Executive Magazine

A breakthrough for Lebanese e-commerce?

by Benjamin Redd March 28, 2013

written by Benjamin Redd

The Lebanese blogosphere lit up last week when PayPal announced at the ArabNet conference that it would begin offering services in the country later this year. A gaggle of online commentators welcomed the news, with responses ranging from excitement to mere relief. “I can’t tell you how much this helps me,” one commenter said.

PayPal is the leading global service that manages online payments. It is owned by eBay, the world’s top online marketplace, and rose to prominence alongside the site. But it has branched out and is moving rapidly into mobile technology and other new trends.

Yet until now, those Lebanese wanting to buy goods or services via PayPal have been unable to, or have been forced to use foreign cards. The reason, the company says, was strategic – Lebanon’s market was not ready before. Even now e-commerce is still in its infancy, with only 9 percent of Internet users active in it – the vast majority for online banking rather than buying goods – according to a new poll by Ipsos.

While PayPal’s arrival will make life easier for consumers, the real beneficiaries may be Lebanon’s businesses. “We’re definitely excited,” said Mohammed Bakhash, project manager for Mira-Clé, a business consultancy that also builds websites for e-commerce companies. “I know a lot of clients who are trying to get around the fact that PayPal isn’t available in Lebanon,” he says.

There are other services for online payments, but none stack up against PayPal, according to Bakhash. Currently, most e-commerce sites “get around this issue by creating an account and having a virtual credit card,” he said, adding that some banks offer payment solutions as well, but they’re “very complicated and they charge a lot.” PayPal, on the other hand, is simple, cheap and ubiquitous.

The timeline of the arrival is still unclear. Speaking to Executive, PayPal’s Business Development Manager for the MENA region, Francis Barel, said it will hopefully be before the end of the year, provided a launch in Egypt goes smoothly. “We have said we’re planning to come to Lebanon in 2013 — so we’re hoping it will be by the end of the year, but it’s a long process.”

The online spin-off of Lebanon’s leading bookseller Antoine already uses PayPal, but only for customers with foreign bank accounts or credit cards. “At first the [focus] of the site was to sell outside Lebanon,” says Cyril Hadji-Thomas, CEO and co-founder of Books Without Borders, which manages Antoine Online. But “now the positioning has changed a bit…the growing market is Lebanese customers.” Currently, around sixty percent of Antoine Online’s sales are in Lebanon, he says.

Hadji-Thomas thinks PayPal’s security safeguards and ease of use mean it will be popular in the market. “With PayPal you can link your identity and it’s secure. Most of the time people don’t want to fetch their credit card to pay… the whole process is easier,” he says.

He believes Antoine Online is uniquely positioned to take advantage of PayPal’s move into Lebanon as they have their own delivery service that is used to the chaos of Lebanon’s address system, while people can also pick up the product from in-store. This mix of physical infrastructure, combined with a lack of customs hassles, provides a competitive advantage over foreign e-commerce sites, he says. “We think we have a better offer than Amazon in the country.”

The missing link

However, PayPal’s introduction will only be a game changer if it coincides with changes in the Lebanese attitude towards online shopping, where poor infrastructure and low levels of trust prevent people buying online. “The main issue is having Lebanon get [used] to the e-commerce market as standard,” Hadji-Thomas says.

Part of the problem is that there is still no legal or regulatory framework for e-commerce in Lebanon. A draft law was shelved in 2010 after activists complained that it was so poorly written that it would have provided government bodies with sweeping powers over many aspects of online life.

Another draft law has been proposed to address these concerns and lay a basic framework for e-commerce regulation. A government official, speaking on condition of anonymity as he was not allowed to talk to the press, said that if enacted, “a lot of issues might be resolved, including logistics, security, payments, downloading, quality of software and protecting the rights of stakeholders.”

The law would also provide for transactions involving the government, the representative explains. For example, “when [the government] automated registration of trademarks, we had to resort to LibanPost to make payments and transport the documents. If we had this transaction law, everything could have been done over the web,” he says.

But whether the government moves on e-commerce or not, the private sector will continue to advance the field. According to PayPal, the lack of proper regulation is a hindrance, but the markets cannot wait for government action. As Barel said, “I think [Lebanon] is quite ready.”

