New base 1014 special 26 march 2017 energy news

Copyright © 2015 NewBase www.hawkenergy.net Edited by Khaled Al Awadi – Energy Consultant All rights reserved. No part of this publication may be reproduced, redistributed,

or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this

publication. However, no warranty is given to the accuracy of its content.

NewBase 26 March 2017 - Issue No. 1014 Senior Editor Eng. Khaled Al Awadi

NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE

UAE's DP World eyes Panama Canal opportunities

(WAM) -- Dubai ports operator DP World is exploring opportunities relating to the expanded Panama Canal, the company has confirmed.

DP World said that its chairman and CEO, Sultan Ahmed bin Sulayem, met with Panama President Juan Carlos Varela on Tuesday to discuss potential logistics and industrial parks and other projects in the country.

Panama’s minister of commerce and industry, Augusto R. Arosemena, will also begin a visit to Dubai on Sunday to see Jebel Ali port and discuss "potential opportunities", the firm said. The $5.25bn Panama Canal expansion opened in June 2016 after more than a decade of construction and will potentially double cargo volumes.

"The expanded Panama Canal has boosted capability to handle increased cargo and larger vessels so the development of logistics and locations for business to take advantage of its increased capabilities are important for the government there," said Sulayem who is also Chairman of Dubai's Ports, Customs and Freezones Corporation/

He also noted "Our international experience of developing and connecting marine and inland terminals with logistics centres, industrial parks and freezones is something we are exporting around the world and our discussions focused on how we could contribute to the development of the economy and support the business community."

Panama, Bin Sulayem said, is central to the development of trade in the region and a vital artery for commerce – serving surrounding nations and connecting oceans. "Its role as an enabler of trade is key to the development of commerce and economies in the region as well as providing a major global trade route." DP World’s other operations in Latin America include logistics centres in the Dominican Republic and Peru and a 50-year concession for the under construction deepwater port at Posorja in Ecuador. DP World currently operates 77 marine and inland terminals across the world.




Saudis,Russia Move at a Different Pace as Oil Cuts Scrutinized by Stephen Bierman and Elena Mazneva

Russia and Saudi Arabia head to this weekend’s OPEC committee meeting as the tortoise and hare of a global deal to cut oil supply, with Moscow sticking to a slow and steady pace despite Riyadh’s cajoling. OPEC’s de-facto leader Saudi Arabia publicly prodded the Kremlin to speed up and implement its full 300,000 barrel-a-day production cut by the end of this month, but Energy Minister Alexander Novak reiterated it won’t reach the target before April -- four months into the agreement. While this pace has offset the impact of deeper-than-expected cuts by other OPEC members, the need to show unity means Russia is unlikely to get called out for its inertia, said Daniela Corsini, a Milan-based analyst at Intesa Sanpaolo SpA. “Confidence in the OPEC/non-OPEC deal is the most important tool to protect crude prices,” Corsini said by email. “Saudi Arabia will not openly criticize poor Russian compliance as it’s not in their interest to scare market participants.”

The Organization of Petroleum Exporting Countries and its allies are almost three months into the pact to take 1.8 million barrels a day off the market in a bid to eliminate a global surplus after three years of glut. After a promising start in January, Russian production flatlined the following month and is now just over half way to the reduction Moscow promised. Compliance from the 11 non-OPEC participants -- estimated at just 64 percent in February -- will come under scrutiny at a ministerial meeting in Kuwait City on Sunday. The agreement is set to last the six months through June, but several OPEC members are signaling an extension may be necessary. BenchmarkBrent crude dropped below $50 a barrel for




the first time since November on Wednesday as swollen U.S. stockpiles and rising shale production offset the impact of the cuts. Russian output has fallen 160,000 barrels a day from the October level -- a post-Soviet record -- and will fall another 40,000 barrels by the end of this month, Novak said on March 17. He has maintained since the deal was first struck that the target will be reached no sooner than April. The Russian cuts are “slower than what I’d like,” Saudi Energy Minister Khalid Al-Falih said in an interview with CNBC March 7. “But I think we are patient and we will see where we are in May and take it from there.” Targeting Growth

