Kpc Warns Its Financial Situation Is "dangerous"

The Kuwait Petroleum Corporation has issued a warning about the obstacles and sensitive challenges that the oil sector will face in the coming phase, as it has been monitoring a package of obstacles that it believes will have a significant impact on the oil sector's growth and development in light of the significant changes and financial situation resulting from the payment of retained earnings to the Kuwait Investment Authority.

KPC revealed in an official document obtained by a local Arabic daily that the current accounting system for exploration and production activity in Kuwait, which is based on the cost system, does not stimulate work on a commercial basis and limits the institution's ability to fulfill its obligations, noting that the length of the documentary cycle delays project implementation, not to mention the poor performance of a local Arabic daily.

Kuwait is on the verge of establishing new oil projects, such as offshore production, which Kuwait lacks the expertise to begin, and unconventional oil production, according to KPC sources.

The following are the most significant impediments and challenges that the oil sector is projected to confront in the coming years:

1 – The effects of the emerging Corona Virus pandemic, as well as changes in global markets, which affect oil prices and demand, as well as increased competition with national, regional, and global firms.

2 – The Kuwait Petroleum Corporation's financial situation in light of the accumulation of previous profit repayments, the risk of its continuation, and the borrowing plan's postponement.

3 – Kuwait's current accounting system for exploration and production operations, is based on a cost structure and does not encourage work on commercial grounds.

4 – The time it takes to get permissions for a document, whether internal or external.

5 – The length of the governmental decision-making process, which causes delays in executive procedures for big capital project implementation.

6 – Inadequate experience in some of the new fields that are required, such as exploration and offshore production, unconventional oil, trade, and research and development.

7 – The Ministry of Electricity and Water's inaccuracy and the constant shift in future predictions of local fuel demand.

8 – Achieving compatibility with the separated region's partners.

9 – Delays in the implementation and completion of some critical capital projects due to poor contractor performance.

10 – The high expenses of capital projects, as well as the massive financial requirements to carry out expansion and growth plans in the oil industry.

It's worth noting that there are research and strategies in place to address and overcome the above obstacles, so lowering their predicted impact on the plan's execution.

Note that the Kuwait Investment Authority and the Petroleum Corporation have agreed to reschedule the payments due (including any profits due) pursuant to the following payment arrangements:

1 – Paying quarterly installments in 60 equal installments, totaling 137.5 million dinars, over a 15-year period beginning June 30, 2021.

2 – The payment of 137.54 million dinars includes refunds for the delay, which are a percentage of the amount due (0.85%), and this percentage is specific to this agreement and will be paid quarterly in equal installments beginning June 30, 2021.

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