new base energy news issue 942 dated 02 november 2016

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NewBase Energy News 02 November 2016 - Issue No. 942 Edited & Produced by: Khaled Al Awadi

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UAE: Vision for a merged Ipic and Mubadala takes shape The National - Anthony McAuley

The Minister of Energy, Suhail Al Mazrouei, yesterday said he sees big growth opportunities, especially for petrochemicals, in the merger of Mubadala Development Co and International Petroleum Investment Co (Ipic).

"The merger will create an opportunity for us to consolidate our efforts and to forge partnerships that would be capable of enhancing global competitiveness and opening new markets for us and our companies," said Mr Al Mazrouei, who is also the managing director of Ipic and one of the triumvirate steering the merger through, with Mubadala Development’s chief executive,

Khaldoon Al Mubarak, under chairman Sheikh Mansour bin Zayed Al Nahyan.

On the merger, the minister said: "Teams are working day and night and we hope we would be able to make the announcement by the end of the year."

The intention to merge was announced in the summer, but the details are being hammered out by teams from the two companies, with advice from consultants Bain & Co, as well as branding adviser Landor Associates. The merger is expected to be formalised through an announcement setting out the details before the end of the year.




The combined group had assets valued at the end of last year at about US$125 billion, with the energy portfolio making up about two-thirds of Ipic’s assets and about 10 per cent of Mubadala’s, including Mubadala Petroleum, of which Mr Al Mazrouei is chairman.

The structure of the new company, including its divisions, which span aerospace and defence, information and communications technologies, metals manufacturing, as well as energy, has not yet been finalised, including the shape of the diverse energy interests, covering the Masdar renewables portfolio, power utilities, as well as oil, gas and petrochemicals investments.

But Mr Mazrouei said the new structure would open up opportunities to meet Abu Dhabi’s strategic goals of diversification and job creation. "Establishing this investment fund would lead to a quality economy for future generations and will promote a diversified economy," he said. "It would enhance our competitiveness in the petrochemical industry, especially, working in tandem with Adnoc."

Ipic’s petrochemicals interests were highly profitable last year, at a time when oil and gas was suffering. For example, Borouge, which is a joint venture between Adnoc and Borealis (64 per cent owned by Ipic, with the rest owned by Austrian oil company OMV, which is in turn 25 per cent owned by Ipic), reported $1.3bn in earnings on $3.8bn in revenue last year.

Borouge has been the focus of Abu Dhabi’s petrochemicals development since it was founded in 1998 and recently ramped up its third expansion phase at Ruwais, adjacent to Adnoc’s main oil refinery in Abu Dhabi’s Western Region, with the $4bn project more than doubling capacity from 2 million tonnes to 4.5 million tonnes. The plant is now the world’s largest integrated polyolefins complex.

"Now, we are looking at Borouge 4 ... and Nova [Chemicals, another Ipic division] could step in, for example, for Borouge 5," the minister said, noting that petrochemicals gives the company downstream exposure to expanding markets for products from detergents to car parts, especially in key expanding markets China and India.

He also noted that the merger creates the opportunity to bring international interests, such as North America-focused Nova, to the Middle East, as well as overseas synergies. The combined company will have, on the Mubadala side, oil and gas production outside of Abu Dhabi of more than 400,000 barrels per day, with refining capacity of 1.5 million bpd, including its wholly owned Spain-based subsidiary Cepsa, as well as a 21 per cent holding in Japan’s Cosmo Oil.

"The combination of all the companies creates a huge integrated oil and gas company ... but [it] does not need an integration of those companies at this stage," Mr Al Mazrouei said.

Instead, a key change will be that project investment decisions will be made at operating company level rather than by headquarters, which would affect pending projects such as a planned $3.5bn refinery at Fujairah, which Ipic was expected to green light in the summer last year.

"The difference in strategy that I worked with the board of Ipic on is to have the investee companies invest in the project, not the holding [company]," Mr Al Mazrouei said. "So, we are pushing all of those projects which were handled by the corporate to the investee companies, who are investing in this business, who will look at it, and the expansion in Fujairah is one of those projects that we are looking at."

The merger will also expand Ipic’s exposure to 30 countries from 20 countries and allow it to leverage its presence. For example, Mubadala’s power interests and Cepsa’s upstream interests in Algeria might create the opportunity for petrochemical expansion there. "This is the concept that will be tested when the whole company is merged," the minister said.




