and production has recently started. He plans to increase Dragon Oil’s shares in the field to 45%, and says the field requires around $5bn in investments. These two assets should produce a combined 200,000 bpd by 2025, according to Al-Jarwan.
WATCH: Ali Al-Jarwan on Dragon Oil's acquisition plans for 2019
He closely tracks the company’s progress, with one wall of his office holding a dedicated screen displaying the latest statistics from the company’s assets in Iraq and Turkmenistan, from production to the demographics of the company’s 2410 employees.
Even if each of the company’s assets hit their target of 100,000 bpd, Al-Jarwan would need an additional 100,000 bpd to reach the company’s goal. To fill the remainder, Dragon Oil will acquire an existing asset already in production. The company is searching in North Africa, and there are three assets already in contention.
“For 2019, we budgeted $500mn to buy new assets for both gas and oil,” he says. “We are looking into several opportunities, and at least two of them have to materialise in 2019.”
But Al-Jarwan maintains that Dragon Oil’s development is not simply about increasing production. “We are now into diversification, both geographically and we are also mixing our profile from purely oil, to oil and gas,” he says, noting this would be a key focus for the next five years.
Dragon Oil currently has exploration assets in Iraq, Tunisia, Algeria, Afghanistan and Egypt, and will drill two prospects in its Egyptian concession and one well in its offshore Tunisia prospect in the next year. The company’s assets include two gas fields in Algeria, where he hopes to have commercial gas operations after 2019.
“These fields they have a substantial amount of gas in place,” Al-Jarwan says. “If you could develop it, it could stay with you for 20-25 years. There are lots of resources from gas, but productivity is tight because the rock is tight, and we are deploying fracturing techniques to enhance productivity of the well.”
Dragon Oil is also looking to monetise and process gas in Turkmenistan for exporting or use in other local industries. He notes that the company is “communicating closely with Turkmenistan’s government and [the country’s national gas company,] Turkmengaz.”
The company’s growing interest in gas is not unique; the natural resource, which has a lower environmental impact than other fossil fuels, is increasingly being factored into the plans of oil and gas companies, including Al-Jarwan’s former employer, ADNOC.
ADNOC Group CEO Sultan Al Jaber announced in November that the company would invest more heavily in gas production with the ultimate goal of transforming the UAE from a gas importer to a net gas exporter. Al Jaber went on to announce several gas-related partnerships at this year’s Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC), including a 25% concession share that was awarded to Eni for First Hail, Ghasha and Dalma ultra-sour gas concession.
Al-Jarwan is a familiar presence at ADIPEC, as one of its founders, and our conversation at the company’s stand was repeatedly interrupted by people hoping to speak to him—old colleagues, friends & potential work partners alike.
“I think the theme of the industry is operational excellence,” he says. “You have to sharpen your pencil to do better, and we’d like to be better today than yesterday.”
This was one of many lessons learned from years of experience and emphasised by the industry downturn. He says the days of the rich oil and gas industry, when companies only worried about schedules, not budgets, are gone.
“The key lesson learned was to be efficient on cost management and always think about alternatives, and to encourage innovation, because with innovation you can make it faster and cheaper,” Al-Jarwan says. He pinpoints agility as a key trait for companies to remain competitive throughout the oil price cycle.
Lower oil prices have also meant a need for more precision to keep costs low, to help understand production levels and to predict future output. He says that compared to the last ten years, there are “more scientific explanations” for all outcomes from upstream operations.
“It was a good experience, these three years,” Al-Jarwan says, referring to the downturn. “We should not forget them, we should keep them with us.”
ENOC, which leans heavily towards the downstream and retail segment, fully acquired Dragon Oil in September 2015, when oil prices were around $56 per barrel of Brent crude, and heading downwards towards $35 per barrel in January 2016. Capturing more of the oil and gas value chain has inherent merit in a cyclical industry, and 2018 has seen large, Gulf NOCs moving to diversify their presence in the market.
Saudi Aramco is planning to acquire a 70% stake in Saudi chemicals giant Sabic, plans to raise its refining capacity to between 8m bpd and 10m bpd and to double its petrochemicals production by 2030. It will also build a petrochemicals complex in Jubail alongside Total.
Meanwhile, ADNOC plans to invest $45bn in the next five years into expanding its downstream presence alongside its partners. That includes the expansion of its integrated refining and petrochemicals complex in Ruwais, increasing capacity by 65% by 2025.
Simply put, integrating across the value chain makes companies more agile in a cyclical industry with fluctuating oil price, and can help maintain balance after the world hits peak oil demand and the energy mix shifts towards gas and renewables.
“Integrating upstream with downstream we expect to be very significant to producers [in the Middle East],” says Alan Gelder, vice president of refining, chemicals and oil markets at Wood Mackenzie.” If we look globally, international oil companies have more refining capacity than crude capacity. In an energy transition they can migrate towards gas there’s no risk of crude being stranded, that’s not the case here where most companies have more crude production than refining capacity.”
Although oil prices have stabilised, the impact of the crash remains. One positive outcome: a strong push towards digitalisation to optimise operations. Dragon Oil, like most operators, uses sensors to get real-time data on production, but Al-Jarwan says the company has to improve its digital efforts.
“We’d like to have faster integration and shorter response time,” he says. “The faster you move to enhance production and to correct your performance, you’ll be creating additional value.”
But Al-Jarwan emphasises that Dragon Oil is a “people first” company, and he is more concerned about creating a “culture of innovation” where people on the front line can propose solutions to enhance operations.
On a larger scale, he sees collaboration as a vital factor to strengthen the oil and gas industry. “The nature of this industry is collaborative, and some companies treat the contracting process in a normal way, but the companies that could focus on the collaborative strength of our industry would tap better value,” he says, adding that because the industry is so reliant on collaboration, all oil and gas players have to work efficiently to improve the sector.
“[Oil prices] are more than moderate,” Al-Jarwan says. “It is acceptable for companies to consider recruitment, development, dreaming to be larger.
“There is solid hope.”