Rising star

Sharjah-headquartered Crescent Petroleum is the Middle East’s longest established privately-owned upstream petroleum company with 40 years’ experience in this competitive marketplace. Its Executive Director, the affable and precocious businessman Badr Jafar, is always on the look out for new opportunities, as O&G discovers.

Crescent Petroleum may have been around since the early 1970s but for Badr Jafar, the 31-year-old entrepreneur and Executive Director of Crescent Petroleum, the company is "proud to be a pioneer" in the oil and gas sphere. Indeed, Crescent Petroleum, based in the UAE emirate of Sharjah, is what you could consider a bit of a maverick or risk-taker, venturing into new or difficult territories like Iraq and Yemen to steal a march on rival exploration companies. This buccaneer approach has paid dividends for the oil company. "We believe there is considerable benefit in gaining a first-mover advantage by early entry into new provinces and as a private company we are able to move quickly and decisively," Jafar reveals with his trademark calm and controlled demeanour. "This dynamism also attracts strong talent to our company, helping us keep our leading position."

The company is also the primary shareholder in Dana Gas - the Middle East's first and largest regional private sector natural gas company that launched in 2005. Dana Gas, whose initial IPO received applications for US$78 billion from over 100 nationalities all in the space of 10 days, is run by his father, Hamid Jafar. He also founded Crescent Petroleum in the early 1970s and by organic growth, as well as acquiring stakes and establishing subsidiaries, the company has grown into the largest privately held upstream oil company in the Gulf.

Jafar Jnr, who principally oversees business development and deal structuring at the petroleum company, is with many hats, being the CEO of Crescent Investments, a multibillion-dirham portfolio with interests in everything from logistics to medical facilities and real estate. He is also Chairman of Gas Cities LLC, a joint venture founded in 2007 between Crescent Petroleum and Dana Gas, as well as being the Chairman of Pearl Petroleum - a partnership between Crescent Petroleum, Dana Gas, Austria's OMV and MOL of Hungary. But more about that later.

Crescent Petroleum recently hit the headlines after signing a groundbreaking Strategic Cooperation Agreement with Russia's premier oil company, Rosneft, which has the largest proven reserves in the world at 22 billion barrels. This is the state-owned giant's first foray into the Middle East and cements a new era in co-operation between Russia and the UAE. Russia and the Middle East are the world's two largest oil producing regions. - both hold over 60 percent of worldwide reserves and account for 45 percent of production, says Jafar. "Rosneft's experience and scale, pooled with Crescent's own over 40 years of operating experience and business know-how in the region, provide great scope for developing future joint projects under our Strategic Cooperation Agreement. A union of Russia's largest oil producer with the Middle East's longest-established and leading independent indigenous company makes perfect sense." Jafar believes Rosneft's scale and experience will prove invaluable. "The company is also one of the world's leading developers of onshore oil and gas projects with a proven track record in delivering complex, big, projects such as the Vankor onshore oil field in Russia."

Crescent Petroleum signed a farm-out agreement with Rosneft for the 1243-square kilometre Sharjah onshore concession - Rosneft receiving 49 percent and Crescent Petroleum holding the remaining 51 percent. Russia's Deputy Prime Minister Igor Sechin told reporters two weeks ago that that Rosneft was set to plough US$630 million into the gas concession and that production was schedules for 2013. The field is thought to contain 70 billion cubic metres of gas and 16 million metric tonnes of gas condensate. An initial investment of US$60 million was put towards, principally the drilling of two wells to depths of 14,800 feet.

The strong relationship between the UAE and Russia was key in bringing both sides together on this agreement, says Jafar. "Crescent pioneered the development of gas in the MENA region, implementing the first two cross-border gas pipeline projects in the early 1980s, as the right response to the region's energy and environmental challenges. The Sharjah Onshore project will cement our working relationship with Rosneft, and our joint working teams has already demonstrated the very similar cultures in both companies. This in-turn will lead to a number of other projects that we can pursue together in the region, in both oil and gas. We believe that Rosneft saw in Crescent a company receptive to the creation of a genuine reciprocal and balanced partnership to promote both parties interests."

Fresh opportunities

Jafar says Roneft offers many complementary strengths to his oil company and says partnerships like this make strategic sense. "We at Crescent believe that partnerships are the best way that oil and gas companies are going to meet the petroleum challenges that are ahead of us, and to develop the necessary resources that will be needed to satisfy the gap between global supplies and demand which is increasing today at approximately five million barrels per day, annually."

Jafar Snr, Crescent Petroleum's Chairman of the Board of Directors, recently jetted to Moscow to meet with Russian Prime Minister Vladimir Putin and opportunities in the Middle East were very munch on the menu, including Iraq, according to sources.  Crescent Petroleum has been operating in Iraq since the 1980s, dealing directly with Saddam Hussein's government and the Ministry of Oil. However international sanctions on Iraq scuppered any chance of the company making real inroads into the country. Nevertheless, the fall of Saddam has opened up the country to IOCs looking to tap the country's vast reserves.