Note: PayPal contacted Executive to clarify that while the company is aiming to have its services available in Lebanon in 2013, the exact timeline is still unconfirmed. Mr Barel’s quote has been changed to reflect this

March 28, 2013 0 comments

The Buzz

Lebanon announces oil and gas firms

by Executive Staff March 28, 2013

written by Executive Staff

Lebanon’s acting energy minister Gebran Bassil has announced that 52 firms from 25 countries have submitted applications for the pre-qualifying round for the country’s offshore oil and gas.

Included amongst the bidders are major oil firms including Total, Shell, Statoil and Exxon Mobile, as well as Middle Eastern companies from Iran, Kuwait and the UAE.

The firms, if successful, will eventually form consortiums of three joint venture companies, but they are to be assessed individually on legal, financial, technical, and health and safety criteria.

The results of the applications will be announced next month, Bassil said. There will then be a six-month period of negotiation for companies to prepare their bids, with contracts expected to be signed early next year. However, no agreements can be formally agreed until a new government is formed.

Bassil said the bids were a "sign of faith" in Lebanon and added another 200 companies had withdrawn from the application process because of the tough conditions imposed by Lebanon. "Most of the major oil companies in the world, from all regions, have have put in submissions and this is surely a sign of faith and trust in Lebanon," he said.

The full list of companies and their country of origin is as follows:

Australia

Santos

Brazil

Petrobas

Austria

OMV

Canada

Suncor

China

CNOOC

Croatia

INA

Denmark

Maersk

France

GDF Suez

Total

Hungary

MOL Group E&P

Italy

ENI International

Edison International

India

Cairn India

ONGC

Iran

National Iranian Drilling Company

Ireland

Circle Oil PLC

Petroceltic

Japan

INPEX

JAPEX

JX Nippon

Mitsui

Kuwait

KUFPEC

Lebanon

CC Energy

Malaysia

Petronas

Netherlands

Shell E&P

Norway

Statoil

Russia

Lukoil

Novatec/GPB Global Resources

Rosneft

South Korea

KNOC

KOGAS

Spain

Repsol

Thailand

PTTEP

Turkey

TPAO Turkish Petroleum

Genel Energy

UAE

Crescent/Apex Gas

Crescent Petroleum

Dana Gas

Dragon Oil

MOISSS

Mubadala

Cairn Energy

Dana Petroleum

Heritage Oil

Ophir

SOCO

USA

Andarkor

Chevron

Exxon Mobile

GeoPark/Petroleb

Levantine Exploration

Marathon

March 28, 2013 0 comments

The Buzz

Morning briefing: 28 Mar 2013

by Executive Staff March 28, 2013

written by Executive Staff

Economics and Policy

Banks in Cyprus were due to reopen today after almost two weeks, amid heightened security measures to control the thousands of people expected to swarm branches demanding their money.

Lebanon without a government, again

by Zak Brophy March 27, 2013

written by Zak Brophy

Lebanon without a government feels remarkably similar to Lebanon with a government. The political establishment in this country is so fickle and dysfunctional that the cogs and levers that actually drive this fragile nation grind along regardless of the ineptitude and cynical shenanigans of those voted into office. This begs the question, how much will the resignation of Prime Minister Najib Mikati affect the wider economy?

The country’s financial health had been declining for some time prior to Mikati coming to office in June 2011, and was in a worse position as he made his dash for the exit last Friday. The economy grew a paltry 0.8 percent in 2012, down from 1.8 percent in 2011; Despite sluggish activity, inflation belligerently persists at around 10 percent; foreign direct investment dropped more than two thirds in 2012, and a recent study by the American University of Beirut and Byblos Bank found consumer confidence at its lowest since their first poll in 2007. The nation’s prospects were further sullied by the fiscal deficit ballooning 67 percent in 2012, with a corresponding upswing in the debt-to-gross domestic product (GDP) ratio to some 140 percent.

Mikati’s government undoubtedly had their work cut out for them. The crisis in Syria has led to acute regional tensions that have affected Lebanon, with the knock-on effects severely damaging tourism and security, as well as inflaming sectarianism. Furthermore, high energy prices have put the squeeze on Lebanon’s treasury, as the country is completely dependent on oil and gas imports to produce electricity.

But while in office the government also failed to realize any meaningful reform in public administration, which is critically needed. Furthermore, the politicians sat on a number of laws that could have breathed new life into Lebanon’s battered private sector, including a public-private partnership law, an updated intellectual property rights law, an international trade and licensing law, and a competition law that would have challenged the stifling predominance of well-protected oligarchies.

