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April 30, 2008

Deloitte Middle East rides energy boom

Deloitte Middle East rides energy boom

Deloitte’s global oil and gas business is focused around centres of excellence. London and Houston were the traditional hubs, but in recent years the Moscow centre has expanded and there is now a focus on the Middle East. Paul Navratil tells Carolyn Canham about the opportunities on offer.

Paul Navratil is one of two new partners to join the Deloitte Middle East oil and gas practice. He previously led Deloitte’s energy practice in Central and Eastern Europe and, with David Traylor from Deloitte US, joined the Middle Eastern business to help spearhead its growth.

Navratil has a commercial oil background. “I was in energy trading environments – both trading and in strategy – for a number of years before coming into consulting and now my role here is to accelerate the growth of the energy consulting practice,” he explains. Navratil’s background in the oil and gas industry predates his working life – he was born and raised in Saudi Arabia and his father worked for Saudi Aramco.

He tells IAB that Deloitte’s energy practice is global in nature, with a network of centres of excellence around the world. “We’ve got our traditional centres of excellence… that were built around the traditional hubs of oil – London and Houston. We have extended that to Moscow over the last five years and what we’re doing now is really to provide a lot more emphasis on the Middle Eastern centre of excellence,” he says.

The strategy in the Middle East is to build a strong centre that will be capable of delivering and anchoring all the service lines. Navratil explains that Deloitte already has a “tremendous footprint” in the region, with decades of experience of auditing national oil companies (NOCs), plus a traditional focus on international oil companies (IOCs) such as BP and Shell.

Localised work for the Middle Eastern NOCs was previously limited to audit and audit support. Consulting and financial advisory work was delivered by staff in London and Houston. “That was largely because there hasn’t been much of a demand or a pull from the national oil companies here,” Navratil explains, adding that this is changing due to “a need to naturally evolve and optimise, coupled with the spotlight which has been put on Middle Eastern NOCs by the global press and the price of oil”.

Navratil says he characterises the growing demands of oil and gas companies as “a function of helping to build the dialogue between the IOCs and NOCs”. He explains there are two challenges driving the NOCs to start looking for more advisory services: human resources (HR) strains and the need to be perceived as capital efficient firms.

“We do a lot of enterprise risk management work and… invariably, it’s almost a 100 percent hit ratio that HR comes up as the number one risk,” he explains. He adds that, in terms of capital efficiency, “in certain areas the Middle Eastern NOCs are absolute leaders in the field – exploration and production. [However] competency models-wise, they may be lagging a little behind.”

Navratil suggests that the NOCs admire the “perception of efficiency” at the IOCs. On the other hand, he says, the IOCs admire the NOCs’ access to resources and ability to extract those resources profitably.

“From our position, we feel that we can play a role in facilitating the dialogue between the IOCs and the NOCs. And that’s really the role that we want to play,” Navratil says.

“We know that the IOCs are extremely interested in getting into partnerships with the NOCs because everyone’s concerned about resource nationalism. We feel that there certainly is a role for a company like Deloitte to play in helping that dialogue and in bringing all those sides together and bringing all the industry best practice together.”

Navratil says Deloitte also has a role to play in terms of corporate governance. “Decision making, accountability, responsibility, those themes are going to be part of the cornerstone of our offering,” he says.

Another offering is advisory on fiscal responsibility: “If you’re Saudi Aramco and you’re sitting on $80 billion of investment, how do you prioritise that? It’s a good problem to have but it’s a huge problem because they know that they need to diversify.”

Navratil says another area for consultation work is on demand security. “There’s a fine line between how much higher oil can go before people really start considering some alternative sources of energy,” he says. He adds that Deloitte is studying ways to assist the oil companies in this regard, while also looking at work related to climate change.

“The mood for professional services in the Middle East is vibrant; vibrant is actually too watered-down a word to describe it, it’s absolutely phenomenal, the amount of need that is required from all sides, not only the national oil companies, but the related industries, the petro-chemical industry, the electricity industry, the gas industry, the aluminium industry… the key message is the demand for professional services is mushrooming,” Navratil says.

“As long as these two main issues exist – one, the talent and resource crunch, and two, the requirement to be methodical and responsible in investment decision-making and allocation – there is a definite role for advisory firms like Deloitte to play.”

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