The structure of the Russian oil industry makes it harder for the country to deliver on a supply pledge, according to Chris Weafer, a Moscow-based senior partner at Macro Advisory. “Unlike OPEC, where you have only one national oil company, the Russia industry is fragmented and, therefore, its collective actions are unpredictable,” he said. Even as Russia reduces output, producers are preparing for growth, according to Ildar Davletshin, an oil and gas analyst at Renaissance Capital. “Capex guidance is up for most companies so no one is cutting spending,” he said. Extending Deal

Companies are achieving lower volumes by slowing down electric submersible pumps, closing more wells for workovers, and fracking less. They likely plan to make up for missed production volumes in the second half, Davletshin said. Those plans may have to be abandoned if the supply deal is extended. OPEC meets on May 25 to decide whether to continue. Al-Falih has said the group would prolong the deal if oil stockpiles remain high, and other members including Iraq have expressed their support for an extension. Russia hasn’t ruled out such a move, Interfax news agency reported Wednesday, citing Vladimir Voronkov, the country’s envoy to international agencies in Vienna. A final decision will depend on Saudi Arabia, it said. “I don’t have serious reasons to think Russia will abandon the deal, as long as they benefit from higher and stable prices,” Intesa’s Corsini said.




UK: Statoil awarded new UK exploration licences Source: Statoil

Statoil has been awarded six UK licences, five as operator and one as partner, in the 29th Offshore Licensing Round, announced by the Oil and Gas Authority (OGA).

'We are very pleased with these awards which strengthen our UK continental shelf portfolio significantly,' says Jez Averty, senior vice president for exploration in Norway and the UK in Statoil.

'Statoil has secured both drill ready prospects and frontier acreage, and the diversity of the awards is testament to Statoil's belief in both the potential of the UK and that it remains an attractive place to explore,' Averty says.




The five operated licences are located in the northern North Sea. Statoil and partner BP have committed to three firm exploration wells in this area. The sixth licence awarded to Statoil, with Esso Exploration as operator, is located west of Scotland.

'These awards are a result of a strategic decision by Statoil to explore in prolific but mature basins, combined with an emphasis on comprehensive regional work and investments in the most modern seismic datasets. In addition, we continue to diversify the UK portfolio by exploring in the true frontier areas such as the Rockall Basin,' says Averty

Statoil has one of the most active exploration campaigns in the UK in 2017, with three exploration wells planned to be drilled over the summer. The three new well commitments will be integrated in future drilling plans.

Statoil is also developing the Mariner field on the UK Continental shelf, due to come on stream in 2018.

Illustration of Mariner with reservoir




UK: Steam Oil Production Company offered four blocks in 29th UKCS Seaward Licensing Round … Source: Steam Oil Production Company

On the 23rd of March 2017 the Oil and Gas Authority announced the results of the 29th Seaward Licensing Round. The Steam Oil Production Company had applied for four part blocks surrounding the Pilot field. The Company reports that it has been offered all the blocks applied for and looks forward to working with OGA and industry partners to progress a steam flood demonstration project on the Pilot field.

Map showing the location of Steam Oil's acreage on the Western Platform

The intention of this first phase, steam flood, development of Pilot is to prove that steam flooding can be successfully implemented offshore, and to learn how best to apply steam flooding offshore before committing to a full scale development scheme for all of the heavy oil fields on the Western Platform.

Steam flooding achieves very high recovery factors in shallow, high quality sandstone reservoirs containing heavy oil; so the Company believes that application of steam flooding in the North Sea will make a major contribution to maximising economic recovery of oil from the UKCS.

The offered area contains the Blakeney, Feugh, Dandy & Crinan discoveries, as well as feeder channels which are extensions of the Pilot field, the low-risk Bowhead prospect and the moderate-risk Titchwell prospect.

The Blakeney field was discovered by Wintershall in 2010, by the 21/27b-7 well, and contains about 90 mmbbls of moderately heavy oil in place, c. 14.5º API.

