Kuwait’s ambitious merger plan of oil companies to cut down costs

• The plan to merge companies is expected to result in expedited decision-making processes in Kuwait’s oil, gas, and petrochemical sector.

• Kuwait’s oil and gas project market shrunk by 65% from 2020 to May 2023, falling from $67.1 billion to $23.5 billion.

• Hopes are high for the KIPIC and KNPC merger to solve recent issues and boost KPC under Sheikh Nawaf Al-Saud’s leadership.

According to ‘MEED’ magazine, the recent senior leadership changes at the Kuwait Integrated Petroleum Industries Company (KIPIC) are expected to boost morale within the Kuwaiti oil sector and accelerate planned mergers in the oil and gas industry. Additionally, these changes have bolstered morale among contracting companies in the country.

The magazine stated that the appointment of Wadha Ahmed Al-Khatib, CEO of the Kuwait National Petroleum Company, as the acting CEO of KIPCO, was a strong signal that Kuwait is serious about implementing long-planned mergers in this sector. The plan is expected to result in reduced costs and expedited decision-making processes in the country’s oil, gas, and petrochemical sector.

There are approximately eight companies affiliated with the Kuwait Petroleum Corporation in the oil sector, and the identified mergers would reduce the number of these large state-controlled companies from eight to four.

In 2020, the Kuwait Petroleum Corporation commissioned the American consulting firm Strategy& to conduct a study on restructuring the oil sector. It is believed that this restructuring could yield significant long-term benefits for the Kuwait Petroleum Corporation.

The magazine cited an example of this with a similar restructuring at the Abu Dhabi National Oil Company (ADNOC), which facilitated increased foreign investment in the energy sector in the Emirates.

MEED stated that recent appointments of executives from the leadership team of the Kuwait National Petroleum Company to leadership positions in Quebec make it likely that the merger of the latter into the Kuwait National Petroleum Company will be the first of the planned mergers to be completed.

Once the merger is completed, it is expected that KIPIC will cease to be a separate financial and legal entity and its operations will be absorbed into the Kuwait National Petroleum Company.

Local newspapers reported that the merger of the two companies may be achieved before the end of April. However, given the complexity involved in merging two companies of this size, this seems highly unlikely.

MEED magazine mentioned that Wadha Al-Khatib is not the only one whose recent appointment was announced at the “KIPIC” company; there are others who also hold leadership positions in “National Petroleum.”

Bandar Al-Qahtani, Executive Vice President for Administrative and Commercial Affairs at the National Petroleum Company, was appointed as Acting Deputy CEO for Administrative and Commercial Affairs at KIPIC. In the context of reviewing several appointments, the magazine stated that these changes are evidence of the recent efforts by the Kuwaiti government, appointed earlier this year, to improve stability and promote significant reforms that were previously unsuccessful.

This has increased optimism about major oil and gas sector projects that are now making progress after years of stalling and stagnation due to instability.

Kuwait witnessed a contraction in the value of the oil and gas projects market. Between the beginning of 2020 and the beginning of May 2023, the total value of all active oil, gas, and chemical projects in Kuwait decreased by 65%, from $67.1 billion to only $23.5 billion.

It is hoped that the recent steps towards the planned merger between KIPIC and KNPC will be a move away from the problems of recent years and will reflect positively on KPC CEO Sheikh Nawaf Al-Saud. He previously served as the CEO of the Kuwait Foreign Petroleum Exploration Company (KUFPEC) and Kuwait Petroleum International (KPI). In this capacity, Sheikh Nawaf Al-Saud was the main decision-maker regarding Kuwait’s energy investments abroad, especially during the spread of the Covid-19 pandemic worldwide, before assuming his current position.

MEED concluded by saying that Sheikh Nawaf Al-Saud succeeded in adapting to the complexities of the changing economic landscape in Kuwait during this period. It is hoped that he will bring strong leadership skills with him as he assumes the position of CEO of the Kuwait Petroleum Corporation.