Kuwait’s state oil company picks adviser to merge units

Kuwait Petroleum is hiring a consultant to help merge its subsidiaries as the state-run company slashes capital spending by more than 25 per cent over the next five years.

KPC will combine its eight business units into four to streamline operations, according to a person familiar with the matter. To make the change as smooth as possible, it plans to sign with a consultant next month, the person said, asking not to be identified because they haven’t finalised the contract.

To chop five-year capital spending to KD19.8bn ($65bn), KPC cancelled some projects and postponed others, including exploration. It also pushed back some expected acquisitions by a subsidiary, Kuwait Foreign Petroleum Exploration, the person said. Kuwait’s Supreme Petroleum Council, which oversees the OPEC member’s oil industry, has approved the merger plan.

The company’s media office couldn’t immediately be reached for comment.

Oil sales provide about 90 per cent of Kuwait’s official revenue, and like many of its Gulf Arab neighbours, the country is retrenching amid a 32 per cent drop in crude prices this year. It’s also pumping and selling less crude, due to an output-cuts accord between the Organization of Petroleum Exporting Countries and allied producers. The government doesn’t have enough cash on hand to pay for state salaries beyond October, Finance minister Barak Al-Sheetan said Wednesday.

The coronavirus and its impact on global oil demand adds urgency to KPC’s efforts to reassess its priorities. The company said in 2018 that it planned to spend about $500bn on capital projects until 2040. Kuwait already scrapped plans in July to build the KD300m Dibdibah solar project.

The cuts in capital spending are separate from an 11 per cent reduction in operating expenses in the current fiscal year, the person said.

KPC reorganised the senior management at each of its eight units last year, setting the stage for internal consolidation. Under the streamlining plan — which could take two years to complete — Kuwait Foreign Petroleum Exploration, Kuwait Oil Tanker, Kuwait Gulf Oil and Kuwait Integrated Petroleum Industries will each be combined with other units, the person said. It’s unclear what the names will be of the newly merged units.

Despite the headwinds, KPC completed an upgrade in April at the 346,000 barrel-a-day Mina Al Ahmadi refinery. It plans to finish a similar upgrading at the 270,000 barrel-a-day Mina Abdullah plant facility in early 2021 and to commission the 615,000 barrel-a-day Al-Zour refinery, which the pandemic has delayed, in the second quarter.

Kuwait Oil, another subsidiary, started producing as much as 50,000 barrels a day of heavy oil from its technically challenging northern fields earlier this year, the person said.