The Feugh field was discovered by Mobil in 1972 with the 21/28-1 well. Feugh has a gas cap and a very bright response on seismic. Previous operators have considered Feugh to be a small gas




pool, however, petrophysical analysis indicates that Feugh has a 25 feet oil leg beneath a thin gas cap, in this scenario the oil in place would be approximately 30 mmbbls. There was no oil sample captured when Feugh was drilled but we expect the oil to be heavy and of similar quality to that in Blakeney and Pilot.

The Dandy & Crinan discoveries lie down dip of Feugh and contain both gas and an oil which is lighter and less viscous (c. 20º API) than that encountered in the rest of Steam Oil's acreage.

Crinan (partly in open acreage) was discovered by Mobil in 1987 and in 1990 the 21/28a-6 well discovered oil and gas in what is now referred to as the Dandy South field. Wells 21/28a-8 and 21/28a-8Z were drilled by Monument, in 1998, to appraise the Dandy discovery and established that the area appraised by these wells comprised a separate compartment known as Dandy North.

Together there are approx. 27 mmbbls of oil in place and 20 bcf of gas in place in these three small discoveries.

There are also attractive exploration prospects within the licence area. The Bowhead prospect is an analogue to the Pilot discovery and exhibits a remarkably similar seismic response to that seen on Pilot. The Titchwell prospect is less clearly defined on seismic but would be significantly de-risked by a successful Bowhead well. Together with the low risk appraisal prospects in the Pilot feeder channels there are over

300 mmbbls of prospective heavy oil resources in place within the offered area.

Background:

The Steam Oil Production Company was established with the intention of launching the first major offshore steam flooding project in the world. The heavy oil reservoirs on the Western Platform: Pilot, Elke, Blakeney, Harbour, Narwhal & Feugh, pass all the conventional screening criteria for a successful steam flood and we believe the already discovered fields on Steam Oil's acreage have the potential to produce in excess of 300 mmbbls, exploration success could increase the recoverable resource base on the Western Platform to over 500 mmbbls.




US: Shale Giants Weatherford and Schlumberger to form OneStim joint venture .. Source: Weatherford Weatherford and Schlumberger have announced an agreement to create OneStim, a joint venture to deliver completions products and services for the development of unconventional resource plays in the United States and Canada land markets. The joint venture will offer one of the broadest multistage completions portfolios in the market combined with one of the largest hydraulic fracturing fleets in the industry.

Weatherford will contribute its leading multistage completions portfolio, cost-effective regional manufacturing capability, and supply chain. Schlumberger will provide the joint venture with access to its industry-leading surface and downhole technologies, efficient operational processes and advanced geo-engineered workflows.

Schlumberger and Weatherford will have 70/30 ownership of the joint venture, respectively. The transaction is expected to close in the second half of 2017, and is subject to regulatory approvals and other customary closing conditions. Under the terms of the formation agreement, Schlumberger and Weatherford will contribute all their respective North America land hydraulic fracturing pressure pumping assets, multistage completions, and pump-down perforating businesses. Weatherford will also receive a one-time $535 million cash payment from Schlumberger.

Schlumberger will manage the joint venture and consolidate it for financial reporting purposes.

Schlumberger Chairman and CEO Paal Kibsgaard commented:

'The joint-venture creates a new industry leader in terms of hydraulic horsepower and multistage completions technologies in North America land, which through its scale offers a cost-effective and highly competitive service delivery platform. OneStim is uniquely positioned to provide customers with leading operational efficiency and best-in-class hydraulic fracturing and completions technologies, while at the same time significantly improving full-cycle shareholder returns from this market.'

Weatherford Chairman William E. Macaulay said:

'The OneStimSM joint venture creates a leading unconventional products and services provider in North America land. This transaction will allow Weatherford to deleverage its balance sheet while retaining a significant exposure to the unconventional market. This transaction was unanimously approved by the Board of Directors and will create significant value for both parties.'




