New base 694 special 27 september 2015

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,

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NewBase 27 September 2015 - Issue No. 694 Senior Editor Eng. Khaled Al Awadi

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

Qatar Barzan Gas Project to fuel hydrocarbon growth Gulf Times By Pratap John

Qatar may see its losses in the hydrocarbon GDP getting reversed in the second half of this year with Barzan project coming online, a new report has shown. Although the country’s hydrocarbon sector contracted (albeit marginally) for the fifth consecutive quarter, Samba Financial Group expects to see these losses reversed in the second half of the year as the Barzan project eventually comes online.

The continued decline in real hydrocarbon GDP has been largely down to the falling production of crude oil from the maturing oil fields (down to 676,000 bpd in Q1, 2015 from 725,000bpd in Q1 2014).

“We expect this decline to continue at a steady pace through to 2020, but it will be overshadowed in the second half of 2015 by the initial output from the $10.3bn Barzan project, the last to be approved before the moratorium on further development of the gas field,” Samba said.

The project should eventually add 1.4bn




standard cubic feet a day (bcfd) of sales gas as well as about 22,000 bpd of field condensate, 6,000 bpd of plant condensate, 34,000 bpd of ethane, 10,500 bpd of propane and 7,500 bpd of butane.

The first gas should come online in the second half of this year, with incremental growth through to end-2017, countering the declining oil production and resulting in a net positive contribution from the hydrocarbon sector to GDP growth of around 0.8% this year and 0.6% in 2015.

“We expect overall GDP growth to maintain around 5% year on year over the next two years, then tapering off slightly as we approach 2020,” Samba said. The report also said Qatar’s broad-based non-hydrocarbon growth continues to propel the country’s economy.

The Qatari economy continued its strong growth in Q1 2015, when it expanded by 4.1% on a 12 month basis (the recent rebasing of GDP data from 2008 to 2013 gives a more up-to-date representation of the economy’s performance and reflects the higher contribution from finance, insurance, real estate and business services).

The composition of first quarter growth was unchanged as a robust performance by the non-hydrocarbon sector (8.9% year-on-year), was checked by a small contraction (0.1% y-o-y) in the hydrocarbon sector.

The country’s finance, construction, trade, restaurants & hotels and manufacturing, each contributed between 0.6 – 1.2 percentage points to GDP growth. These sectors have benefited from large government spending projects aimed at improving the country’s infrastructure, whilst proving a catalyst for the diversification of the economy.




UAE:Amec Foster Wheeler set for M.E expansion despite low oil prices The National - Anthony McAuley

The energy services group Amec Foster Wheeler expects to expand in the Middle East despite cost pressures from persistent low oil prices.

Roberto Penno, the company’s regional head, said Amec was looking at locating its third regional hub in the UAE to market nuclear energy services in anticipation of the region’s plans to expand in this area. It already has nuclear business operations in the United States and Europe.

The company’s main business in the region is in oil and gas, where contracts include project management of Abu Dhabi’s offshore expansion of the giant Upper Zakum field. The company, which was formed by the US$3.2 billion merger last year of London-listed Amec and Foster Wheeler of Texas, has been under pressure with the fall of oil prices.

It has been cutting costs mainly by eliminating jobs, but the company says its oil and gas business will hold up in the Arabian Gulf and there will be opportunities to expand in other areas.

“We have 700 people working in the UAE and in excess of 2,000 in the Middle East generally, and on top of this – which is essentially in oil and gas – we plan to build the other elements,” which include solar, nuclear, electricity generation in general and some mining operations, Mr Penno said. The company has also lined up a new joint venture in Saudi Arabia, he added.

“The diversification strategy is really the biggest part of our ‘revenue synergy’ strategy”, in which the company has extended contracts to business in its traditional oil and gas areas




Kenya Invites Expressions of Interest to Acquire 3D Seismic in

the Offshore Lamu Basin

The National Oil Corporation of Kenya (National Oil) has invited Expressions of Interest (EOI) from companies to acquire a multi-client 3D broadband seismic survey including processing over the shallow waters of the offshore Lamu basin, Kenya.

National Oil is a company wholly owned by the Government of Kenya charged with the mandate to participate in all aspects of petroleum business with a view to ensure security of supply and stability of pricing of petroleum in the country as well as carrying out exploration activities in Kenya’s sedimentary basins.

