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Special Report

Stepping on the gas

May 2013

Crescent Petroleum may have a truly international profile but chief executive Majid Jafar believes its Sharjah roots are as strategically-important as ever

Sharjah-headquartered Crescent Petroleum is the oldest privately-owned independent petroleum company in the Middle East, in a region dominated by national oil companies (NOCs) and global oil majors. It was founded in 1971 in Sharjah during the period leading up to the creation of the UAE federation.

A key focus for the company - whose core business is the acquisition, exploration and development of petroleum concessions, the production and sales of crude oil, petroleum products and natural gas - is the development, marketing and utilisation of natural gas assets across the region, a strategic area of growth aligned with the vision of Majid Jafar, its charismatic chief executive.

An Emirati citizen, he was educated at some of the world’s most prestigious institutions including Eton College, Cambridge University and Harvard Business School, where he earned an MBA with distinction. He then moved first to Shell International, later joining Crescent in 2004.

Jafar’s views on regional energy matters are well known. As a businessman, commentator and thought leader, he is regularly invited to speak at global think-tanks such as the World Economic Forum in Davos, Switzerland and Chatham House in London, and has published numerous articles in regional newspapers and the Financial Times on trends affecting the region.

He is also a strong advocate of civic leadership, corporate social responsibility, and environmental and sustainability issues through organisations such as the Arab Forum for Environment and Development (AFED), where he serves on the board. And he has a strong belief in the region’s gas potential.

“We have 40 per cent of the world’s natural gas reserves in the Gulf region and even all that gas was discovered when looking for oil. The development of gas is still in its infancy and it is relatively recently that its primacy as a fuel for power and industry has been recognised. For example when they first found gas in Qatar they shut it for more than 20 years before developing the resources,” he explains as we meet in his office overlooking Sharjah’s lagoon.

Crescent recognised the strategic value of gas back in the 1980s, and was involved in the first cross-border gas agreements between Sharjah and Dubai - both onshore and offshore - when the gas price was set.

“Gas was being flared then by Sharjah and in other places as it was an unwanted by-product. Today, it is the 21st century growth fuel, with double digit demand growth across the region,” he notes.

With offices in London and across the Middle East - but proud of its Sharjah roots - Crescent Petroleum continues to expand its operations across the Middle East and North Africa, including major recent investments in Kurdistan, Iraq’s energy-rich northern province.

“My family is originally from Baghdad where my grandfather [Dhia Jafar, the prominent Iraqi politician and cabinet minister from the last decade of Iraq’s monarchy during the reign of King Faisal II] served in government before the monarchy was overthrown. My father [Hamid Jafar, Crescent Petroleum’s founder and group chairman] went to school and university in England and was privileged to meet his late Highness [late UAE president] Shaikh Zayed when he was a guest at my grandfather’s home in London in the late 1960s before the UAE had formed. My father was a fresh university graduate and Shaikh Zayed encouraged him to come to the UAE.

“Initially he went to Abu Dhabi and was planning to be in the air conditioning business and then almost by chance was introduced to Sharjah and the petroleum sector by my grandfather, who was involved i advising US companies on oil investment in the Mubarek Field as he knew the Sharjah leadership. An operating company was established named Crescent Petroleum,” he says.

Known as the Protocol Area, the offshore concession was signed in 1969 with the first wildcat well in the Mubarek Field in 1971, leading to the company’s first operations.

Jafar says the field has over 40 years generated significant government revenues for Sharjah, with estimated cumulative production in excess of 100 million barrels of oil and condensate plus 300 billion standard cubic feet (scf) of natural gas, representing a capital investment of $500 million.

“In the early days, my father had diverse business interests and investments in different sectors including real estate, medical supplies and trading,” Jafar recalls. Over time, he says, the family companies intensified the focus on energy and other heavy industries, including the power sector and logistics, and are now organised under the Crescent Group, with Jafar as Group vice chairman.

The Group has a major stake in Sharjah-based Gulftainer, the region’s second-largest port operator after DP World and which is also expanding its geographical horizons, including into Iraq.

Jafar highlights Sharjah’s strategic advantages to the company.

“It is the only emirate with ports on both the Gulf and Indian Ocean - this is a great asset for logistics, and Sharjah is the only emirate which borders all six other emirates,” he explains.

Crescent Petroleum was also instrumental in establishing Dana Gas PJSC in late 2005, the first private but publicly-listed energy company in the region, listed on the Abu Dhabi Exchange and in which Crescent is the largest shareholder, with 22 per cent.

Also headquartered in Sharjah, Dana Gas is involved in the ownership, transportation, processing, distribution, marketing and sales of natural gas and related products, and has operations in both Egypt and offshore Sharjah, as well as Crescent’s partner in Iraqi Kurdistan.

“Dana Gas is truly a regional company and has board members and shareholders from across the GCC representing a quarter of a million investors,” Jafar says.

“From the outset the Board has emphasised leadership in good corporate governance standards and the company has won several awards from the UAE regulator,” adds Jafar, who serves as managing director of the Board and is an accredited director of the Institute of Directors (IOD Mudara).