NewBase 26 March 2017 Khaled Al Awadi

NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE

Oil prices settle, WTI at $47.97, Brent at $ 50.66, glut persist Reuters+ NewBase

U.S. crude broke a four-day losing streak in thin trade on Friday, but posted a weekly loss as concerns persisted over an excess of crude. In the United States, West Texas Intermediate (WTI) crude futures settled 27 cents higher at $47.97 a barrel on Friday, but ended the week 1.7 percent lower. About 225,000 WTI contracts had changed hands, lower than average. Prices for front-month Brent crude futures, the international benchmark for oil, were at $50.88 per barrel at 2:35 p.m. ET (1835 GMT), up 32 cents from their last close but on track for a 1.7 percent decline.

The latest U.S. drilling rig count by Baker Hughes showed a 10th straight weekly rise, with U.S. drillers adding 21 oil rigs. The total stood at 652 oil rigs, versus 372 at this time last year. Oil has been on the back foot for more than two weeks now, after a string of U.S. inventory reports suggested that output cuts by the Organization of the Petroleum Exporting Countries were not having the desired effect in reducing global oversupply. On Thursday, however, a Saudi energy ministry official told Reuters that crude exports to the United States in March would fall by around 300,000 barrels per day (bpd) from February and hold at those levels for the next few months.

Oil price special

coverage




The official said the expected drop, in line with OPEC's agreement, could help draw down U.S. inventories that stood at a record 533 million barrels last week — stocks that have in part remained buoyant because of reduced seasonal refining runs. But data from tanker tracking firm ClipperData suggests the decline will only be temporary and Saudi exports to the United States could return to normal levels as soon as April. "Our projections do not support the comments coming out of Saudi Arabia," Matt Smith, ClipperData's director of commodity research, told CNBC. The OPEC kingpin's exports to other regions, notably Asia, remained elevated despite the OPEC-led deal that includes other producers like Russia to cut output by 1.8 million bpd during the first half of the year. Unless OPEC extends the curbs beyond June or makes bigger cuts, traders say oil prices are at risk of falling further. "OPEC's goal of drawing down inventories to normal levels is not going to be reached before their agreement expires on June 30," said U.S. investment bank Jefferies in a note to clients. Many are now watching for whether OPEC, whose committee monitoring the cuts will meet over the weekend in Kuwait, will extend the deal. In Russia, private oil producers are ditching their skepticism and lining up behind an extension of output cuts after previous oil price increases compensated for lost income. In the United States, shale drilling has pushed up oil production by more than 8 percent since mid-2016 to just above 9.1 million bpd, though producers have left a record number of wells unfinished in Permian, the largest oilfield in the country, a sign that output may not rise as swiftly as drilling activity would indicate.




OPEC Be Warned: Russia Prepares for Oil at $40 by Ksenia Galouchko

As the Organization of Petroleum Exporting Countries and its allies prepare to meet for a review of their production cuts this weekend, the central bank of the world’s biggest energy exporter is hunkering down for years of oil near $40 a barrel.

While analysts in a Bloomberg survey see the price of benchmark Brent crude -- which trades at a small premium to Russia’s Urals export blend -- rising 16 percent from current levels by the end of the year, oil’s 10 percent decline in March alone amid supply woes is making the market nervous. Russia, a key partner in the deal and a participant in the talks in Kuwait, might only add to those jitters.

“The Finance Ministry, the cabinet and the central bank are leaning on the cautious side in terms of their expectations regarding growth, driven still to a large degree by oil,” said Piotr Matys, an emerging-market currency strategist at Rabobank in London. “It’s better to be conservative and to be surprised on the upside than too optimistic and end up disappointed.”

Policy makers in Moscow said on Friday they see Urals at an average of $50 a barrel this year, but falling to $40 at end-2017 and then staying near that level in 2018-2019. As the central bank honed its forecasts, it also gingerly resumed monetary easing, pointing to the “uncertainty” in the oil market as a factor for its “conservative” forecasts.

Russia’s Finance Ministry similarly highlighted the $40 level in January when it announced that the central bank will start buying foreign currency on its behalf when crude exceeds that level in order to insulate the exchange rate from oil volatility. The price of $40 is additionally being used to calculate the country’s budget in 2017-2019.

‘Upside Surprises’

Even as oil has recovered, Russia’s tendency to stick with the more conservative scenario is “positive” as it “leaves room for upside surprises,” according to Viktor Szabo, a bond fund manager at Aberdeen Asset Management Plc.