Iraq asks oil majors to downsize costly Dubai offices- sources Reuters - Rania El Gamal and Dmitry Zhdannikov

Iraq has asked international oil companies (IOCs) to shut down prestige offices among the glittering towers of Dubai, through which they used to run their oil operations in Iraq, as a way to rein in their budgets, three industry sources said.

The move, which has been taken by some oil majors developing Iraq's vast southern oilfields, would mean that the companies will have to move hundreds of contractors in and out of the country every few weeks and leading to downsizing of companies' regional hubs based nearby in the United Arab Emirates.

With its finances stretched, Iraq, OPEC's second biggest producer, asked foreign oil companies last year to spend less than they had proposed, and all but cut off investment entirely for the first half of this year to the major projects.

Oil companies helping Iraq develop its massive fields have to clear their spending with Baghdad each year, including staffing costs. They are then repaid with income from Iraq's exports of crude produced from existing fields.

The arrangement worked smoothly when oil prices were above$100 a barrel but the collapse in global crude prices meant Baghdad was paying the same fees in pricey Dubai while its revenue from oil sales is significantly lower.

The emirate of Dubai, with its glitzy lifestyle and cosmopolitan culture, is one of the world's most popular financial hubs for regional and international companies for its safety and pro-investments approach.

Oil majors such as Royal Dutch Shell, BP, Total, and Lukoil, who all operate Iraqi oilfields, have their regional offices in Dubai. "It is one of the measures taken by the ministry of oil by asking the oil companies to reduce the cost and the number of workers to the minimum level, and shut down the offices in Dubai," said an Iraqi oil industry source.

"We don't see there is a benefit of having offices in Dubai, they can come to Iraq with lower cost, because all this are being paid out of the petroleum (service contract) cost." Two executives from international oil companies operating in Iraq confirmed.

"We used to operate Iraq from our Dubai office and people used to commute in and out of the country. Now the Iraqis said 'no, you close the Dubai office and stay in the country for 6 weeks, then take 2 weeks out to the original destination'," said an oil industry source from one of the companies.

Shell for example, which said in May it would cut 12,500 jobs, or about 12.5 percent of its workforce worldwide, was downsizing its office in Dubai and rearranging its operations there after the global employee cuts and closure of Iraq-linked office in the UAE.

Shell declined to comment.

"The (Iraqi oil) ministry have been writing to the IOCs for the last four years on Dubai offices," said a foreign oil executive, adding that the ministry has probably been deducting the Dubai office cost from invoices paid to oil companies for the past year.

Iraq has reached agreement with BP, Shell and Lukoil to restart stalled investment in oil fields the firms are developing, allowing projects that were halted this year to resume and crude production to increase in 2017, Iraqi oil officials told Reuters in August




Russia: Rosneft and BP in new JV to develop prospective resources in East and West Siberia..Source: Rosneft

Rosneft and BP have announced the completion of the deal to create a new joint venture, Yermak Neftegaz, to conduct exploration in the West Siberian and Yenisey-Khatanga basins in the Russian Federation.

Final binding agreements for the new joint venture were signed at the XX St. Petersburg International Economic Forum (SPIEF) in June 2016.

The joint venture will focus on the onshore exploration of two Areas of Mutual Interest (AMIs) in the West Siberian and Yenisey-Khatanga basins covering a combined area of approx. 260,000 sq kms.

Yermak Neftegaz is owned 51 per cent by Rosneft and 49 per cent by BP. Beginning in this coming winter season (2016-17), the joint venture will carry out further appraisal work by starting the drilling of the Bkl-21 well on the 2009 Rosneft-discovered Baikalovskiy field inside the Yenisey-Khatanga AMI and will commence seismic surveys of the Zapadno-Yarudeiskoye block in the West Siberian AMI.

The joint venture will also conduct geological exploration of the Kheiginskoye and Anomalnoye licenses in the West Siberian AMI.

Before the completion of the deal the JV partners took a decision to

participate in an auction for two E&P license blocks in Krasnoyarsk region - Verknekubinskiy and Posoyskiy, located within the Yenisey-Khatanga AMI. On October 28, 2016 Yermak Neftegaz won the auctions for both exploration and production licenses. Thus the joint venture holds 7 licenses for the use of subsurface resources.

Exploration activities in the two AMIs will include regional studies, acquisition of seismic data and drilling of exploration wells. BP has committed to provide up to $300 million in two phases as its contribution to the cost of the JV’s activities at the exploration stage.

