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NewBase 11 February 2015 - Issue No. 538 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
UAE:ADNOC signs MU$500 technical agreement with Oxy Source: Reuters via Yahoo! Finance + NewBase
State-run Abu Dhabi National Oil Company (ADNOC) has signed a technical agreement with U.S.-based Occidental Petroleum to develop the al-Hail and Ghasha oilfields, ADNOC said in a statement on Tuesday.
Under the terms of the new agreement, ADNOC and Oxy will cooperate in carrying out a number of activities that reach up to US$500 million in investment. The agreement covers 3D seismic surveys, drilling of appraisal wells and conducting of engineering studies necessary for the fields’ development. According to the plan the necessary evaluation studies and the desired goals of the developmental project is expected to be realised by 2017. The agreement was signed by Mohammed Butti Al Qubaisi Director, Exploration and Production at ADNOC and Edward Lowe, President of Occidental Oil and Gas International.
Saoud Mubarak Al Mehairbi, Manager of Exploration Division at ADNOC, said, "Under this agreement, Oxy will provide manpower support in form of secondees to ADNOC for short, mid and long terms to be agreed between the parties for the development of ADNOC human capabilities and will organise a number of training courses to provide human resources development opportunities to ADNOC staff focusing on selected areas such as geology and technical areas."
ADNOC holds a 70 percent share in the fields development venture, while Occidental holds 30 percent, according to the statement. Occidental also holds a 40 percent stake in Abu Dhabi's Al Hosn Gas project.
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Mauritania: Sterling Energy acquires interest in Mauritania Block C-3 from Tullow Oil
Source: Sterling Energy Sterling Energy has announced that its wholly owned subsidiary, Sterling Energy Mauritania, has signed a sale and purchase agreement with Tullow Mauritania to acquire a 40.5% interest
in the Production Sharing Contract for Block C-3 (the 'PSC'), located offshore in the Islamic Republic of Mauritania (the 'SPA'). The current holders of the PSC are: Tullow Mauritania (Operator) 90%; Société Mauritanienne Des Hydrocarbures Et Du Patrimoine Minier ('SMH') 10%. Sale and Purchase Agreement
Under the terms of the SPA, on completion:
a) Sterling will assume a 40.5% participating interest in the PSC from Tullow, including an entitlement to a corresponding interest in all past costs; and
b) Sterling will pay Tullow approx. US$2.5m in consideration and repayment of past costs.
Completion of the transaction remains subject to the approval by the Government of the Islamic Republic of Mauritania. Following completion, the holders of the PSC will be: Tullow Mauritania (Operator) 49.5%; Sterling Energy Mauritania 40.5%; SMH 10%. Sterling will finance the acquisition through existing cash
resources. Tullow Mauritania Limited is a subsidiary of Tullow Oil.
Block C-3 The PSC, awarded in 2013, is in the first phase of the exploration period ('Phase 1') and covers Block C-3, offshore Mauritania, comprising an area of approx. 9,800 sq kms. Phase 1 of the PSC is due to expire on 30 June 2016. Tullow has acquired 1,600km of 2D seismic in 2014 which will be processed during 2015. Completion of the acquisition and processing of the 2D seismic data represents the minimum work obligation during Phase 1.
Following completion of Phase 1, the joint venture may elect to enter into (a) Phase 2 and (b) Phase 3 (each with a 3 year term) with a minimum work obligation of: (a) 700km2 of 3D seismic and 1 well; and (b) 1 well, respectively. Sterling and Tullow will carry SMH's ten percent (10%) interest proportionally during the exploration period of the PSC. This shallow water block lies in an underexplored area of the Mauritanian shelfal region that has seen very limited drilling and seismic acquisition. Block C3 provides Sterling entry to both a multi-play exploration setting and to an emerging shelf margin play, the latter recently highlighted by the SNE-1 well (P50 of 330mmbbls) discovered by Cairn Energy to the south in Senegal.
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Japan:January spot LNG price drops to USD 10.2 per mmBtu LNG World News Staff; Image: Kogas
Japan’s price of spot LNG that is contracted in January averaged $10.2 per mmBtu on DES
basis, the country’s Ministry of Economy, Trade and Industry (METI) said in a statement.
January spot prices for the world’s biggest buyer of liquefied natural gas fell down compared to $11.60 for the previous month,
“The average price of spot LNG imported into Japan that arrived in January is $13.9 per mmBtu,” according to the report.
Only spot LNG cargoes are taken into account in this assessment, excluding short, medium and long-term contract cargoes, as well as those linked to a particular price index.
Japan imported 87.73 million tonnes of LNG in the fiscal year ended in March, up 1 percent compared to the same period a year ago.
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Malaysia: JOGMEC to fund INPEX’s exploration in Block S JOGMEC
JOGMEC has announced today that it will provide equity financing to INPEX OFFSHORE NORTH WEST SABAH, LTD., established by INPEX CORPORATION (INPEX), which acquired an operating interest in the exploration Deepwater Block S offshore Sabah, Malaysia.
According to JOGMEC, the estimated amount of equity financing is approximately JPY 12.3 Billion ($103 million).