Forecasting oil is no game for the Bank of Russia. Its 65 percent plunge in 2014 and 2015 battered the nation’s currency, forced an emergency rate increase in the middle of the night and pushed Russia into recession. The share of oil and gas revenue was at 36 percent of budget income in 2016.

Even as the historic OPEC supply-cut deal helped halt oil’s collapse, pushing it up to $55 a barrel and setting the stage for Russia’s economic recovery, the central bank is taking nothing for granted.

The correlation between the ruble and oil has declined this year, falling to the lowest since August 2015, according to data compiled by Bloomberg. As crude slid below $50 a barrel this week, the Russian currency barely budged, weakening less than 1 percent, because its carry-trade appeal largely offset the dimming outlook for energy.




While OPEC won’t formally decide until May whether to prolong the deal, which lasts through June, officials will meet this weekend in Kuwait to discuss its progress. Oil will tumble to $40 if OPEC doesn’t extend its agreement later this year, one of the most prominent producers in the U.S. shale patch said this month.

“Once (actually more than once) bitten, twice shy,” said Elina Ribakova, an economist at Deutsche Bank AG in London. “The central bank and the Finance Ministry are sticking to the conservative $40 oil scenario because they want to be ready for and protect themselves against the worst-case scenario.”




Oil Falls Amid Record U.S. Stockpiles, Upcoming Producer Talks by Mark Shenk

Oil dropped as U.S. crude supplies rose to an all-time high while investors await a meeting between OPEC and its allies that may signal whether they’ll extend output curbs.

Futures fell on both sides of the Atlantic, sending Brent to its lowest close since November. American crude output continued to rise along with inventories last week, an Energy Information Administration report showed on Wednesday. While OPEC won’t formally decide until May whether to prolong production cuts, officials will meet this weekend in Kuwait to discuss their deal’s progress.

West Texas Intermediate and Brent crudes dipped below $50 a barrel this month for the first time in 2017 as rising U.S. inventories weighed on output cuts by the Organization of Petroleum Exporting Countries and other producers. Saudi Energy Minister Khalid Al-Falih has said the group would extend the deal if oil stockpiles remain high. The Russian cuts are “slower than what I’d like,” Al-Falih said in an interview with CNBC March 7.

"There’s a lot weighing on the market and I believe it’s a matter of time before we move lower," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by telephone. "Saudi patience is being tried by Russia and others that aren’t abiding by the agreement."

WTI for May delivery dropped 34 cents to close at $47.70 a barrel on the New York Mercantile Exchange. Total volume traded was about 20 percent below the 100-day average. Prices are up 20 percent from a year ago.

Brent for May settlement fell 8 cents to $50.56 a barrel on the London-based ICE Futures Europe exchange. Its the the lowest close since Nov. 30. The global benchmark ended the session at a $2.86 premium to WTI.

Crude supplies rose by 4.95 million to 533.1 million barrels last week, the EIA report showed on Wednesday. Prices tumbled upon the release of the data before erasing most of the loss as attention shifted to fuel stockpile gains. Gasoline inventories fell to 243.5 million barrels, while supplies of distillate fuel, which includes diesel and heating oil, slipped to 155.4 million barrels.




Oil Price Forecasts Falling on Shale Surge, OPEC Uncertainty by Joe Carroll and Bailey Lipschultz

Analysts following the $1.8 trillion-a-year oil market are tempering bullish price outlooks after the commodity lost about 10 percent of its value in less than two weeks amid ominous signs the worldwide supply glut may not be shrinking.

Tudor, Pickering, Holt & Co. International, the Houston investment bank, on Wednesday slashed its 2018 forecast for the dominant North American crude, West Texas Intermediate, by 13 percent to $65 a barrel. The reason: They see U.S. output rising by 1.2 million barrels a day in that time, 50 percent more than in an earlier forecast.

That level of increase, layered on top of uncertainty over how long OPEC will hold to its deal to cut production, has since Jan. 3 shaved about $8 off the price of the global benchmark, Brent. The question now: Is there room ahead for such growth, or is the market on a slippery slope?