The multi-client surveys and studies are part of the preparation for an open licensing round tentatively scheduled for the year 2017, National Oil said in a

statement.

During the past exploration work in the Kenya offshore area seismic surveys have been dominated by 2D data acquisition. 3D data has been acquired in only a few blocks.

“The intention of National Oil and the Ministry is to increase the amount of 3D data coverage so as to better image drillable structures and accelerate exploration through drilling in the earliest phases of exploration, potentially the Initial Exploration Period of any Block licensed under the new PSC,” National Oil said, adding that this strategy coincides with the recent world-class successes encountered offshore East Africa and the growing interest in the region.

The 3D acquisition and processing may include the deep water blocks held by Anadarko (L12 & L11A) and Camac (L27 & L28) and possibly L25 and L26 depending on prior commitments being made by the licensees, National Oil said.

Expressions of Interest (EOI) has be submitted before 5th October 2015.




Ukraine to pay $230/CM for Russian gas – Energy Minster Reuters + NewBase

Ukraine will pay a price for Russian gas of around $230 ($6.5 per MMBTU ) per thousand cubic metres in the fourth quarter, including a discount, Russia’s Energy Minister Alexander Novak said on Saturday, Russian news agencies reported.

Russia cut off its gas supplies to Ukraine in July when an existing contract expired. Ukraine had refused to keep paying the price of $247 per thousand cubic metres that it had paid in the second quarter.

The two countries have been haggling since then over the price that would be embodied in a new agreement to secure winter gas supplies. “In the region of $230 dollars plus or minus,” Novak said when asked about the price of gas for the fourth quarter, according to comments cited by RIA news agency.

Novak added that the exact price would depend on a formula that takes the caloric value of the gas into account. He was speaking after the conclusion of gas talks between Russia, Ukraine and the European Commission which led to a tentative agreement that has not yet been signed.

A price of $230 per thousand cubic metres would be slightly more than the $220 that Ukraine has described as acceptable, but below the $235-$242 that Russia has said is the average for its long-term European customers in 2015.

Payment

European energy chief Maros Sefcovic said after the talks that the price would be “at a competitive level comparable to the prices offered to the neighbouring EU countries.” The provisional agreement also involves supplying 2 billion cubic metres of gas in October. Ukraine’s Naftogaz will pay Russia’s Gazprom $500 million for those supplies, with the money supplied by European and international financial institutions.

Commenting on the agreement on Saturday, Gazprom chief Alexei Miller said that there was no guarantee Ukraine would be able to pay for further supplies in November and December.

“Today we are establishing that Ukraine has received money — this $500 million, and will begin to take Russian gas from the start of October,” Miller said, in remarks to Russia 24 television channel cited by RIA.

“But 2 billion cubic metres doesn’t solve the problem ... Therefore if this winter is unusually cold, one could still expect problems.”

Year 2013 Prices




US: Oil's Killing U.S. Power Generators, And They Don't Even Burn It Bloomberg -Mark Chediak Naureen Malik

The slide in global oil prices helped send shares of America’s power generators to their worst weekly decline in more than six years. And they don’t even burn the stuff.

The glut of crude pooling up around the world has cut oil prices 23 percent in three months, and overseas natural gas supplies linked to crude are so cheap that America’s gas exports can’t compete. Traders speculating that more of the power-plant fuel will just remain in the U.S. have sent gas futures to the lowest seasonal level in 14 years. And power generators’ stocks followed suit, with a Bloomberg Intelligence index of generators sliding 12.9 percent, touching a low on Thursday not seen since July 2012.

“Power price futures have fallen with natural gas prices amid concern about excess shale gas supply, in part because low oil prices may reduce price competitiveness and demand for U.S. liquefied natural gas exports," said Stacy Nemeroff, a utilities analyst for Bloomberg Intelligence. “Investors may also be selling off power stocks as part of a strategy to reduce overall commodity exposure.”

Oil's rout is making foreign gas supplies cheaper, weakening demand for U.S. gas exports.

The slump in energy prices is just the latest challenge threatening an industry that’s also facing tepid demand, rising environmental costs, high debt levels and increasing competition from wind farms and solar plants.

Talen Energy Corp. led the weekly declines of power producers, falling 16.8 percent.




