Oil company Cepsa plans $10bn expansion in next five years

Abu Dhabi-owned Cepsa to expand its exploration and petrochemical businesses in North Africa, South America and South East Asia.

Pedro Miro, the Cepsa executive, centre, with Jean-Eric Vergne of France, left, and Daniel Ricciardo, during Scuderia Rosso’s launch of its STR8 Formula One car. Courtesy Cepsa

Compania Espanola de Petroleos (Cepsa), the Spanish oil company owned by Abu Dhabi's International Petroleum Investment Company (Ipic), plans to spend US$10 billion in the next five years to expand its exploration and petrochemical businesses in North Africa, South America and South East Asia, its chief executive said yesterday.

“Since Ipic became the single shareholder of Cepsa in the summer of 2011, the emphasis is on becoming more international through expansion,” said Pedro Miro, who was in Abu Dhabi for yesterday’s Formula One race.

“Expansion into two areas – upstream and concessions, and the second area is petrochemicals.”

Cepsa will focus about 80 per cent of its investment to expanding upstream activities in North Africa, South East Asia and South America, with the balance going to petrochemical production in South East Asia, he said. Upstream is the part of the oil and gas business that focuses on finding wells, drilling into them and extraction.

Ipic, formed by the Abu Dhabi Government in 1984 to invest in energy around the world, made a 10 per cent investment in Cepsa in 1988 and increased its stake to 47 per cent in 2009. It became the sole shareholder of the Madrid-based company in 2011 after buying the stake held by France’s Total for $5.4bn.

Ipic is also building a $4.5bn fuel-processing plant in Fujairah and $3bn on another similar plant in Oman, according to reports. The company is invested in 18 companies across the world, including refining companies in Japan as well as chemical companies in Europe and North America.

The managing director of Ipic, Khadem Abdulla Al Qubaisi, is also the chairman of Cepsa.

Cepsa’s largest production facilities are in Algeria and it would like to invest a further $1bn in that country, where it boasts a long-standing relationship with the government, Mr Miro said.

Cepsa and the state-run Algerian hydrocarbon company Sonatrach teamed up in 2001 in a joint venture called Medgaz to build a pipeline between Algeria and Spain that can transport up to 8 billion cubic metres of gas a year, a project in which Mr Miro, who has been with Cepsa for 37 years, was involved.

“Our focus in terms of expansion, it’s in the countries where we’re in to exploit the synergies,” he said. “This means northern Africa and Latin America and South East Asia. Algeria is where we have the largest production and Colombia is where we have the largest exploration.”

Mr. Miro said Spain’s recession forced Cepsa to look for new types of energy and markets in which to expand.

“We think that the energy world in general these days is changing quite a lot,” Mr. Miro said. “The game changer is the United States. I would say that the arrival of the unconventionals has changed everything, oil and gas. So I suppose that many surprises are going to occur.”

Where once Europe used to export gas to the United States, it is now the other way round and the changing landscape of energy production with non-conventional methods such as fracking is convincing Cepsa to search for ways to adapt and find new sources of energy.

That will not be easy because while the fracking industry is more developed in the US, in other parts of the world it will be held up by political, technical and practical constraints, he said. Renewable energy is still too costly and the subsidies governments grant it put a big burden on tax payers, Mr. Miro said.

“Too fast an introduction is painful,” he said. “We are paying for that.”

Cepsa, which also works in Brazil, Canada, Panama and Peru, is also keen to grow in the field of petrochemicals, where demand from Asia is expected to accelerate. It is building a plant in Shanghai to produce phenol, a petrochemical used in the production of detergents and pharmaceuticals, Mr Miro said.

“Statistically, one in four items of clothing is cleaned with Cepsa detergent,” he added.