New York Times - 6 Nov 94

Prof. Robert B. Laughlin
Department of Physics
Stanford University, Stanford, CA 94305
(Copied 15 Dec 08)

Kuwait's Oil Industry Rises From the Ashes of War

Published: November 6, 1994

OUT in the glaring desert south of here, Bill Decker of New Glarus, Wis., was up on a 19-story drilling rig, pushing steel pipe through soft sandstone and shale in search of more of the black gold that has made Kuwait one of the world's richest nations.

Mr. Decker was not in Kuwait nearly four years ago when the retreating Iraqi army turned the oil fields into flaming ruins, belching millions of gallons of oil through dynamited wells and spewing so much poisonous black smoke that noon seemed like midnight.

But now, the Kuwait oil business is back to full strength, producing a total of 2.0 million barrels a day, a rate last reached in 1989. After spending several billion dollars on reconstruction, Mr. Decker, a drill crew chief, is part of Kuwait's plan not only to expand production, but also to win new markets in Asia, Europe and the United States. And Kuwait oil executives are negotiating to build refineries and gas stations in Asia and Europe and are opening new offices in Houston.

"The rebuilding phase is over," said Nader Sultan, the deputy chairman and managing director of the state-owned Kuwait Petroleum Corporation. "The new phase for the next five to 10 years is looking for growth markets."

Yet Kuwait's growth strategy has been influenced by the Gulf war. Twenty years after nationalizing its oil business and defiantly vowing to make its own way, Kuwait is once again looking to work closely with the West's big oil corporations. Pragmatism prevails in Kuwait these days, and that means viewing the oil companies as useful sources of capital, technology and skills. After the war, Kuwait also recognizes that there might be security benefits from partnerships with Western oil companies.

Architects and engineers are at work now on blue prints for a petrochemical plant costing nearly $2 billion that will be built and operated jointly with Union Carbide, and the Government has contracted with British Petroleum and Chevron for help with exploration, drilling and training of Kuwaiti technicians.

Perhaps the most striking example of the shift in thinking is that Kuwaiti officials are weighing a plan to offer production-sharing joint ventures to foreign companies to expand oil operations in the desolate northern part of Kuwait near the border with Iraq.

Some Kuwait oil executives see the presence of foreign, particularly American, companies at the border as a kind of insurance for United States military support in the years ahead. Others say it just makes sense to cash in on the know-how of the giants in the world oil trade.

None of this would have even been considered a few years ago. The Iraqi invasion and the Gulf war changed "our whole mentality," said Sheikha Sheikha Al-Sabah, the executive assistant to the managing director for international markets and a member of Kuwait's royal family.

"Pre-invasion," she said, "there were anti-feelings against having foreign interests in Kuwait. But now you appreciate the contribution of all the countries and you no longer think that the foreigners are just coming in to take our wealth."

In Asia, the world's fastest growing oil market, Kuwait hopes to establish joint ventures to build refineries in China, India, Pakistan, Thailand and the rest of Indochina. In Europe, where it operates more than 5,000 gas stations under the nearly eponymous brand name, Q8, it is considering joint ventures on refineries in Italy and the Netherlands.

As domestic oil production in the United States has been declining, Kuwait has been selling more crude to Americans. Seeking to capture a larger share of the American market, Kuwait is moving its United States offices from Rockefeller Center to Houston in December and adding several Kuwaiti executives and sales representatives. In the last year, the United States has surpassed Europe as Kuwait's second biggest customer after Asia, which buys 60 percent of the country's daily crude output.

At his towering red-and-white painted rig in the Ahmadi Oil Field, Mr. Decker is using a drilling technique developed in Texas four or five years ago. Instead of drilling straight down until he hits oil and then beginning to pump, Mr. Decker and his crew plan to turn their drill gently sideways at about 3,700 feet below the desert's surface and burrow horizontally through a great underground lake of oil encased in limestone. The horizontal method gives producers access to more of an oil reservoir.

"This will give three or four times the oil that a vertical well would produce," Mr. Decker shouted over the roar of four 1,250-horsepower diesel generator engines and the clank and whir of the mammoth drill.

Surveying the wreckage of the Kuwaiti oil fields as the guns of the Gulf war fell silent toward the end of February 1991, experts estimated it would take four or five years before all the fires could be put out and the oil fields sufficiently rebuilt to even begin approaching its prewar levels of production.

But it took Kuwait less than two years to reach daily production of 1.5 million barrels a day, and it has increased steadily since then. Ahmad H. Al-Rayyis, the Kuwait Oil official who was in charge of rebuilding the oil fields, said he never doubted that Kuwait would be back in business much sooner than the world anticipated. "It was the will of the people," he said, "and luckily we had the wealth to back it up. You can do anything at all if you have the will and the wealth."

Kuwait, of course, had a powerful financial incentive to move rapidly. The oil industry brings in more than 90 percent of the Government's revenues. Daniel Yergin, the president of Cambridge Energy Research Associates, noted that Kuwait's oil export revenues fell from $9.8 billion in 1989, the year before the Iraqi invasion, to zero for several months in 1990 and during most of 1991, until the first repaired wells began producing again. Kuwait's oil revenues this year, Mr. Yergin estimates, will be $10.3 billion, exceeding its prewar receipts.

At a time when many oil-producing countries are having difficulty maintaining production capacity and investment, Mr. Yergin said, "Kuwait is one of the leaders in stepping up its investment and having a focused strategy."

To oversee the reconstruction, Kuwait hired the big American builder, Bechtel International, which recruited more than 16,000 workers for Kuwait from the United States, Europe and Asia, and made team leaders of veterans like Mr. Decker, who has run drill rigs in California and Texas.

The Iraqis had wrecked or stolen nearly everything. So Kuwait, which had a population of less than 2 million and about $100 billion in assets, went on a worldwide shopping spree.

From Caterpillar Inc. in Peoria, Ill., the Kuwaitis ordered every bulldozer coming off the assembly line for several months. They ordered 1,700 cars and pickup trucks from the General Motors Corporation and bought hundreds of construction cranes, cement mixers and tank trucks. They brought in warehouses of mahogany and chrome and glass office furniture and a huge, sprawling prefabricated metal building that became the new headquarters for the Kuwait Oil Company, the oil-producing section of the national corporation.

A few miles from the headquarters, Bill Decker and about 50 oil drillers under his supervision live in boxy white trailers next to their rig. They work 28-day shifts, enduring 130-degree afternoons, blizzard-like sandstorms and aching loneliness. Then they get 28 days off and a plane ticket home.

Mr. Decker, 47, is not sorry he signed on. "This is the most exciting place in the world to be in the drilling business," he said. "We had to fix a lot of wells and I've put in 20 or 25 new ones. We've got targets for our wells and we're beating them all."