Interview: Badr Jafar, Crescent Petroleum

But speaking to Oil&Gas Middle East just days before he was named Energy Executive of the Year, Badr Jafar, the president of Crescent Petroleum speaks firmly about how smaller companies have the ability to make the industry more efficient.

He speaks from first-hand experience; Crescent was founded by his father Hamid Jafar in the late 1960s and is now run by his brother Majid Jafar and himself.

The Middle East is rightly considered as the driving force behind the global oil and gas industry, but Jafar points out that the area should really be even more dominant than it is.

“The Middle East is responsible for a third of global oil production and around 17% of gas production and in some ways that’s impressive.

But at the same time the region holds about 50% of conventional oil reserves and around 40% of proven gas reserves, so the production to reserves potential is quite constrained. That’s not just out of choice through organisations such as OPEC, but also poor market design and incentives to be able to ramp up production,” he says.

The figures bear out what Jafar is saying, with around 77% of all of the Middle East’s 2014 production and 85% of all the commercial reserves owned by national oil companies. These numbers are highly skewed towards the national companies compared with the rest of the world. He cites the recent upturn in activity in the United States as a prime example of the private independent sector playing a key role in the exploration and production (E&P) sector.

“There is great potential for private companies to bridge this reserve to ratios imbalance in our region, and in particular considering the region’s requirements and objectives, private companies can add value in the area of natural gas development and supply,” he comments.

“In the petroleum sector in particular, progress has to be a stakeholder approach because of policies of governments in the region, and you have a situation where you have poor market design and a lack of incentives or disincentives. Without addressing these issues we’re not going to get levels of production to satisfy our ever-increasing demand for power.”

He argues that the make-up of independent E&P companies makes it easier for them to react quickly to changing market situations or take decisions on new projects and contracts – something that Crescent has shown itself prepared to do in the past.

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“There aren’t many independent E&P companies working here, so that does bring about its own challenges. But we always need to look at where we have a competitive advantage. In many ways, we’ve been at the forefront in the development of integrated long-term natural gas projects and how these projects can facilitate power generation since the early 90s, when we worked between Sharjah and Dubai,” Jafar says.

“In many ways, we identified natural gas as an opportunity ahead of other private operators, and we still believe it is a huge opportunity. With gas, there are still major imbalances we face, and that presents major opportunities for the private sector to bridge these imbalances.

Of course a lot of things need to come together to allow for stable long-term integrated projects, however urgency is one of the key drivers. The region is now faced with an unprecedented level of urgency to develop economically sustainable energy projects to generate much needed power generation and ultimately fuel our economies to provide jobs and security.”

Expanding on his thoughts about family businesses in the oil and gas industry, Jafar extolls the virtue of stability in what can sometimes be an unpredictable region.

“Taking a broad view on family business across the world, they have proven to be more stable in general because the nature of family businesses are that they allow you to take a long-term view of the region and its requirements, and develop business models with this in mind,” he says.

“By taking a long-term view, you’re not necessarily influenced by market conditions in terms of public markets or shareholder pressure over dividends or reported earnings. That is what the industry needs – decision makers who can take long-term views and not be overly influenced by public markets, or indeed by short-term politics.”

As Crescent’s oil and gas activities have grown, so has Crescent Group, in turn strengthening the capabilities of the energy division. Jafar brings up a project the company carried out in the Kurdistan region of Iraq as an example of how the various facets of Crescent Group have been established to complement one another and strengthen the overall organisation.

“It was basically a war zone when we began operating our gas project in the region in 2007, with trouble on three borders and having to import 80,000 tonnes of equipment in six months,” he recalls. “How do you do that? Well, if you have in-house logistical expertise, then you have a competitive advantage, and our company Gulftainer which is a subsidiary of Crescent Enterprises, has over 40 years of logistics experience across the region.

“We also have an EPC contractor (URUK) that has good experience in the power sector in Iraq, so when we’re looking at integrated gas and power generation projects, you’re able to take advantage of a more robust value chain.”

But Jafar concedes that despite all the advantages being an independent affords, Crescent does not have the “deep pockets” of the NOCs or perhaps the quick access to finance that public companies might rely on. As such, Crescent has entered into a select few partnerships with some of the industry’s bigger players, and recently linked up with Rosneft Oil Company – the largest oil producer in the world.

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Jafar says that in his younger years, he found it difficult to conceive of a partnership between smaller independents and NOCs, simply because of their comparative size and structures. “But over time I learnt that solid partnerships of this nature can be achieved, and in fact are a requirement if we are to meet our global energy requirements.

“All that is required is an appreciation and respect of each other’s strengths, and a willingness to compensate for each other’s limitations,” he says.

“Crescent and Rosneft complemented each other. Rosneft was clear about its objective to expand into global markets, with the Middle East and North Africa a key part of that objective, and needed a local partner that understood the dynamics of the regional scene.

From our side, we are always keen to develop better technological know-how, and RosNeft have invested a huge amount in this space over the past ten years.

“In addition, when you embark on any large exploration project that can be very capital intensive with deep exploration well costs often coming in at $20mn per well, the benefits of teaming up with majors are important. Furthermore, partnerships of this nature naturally help to open the door for us to get involved in more projects outside the region. So the fundamentals made sense, and finally the chemistry was there as well – that is an extremely important factor.”

Crescent is currently in the process of developing partnerships with IOCs that have a proven track record when it comes to shale and unconventional oil and gas.

“We’ve been quite keen to explore the shale potential in the Northern Emirates of late, and we’ve been in discussions to see how we can use the data that we currently have alongside their technology and know-how with shale,” he reveals. “Discussions are at an early stage, but these are the sort of partnerships that make sense.”

On suggestions that the Middle East has perhaps been caught on the hop with shale gas, allowing the United States in particular to steal a march on its international competitors, Jafar offers another viewpoint.

“Maybe to an extent, but let’s be realistic. If the question is why hasn’t the region on the whole been faster in
going after and uncovering unconventional assets, The answer is that there is that there is still huge untapped potential in our low-cost conventional reserves. So why are we bothering to examine higher-cost shale potential?
As a smaller, independent player we are compelled to look at niche opportunities and take a long-term view about what the future opportunities are.

“However as an industry we have to be realistic about our medium-term priorities, and that is still untapped conventional sources of energy. For example, there are deeper conventional gas sources that are not commercial today because the subsidised market price is not conducive to producing them. So when you look at unconventional gas which would be even more time consuming and expensive, then it’s far from commercial today in our markets,” he says.

Away from his position at Crescent, Jafar has immersed himself in a number of other roles, both within and away from energy. To name but few, Jafar founded the Pearl Initiative, a private sector venture between the Gulf region of Middle East and the United Nations Office for Partnerships to promote a corporate culture of transparency and accountability.

He also sits on the Global Board of Education for Employment, Global Honorary Board of the Cherie Blair Foundation for Women, is a member of the Synergos Arab World Social Innovators Program Board of Governors and is a Founding Board Member of Endeavor UAE, an initiative encouraging entrepreneurship in the Gulf Region.

The full list of Jafar’s roles is dizzying, but he insists it is a way of keeping motivated.

“I’ve always strived to be entrepreneurial and one of the qualities of an entrepreneur is appreciation for diversity; in fact, if anything, I thrive and maintain my interest and energy levels as a result of this diversity. It’s a personal choice, but if I had to work all day every day on one specific project, I think my energy levels would drop significantly in a relatively short amount of time,” he comments.