"There’s just too much oil out there," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, in a telephone interview. "We keep being told the market will rebalance and we’re not seeing any evidence. It’s hard to maintain a bullish posture here."

For the second half of 2017, Tudor reduced its price estimate by $10 to $62.50. It isn’t alone in its reassessment. JPMorgan Chase & Co. revised its U.S. price forecast downward for the second half of 2017 to $53.75 and Brent to $55.75, anticipating both will drop by another 25 cents in 2018. The analyst, David Martin, didn’t disclose his previous price forecasts.

The half-decade span of 2010-2014, when oil averaged more than $100 a barrel, spurred oil companies to embark on some of the riskiest, costliest exploration ventures in the history of the




petroleum industry in search of new barrels. The subsequent flood of supply -- and its negative impact on prices -- shows little sign of receding.

Long-Term Outlook

“Super-high oil prices financed the oil industry to seek new supply,” Paul Sankey, senior oil and gas analyst at Wolfe Research LLC, said in a note to clients. “The industry has responded aggressively, so that the long-term outlook for oil prices is lower.”

Still, analysts remain relatively positive in their comments. Martin, at JPMorgan, said he remains “tactically bullish” for the next two quarters, despite “less ambitious” price expectations, according to a March 20 report. The recent decline in prices presents an “excellent opportunity to buy oil,” he said.

Societe Generale SA revised its price forecast “moderately higher” than a previous forecast, though its estimate remains more moderate than Tudor’s. It sees crude touching $60 a barrel at the end of 2017. The French bank expects OPEC will continue to extend production cuts into the second half of the year, according to a note led by Michael Haigh.

The comments come after the U.S. oil rig count has nearly doubled from its 2016 low of 316 as shale plays like the Permian Basin go through a drilling resurgence, while crude inventories reached all-time highs this month. The supply growth sank West Texas Intermediate close to the $47 mark on Wednesday.

OPEC and Allies Gather as Oil Market Warns Them: Job's Not Done by Grant Smith

OPEC and allies reviewing the impact of their oil cuts this weekend face a market with an unambiguous message: their work is far from done. As producers meet in Kuwait to gauge how well they’ve implemented output cuts agreed on last year, talks will be overshadowed by the question of whether the persisting glut requires the curbs to be extended beyond the summer. With U.S. crude stockpiles swelling to new records and prices sinking below $50 a barrel, OPEC and its partners have little choice but to keep going, according to all 13 analysts surveyed by Bloomberg. “The cost of a change of course for producers is simply too high,” said Bill Farren-Price, chief executive officer of consultants Petroleum Policy Intelligence. “They are committed to this course for now, and they will look for stocks to draw in the second half.” Oil jumped 20 percent in the weeks following the decision by the Organization of Petroleum Exporting Countries and 11 allies to curtail output to end a three-year surplus. Even though OPEC has delivered almost all the promised cuts, prices have since slipped on concern the curbs aren’t clearing the oversupply quickly enough, and that U.S. shale producers are gearing up to fill any shortfall. A five-nation committee established to monitor implementation of the accord, finalized on Dec. 10 last year, will meet in Kuwait City on March 26. OPEC achieved 91 percent of its pledged cuts last month, while Russia and other allies delivered about 44 percent, according to data from the International Energy Agency. OPEC ministers will then meet May 25 in Vienna to decide whether to extend the deal. Analysts at banks including Bank of America Corp., Commerzbank AG and Citigroup Inc. predict they’ll prolong the cuts to the end of the year.




Saudi Arabia Energy Minister Khalid Al-Falih, while insisting it’s too early to say what will be decided, signaled in a Bloomberg Television interview on March 17 that the kingdom has grown more willing to extend the curbs. The deal will be maintained if oil stockpiles are still above their five-year average, he said, shifting from his previous position that six months of cuts would be enough. Achieving the goal of bringing inventories down to normal levels by mid-year is “impossible,” according to consultants FGE. OPEC and its partners would deplete less than one-third of the 300 million-barrel surplus if they cut for just six months, data from the IEA indicate. Because of the time lag in the release of global inventory data, OPEC won’t know by late May if its objective has been fulfilled, according to DNB Bank ASA oil analyst Torbjorn Kjus, who said: “May 25 could be comparable to maybe 30 meters into the 100-meter sprint at the Olympics.” Shale Revival