Dynegy Inc. fell 16.4 percent. The Houston, Texas-based power producer recovered some of its losses on Friday, rising 5 percent at the close in New York. On Thursday, the company said cost savings that will add $250 million in earnings before interest, taxes, deductions and amortizations and $400 million in balance sheet improvements over three years.

NRG Energy Inc., the largest U.S. independent power producer, fell 16.2 percent for the week.

Burning Gas

Only 1 percent of the nation’s electricity is now generated from burning petroleum. The power market, which once relied on oil to make 20 percent of electricity, weaned itself off of the fossil fuel after the 1970’s energy crisis and now relies on gas for about a third of supply. In July, the fuel surpassed coal for the second time to account for the biggest share of power generation.

Gas futures for January 2016 delivery have sank 3.4 percent to $2.918 per million British thermal units in two weeks. Wholesale on-peak power for next year tumbled 4.5 percent at PJM Interconnection LLC’s Western hub, a benchmark for the largest U.S. grid.

Those generators that own efficient gas-fired plants, such as Calpine Corp., may actually benefit from cheap gas versus those running coal-fired and nuclear stations. While lower power prices may squeeze Calpine’s margins, the switch to cheap gas generation stands to increase the company’s sales, Nemeroff said.

Disappearing Demand

The factors that had underpinned forecasts for growth in natural gas demand such as liquefied natural gas exports and the increasing use of the fuel for power generation have “disappeared,” Angie Storozynski, an analyst for Macquarie Capital in New York, said in a Sept. 23 e-mail.

Wolfe Research LLC analyst Steven Fleishman said he doesn’t see things turning around anytime soon for power producers. He downgraded the independent producer sector in a research note issued on Sept. 20, citing a “worsening” supply and demand outlook, high debt levels and growing “long-term risks” from renewables.

“Fairly stable sub-$3 gas prices this year have left us convinced that $3 is the new $4, at least until new LNG exports pick up," he said.




NewBase 09 September - 2015 Khaled Al Awadi

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

Oil, bond prices move in opposite directions Reuters/NewBase The rebound in oil prices has not been enough to stop the bleeding at many US energy companies, whose bonds keep weakening – and whose ability to muster fresh capital is dwindling away.

Oil and bond prices are moving in opposite directions, underlining the market’s lack of confidence in a cash-strapped sector that is seeing its prospects go from bad to worse. The difficulties will start intensifying next week, when banks begin their twice-yearly review to set ceilings on how much exploration and production (E&P) companies can borrow.

And with crude at US$45 per barrel – far below the US$60 minimum that underpins many E&P business models – the expected cut in borrowing bases will come as a double whammy. Revenue is down, capital market access is limited and cash is in short supply – a sticky situation for even the healthiest of firms, and one that could well prove fatal for some.

“Oil prices in the mid-40s just don’t work for many of these companies,” said James Spicer, senior analyst for high-yield energy research at Wells Fargo Securities. “The optimism over a 2015 price recovery has faded.”

The end of that optimism has spurred the decoupling of oil and bond prices, which normally are more closely correlated. Rather than bouncing back in tandem with crude prices, which touched lows under US$38 in August, junk-rated E&P bonds have softened instead.

The Bank of America Merrill Lynch high-yield energy index – comprising 167 issuers with notional debt of US$210bn - is back near record wides at Treasuries plus 1046bp. It has widened 75bp in September, while oil prices have remained flat since their recovery at the end of August.

“In the first eight months of the year, the correlation was 80%,” Brian Gibbons, an analyst at CreditSights,

Oil price special

coverage




told IFR. “But in the last three weeks that has declined considerably to 29%. There has been a break in the link.”

While the widening spreads can largely be blamed on sector concerns, many analysts say other factors are also in play. The EPX index, which tracks E&P stocks, “has declined in the past couple weeks even as oil prices have recovered,” said Gary Stromberg, head of US high-yield research at Barclays.

“We think that is because the equity market had been pricing in higher oil price expectations than the commodity markets were showing, and is now coming more into balance.” He said that “extremely weak” covenants have allowed issuers to sell second and first-lien debt that ranks above unsecured debt in the capital structure.

“As issuers have replaced debt ahead of the unsecureds, that has crammed the recovery on those unsecured bonds - and spreads have widened,” Stromberg said.

Secured bonds issued earlier this year, when the buyside was more optimistic about the outlook for the sector, have also tanked. That has left bruised investors reluctant to make a second bad bet, especially when high-yield in general has seen spreads widen.