Rosneft will contribute licenses and operational experience in West Siberia and Yenisey-Khatanga with initial drilling to be performed by Rosneft subsidiaries.




Turkey: Condor Petroleum's Poyraz-3 well strike 135 m Gas Source: Condor Petroleum

Condor Petroleum has announced drilling results of the Poyraz 3 development well in Turkey. Based on wireline log interpretation, the Poyraz 3 well encountered a minimum 135 meters of net gas pay in multiple stacked reservoirs of Miocene (Kirazli and Gazhanedere sandstone formations) and Eocene (Sogucak carbonate formation) age.

No gas-water contact was encountered in the basal Gazhanedere reservoirs and the gas-water contact in the Sogucak was confirmed to be at the structural spill-point of the Poyraz Ridge field.

Don Streu, Condor’s President and CEO noted that 'borehole imaging of the Sogucak carbonate in Poyraz 3 confirms the presence of an extensive network of fractures within the pay column which should serve to enhance flow performance.

Our drilling results continue to be very encouraging as only ‘gas down to’ volumes were previously used by the independent reserve auditor to calculate existing Proved reserves. The advanced wireline logging techniques we’ve used continue to provide higher resolution and improved characterization of the multiple reservoirs within the Poyraz Ridge field'.

Production casing has been run and cemented on Poyraz 3 and completion and testing equipment will be mobilized once the drilling rig has moved. The next well to be drilled is Poyraz West 5, which is an appraisal well on a different drilling pad and is designed to test the northwestern extension of the Poyraz Ridge field. This region represents up to 30% of the mapped Poyraz Ridge trap closure area but currently has no reserves attributed to it.




Ireland: Providence issues Letter of Intent for deepwater drilling unit for planned 2017 Druid exploration well Source: Providence Resources

Providence Resources has provided an update regarding Frontier Exploration Licence (FEL) 2/14 in the southern Porcupine Basin. FEL 2/14 is located c. 220 km off the south-west coast of Ireland and is situated in c. 2,250 metre water depth. The licence is operated by Providence Resources (80%) on behalf of its partner Sosina Exploration (20%) and contains the Paleocene Druid and Lower Cretaceous Drombeg exploration prospects.

As part of the ongoing operational build-up to the drilling of a planned exploration well on the Druid prospect in 2017, the Company recently completed an evaluation of available and capable deep-water drilling units through a rig tender process.

This process identified a number of suitable units. Pursuant to EU procurement rules, the Company has now issued a Letter of Intent to the leading contender for the provision of these services. The parties will now proceed to finalise a contract over the coming weeks and a further update will be provided in due course.

Mr. Tony O'Reilly, Chief Executive of Providence Resources said:

'This is another key milestone for our planned drilling at Druid, further demonstrating the progress that we are making in pursuing the continued development of our significant portfolio offshore Ireland.'




NewBase 02 November 2016 Khaled Al Awadi

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

Oil extends losses after report shows surprise U.S. stocks build REUTERS/Thomas Peter Crude oil prices fell for a fourth day on Wednesday, as jittery investors awaited official U.S. stockpile figures later in the day after industry data showed a surprise build in inventories, underlining a persistent global glut. The American Petroleum Institute said crude stockpiles rose by 9.3 million barrels in the week to Oct. 28, more than nine times the amount expected by analysts polled by Reuters. [API/S] U.S. West Texas Intermediate crude CLc1 had fallen 42 cents, or 0.9 percent, to $46.25 by 0740 GMT. On Tuesday, it dipped 19 cents to $46.67. Brent crude LCOc1 was down 32 cents at $47.82, near a one-month low of $47.72 hit in the prior session.

Prices have slumped in recent days as hopes have faded that oil producers would settle their differences and agree to output cuts when the Organization of the Petroleum Exporting Countries (OPEC) meets on Nov. 30. "Those who were hoping for some upside from any sort of production agreement appear to have their hopes dashed," said Ric Spooner, chief market analyst at CMC Markets in Sydney. "It looks like there are speculative longs quitting the market." Indications of higher-than-expected U.S. stockpiles are also dragging on sentiment. The API report typically comes a day before official inventory data from the U.S. government's Energy Information Administration (EIA). [EIA/S] The API bases its numbers on voluntary reporting by members, while the EIA uses a bigger sample. Traders say oil prices could drop further if the government data confirms the large build.

