Oil explorers have flown high and crashed back to earth over the past decade, and Rahul Dhir knows both parts of the journey better than anyone.
He made his name 15 years ago with the multibillion-dollar initial public offering of a company that made a huge crude discovery in India. Dhir is now turning around another explorer with fierce cost discipline and by slashing risky exploration two years after most of the leadership was forced to resign.
In his journey from chief executive officer of Cairn India Ltd. to his current role as boss of Tullow Oil Plc, Dhir’s career reflects the changing circumstances of the industry. The task of finding and developing untapped resources is getting harder as the transition to low-carbon energy stokes price volatility and makes investors less willing to bankroll frontier drilling.
Many companies like Tullow, which were thrilling shareholders a decade ago as they piled on debt to fund a series of discoveries from Africa to South America, have seen their values slump. Even with international oil prices near $80 a barrel again, Dhir is not letting go of the reins.
“This is one industry that’s not run with a lot of capital discipline,” he said. “The romance catches you every time.”
Tullow rose to prominence as a frontier explorer with big oil discoveries in Ghana, Uganda and the possibility of further drilling success in Kenya and off the east coast of South America. After prices slumped in 2014, the billions of dollars of debt taken on to fund these ambitions began to look unsustainable.
Founder Aidan Heavey handed over the role of CEO in 2017 to Paul McDade, an insider who promised more prudent spending. He stepped down in December 2019 after Tullow was forced to cut its production outlook and suspend its dividend. Just a few months later, the oil slump triggered by the coronavirus pandemic left the company in dire straits.
Dhir’s first priority was dragging Tullow out of a $3-billion debt hole. He focused on cutting costs, increasing efficiency and reducing risky exploration for new fields. The plan worked, and just months after teetering toward a default, the company had a long-term plan to generate $7 billion in cash and a refinancing of debt.
“It was a near death experience for the entire organization,” he said.
After graduating in 1986 from the Indian Institute of Technology Delhi with a degree in chemical engineering, Dhir spent a summer as a roughneck on an onshore rig in India. Post-graduate work in petroleum engineering at the University of Texas in Austin was followed by an MBA at The Wharton School of the University of Pennsylvania and investment banking.
A stint in Morgan Stanley and as an adviser to BP Plc under CEO John Browne followed, after which Dhir was co-heading energy and power at Merrill Lynch around 2004. A client of the bank, Cairn Energy Plc, chose him to lead the carve-out and initial public offering of its Indian business.
Cairn India was hit hard by the collapse in oil prices after the 2008 financial crisis, but as CEO Dhir led a cost cutting drive that delivered a surge in profits when oil rebounded to $100 a barrel as the downturn eased.
That lesson, and an observation from Daniel Yergin, vice chairman at IHS Markit, who told him that the oil industry will never stop being cyclical, stuck with him when he took the top job at Tullow in July 2020.
When Dhir joined, Tullow was devoting only about half of its capital expenditure to operational assets, and channeling a lot of the rest into exploration that had no guarantee of return. That was akin to leaving money in the ground, Dhir said, especially in the company’s Jubilee and TEN fields in Ghana, which account for the bulk of its production.
Tullow aimed to spend 80% of its capital expenditure to maximize returns from existing assets in 2021, rising to over 90% in the medium term, according to a company presentation last year. Exploration drilling will be very selective and the company is ending its adventures in far-flung places.
“We have no business being in Argentina. All the companies around us are at least $100 billion in market cap,” he said. “We’ve come to the wrong party.” An exit from Suriname is also in process.
The company can still be “a champion” of oil and gas in Africa, but in a more modest sense, Dhir said. The search is on for a strategic partner in Tullow’s potential $3.4 billion oil development in Kenya, and Dhir is confident that the project can become viable with some changes. Tullow is also interested in assets that the supermajors are set to sell as part of their decarbonization plans, he said.
Buying aging oil fields, cutting costs and squeezing out the last few barrels is a far cry from frontier drilling, but in today’s industry it may be the best way for a company of Tullow’s size to make a sustainable living.
“We have an opportunity to really do something transformational,” Dhir said.