Perhaps the most glaring shortfall was the failure, once again, of the government to agree on a budget for 2013. It is nothing short of astounding that Lebanon has been without an official budget since 2006. For eight years the country has bungled along with a system that lacks any semblance of accountability or forward planning, whereby spending beyond the 2005 budget is covered by “treasury advances”. What kind of economic stewardship can be expected from a government that cannot even agree on its own spending?

It would be unfair to focus purely on the shortcomings without acknowledging where progress was made. Decrepit and decaying infrastructure is one of greatest shackles to Lebanon’s development and the likes of the pugnacious Minister of Energy and Water Gebran Bassil and his political bedfellow, the Minister of Telecommunications Nicolas Sehnaoui, have achieved some strides forward in their sectors.

These could be short-lived gains though. The seemingly ineluctable predisposition of ministers to view their sectors as personal fiefdoms undermines any kind of policy continuity between administrations. Efforts to develop independent and technocratic management of the sectors with informed and empowered regulatory bodies is consistently blocked. If the ministerial deck is shuffled in the weeks and months to come we can expect fresh teams of advisors sporting new plans for their sectors.

One major economic policy of Mikati’s government was the public sector pay increase. The debate surrounding how to fund the wage hike presented the government with a chance to embark on administrative reform, tackle corruption and waste, and rebalance the economy away from its disproportionately high dependence on the real estate and banking sectors towards the productive sectors. Such moves would have provided greater popular legitimacy to the policy and potentially a more equitable and sustainable society.

Instead the government rushed through half cooked plans at the 11th hour and in doing so they missed a trick. Just before resigning Mikati sent the draft bill to parliament for debate, where many will wonder whether they’ve just been handed a fiscal time bomb.

Will the economy collapse now Mikati’s government has gone? The simple answer is no. Lebanon has endured a lack of coherent leadership before and the economy can weather a brief period of political reordering.

But another protracted political vacuum would impact Lebanon’s already fragile security. With the country’s sectarian divisions brimming, a lack of political leadership — no matter how flawed that government may be — could leave the door open for hostilities to run wild. This is surely the greatest threat to the economy, and all attempts must be made to shield the country from the noxious winds blowing in from the war next door.

Zak Brophy is a freelance business journalist based in Beirut

March 27, 2013 0 comments

The Buzz

Morning briefing: 27 Mar 2013

by Executive Staff March 27, 2013

written by Executive Staff

Economics and Politics

The Lebanese Central Bank has taken the necessary measures to maintain the stability of local lenders, according to Governor Riad Salameh.

‘Time to stop the talking’

by Joe Dyke March 27, 2013

written by Joe Dyke

With entrepreneurship becoming something of a buzzword in the Middle East, it would be easy to assume that it is booming. But while support for new companies is certainly growing, for some it is not nearly fast enough.

Usama Fayyad, Executive Chairman of Oasis 500 – Jordan’s largest fund for supporting early stage start-ups – believes the Arab world is still lagging behind when it comes to supporting innovation.

The company has invested $2.3 million in 58 startups since September 2010, and claim that the first half million of investment they made attracted $8 million from outside investors. But Fayyad believes the time has come for governments to take more action to stimulate entrepreneurship.

We keep hearing about how fast entrepreneurship is developing in the Arab world, but do you believe the hype?

The talk is much, much more than the action. People tend to talk a lot, talking as if they have launched something a year before they do, and when they launch it they tend to not execute.

We have heard about lots of early stage funds that have come up in Dubai and Beirut, and what happens is they show up in the news and we are sitting waiting for them to invest [but it doesn’t happen].

What is happening is a lot of people have an idealized model in their head – they think you create a fund, hear some pitches and make some investments. But [entrepreneur development] is really hard work. You have to work with them; you have to find ways to localize it so it works. It is not [just] ‘put it up’ and customers will show up.

With Oasis 500, we really didn’t talk about it until we did our first five investments. Then we said ‘OK, now we have got it, we understand what we are doing, we have a plan for the next 10, now we will talk.’

ArabNet founder Omar Christidis recently said that people had created too much hype around entrepreneurship as it has become ‘en vogue’. Is that a danger?

I don’t know if it is a danger, I think it is a fact. I am happy they are bragging about wanting to be an entrepreneur, rather than bragging about wanting to buy the latest clothes or wanting a job in the government. So it is a good trend.

But I think what will really change behaviors is when we start seeing true success factors: people who have the will and the determination will start looking at it and seeing it as a serious career. Then I think the hype helps because what happens is when they take that perceived dangerous step of quitting their day job to try and build a company, they will not feel like they are doing something very unusual or out of favor.

