BusinessCompaniesCapital Markets: We need technology, creativity and cash -Rahul Dhir


Posted on Wednesday, 30 October 2013 17:54

Capital Markets: We need technology, creativity and cash -Rahul Dhir

By Patrick Smith

Rahul Dhir President of Delonex Energy. Photo©MARK CHILVERS FOR TARDelonex Energy, backed by private equity firms and the International Finance Corporation, plans to make an impact in the East and Central African oil and gas sectors.

East Africa's oil and gas boom is still in the gestational phase, but Rahul Dhir's new exploration and production venture – Delonex Energy – is entering an increasingly crowded marketplace.

This is also a time when the economies of South and East Asia – the main markets for East Africa's energy exports – show signs of slowing down.

Undaunted, some of the world's biggest oil and gas companies see the huge potential of the region and are throwing money at exploration and production plans.

because of good management systems, we will be highly efficient in terms of capital allocation

That makes it tougher for smaller independent companies such as Delonex to steal a march on their rivals. But Dhir is convinced that there is still more than enough work to go around.

He has already convinced New York-based private equity firm Warburg Pincus, which is backing Delonex with up to $600m of investment capital and commercial expertise.

After a low-profile launch in June, Dhir and his team are pushing ahead, establishing a regional operations base in Nairobi, a financial and administrative office in Mumbai and a corporate headquarters in London.

In August, Delonex announced that the World Bank's International Finance Corporation is taking a 10% stake in the company for $60m. That will help tremendously as financiers grow more cautious about returns from energy projects.

More oil engineer than financial engineer – although he has post-graduate degrees in both disciplines – Dhir often projects page after page of regional maps and geological data onto the screen in the boardroom of Warburg Pincus's London office.

Dhir's first focus is East Africa's Rift Valley. East Africa's rift system is one of the most prospective oil and gas regions in the world.

This new exploration zone stretches from the Red Sea through Ethiopia, Kenya, Uganda, Tanzania and down to Mozambique.

Asian Pioneer

The company's second focus will be the Central African rift, running from South Sudan across to Chad.

It is a region with some of the toughest political and development problems in the world, but that has not held back European and Asian oil companies from making massive investments there.

Africa is new territory for Dhir, as he is a veteran of pioneer oil projects in Asia. His biggest success to date was running Cairn India in hydrocarbon-rich Rajasthan State.

Dhir led the company from a start-up to a $2bn initial public offering in 2006, building it up into a company with a market capitalisation of almost $13bn.

That was the training ground for Delonex Energy. Its director for exploration, David Ginger, also played a leading role in Cairn India.

Dhir draws some parallels between Rajasthan and East Africa: "There is the geology and our need to be innovative in technological terms, but also in how we operate in the community."

There are other more delicate commonalities between the two regions, such as governance, corruption and environmental despoliation.

Again, Dhir reckons the Rajasthan experience will prove instructive. "It is the government that decides how to use the hydro- carbons. In India oil and gas have produced revenues and catalysed development."

Arguments in Africa about the balance between using oil and gas to generate export revenue or using it for domestic power and petrochemical needs are playing out in India too, says Dhir.

With an eye on the successes of independent companies such as Ireland's Tullow and the United States's Kosmos Energy in West Africa, Dhir argues that Delonex will have some critical advantages: "We are small and we can execute projects very quickly. And because of good management systems, we will be highly efficient in terms of capital allocation."

Dhir's explanations are peppered with words such as "innovation" and "individual creativity".

"Delonex aims to become a world-class exploration and production company," he enthuses. "We can do that with good science and operating practice."

There is, however, the matter of competition from some of the world's largest oil companies. China National Offshore Oil Corporation and France's Total are trying to move ahead with multi-billion-dollar oil field, refinery and pipeline developments in Uganda's Bunyoro region.

Further south, Italy's Eni, Norway's Statoil and Britain's BP are targeting the gas reserves in the deep waters off Tanzania and Mozambique.

Again, these companies plan to invest billions to produce gas, liquefy it and export it across the Indian Ocean.


In both areas, much of the initial work has been done by smaller companies, such as Tullow and Heritage in Uganda. But there are plenty of problems ahead.

The long discussions over how much of Uganda's oil should be refined locally mean that Kenya, with its recent finds in the Lokichar Basin, could produce oil commercially before its neighbour.

In Tanzania and Mozambique, the multibillion-dollar gas investment bonanza is already generating political tensions over accountability and how local communities will benefit.

Warburg Pincus's other African oil investment – in Kosmos Energy – has set a high bar despite some blips over its failed attempt to sell assets in Ghana to ExxonMobil three years ago.

After its launch in 2003, Kosmos now estimates that it is worth well over $5bn with its stakes in Ghana's two biggest oil fields.

To repeat that kind of success in East Africa, Delonex Energy needs good technology and an acute political sense, as well as that individual creativity that Rahul Dhir values so highly. ●

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