The danger of stimulating growth in rival U.S. shale-oil supplies means OPEC has an incentive to wrap up its intervention sooner rather than later, according to Goldman Sachs Group Inc., which didn’t participate in Bloomberg’s survey. The cuts have already had the “unintended consequences” of keeping credit flowing to shale explorers and a revival in drilling, the bank said. The number of rigs in operation has almost doubled since May, according to Baker Hughes Inc. “It is not in OPEC’s interest to extend its cuts beyond six months as its goal is to normalize inventories, not support prices,” Jeff Currie, Goldman’s head of commodities research, said in a March 14 report. To achieve higher prices without sending them too high, OPEC may opt for an extension that doesn’t commit them so strictly to the full cutbacks, said Jafar Altaie, chief executive officer of Manaar Energy Consulting in Abu Dhabi. “Everything points to an extension, but one that is more tentative in holding members to their pledged cuts,” Altaie said.




NewBase Special Coverage

News Agencies News Release 26 Mar. 2017

The Saudi Aramco Oil Put Problem By Liam Denning

Speaking at an energy conference earlier this month, Saudi Arabia's energy minister echoed none other than Alan Greenspan:

I am optimistic about the global [oil] market outlook in the weeks and months ahead. Though I would caution that my optimism should not tempt investors into what I would call irrational exuberance, or wishful thinking, that OPEC, or the Kingdom [of Saudi Arabia], will underwrite the investments of others at our own expense.

Yet Khalid Al-Falih's warning also unintentionally emphasized another parallel with the former Federal Reserve chairman. Instead of a Greenspan put in stocks, there now appears to be a Saudi Arabian put in oil.

Al-Falih's appointment last May came amid a shift in Saudi Arabia's strategy. Under his predecessor, Ali Al-Naimi, the country opened the taps, relying on its cash reserves to take the strain of lower oil prices as it squeezed out higher-cost producers. That strain was evidently too much, though, especially as Deputy Crown Prince Mohammed bin Salman was simultaneously pushing a radical reform program, including the once-unthinkable IPO of national champion Saudi Arabian Oil Co., known as Saudi Aramco. By November, an old-style deal for a supply cut had been reached between OPEC and some other countries.

Shifting Sands

Saudi Arabia's oil policy has undergone huge shifts in the past two years

A committee to monitor the cuts meets this weekend. Ministers across the OPEC countries, meanwhile, have been trying out their Greenspan voice. Only this week, Venezuela's President Nicolas Maduro said he was discussing a new plan aimed at getting oil back above $70 a barrel.




Brent was, understandably, unmoved by this latest declaration from Caracas. In truth, Al-Falih's voice is the only one that counts.

Even so, as any central banker knows, jawboning the market into submission isn't easy. Al-Falih's speech at that conference delivered a decidedly nuanced message, telling the global oil industry it must invest to meet long-term demand -- but not too much and only in the right kind of projects -- and that Saudi Arabia was sacrificing supply to support prices, but wouldn't be played for a sucker.

The added complication concerns that Aramco IPO slated for next year.

Saudi Arabia may threaten to scuttle the supply deal if others don't pull their weight. But those others are aware the Kingdom also cannot allow a slide in oil prices to jeopardize the success of a deal so loaded with fiscal and political baggage. Oil prices must be seen as strong and getting stronger if Aramco is to be valued anywhere close to the fantastical figures thrown around so far. You can't put something up for sale while simultaneously trashing the market that thing relies on. Imagine an investment banker during the tech bubble fretting in public about peaky multiples.

So as intrigue mounts ahead of May's meeting on whether to extend the supply cuts, the Aramco IPO is a critical variable. If Saudi Arabia remains committed to it, then it will ensure the supply deal is maintained.

And if that's the put in the oil market, then the guys who will make use of it are the irrationally exuberant crowd: U.S. shale producers and their financiers.

