What David Hodson does not know about the oil and gas business — and the multi-trillion-dollar financial infrastructure behind it — is probably not worth knowing.

The 64-year-old oil veteran has more than four decades’ experience in the sector, and now runs energy finance consultancy BluePearl Management in Dubai, offering advice to energy companies, project managers and banks, especially those working in what he calls the “tough neighborhoods” of the world —  energy frontier markets such as Africa, Pakistan and Afghanistan.

With the global energy industry facing enormous change — prompted by the emergence of the US as a leading oil exporter, the potential widening of the Organization of Petroleum Exporting Countries (OPEC), and the rise of renewable energy — his expertise and experience are in demand.

“We all look forward to the brave new world of renewable energy, and also need to push for cleaner use of the hydrocarbons we know. But in the meantime, oil and gas make the world go round, and after a tough period, I definitely see a recovery now,” he told Arab News.

“The global product demand growth for oil and gas is being seen across India and Africa as these economies become much more energy intensive. On the production side, big projects are being developed in the gas and LNG production sector in East Africa,” he said.

Hodson explained the issues confronting the energy industry in the 21st century, and the challenges facing Middle East energy companies as they adapt to the “brave new world.” One factor, he believes, has transformed the oil world, and raised questions for traditional producers and exporters. 

“The era of OPEC global dominance all changed in late 2015 when US crude export restrictions were removed. While it has taken some time for the global impact to be felt from US production, I believe OPEC’s strength has been forever reduced, and it is not in pole position anymore, especially as additional future non-OPEC production is likely to develop in places like Mexico, Africa, and Latin America,” he said.

“OPEC production quotas are likely to encounter problems in holding firm, especially among some members, as the oil price continues to rise. Hungry producers are looking to top up their cash and rescue ailing budgets. But the recent Russian cooperation with OPEC has really been an unprecedented lifeline for the producers when the market was oversupplied,” he said.

As an American, born in New Jersey, Hodson takes satisfaction from the rise of US oil to its present position. The country is now the second-largest producer in the world, having overtaken Saudi Arabia several months ago, and is set to leapfrog Russia to assume the number-one spot later this year.

 Hodson came into the business via civil engineering, working with Mobil in the 1970s, before it merged with Exxon to become the biggest independent oil producer in the world. The coming together of the two companies in 1998 — by which time Hodson had left for pastures new — was as much a merger of cultures as of corporations. 

“Mobil was always the more creative side of the industry, more global in its outlook compared with Exxon. My job was to build refineries, gas plants, pipelines — big projects, and the job gave me global experience, in Hong Kong, Tokyo, and Saudi Arabia,” he said.

 Such billion-dollar projects take years to complete, involving a multitude of parties in planning, construction and finance, with the financing of the industry just as important as the on-the-ground business of drilling, refining and transporting. Hodson entered this world in 1994, swapping his hard hat for a business suit, when French financial institution Banque Paribas (which later merged with domestic rival BNP) came calling.

“The French wanted somebody for project finance, big structural projects, and I headed off to Paris. I was in Paribas HQ and got to know all the senior people there, just as the French were expanding in the oil and gas business in the Middle East.”

His focus at Paribas subsequently shifted across the Atlantic. At the time the energy business in Latin America was beginning to take off as new technologies allowed explorers to get to reserves that had hitherto been inaccessible. Swapping Paris for New York, he gained a different view of the global energy business. 

“Venezuela was steaming with opportunities. The Venezuelans were waking up to the downstream potential of their enormous energy resources,” he said.

Hodson worked on Cerro Negro in the Orinoco fields, then one of the biggest-ever projects to convert extra-heavy crude to lighter, more marketable downstream products.

That trend toward the downstream has continued, and much of the attention in the global oil business is now on the value-adding potential beyond exploration and production. 

This is particularly the case for Gulf producers. Saudi Aramco has put heavy emphasis on this area, which it sees as a way of adding value to its overall business, moving beyond a simple “pump and pipe” model. The Abu Dhabi National Oil Company (ADNOC), the UAE state-owned producer, is also concentrating on the downstream operations, and has promised multibillion-dollar investment and partnerships in the area. A top-level conference in the UAE’s capital in the coming week — the Research and Development Petroleum Conference and Exhibition — is likely to provide further detail on this strategic shift.

“The awakening of ADNOC Downstream is very big and positive news for the UAE and the region. I believe that ADNOC will achieve their ambitious downstream-oriented goals with the involvement of well-organized joint venture partners. They are certain to become a real global oil, gas and petrochemical powerhouse and will realize much more profit from the overall value chain,” Hodson said.

His Paribas experience taught him enough to launch out on his own, and in the early 2000s he became an independent consultant based in Houston. But, as if to illustrate the vulnerability of the energy industry to unforeseeable external events, Hurricane Katrina in 2005 devastated the biggest energy centers of the world’s biggest economy. “Many of my clients were wiped out,” he said.

The French connection saw him through a difficult time. Societe Generale, another Paris-based financial institution, wanted to build an oil and gas business in the Middle East, and Hodson was made the Dubai-based managing director of the bank’s MENA business.

 Another hurricane, this time a financial one, was about to rip through the energy business, with the global financial crisis of 2008. SocGen, as the French bank is informally known, had already experienced its own crisis with the revelation of heavy losses built up by “rogue trader” Jerome Kerviel, and decided to pull in its horns across the world, including in the Middle East.

 Once again, Hodson set out on his own, launching BluePearl in 2009, just as the dust was settling on the crisis. After being affected by the economic recession that followed the financial crisis, oil prices had began to recover quickly.

 A short stint from 2011-13 at Standard Chartered, which was looking to bolster its investment banking business in energy, only served to reinforce the conviction that he was better equipped to go it alone. 

He had relationships at a senior level with Saudi Aramco since the Paribas days in the early 1990s, and developed those further as the Saudi national oil company headed into the most turbulent and transformational time in its 80-year history: The era sparked by the 2014 collapse in the oil price and the launch of Saudi Arabia’s Vision 2030 economic transformation program, for which the planned initial public offering of Aramco is the keystone.

 Hodson chose his words carefully on these issues. On the oil price, he said: 
“After three or more years of very limited capital expenditure into new global oil production, crude oil prices will rise and even spike until a new balance settles in to accommodate healthy global demand growth. Finding that new market balance will likely create volatility throughout this year into early 2019.

“There are so many variables. Oil production in Venezuela has plummeted due to incompetent government and Angola production has decreased significantly. The big question looming is on the Iran nuclear deal, with a decision expected by President Trump soon. New US sanctions would put even more pressure into the market.”

On the Aramco IPO, he was equally cautious, but his thinking seems to be in line with the mood at Aramco’s Dhahran headquarters. “The mechanics of making it all work lie in how and when it is launched. I wonder if a ‘stepped approach’ wouldn’t be most practical — maybe first listing on the Saudi market, followed by an international venue launch after getting through a post-IPO settling-in period.

“But you have to ask: what is the rush for the global IPO listing? Unlike bond issues and syndicated loans, you only get to do an IPO once

Source: Arab News