UAE - The ENOC System.

ENOC has suffered a heavy blow as a result of a steep rise in gasoline prices. In early 2006, it was said the company was losing over $500,000 a day on gasoline sales. On Jan. 21, 2005, MEED quoted ENOC Group CEO Hussain Sultan as saying: We have been vocal as we are a commercial company and we wanted people to be aware of the [price] problem. We had to do this as we cannot go on with carrying these huge losses forever". That development exposed the potential pitfalls of ENOC not being a fully integrated oil company in a regulated retail market such as the UAE, where pump prices are fixed by the government.

With no motor gasoline (mogas) production of its own, ENOC is reliant on the international market for supplies. As a result, when crude oil and products prices go through the roof, as they did on several occasions since the autumn of 2004, ENOC finds itself in the unenviable position of having to sell product at below cost on the forecourt. Worse, with mogas consumption in the UAE rising by 10-15%, the burden on ENOC has been mounting. ENOC is well aware of what it has to do now.

MEED in early 2005 quoted Sultan as saying: We need to grow as we have to become a fully integrated energy company. There are still a lot of opportunities out there for a company like us and we have a solid base and track record. But to grow faster, we need to either increase our equity or bring in more partners".

Over the past 11 years, ENOC has grown rapidly, moving into refining, oil production and IT, as well as substantially building up its oil terminal and shipping interests. Today, it has almost 30 subsidiaries and JV active in countries as far apart as Turkmenistan, Djibouti and Singapore. Much of what ENOC is looking to do now involves building on its existing asset base (see profile of its Jebel Ali refinery in DT).

At present, ENOC's upstream production interests are confined to a 60% stake in Dragon Oil, which is producing 20,000-22,000 b/d from offshore acreage in Turkmenistan. Over the past three years, Dragon has got considerable attention from ENOC, intent on raising its production levels. A $100m investment programme is involving 3D seismic service and additional drilling work. ENOC is planning to expand its upstream reach through Dragon, alone or with new partners.

The benefits of teaming up with partners was underlined in 2004 when ENOC joined forces with Abu Dhabi's IPIC, OOC and Thales to form Gulf Energy Maritime (GEM). ENOC had been in the shipping business for years through its wholly-owned DSC, but recognised that if it wanted to go to the next level, it had to take a different approach. GEM has taken over vessels from DSC, as well as four new-builds ordered by the company and delivered in the second half of 2005. In addition, GEM has in its own right placed orders for five specialist double-hulled chemical tankers, which will be delivered in 2006/07. GEM, which will have total assets of more than $430 million, will focus on the downstream fuels and chemical markets, transporting products such as naphtha, kerosine, MTBE and methanol.

ENOC and its subsidiaries, given their substantial shipping requirements, have been a baseload customer for GEM. But Sultan told MEED in early 2005: My philosophy is that each subsidiary is a profit centre and independent: none are forced to deal with another company in the group. Also, the good thing about this business is that there is strong demand from third-party charter firms. With the four new Panamax vessels, we could secure nearly $100 million a year of revenues through chartering".

The GEM model has been replicated elsewhere in the ENOC group. In 2003, the group's terminal assets - at Jebel Ali, Fujairah and the Saudi Red Sea port of Yanbu', where it operates the Arabtank terminal - were consolidated into Horizon Terminals (HTL). The reason it created HTL was that ENOC wanted to expand the business, as in the case of shipping and GEM.

Liquid storage is a strategic business for ENOC and the group wants to take it one step higher. HTL's terminal portfolio is set for significant expansion. Construction is under way on a terminal in Djibouti, which will target demand in the Red Sea and Horn of Africa. HTL and its partners in early 2005 awarded the main construction contracts for a new terminal in Singapore, which in the initial phase will have capacity of 720,000 cubic metres. Other assets are being looked at, including a new terminal in Mozambique, project managed by HTL.

The group is developing its IT businesses, which provide services to the oil and gas, outsourcing and emerging technology sectors in the Persian Gulf, Europe and the US. It plans to expand internationally its lubricants, jet fuel and LPG interests, as well as bunkering. It is even talking of expanding its retail business, not only in the GCC, but also in Dubai.

Morocco last month awarded a consortium led by HTL a licence to build and run an oil terminal at Tangiers port. Under a 25-year licence, the consortium will invest 52m (US$66.4m) to build a petroleum products storage site over 12 hectares (30 acres) with a capacity of 308,000 cubic metres, the Tangiers Mediterranean Special Agency (TMSA) said in a statement as reported by Reuters on May 26.

HTL, which owns 34% in the consortium, will operate the facility once it goes on stream next year. It will have to store at least 20,000 tons of fuels to be sold to local retailers along with operating facilities offering services for petroleum products ships docking at Tangiers port or crossing the Straits of Gibraltar. The consortium also includes Morocco-based Afriquia SMDC gas company and Kuwaiti International Petroleum Group. Moroccan BMCE subsidiary, BMCE Capital Conseil (BMCECC), advised the consortium in drafting the business plan as well as preparing the documentation. Construction of the port and related facilities is expected to be completed in 2007.