But whilst Big Oil has been negotiating with the Iraqi government over access to giant fields, the semi-autonomous region of Kurdistan in the north of the country wasted little time in welcoming exploration companies with open arms. Crescent Petroleum, along with its affiliate Dana Gas, have significant projects in the region - investing in excess of US$800 million. This includes the development of a Kurdistan Gas City between to satisfy the power generation needs in the north. This means the development of two major gas fields and 180 kilometres of pipelines to carry the gas to the power plants in Erbil and Sulymaniya as well as the construction of infrastructure and housing. The Gas Cities projects planned across the Middle East, including Kurdistan, Egypt and Yemen, are a 50/50 joint venture between Crescent Petroleum and Dana Gas to maximise locally produced gas as well as creating jobs and foreign investment.

Oil and gas combined, Jafar says Iraq is a "hugely prospective" region. "Its geological potential is almost without parallel and at the same time is geographically ideally positioned to take advantage of Western and Eastern energy markets." Indeed, Europe is a key." He adds: "By being involved in a major gas production to provide much needed power and industrialisation project in Iraq, with the potential for exports, including to Europe, in the future, we are positioning ourselves at the centre of this growing sector. Furthermore Iraq Kurdistan is a hugely prospective region with an estimated potential recoverable resource of 40-45 billion barrels and so may offer many follow-on opportunities for us."

After the US-led invasion and Kurdistan opening up to foreign investment. the Iraqi authorities brandished the contracts between the Kurdistan Regional Government (KRG) as illegal because no hydrocarbon law had been ratified. In fact, the protracted wrangling over this key piece of legislation continues to this day. Jafar, though, is confident of his company's legal status there. "We are 100 percent convinced of the legal, moral and technical correctness of our investments in the Kurdistan region today." He adds: "Crescent's long presence in Iraq has taught us patience and we are hopeful that the current debate over Iraq's hydrocarbon laws will be resolved positively to the benefit of all of Iraq's people." Last year, Crescent Petroleum and Dana Gas established a consortium with Austria's OMV and Hungary's OMV to aims to pump enough gas from Kurdistan to initiate the Nabucco pipeline, which will transport gas to Europe via Turkey. Again, partnerships are a key framework to new markets and projects. "Our Pearl Petroleum project in Iraqi Kurdistan was taken to the next level by us bringing in OMV and MOL, two companies integrally involved in the Nabucco gas pipeline, which the Pearl project may now be set to supply."

With Crescent Petroleum and Rosneft striking up a partnership through the Strategic Cooperation Agreement, Jafar told the media that both companies have their eye on opportunities in Southern Iraq. However, he is now reticent to release precise details. "There are a number of highly interesting and prospective areas within the MENA region that are currently being studied by our joint Steering Committee," he explains diplomatically. Iraq is obviously a major area of interest to the petroleum sector, and Crescent has long held a presence in the country..."

But despite the company's interests overseas, it has never taken its eye off the ball in the Middle East and North Africa - the world's premier region for black gold. Gas too is increasingly important. Jafar, who has a Masters degree in engineering as well as a business degree, has strong opinions on the Middle East needing to fulfil its gas potential. After all, the region holds 40 percent of global reserves yet only accounts for 12 percent of production. For Jafar, the need for gas to be recognised as the fuel of choice in power generation and beyond is critical. "The Middle East needs to work harder at developing its considerable gas potential, both upstream and downstream," he reveals. "By 'gasifying' our economies we will increase our economic competitiveness and at the same time free up more oil for export." For example, Crescent Petroleum's Pearl Petroleum project is already saving the Iraqi Kurdistan region US$100 million a month in diesel fuel costs. "This is before one considers the economic benefits of greater industrialisation." Calls for a liberalised market will be more conducive to encouraging the significant investment that will be needed to develop more natural gas. "Price controls in combination with power subsidies leads to uncontrollable demand and gas shortages, low investment in gas projects, and massive drains on government budgets that should be used for social projects."

Consequences

With Jafar having outspoken opinions on all aspects the oil and gas industry, its is pertinent to gauge his views on the impact the BP oil spill in the Gulf of Mexico will have on offshore drilling in the future. The Middle East itself recently suffered an oil spill off the coast of Egypt in the Red Sea, which just highlights how risky and prone to accidents the business of offshore drilling really is. Jafar's company is heavily focused on onshore activities and he foresees the offshore incidents as putting extra onus on onshore efforts. "We believe that a world of seven billion people will need every drop of the new oil produced both onshore and offshore, but we feel that onshore developers, such as ourselves, will become more important as offshore developments become more difficult and expensive to deliver."

While Jafar believes deepwater drilling will comes under more intense scrutiny, he argues onshore could be forced to pick up the slack if offshore productions dips. "If you look back at the last 40 years, onshore oil production has been essentially flat at around 50 million barrels per day. All the growth in global consumption has been met by offshore oil production. Therefore if offshore production growth is curtailed the challenge becomes to ensure that onshore production makes up for the gap." Of course, the Middle East will continue to be the predominant contributor to that onshore production. "The Gulf's role as the world's major source of onshore oil production is consequently set to grow and the challenge for companies such as ourselves is to position ourselves to deliver on that challenge.

Facts:

40-45 billion Estimated recoverable reserves in Kurdistan

US$630 million Rosneft's investment in the onshore gas concession with Crescent Petroleum