How far are we from those success stories?

I think there have been a few, not enough but [attitudes are changing]. For example, when we started Oasis 500 the biggest complaint I used to hear from participants in our bootcamps were their families thinking they were crazy for taking a week off to get trained, saying ‘what are you doing risking your job?’

Now, two years later, I have seen a real change where people are saying ‘my mother or father has pushed me to take this because our neighbor did this, raised $200,000 and are in the news shaking hands with the king.’ That changes the norms of what is success.

It is beginning to happen, but my biggest worries remain. In a region like ours with over 300 million people and a lot of oil, it is pathetic [to have so little support for startups].

Oasis 500, for all the noise we make, is just $6 million dollars so far. We are going to raise it to 10 and then to 30, but so what? That is nothing. People spend $200 million on a building all the time. Yet you still don’t see these funds and they are needed.

It is sad right now and I am not seeing where the solution is going to come from. In other countries it came from the government – in the US and Israel they pumped lots of money into venture capital funds.

But would you really want governments in the Arab world, many of which are deeply inefficient, doing this?

Governments should reallocate resources but should not manage these things. Governments are terrible managers of entrepreneurial things, but they are enablers. A government should pave the road and make sure the traffic rules apply, but they shouldn’t be running the restaurants on the road as they would give terrible service. We need to pave the way with funding, we need to make sure funding is available…they already do this for buildings, for leases, for economic programs – they just don’t think of doing it for companies.

And have you seen a change in mindset from Arab governments yet?

No. None. I think the hype around entrepreneurship is making it noticeable, so they are maybe starting to ask about it.

March 27, 2013 1 comment

Finance

Look to the East

by Ziad Abou Jamra March 27, 2013

written by Ziad Abou Jamra

As the yen continues to weaken and the rally of Japan’s stock index, the Nikkei, persists, it is time to start adding exposure to its stock market. With the country’s current account surplus worsening, it is getting more difficult to finance the budget deficit of around 9 percent of gross domestic product, coupled with a sovereign debt amounting to 240 percent of GDP — both figures being roughly double that of Lebanon’s equivalent statistics.

Bonds…Japanese bonds

Japanese establishments have always been the biggest and most reliable buyers of Japanese government bonds (JGBs), but they have recently been conveying that they lack the funds to keep buying at the scale of previous years. The Bank of Japan needs to step in and buy government bonds with newly printed yen so the supply of yen will have to rise drastically in the coming few years. This would lead to price levels in Japan moving from a deflation of slightly below zero to an inflation of around 2 percent, the target set by the newly appointed government and the Bank of Japan. The resulting weaker yen would be a new scenario for Japan as the country’s currency has been one of the world’s best performing for the past 20 years.

Additionally, Japan’s major life insurance companies act as pension funds for the Japanese community, which has a high propensity to save, with these savings being channeled into investment in domestic and foreign assets. Because of the yen’s positive performance over the years, these life insurance companies have hedged part of their exposure to the currency by buying yen against their foreign holdings. The recent drop in the yen might force the hand of these institutions to unwind part of their hedges by buying tens of billions of dollars and simultaneously selling yen. Many other institutions, from pension funds to industrial companies, are in a similar position and will have to react in a comparable fashion. As a result, demand for JGBs will likely decrease, threatening the big Japanese banks as they have large holdings in JGBs. To counter this, the Bank of Japan will need to intervene and buy more bonds, thereby increasing the supply of yen even further.

Grabbing stocks by the horns

Japan’s dangerous game of weakening its currency — given that it is a policy which could eventually backfire as more than one nation can play this game — is nonetheless very beneficial to Japanese manufacturers and exporters and bullish for Japanese stocks as the recent rally in the Japanese index Nikkei indicates. Japanese equities have been in a bear market since 1989 with investor sentiment constantly deteriorating. The consistent drop in prices and sentiment over the years, with Japanese equities losing three quarters of their value in the past 23 years, has led to the country’s stocks being competitively priced relative to their international counterparts.

On the other hand, the value of the bond market in Japan has risen by around 400 percent. A major switch from bonds to stocks is already underway and an acceleration of this process could create a major bull market in the country’s equities as Japanese and foreign investors scramble to buy stocks. In my opinion, the best way to benefit from such a scenario is by buying a currency-hedged electronic traded fund such as the WisdomTree Japan Hedged Equity fund listed in the United States under the symbol DXJ.

