Drilling at a site in Oman acquired by RAK Petroleum from Indago

Established in Ras Al-Khaimah in 2005 to bolster local energy requirements, the oil and gas exploration and production company RAK Petroleum is increasingly active on the global energy scene, as illustrated by a run of acquisitions during the past 12 months or so.
In April, the company acquired UK-listed Gulf Keystone Petroleum, an independent oil and gas outfit with interests scattered across the Middle East and North Africa. The deal gives RAK Petroleum strong exposure to Algeria, in particular, where Gulf Keystone has signed up half a dozen blocks with strong oil and gas potential. Independent estimates of the company’s resource holdings in the North African country suggest reserves of 3.9 billion barrels of oil equivalent in place.

Earlier, RAK Petroleum gained access to the upstream market in Oman through a £194 million deal, in which it acquired the entire Omani production portfolio of Indago Petroleum. The company also has exposure to other hydrocarbon-rich destinations such as Abu Dhabi and Iran.

“All these neighbouring areas are what we call our priority one target areas for exploration, development, and production projects,” says Chief Executive Peter Sadler. And there is clearly an appetite for more in the longer term.

RAK Petroleum is owned by a mix of local and regional shareholders from across the Gulf that includes both large corporations and smaller private investors. The largest shareholders are RAK Investment Fund and RAK Gas Authority. In its first year of operation, the company posted impressive gains. During the 461 days ending 31 December 2006 net profit amounted to AED180 million (£24 million).

The Indago portfolio included production and associated cash flow from the West Bukha and Bukha fields in Oman. It also expanded RAK Petroleum’s pool of oil and gas industry talent to manage the company’s expanding collection of assets, including the transfer to the company of Mr Sadler himself.

Last year, RAK Petroleum took over another UK explorer, Anzon Energy, which expands the portfolio beyond the company’s core area into more distant terrain, including Indonesia and Australia, both well-known oil and gas producers. Although the Anzon portfolio is outside its core geography, the transaction gave the company access to both talent and technology, boosting its credibility.

PETER SADLER Chief Executive of RAK Petroleum

Despite being on the acquisition trail, Mr Sadler talks of the firm’s commitment to stewardship during these early days. This will be tested in the coming year as the group gets to grips with its new asset portfolio. The challenge is to accelerate the development of its upstream assets and turn this into positive cash flow as quickly as possible. “The evolution is from what is essentially a cash management company to a hydrocarbon producing company,” he says.

This means getting cash from the sale of oil and gas rather than depending on the returns from other financial investments, a sign of maturity for any ambitious, young oil company. If this can be done by 2008 it will be an impressive achievement. “People will say: ‘This is a company that knows what it is doing – it has got a focused strategy, is dynamic, moves quickly and does not spend a lot on overheads.’ People will want to invest in this company.”

Assuming all goes well, the intention is to work towards an initial public offering sometime thereafter. London is a natural choice for many global oil and gas juniors, but there are also hopes of getting a listing in the Middle East in recognition of the company’s roots.

“The earliest we can have a compelling story to take to investors is early 2009,” says Mr Sadler. Going forward, the aim is to position RAK Petroleum as a showcase for Ras Al-Khaimah in the global oil and gas industry. “RAK Petroleum can put that sort of footprint down, not as a state oil company, but as an international oil company,” he says.