Besides severe cost-cutting and working smarter, E&P companies have kept themselves going through the crash by raising cash. In that latter respect, though, this is nothing new; the sector hasn't lived within its means for many years:

An Old Flame

The E&P sector didn't start burning cash in the crash

.




Tapping investors to bridge the gap was pretty easy when oil topped $100. Surprisingly, it wasn't impossible when oil ducked below $50, either:

Can We Help?

When the E&P sector's cash burn ramped up, capital markets stepped up

Notice how equity issuance filled in when high-yield markets did buckle briefly in 2016. So far this year, new high-yield issues from the sector have averaged $514 million each, the highest since at least 1999, according to figures compiled by Bloomberg. On the equity side, investors on Thursday handed $900 million to a blank-check company backed by Riverstone Holdings LLC to go out and acquire E&P assets.

Besides providing a psychological tonic, the supply cuts gave a brief boost to oil futures. It is imperative for OPEC to at least flatten out the oil curve if it is to clear the glut of inventories weighing on the market (see this for an explanation). But the side-effect was providing an opportunity for E&P companies to hedge some production at higher levels:

Curve Ball

OPEC helped flatten the oil futures curve, but also provided a hedging opportunity through February

There is also private equity to contend with. As of last June, there was $156 billion of dry powder




sitting in energy-focused funds, according to a report published this month by Preqin, an alternative-assets research firm based in London. The vast majority of that money is targeted at North America. Assuming leverage of one-for-one, that is at least $300 billion or so of firepower to scoop up oil-and-gas assets or companies, financing potential production that might otherwise go begging.

Some of that cash may never be invested or will be used to buy things like pipelines or power plants instead. Even so, the dry powder alone is bigger than the value of all North American E&P acquisitions by private equity over the past decade:

Private Life

Buyouts took a breather in North America's E&P sector in 2015 but have since bounced back

As of February, Preqin was tracking 252 natural resources funds on the road aiming to raise another $105 billion, with most of that likely to target the energy sector, too.




And yet, the rewards hardly seem to warrant such, er, exuberance. The median rate of return on funds that began investing between 2005 and 2013 hovers around 5 percent, with a few vintages rising into the high single digits, according to Preqin's data. The boom in energy-sector valuations prior to the crash weighs on funds that got to work post-2012. Nevertheless, new money kept on pouring in:

Fresh Powder

Private equity funds targeting energy raised even more money in the crash

Given that 2010-vintage funds scored by picking up assets in the aftermath of the financial crisis, perhaps the current enthusiasm makes sense.

As with public equity and debt markets, though, the Aramco put is also keeping animal spirits alive. Even if the formal IPO roadshow hasn't started yet, the informal one in the oil market has -- providing free marketing for Aramco's shale-focused rivals to raise money for more drilling.

This is Saudi Arabia's quandary. In order to make others look truly irrational for their exuberance, it would have to let oil prices sink to a level that make its own expectations for Aramco's value, or even the very idea of an IPO, look equally irrational. For now, at least, the put is in.




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Khaled Malallah Al Awadi, Energy Consultant MS & BS Mechanical Engineering (HON), USA Emarat member since 1990 ASME member since 1995 Hawk Energy member 2010

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Khaled Al Awadi is a UAE National with a total of 25 years of experience in the Oil & Gas sector. Currently working as Technical Affairs Specialist for Emirates General Petroleum Corp. “Emarat“ with external voluntary Energy consultation for the GCC area via Hawk Energy Service as a UAE operations base , Most of the experience were spent as the Gas Operations Manager in Emarat , responsible for Emarat Gas Pipeline Network Facility & gas compressor stations . Through the years, he has developed great experiences in the designing & constructing of gas pipelines, gas metering &

regulating stations and in the engineering of supply routes. Many years were spent drafting, & compiling gas transportation, operation & maintenance agreements along with many MOUs for the local authorities. He has become a reference for many of the Oil & Gas Conferences held in the UAE and Energy program broadcasted internationally, via GCC leading satellite Channels.

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NewBase March 2017 K. Al Awadi

New base 1014 special 26 march 2017 energy news

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Transcript of New base 1014 special 26 march 2017 energy news