Oil price special

coverage




Oil Traders May Find Profit at Sea Again as Prices Sink Serene Cheong BloombergSerene

As crude prices continue to get dragged down by a global glut that shows no signs of abating, oil traders may find some profit by going to sea.

The market structure for Brent crude, the benchmark for more than half the world’s oil, now makes it viable to store supplies in a vessel to potentially lock in profits on a sale six months later, according to a Bloomberg survey of 4 traders as well as a shipbroker and a charterer. About five to 10 tankers have been chartered to most likely hold oil near Singapore, according to Jonathan Lee, chief executive of Tankers International LLC.

Crude is extending declines as OPEC’s members squabble over output limits, threatening the group’s effort to trim an oversupply. But traders can make a profit by storing cargoes at sea even amid tumbling prices, provided there’s a viable contango -- a market structure where oil for delivery today is lower than those in future months. The difference has to be big enough to cover the costs of hiring a storage ship to hold the supply until profits can be locked in with a sale later.




Brent crude for delivery in the future has averaged $3.52 a barrel higher than the latest shipments since the beginning of last week, potentially making up for the cost to hire a tanker for half a year.

A six-month time charter on a Very Large Crude Carrier that can carry about 2 million barrels of oil would cost $32,000 to $35,000 a day, according to the shipbroker and charterer in the Bloomberg survey. That’s equivalent to $2.85 to $3.15 a barrel. January Brent futures traded at $47.85 a barrel on Wednesday, lower than the July contact at $51.18 on the London-based ICE Futures Europe exchange.

‘Window of Opportunity’

“The widening of Brent’s market contango has led to the opening of a window of opportunity for floating storage to be viable,” said Den Syahril, a Singapore-based analyst at industry consultant FGE. “The current contango in crude futures is just wide enough to make floating storage workable.”

Most varieties of crude from Africa, North Sea and the Asia Pacific region are priced off the Dated Brent benchmark, meaning traders can potentially benefit from holding on to such grades at sea. Apart from freight, storing crude on tankers would also involve costs including that for ship fuel, insurance and finance.

While demand for storage ships is lower compared with early 2015, a series of older vessels have been booked by a handful of traders for four to six months near Singapore from mid-December, said Lee of Tankers International, which transports oil worldwide in a fleet of very large oil tankers owned by independent ship owners.

Industry consultant JBC Energy GmbH had said in July that the drop in freight rates and shrinking availability of traditional storage options prompted “creative approaches to holding on to oil.”

Trading houses including Vitol Group, Koch Supply & Trading LP and Glencore Plc, plus the in-house trading arms of BP and Royal Dutch Shell Plc, collectively made billions of dollars from 2008 to 2009 stockpiling crude at sea. At the peak of the floating storage spree, sheltered anchorages in the North Sea, the Persian Gulf, the Singapore Strait and off South Africa each hosted dozens of supertankers.

OPEC Quest Gets Tougher as Libya and Nigeria Ramp Up Oil Supply Bloomberg - Rupert Rowling

Nigeria and Libya, two crude suppliers in OPEC whose output was crushed by domestic conflicts this year, are ramping up again and spelling out what could become the producer club’s biggest challenge as it grapples with a global supply glut.

Libya shipped the most oil since late 2014 in October, while Nigeria’s petroleum minister estimated on Tuesday that his country is now pumping in excess of 2 million barrels a day for the




first time since the start of the year. Together, they’ve now added about 800,000 barrels a day since September.

“The pain for OPEC to reach the planned target level will get bigger and bigger as long as Nigeria and Libya continue to increase production,” said Giovanni Staunovo, commodity analyst at UBS Group AG in Zurich. The organization is “talking about cuts but so far what we have seen is a production increase.”

Libya and Nigeria are among producers that matter most in the Organization of Petroleum Exporting Countries’ quest to limit a global glut because conflicts in both nations mean they are expected to receive exemptions from the group’s supply management plan. The more both pump, the greater the pressure on other OPEC nations to make even bigger curtailments of their own if production is to be brought under control. The producer club meets Nov. 30 in Vienna to discuss proposals to limit supply.

Nigeria swelled its production to 2.1 million barrels of crude a day, Emmanuel Kachikwu, minister of state for petroleum resources, told reporters Tuesday in the capital, Abuja, following talks between President Muhammadu Buhari and political leaders from the oil-rich Niger Delta region.