A $700m secured issue sold by Texas-based E&P Comstock Resources in March at a 10% yield, is now trading at 73.5 and yielding 19%. A $1.45bn secured deal from Energy XXI the same month, which yielded 12% at the time, now trades at a cash price of 56 to yield 29%.

Both companies sold new debt ahead of expected cuts in their borrowing bases in the April redetermination period. But that option is less viable this time around. Instead, companies are doing distressed exchanges on unsecured bonds.

Some companies, including Halcon Resources and Sandridge Energy, have done so just months after selling new bonds. Unsecured bonds issued by Halcon fell to 35 from 50 after its recent distressed exchange. “You can see how these events can be very disconnected from what is going on with oil prices,” said Stromberg.

Regulators this time around are an added worry, as they put pressure on lenders to cut lines of credit to companies whose leverage is exceeding the six times ceiling limit and debt pay-down abilities in their leveraged lending guidelines.

The focus now is on how severely borrowing bases will be cut.

Gibbons at CreditSights estimates that companies in the BAML high-yield energy index have about $100bn in these facilities between them. A 10%-15% cut would leave them with a sizeable shortfall - and some in the market think the cuts could be even larger than that.




NewBase Special Coverage

News Agencies News Release 27 Sep. 2015

Sustained low oil prices could reduce exploration and

production investment .. Source: U.S. Bureau of Economic Analysis, U.S. EIA

Low oil prices, if sustained, could mark the beginning of a long-term drop in upstream oil and natural gas investment. Oil prices reflect supply and demand balances, with increasing prices often suggesting a need for greater supply. Greater supply, in turn, typically requires increased investment in exploration and production (E&P) activities. Lower prices reduce investment activity.

Overlaying annual averages of the domestic first purchase price (adjusted for inflation) on oil and natural gas investment reveals that upstream investment is highly sensitive to changes in oil prices. Given the fall in oil prices that began in mid-2014 and the relationship between oil prices and upstream investment, it is possible that investment levels over the next several years will be significantly lower than the previous 10-year annual average.

Oil production is a capital-intensive industry that requires management of existing production assets and evaluation of prospective projects often requiring years of upfront investment spending on exploration, appraisal, and development before reserves are developed and produced.

Previous investment cycles provide insights into how investment responds to crude oil price changes. In 1981 and 1982, after crude oil prices significantly increased, investment topped out at more than $100 billion (in 2014 dollars) and then averaged $30 billion to $40 billion per year into the early 2000s as crude oil prices fell and remained in the $20-$30 per barrel (b) range. From 2003 to 2014, investment spending increased from $56 billion to a high of $158 billion as crude oil prices increased from $34.53/b to $87.39/b, including several months of prices reaching more than $100/b. EIA's 2015 Annual Energy Outlook Reference case projects real domestic first purchase prices to average about $70/b in 2020. This price level could result in substantially lower annual oil and natural gas investment over the 2015-20 period than the annual average of $122 billion spent during the 2005-14 investment cycle crest period.




Conflicting signals continuing to confuse Saiy Rashid Hussain + Saudi Gazette ( images by NewBase )

LIFE signs are emerging on crude horizon. Crude prices moved slightly higher, late last week, after Baker Hughes reported its weekly count of US oil rigs ticked down for a fourth consecutive week. The number of rigs drilling wells in US oilfields fell by four last week, bringing the total to 640. At this time last year, drillers had 1,592 rigs online. Lower oil prices are impacting the US output — it seems.

Conflicting signals though continue to confuse. Iran remains a big if! Iran’s oil production will reach 4.2 million bpd by the end of 2016, Iranian Petroleum Minister Bijan Zangeneh told the CNN. Zangeneh underlined that Iran will not hold back its oil production once the sanctions are lifted. “Can we wait and not produce after lifting of the sanctions? Who can accept it in Iran? Do you believe that our country will accept not to produce, to secure the market for others? It’s not fair,” he said. Already the Iranian exports are up. China’s August crude oil imports from Iran rose 61.4 percent from a year earlier to 503,110 bpd. This was though 12.6 percent lower from 575,700 bpd registered in July, Reuters reported. South Korea’s total crude oil imports from Iran in August too rose 3.5 percent to 88.7 million barrels. Iran is now banking upon lifting of sanctions to enhance its exports. It expects to increase its oil exports by 500,000 barrels a day by late November or early December, a top Iranian oil official said last week. By mid-2016, Iran expects that its exports will exceed today’s by 1 million bpd, Ali Kardor, the chief of investment for the National Iranian Oil Company said. “We are ready,” Kardor said, speaking on the sidelines of a conference in Geneva promoting business ties between Europe and Iran. Iran also plans to press for the country’s full return to the market at OPEC’s next meeting in December in Vienna. “Some countries should reduce their production…They should reach a compromise,” Kardor was quoted as saying by the Wall Street Journal. Overall, Iran today produces a little less than 3 million bpd, down from peaks of more than 4 million bpd, most of it consumed domestically.