In the meantime Crescent Petroleum has also secured strategic partnerships to further develop Sharjah’s petroleum potential. In May 2010 Crescent and Rosneft, Russia’s state-owned oil company signed a strategic co-operation agreement to jointly develop oil and gas opportunities in MENA. A further agreement allows both companies to jointly develop the Sharjah Onshore Concession, with Rosneft holding 49 per cent and Crescent as operator.

“In the Sharjah Onshore Concession and with our partner Rosneft, we have been conducting advanced seismic work to get a full understanding of the complex geology and potential as we identify drilling locations. Dana Gas is also separately active in operating the offshore Zora gas field between Sharjah and Ajman,” he adds.

“His Highness Shaikh Sultan [Sharjah’s ruler] has always encouraged private sector activity in the emirate, in the energy sector and all sectors - it still has the widest industrial base in the UAE, and is also the UAE’s educational and cultural capital,” says Jafar, who remains active in the local community as a Board Member of both the Sharjah chamber of commerce and Sharjah Expo Centre.

In Iraq, Crescent is proud to be the only international oil company to have maintained a presence for the past 20 years, with several offices across the country, and $1.5 billion in total group investments over the past five years.

“Iraq is a very big operation for us as Crescent and Dana Gas with a billion dollar investment in the Kurdistan region’s gas sector alone,” Jafar explains.

“We are the biggest private gas producer in Iraq with the largest private sector investment there. We have been producing now for over four years with 350 million cubic feet of gas per day plus 15,000 barrels [per day] of condensate and LPG.

“This is an important project because it enables electrical power for Kurdistan from the gas-fed power stations for millions of Iraqis. Unfortunately, the rest of the country depends on government action and it is not delivering electrical power to many parts more than 10 years after the US invasion,” he continues.

One of Jafar’s aims is to help strengthen UAE-Iraq ties. In mid-April a 120-strong UAE trade delegation visited Iraq to explore business opportunities, led by the economy ministry in partnership with the Abu Dhabi, Dubai and Sharjah governments. Crescent and Dana Gas were host sponsors.

“This is a good example of how federal and local government in the UAE co-operate, and this is something Iraq can learn from as it now also has a federal constitution,” he says.

Jafar believes Iraq is one of the world’s last major untapped sources of affordable oil and gas.

“Only 2,000 to 3,000 wells were ever drilled in Iraq compared to 10 times as many in Saudi Arabia and one million just in Texas alone,” he observes.

“The investment requirements are immense of course but the potential is also huge. Iraq could also have the highest reserves in the world if explored properly. Unfortunately 10 years after the invasion things have not settled and political consensus is not yet there but we are optimistic about the future.”

On the wider energy outlook, Jafar is uncertain on future oil price trends with so many imponderables.

“Obviously the oil price over time can be volatile, but we now seem to have been in a period of stability for the last three to four years. Despite an unstable political and economic environment, oil has remained steady at around $100, which is unprecedented. I remember when I joined Shell the oil price was just nine dollars a barrel. Today the price can move that much in a few days.”

Yet despite the high oil revenues in the region, Jafar says a key challenge is to create meaningful employment for the next generation.

“This is the number one challenge that this region has to contend with as we will have to create 100 million new jobs in the next 25 years. The World Bank estimates the region needs $100 billion per year in infrastructure investments, and there are ways to use energy, using gas as a feedstock to encourage investment in heavy industry and value added production,” he explains.

Jafar admits renewable energy remains economically unattractive for the time being.

“Of course it is important for government-led initiatives to be looking ahead to test new technologies on scale, and they have the ability to do so in [Abu Dhabi’s] Masdar and other initiatives,” he notes.

“We use too much energy in our region and obviously it is neither environmentally-friendly nor economically sustainable, because we are consuming a lot of our own output and therefore there is less available for export and revenue generation. The irony is that despite that huge energy potential, the region is short of gas.

Jafar says the only way to tackle that is by addressing energy subsidies, while improving the fiscal terms and regulations for upstream investment.

“The region now needs internal investment to develop its natural resources and this is where regional companies and partnerships come into their own. It used to be that the foreign oil majors had the main advantages in terms of access to capital, technologies and stronger relationships. But I would say none of those criteria apply any more.

“The capital comes from capital markets, technology is always from service companies anyway and relationships in complex areas can be established better by smaller companies like Crescent with more cultural understanding and sensibility.

“You cannot always rely on the central government to provide the security you need to have your own good relations at the local level with the community where you work.

“This is why we invest a lot in CSR activities in all areas where we work. You need to make sure you are serving the needs of the local population, because that is your best security and license to operate.”

Jafar says the big oil and gas companies such as Shell, BP and Exxon are struggling today to grow their production or even replace reserves, despite the cash from high oil prices.

“In terms of the shale gas revolution, 80 per cent of the gas produced today in the US and over 60 per cent of the oil comes from independents. It is the independents that are adding not only new reserves, new discoveries, new production but value addition in stock markets,” he says.

“The old model is changing and partnerships are the key. Crescent prides itself on partnerships in order to have the ability to bring to the table our relationships and agility and ability to quickly match it with skills or technology or capital of other companies,” Jafar concludes.

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