Given the explosive nature of both the rally in Japanese equities and the dramatic drop in the yen in recent months, I believe that in the short term the call is overstretched and warrants caution. However, given my extreme bullishness on Japanese equities and bearishness on the yen for the next two to three years, I would recommend keeping an eye out for a major correction, which should be used as an entry point to add exposure to what could be the onset of a bull market for Japanese equities.

Ziad Abou Jamra is the deputy general manager of Fidus, an affiliate of Societe Generale de Banque au Liban

March 27, 2013 0 comments

The Buzz

Morning briefing: 26 Mar 2013

by Executive Staff March 26, 2013

written by Executive Staff

Economics and Politics

Oil prices at around $100 a barrel are reasonable for both consumers and producers, Saudi Arabia’s Oil Minister Ali Al Naimi said on Monday, again highlighting the top crude exporter’s preferred oil price.

Kirkuk: Iraq’s fault line

by Josh Wood March 26, 2013

written by Josh Wood

Brigadier General Sarhad Qader, the police chief of the troubled Iraqi city of Kirkuk, sighed as he flipped through the photos of the officers killed in bombings earlier in January. There was an older man with a dignified, thick moustache, a pale woman with bright pink lipstick and others, all wearing light blue uniforms against empty backdrops. Kirkuk’s police are being hunted, he said.

72 hours after our meeting, the fortified police headquarters complex was hit by a devastating attack. A powerful suicide car bomb detonated, breaching the perimeter. Gunmen rushed in. Dozens were killed and Qader was sent to the hospital. As usual, there was no outright claim of responsibility, but like similar attacks, it has the hallmarks of Al Qaeda in Iraq.

Ten years after the American invasion of Iraq and just a year since US troops finally left, Kirkuk finds itself at the frontline of a blooming conflict between the Iraqi central government in Baghdad and the semi-autonomous Kurdistan Regional Government (KRG). Both sides claim the resource-rich city as their own and as tensions rise, extremist groups have taken advantage of the relative security vacuum resulting from the withdrawal of US troops, stepping up attacks and reintroducing suicide bombings in an attempt to further wedge the divide.

Kirkuk’s oil fields are currently pumping out around a quarter of a million barrels per day, but are capable of producing hundreds of thousands more. But the redevelopment of the fields has been stalled by ongoing spats between the Iraqi government and the KRG.

These disputes over land, oil and the level of Kurdish autonomy in Iraq’s precarious federalist state are longstanding. But recently the Kurds have been more aggressive in their assertions of autonomy and their defiance of the central government.

To Baghdad’s ire, the KRG has arranged its own oil contracts with international companies and begun exporting oil overland through Turkey — moves the central government describes as illegal. No progress has been made on the issue of disputed territories and a referendum to decide the issue has been delayed for nearly six years now. “Not resolving these issues could lead to a larger conflict, perhaps a military showdown between both sides,” said Najmaldin Karim, the governor of Kirkuk.

In the past year there have been a number of tense standoffs between the Peshmerga, the KRG’s military force, and the Iraqi Army. In Novermber Peshmerga and central government forces clashed in Tuz Khurmutu, just south of Kirkuk, leaving one dead.

The creation last autumn of a new Iraqi military command headquarters, the Tigris Operations Command – which is tasked with watching over the security of disputed Kirkuk, Salaheddine and Diyala – also fueled Kurdish anger. Many Kurds view the command as unconstitutional and provocative, particularly given that the man tipped to lead the forces, Abdul Amir al-Zaidi, is accused of taking part in Saddam Hussein’s bloody al-Anfal campaign in which at least 50,000 Kurds were killed.

So far the sides have eventually stepped down from standoffs, but the central grievances have not been addressed and both have asserted that they are ready for a fight if it comes to it.

There are great gains and rewards to be had. An hour away from Kirkuk’s edgy streets, the KRG’s capital Erbil reflects the prosperity that Kurds have been able to harness. Hotels are popping up, the airport is modern and wide highways ring the city.

The use of petrodollars has allowed the rapid development of the Kurdistan region since 2003, laying the foundations for a state with the potential to survive independently of the central government.

Next door in Syria, Kurdish groups have carved out a region of their own in the country’s oil-rich northeast amid the chaos of the civil war. As such, the KRG could broaden its regional influence as de facto Kurdish rule emerges outside of Iraq.

To the south, Baghdad is bogged down facing a Sunni-led protest against the Shia-led government of Nouri al-Maliki, as sectarianism boils again and violence continues. Representative of the broader conflicts that the Kurds are trying to separate themselves from, the latest crisis is perhaps an opportunity to further challenge Baghdad with fewer consequences as the central government is focused on more immediate matters.