Iran is endeavoring to resurrect its decaying oil infrastructure. A “Norwegian-Austrian” group of companies has finalized a “master development plan” for one of Iran’s key offshore oil fields, Esfandyar, Iranian press reported. Iranian Offshore Oil Company (IOOC) suggested that this might be a first step toward a full-blown foreign contract for the field. With IOOC’s managing director Saeid Hafezi saying that the European group is “ready to start work based on Iran’s new oil contract models.” IOOC is also in talks with “a Ukranian company” on development of the Dorud oil field. And as per the Russian press, Iran is already negotiating with European majors Total and Eni on possible field contracts. Investment banks hence do not appear optimistic. Oil prices will remain lower for longer period and will not recover substantially in 2016, but they will not fall any further either, some are now asserting. A survey of 13 investment banks by The Wall Street Journal saw the average forecast for Brent crude cut sharply by $9 to $58.70 a barrel for next year compared to the prediction just last month. Credit ratings agency Standard & Poor’s said that marginal production costs in places such as the United States were poised to fall due to improved drilling efficiencies, meaning production will not decline as steeply as expected. “The decline in oil price assumptions represents the prospects of a more prolonged recovery,” S&P analyst Thomas Watters said. S&P cut its Brent and WTI forecasts by $5 to $50 per barrel and $45 per barrel respectively for this year and said it saw 2016 prices at $55 for Brent and $50 for WTI. HSBC too is saying that markets had focused too much on China’s slowdown, warning that many developed economies were faltering as well. “It turns out that developed market imports haven’t been anywhere near as robust as relatively upbeat local demand data would suggest ... For all their recent swagger, developed markets are hardly firing on all cylinders. So, don’t just blame China,” the bank underlined. Russian government too has been discussing ways to tackle the tough economic environment if oil falls to as low as $30 per barrel next year, RBC daily reported, citing government sources. But despite the bearish outlook, some other factors too are coming into play. Saudi spare capacity, so critical to the market psychology, is beginning to get low. And this could play havoc with markets and warning shots are now being fired. As high cost production comes off line amid lower oil prices and the market starts to rebalance, the industry will have a limited capacity to increase production meaningfully if there is a sudden disruption. This would leave the market vulnerable to a big price shock, the Oslo-based consultancy Rystad Energy said in a recent report. The spare crude production capacity of Saudi Arabia, the world’s largest crude exporter, stands at 1.1m barrels a day, according to Rystad data. Financial Times quoted Nadia Martin, senior analyst at Rystad Energy saying: The oil market is at risk of price spikes despite the focus on oversupply. Current spare capacity is far lower than the 2.1m b/d of spare capacity the Kingdom held in 2009, when the oil market last demonstrated a significant misbalance in supply and demand. A price spike could occur as early as February of next year.




And hence some are getting itchy. Dismissing the Goldman projection of the possibility of crude touching even the $20 mark, Oppenheimer issued a note arguing that oil is looking for a “new normal” price around $65-$75 a barrel. And there are reasons for the renewed faith in crude market. If oil is below $50 a barrel, $1.5 trillion worth of oil projects will begin to lose money and would be canceled, argued a report from Wood Mackenzie. This could also make markets tighter. “As the upstream industry responds to the low oil price, investment is down $220 billion in 2015 and 2016 compared with our pre-oil price crash projections. In addition to reduced activity onshore North America, a total of 46 projects has been deferred as a result of the oil price fall.” All this makes the markets uneasy. OPEC is already forecasting the oil prices to creep up to $80 in 2020 — ‘rising by about $5 annually to 2020 from $55 this year.’ Markets seem to be performing the balancing act — and with some ingenuity.




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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

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

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.

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

NewBase 27 September 2015 K. Al Awadi




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