Dancing with elephants

"Dancing with elephants," is one of Philip Turberville's favourite phrases. And if you talk to him you'll soon hear the Scottish RAK Petroleum CEO use it to describe the important advantage that smaller oil and gas companies have over the sector's international giants.

"It's important, if you are dealing with Shells, BPs and ADNOCs, that you can dance around those big giants. You don't want to be crushed by them, and equally you want to dance, but you don't want to be an elephant yourself," he says.

The trick lies in finding the balance between being big and being able to move quickly, according to Turberville. Moreimportantly, however, is gaining the trust of resource owners.

"I'm not saying that the big multinational companies are mistrusted by the resource owners, but there is a natural skepticism and tension around giving all of this profit to a big multinational company that's misaligned with our sovereign interests," says Turberville in a soft Scottish accent.

So far, RAK Petroleum's own interests seem to be exactly where Turberville wants them to be. The company has only recently announced its 2006 first year net profits of US$50m, while its current authorised capital amounts to US$1.36bn. As RAK Petroleum's focus in the past year was evaluating investment and acquisition opportunities, it has managed to finalise a number of deals. Aside from acquiring all of Indago Petroleum's exploration and production assets last month, the company will also strengthen its grip on all the issued and to-be-issued share capital of Gulf Keystone, in addition to an earlier investment in Anzon Energy Limited.

RAK Petroleum's recent growth could largely be attributed to the acquisition of Indago, which brought about access to an abundance of assets and technical skills. The company now has a technical team in Dubai whereas previously it relied on consulting part-time support.

"We also came of age in terms of having a good management team. We had in our ownership [of Indago] production, development and exploration assets so we've moved from being a financial or investing company, to an operating oil and gas company," he says.

Although Turberville admits that RAK Petroleum will never reach a scale that would enable it to rival national energy giants like ADNOC or ARAMCO, he thinks of that as an advantage.

"It's not in RAK Petroleum's vision to be big for big's sake," he says, adding: "Getting bigger will come with success, but one should certainly avoid the trap of becoming big and cumbersome. Keeping that dynamic, small, focused mentality inside a larger capital structure is what I think we will become."

The energy business consumes a lot of capital, which Turberville believes makes scale important. For Turberville, a very good job would constitute RAK Petroleum hitting a market value of US$10bn in 10 years' time, from the current figure of just over US$1bn.

Formed on 27 September 2005, Turberville tells the story of RAK Petroleum which starts with the Crown Prince of RAK preparing for the development of his emirate and utilising its natural resources. This sparked the development of many businesses across the northern emirate, accompanied with the dawning realization that RAK lacked a competitive energy company that would manage its energy needs, and also develop relationships on a broader level in the region to further knowledge and profitability in the oil and gas business.

"In 2005, share capital of US$816.9m was raised. Then during 2006, the patron management team looked around at interesting areas of investment and then an entire management team was appointed.

"I was elected and appointed as the CEO in July 2006," says Turberville, adding: "We then presented a strategy to the board showing what could make RAK Petroleum distinctive, and set about finding and subsequently acquiring assets that fitted that strategy."

This was based on what Turberville calls "RAK's competitive points of advantage", including its geographical location and political connections.

"The management team concluded that these geographical political factors could be applied to our advantage in pursuit of the commercialisation of gas," he says.

Gas is the more challenging of the two hydrocarbons, he explains, as oil remains relatively easy to transport and sell, while gas is more complex to transport and store, and therefore more complex to sell.

"Historically gas has been sold at a discount to oil, and it has become very political and complicated. As a result, we thought that gas commercialisation should be a key pillar of our strategy. Not to the exclusion of oil, however, because oil and gas are found together traditionally," he says.

The other focus of RAK Petroleum's strategy was prioritising the geographical area in and around the Arabian Gulf, Persian Gulf and the broader Islamic Arab world, including the North Africa region.

On the challenge of working with gas, Turberville says RAK's political connections and business contacts in RAK, Umm Al Quwain, Sharjah, Dubai, Abu Dhabi, and Oman have enabled the company to pursue the required series of stakeholders through dialogue and negotiations.

"You have to work extensively and patiently with different stake holders, resource owners, and different host governments who control the natural resource, as well as the end customers. Then you bring those in together through pipeline systems so you need good exceptional commercial terms, good relationships, and the ability to connect sources of supply with customers," he says.

Turberville points out that although these discussions do not take on a linear nature, the company was able to achieve "good progress" during the last nine months. He explains that there is a nucleus of core relationships as the ruling Al Qassimi family in RAK enjoys a heritage that links back to southern Iran.

"Iran has always been a trading partner of the emirates, particularly the northern areas. There are several stakeholders we've been coming into contact with regularly," he says.