Less than a week ago, Nigeria’s Kachikwu pegged production at 1.8 million barrels a day, as supply disruptions ease. Nigerian production was 1.5 million barrels a day in September and fell as low as 1.39 million barrels in August, according to data compiled by Bloomberg.

Libya’s shipments increased to about 466,000 barrels a day in October, the most since November 2014, ship-tracking data showed. That compared with an average of 233,000 in September and as little as 185,000 in May.

While OPEC Secretary-General Mohammed Barkindo said Monday that the organization and other major oil producers are “on course” to deliver a deal this month, Goldman Sachs Group Inc. said a deal is looking increasingly unlikely, with failure warranting a retreat in prices to the low-$40s.




NewBase Special Coverage

News Agencies News Release 02 November 2016

Shell’s Record BG Deal Starts to Pay Off as Production Surges Bloomberg - Rakteem Katakey rakteem

Royal Dutch Shell Plc’s biggest takeover, the subject of intense investor scrutiny during crude’s collapse, is starting to pay off as Europe’s largest oil company chalks up its highest profit in five quarters.

The cash now generated by BG Group Plc -- acquired by Shell for $54 billion in February -- outstrips its spending, while production has risen by about a third in two years, Shell Chief Financial Officer Simon Henry said Tuesday. The integration of its assets has been completed “well ahead of time,” he said.

Shell Chief Executive Officer Ben Van Beurden, who’s faced criticism that he overpaid for the oil and gas producer, has vowed to boost savings from the deal and use higher cash flows to safeguard the dividend. While Shell built up record debts of almost $78 billion following the acquisition, its third-quarter results show that higher production, deeper cost cuts and tighter spending are boosting the bottom line.

“Investors can finally see what the new Shell can do,” said Oswald Clint, a London-based analyst at Sanford C. Bernstein & Co. “The BG acquisition is finally delivering.”

The Anglo-Dutch energy giant said profit adjusted for one-time items and inventory changes rose 17 percent from a year earlier to $2.79 billion, exceeding the $1.79 billion average analyst




estimate. Cash flow from operations, a key measure of financial strength, surged to $8.5 billion, more than triple the second-quarter figure.

BP Plc, Total SA, Exxon Mobil Corp. and Chevron Corp. also beat earnings estimates, showing that Big Oil is managing to adapt to low energy prices after two years of painful cost-cutting.

Deal Scrutiny

Crude’s collapse began in mid-2014, and by early April 2015 -- when Shell announced its acquisition of BG -- it was down more than 40 percent. As prices sank below $30 in early 2016, many were questioning the rationale behind the deal.

Shareholder Standard Life Investments said the plan was “value destructive” and it would vote against it. When the acquisition was announced, Carmignac Gestion SA fund manager Michael

Hulme said that making a success of it would “require a more-than-healthy degree of optimism.”

In response, Van Beurden cut spending further, promised higher returns and said Shell would generate cash at lower oil prices. On Tuesday, the company said capital investment in 2017 would be at the bottom of its $25 billion to $30 billion guidance, down from $29 billion this year.

Not all of Shell’s competitors reported such rosy results. Although BP and Exxon both beat

estimates, earnings fell by 49 percent and 38 percent, respectively.

The oil majors have renegotiated contracts, cut spending by billions of dollars, eliminated hundreds of thousands of jobs and sold assets to weather the market rout. While crude has increased more than 30 percent this year toward $50 a barrel, low prices continue to be a “significant challenge,” Van Beurden said.

Break Even

Shell can manage “reasonably well” with oil at $50 in the next 12 months, CFO Henry said on a conference call. The company hasn’t said what price it needs to balance spending and dividends with cash from operations and asset sales, though Henry said it could break even next year even without proceeds from divestments. BP said Tuesday it can balance the books at $50 to $55 next year.

Shell’s oil and gas production totaled 3.6 million barrels of oil equivalent a day in the third quarter, up 25 percent from a year earlier. BG pumped about 600,000 barrels a day in 2014, the level of output at which it was valued, and has ramped up to an average of about 800,000 barrels a day this year, Henry said.

“We are now seeing the benefit of the acquisition on the bottom line,” he said. “In the future all we have to do is deliver it.”




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

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Mobile: +97150-4822502 [email protected] [email protected]

Khaled Al Awadi is a UAE National with a total of 26 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. NewBase : For discussion or further details on the news above you may contact us on +971504822502 , Dubai , UAE

NewBase 02 November 2016 K. Al Awadi

new base energy news issue 942 dated 02 november 2016

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