A loosening of Baghdad’s tethers could help the Kurds finally spread their influence. But with such heated disputes over oil, land, money, power and identity stitched into Kurdish-Arab fault line in northern Iraq, the route forward is unpredictable and potentially explosive.

Josh Wood is a regular contributor to The International Herald Tribune and Esquire Middle East

March 26, 2013 0 comments

Economics & Policy

Finding new ways to extract

by David Branson, David Branson David Branson & David Branson March 26, 2013

written by David Branson, David Branson David Branson & David Branson

The exploration of new resources is not often a top priority for Middle Eastern national oil companies (NOCs). Thanks to giant oil fields discovered between 1940 and 1970, the region’s NOCs produce 35 percent of global oil output and hold more than 50 percent of the world’s proven oil reserves. For practical reasons, these companies today focus primarily on growing or maintaining production levels. This helps to generate revenue for the region’s governments but also helps to stimulate the development and diversification of the broader economy by providing employment opportunities and supporting local companies in the oil and gas supply chain.

Undiscovered oil in the Middle East may only amount to a fraction of what has already been found. Nevertheless, exploration can unearth substantial discoveries. For example, Statoil, a Norwegian NOC, helped to discover a two-billion barrel oil field in 2010 within an area in Norway that had been explored by numerous companies over the preceding four decades. Such discoveries are made possible because of complex geological knowledge and two technological advances: seismic imaging that can identify new fields more effectively and drilling techniques that go deeper and can locate less productive, but still lucrative, reservoirs.

Redefining exploration

Despite the possible resources awaiting discovery, NOCs’ efforts in the Middle East are focused primarily on producing assets. This means that exploration is overlooked in the region, and delegated to International Oil Companies (IOCs) who work on a contract basis, and are compensated for the upfront risk and expenditure. Their work involves conventional exploration, the exploration for well-defined oil and gas fields that target known producing geological horizons at manageable depths, onshore or in shallow water. Yet given diminishing returns, exploration efforts now increasingly involve exploration in offshore deep-water areas, and on deep gas, shale gas and tight oil.

To improve their exploration performance, and to help them in managing their IOC partners, NOCs can learn from this new breed of IOCs that have combined strong geoscience and operational capabilities, with an organizational culture — focusing on people, processes and organization structure — that supports the disciplined risk-taking that is necessary for sustained exploration success.

Successful exploration companies place a high value on geoscience talent and have simple, widely understood processes that they consistently apply, with open discussions on successes and failures facilitating learning and adaptation to new situations. This is best supported by a non-hierarchical organization that fosters communication and discussion, and provides geoscience teams with open access to management, as well as offers centralized standards that are balanced with local autonomy to act.

Keys to success

The first step to establishing a strong organizational culture is securing the right people who can interpret data in new ways. They also need to ensure that IOC partners for exploration ventures are selected on criteria that include their exploration track record, and that the IOC deploys its best explorers. NOCs should structure their own exploration conversations, and their reviews of IOC-operated ventures, to specifically address the “what-if” questions that challenge conventional wisdom and generate the innovative ideas that can unlock remaining exploration potential.

The second step involves enhancing processes related to exploration decision-making. Primarily, NOCs should review the financial thresholds applied by IOCs (applied as tight contractual terms to make the largest discoveries attractive for the IOC). Upon review, NOCs should ensure that IOC partners are adequately incentivized to invest, taking into account the risk and reward profile of the exploration opportunities on offer.

Strengthening the overall organization to align with the exploration vision is the third step. NOC leaders must recognize that exploration can provide valuable additional resources to their portfolio, and thus need to ensure that it is given sufficient weight in the organization and is resourced accordingly. Re-emphasizing the role of exploration as a core function in the NOC will help to attract the best talent and build strong exploration competencies.

Production optimization is, and should remain, the key priority for NOCs in the region as the main driver of government revenue and a stimulus to the development of the broader economy. However, while there is no simple solution for exploration success, the adoption of some of the practices of successful explorers is an important step that NOCs should take to “rediscover the art of exploration”. This will go a long way to maximizing discovery volumes and ensuring that NOCs are best-placed to fulfill their mandates to maximize the contribution of the oil and gas sector to the national economy.

David Branson is executive advisor, Sean Wheeler a partner, and Asheesh Sastry and Alain Masuy principals at Booz & Company

March 26, 2013 0 comments