A Case Study of Khafji Joint Operations

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Background and overview

Oil industry in Khafji started in mid 1956 when a group of Japanese entrepreneurs established the Japan Petroleum Trading Company Ltd. In February 1957 Japanese entrepreneurs made their first visit to the Kingdom of Saudi Arabia in order to obtain an oil concession where they held preliminary negotiations with the Saudi Government top officials. The Saudi Government positively responded and promised to consider the concession application. Following that promise Japanese entrepreneurs established the Arabian Oil Company Limited.

Time line for Khafji Joint Operations

• In July 1957, Japanese entrepreneurs were entrusted with power to conduct negotiations on the owners' behalf. The Kingdom of Saudi Arabia (K.S.A) sent a delegation to Kuwait to ask for a Saudi-Kuwaiti joint move over the concession agreement and over the Divided Neutral Zone between the two countries.
• In December 1957, signing the concession agreement between Saudi Government and Japan Petroleum Trading Company Ltd concluded negotiations.
• On February 10, 1958, the operating company "Arabian Oil Company Ltd. was established. Consequently all rights and obligations under the said concession were assigned to it from the mother" Japan Petroleum Trading Company. Under the said agreement the Saudi government provided the company with an exclusive petroleum exploration and prospecting license for a period not exceeding two years and exploration concession for 40 years as of the date, of termination of the former 2-year period.
• On July 5, 1958, the Kuwait government granted AOC the concession of its one half interest of the neutral divided zone for 44 years including the period of exploration and geological survey. Following the conclusion of the two concession agreements in the years 1957 and 1958, AOC commenced its activities at Khor Al-Mufattah, 33 km northward of Khafji.
• In 1960, as a result of the discovery of oil in commercial quantities, AOC decided to consider its permanent operations base at Al-Khafji and constructed all the onshore supporting facilities of production, shipping, offices, housing and other facilities required for the company's developing operations.
• On April 1, 2000 and after Aramco Gulf Operations Company (AGOC) commenced its activities and took over the Saudi Government share in the Divided Zone. AGOC and AOC which represented Kuwait Government side, carried out the Joint Operations in accordance with a Joint Petroleum Production Operations Agreement (JPPOA). This undertaking is internally known as Khafji Joint Operations ( KJO).

Based on the JPPOA, two committees were established for management of the Joint Operations. These are the Joint Executive Committee (JEC) which is the supreme decision making body, deciding on policy matters of the Joint Operations, including the operations program and budget and the Joint Operating Committee (JOC) which will be for the supervision of the day-to-day operations and activities. Both committees are comprised of six members from both sides of the agreement.

The KJO worked right from the beginning to develop cooperation ties between the concerned Saudi and Kuwaiti parties particularly the officials in both countries. As a result, the KJO achieved consistency of performance and created the team spirit atmosphere among its operating components.

It is worth mentioning that on January 4, 2003, the AOC concession agreement with the Kuwait Government expired and the Kuwait Gulf Oil Company (KGOC) took over to run the Kuwaiti share in the undivided one half of the divided zone to mark the beginning of a new era of a joint operations between the two national companies, i.e. Aramco Gulf Operations Company (AGOC) for running the Saudi share and the Kuwaiti Gulf Oil Company (KGOC) for running the Kuwait share.

A change in management occurred after both Aramco Gulf Operations Company (AGOC) and Kuwait Gulf Oil Company (KGOC) took over the Saudi Government and Kuwaiti shares in the Divided Zone. This change has an effect on the existing joint operations. The new management has set a new vision and mission to accomplish, making KJO a model Oil and Gas operation in the Gulf and to perform all activities in a competitive, profitable and responsible way, creating lasting value to all our stakeholders. This is the challenge for the new management which requires a successful change management model to be implemented in order to achieve the KJO strategic objectives of maintaining recruiting, training and other programs to maximize the national component of the workforce in line with long-term manpower requirements, identifying, implementing and using appropriate technologies in all operations consistent with company needs, economic objectives and operational standards and establishing and maintaining a maximum sustainable crude oil production capacity that provides reliability and flexibility to economically meet existing quotas and respond to variations in crude demand.

After AGOC

Problem definition

After Aramco Gulf Operations Company (AGOC) and the Kuwait Gulf Oil Company (KGOC) took over both Saudi and Kuwait Governments' shares in the Divided Zone, the beginning of a new era of a joint operations between the two national companies started and the problem is that there has not been a smooth a transition because people are used to the old ways of conducting business. Making change successful is the challenge for the new management and it has to deal with this challenge in order to accomplish their mission, goals and objectives. Being a model of Oil and Gas operation in Gulf area requires formulation of new strategies that focus on the available resources and successfully implementing those strategies, thus levering the company to high standards and gain competitive advantage. This then leads to the research question.

Research Question

The study has to try an important question of how to bring successful change to an organization that has been operating for some time based on a different approach to work? This is in view of the fact existing staff that had been used to operating to certain norms are still existing within the new joint operations.

Theoretical framework

Moran and Brightman define change management as "the process of continually renewing an organization's direction, structure, and capabilities to serve the ever-changing needs of external and internal customers". According to Burnes change is an ever-present feature of organizational life, both at an operational and strategic level. Therefore, there should be no doubt regarding the importance to any organization of its ability to identify where it needs to be in the future, and how to manage the changes required getting there. Consequently, organizational change cannot be separated from organizational strategy, or vice versa. Due to the importance of organizational change, its management is becoming a highly required managerial skill. Graetz goes as far as suggesting 'Against a backdrop of increasing globalization, deregulation, the rapid pace of technological innovation, a growing knowledge workforce, and shifting social and demographic trends, few would dispute that the primary task for management today is the leadership of organizational change.

Although the successful management of change is accepted as a necessity in order to survive and succeed in today's highly competitive and continuously evolving environment, Balogun and Hope Hailey report a failure rate of around 70% of all change programmers initiated. It may be suggested that this poor success rate indicates a fundamental lack of a valid framework of how to implement and manage organizational change as what is currently available to academics and practitioners is a wide range of contradictory and confusing theories and approaches Guimaraes and Armstrong argue that mostly personal and superficial analyses have been published in the area of change management, and according to Doyle there is even evidence to suggest that with only a few exceptions existing practice and theory are mostly supported by unchallenged assumptions about the nature of contemporary organizational change management. Edmonstone supports this observation when stating "many of the change processes over the last 25 years have been subject to fundamental flaws, preventing the successful management of change". There is therefore a need for the thesis to make recommendations for a framework for change that can be adopted by the new company.

Change is a constant feature of organizational life and the ability to manage it is seen as a core competence of successful organizations. However, there are significant differences in how it is perceived: is it incremental, punctuated or continuous; can it be driven from the top down or is it an emergent process? These differences are the product of the changing organizational landscape of the last 20 years, where globalization, technological innovation and economic fluctuations have led to a desperate search for increased competitiveness through more and more radical forms of change

Aims and objectives

The thesis will explore the approaches to change used by new management and make recommendations on how the new management should implement change successfully based on a different approach to work.