In January 2012, INPEX announced it has entered into a Production Sharing Contract for the Block S through its wholly owned subsidiary, INPEX OFFSHORE NORTH WEST SABAH, LTD., and started the exploration activities as an operator.
The INPEX subsidiary holds 50% interest at the present, and the remaining 50% interest is held 25% each by SANTOS SABAH BLOCK S LIMITED and PETRONAS CARIGALI SDN. BHD, the exploration and production subsidiary of the national oil company of Malaysia, PETRONAS.
According to the press release, JOGMEC will provide equity capital up to 50% covering the exploration expenditures incurred by the INPEX subsidiary for the project.
A number of oil and gas fields have been discovered offshore Sabah, and this Block is also considered to have large potential, the press release further reads.
JOGMEC says that this support will further enhance INPEX’s upstream activities in Malaysia being one of its focusing areas as well as reinforce Japan’s energy security when successful.
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Italy: Sound Oil receives technical approval of the EIA for the
Nervesa gas discovery. Source: Sound Oil + NewBase
Sound Oil, the European / Mediterranean focused upstream oil and gas company, has announced the technical approval of the Environmental Impact Assessment ('EIA') for the Nervesa gas discovery production concession from the Veneto Region's Technical Committee. The final EIA approval from the Veneto Region and the Nervesa production concession award from the Italian Ministry of Economic Development are expected to follow during this quarter.
The Technical Approval follows receipt, in December 2014, of final EIA approval from the Veneto Region for the drilling of the second Nervesa appraisal well, where site operations are expected to commence shortly.
James Parsons, Sound Oil's Chief Executive Officer commented:
'Securing first commercial production at the Nervesa gas discovery, expected during 2015, will be a landmark event for Sound Oil. The first well is expected to initially generate over Euro 4 million in annual revenues. I am pleased to report further proof of Sound Oil's ability to work efficiently through the Italian permitting process - enabling the achievement of key project milestones and the delivery of the Company's work programmes. I am extremely pleased with our progress and look forward to commercial production at Nervesa.'
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Oil Price Drop Special Coverage
US & Iraq were leading contributor to global oil
supply growth during 2014 Source: U.S. Energy Information Administration, + NewBase
Despite some supply disruptions and security threats, Iraq was the second-leading contributor to global oil supply growth in 2014, behind only the United States. Iraq accounted for almost 60% of production growth among the Organization of the Petroleum Exporting Countries (OPEC), although this growth was more than offset by production declines in other OPEC countries.
Iraq's crude oil production, which averaged almost 3.4 million barrels per day (bbl/d) in 2014, was 330,000 bbl/d above 2013 levels, despite the heightened security threat from the Islamic State of Iraq and the Levant (ISIL) and disrupted production in northern Iraq. ISIL attacks in northern Iraq in early June 2014 reduced northern Iraqi production and refinery operations (not including the Iraqi Kurdistan Region). These attacks did not affect southern production and exports, which accounted for 95% of Iraq's total crude oil exports in 2014. ISIL did not significantly affect production in the Iraqi Kurdistan Region in northern Iraq, although fighting came very close to fields produced under the Kurdistan Regional Government (KRG)—the Khurmala Dome and Shaikan. Some oil companies were forced to abandon exploration projects, which could delay future development.
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Iraq's crude oil production fell to its lowest monthly levels for the year during July and August following the start of the ISIL offensive. From August to December, Iraq's production grew by almost 600,000 bbl/d, reflecting increased output from fields in southern Iraq and in the Iraqi Kurdistan Region following infrastructure expansions and a partial recovery in northern Kirkuk production. In December, Iraq's crude oil production reached 3.75 million bbl/d, the highest amount on record.
In December, Iraq's central government and the KRG reached a deal on oil exports and revenues, which could facilitate significant increases in production and exports from northern fields. Notwithstanding this agreement, the threat of ISIL on northern production and exports is still present. Barring any major supply disruption, EIA expects that Iraq will continue to be the largest source of production growth within OPEC over the next two years. .
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U.S. oil output 'party' to last to 2020: IEA Source: Reuters via Yahoo! Finance + NewBase The United States will remain the world's top source of oil supply growth up to 2020, even after the recent collapse in prices, the International Energy Agency said, defying expectations of a more dramatic slowdown in shale growth. The agency also said in its Medium Term Oil Market report that oil prices, which slid from $115 a barrel in June to a near six-year low close to $45 in January, would likely stabilize at levels substantially below the highs of the last three years.
Oil prices deepened their decline after the Organization of the Petroleum Exporting Countries in November shifted strategy and declined to cut its own output, choosing to retain market share against rival supply sources such as U.S. shale oil.
'The market rebalancing will likely occur relatively swiftly but will be comparatively limited in scope,' the IEA said. 'The price correction will cause the North American supply 'party' to mark a pause; it will not bring it to an end.'
Supply growth of U.S. light, tight oil will initially slow to a trickle but regain momentum later, bringing production to 5.2 million barrels per day (bpd) by 2020, the IEA said. The outlook for Russian output is less optimistic. 'Russia, facing a perfect storm of collapsing prices, international sanctions and currency depreciation, will likely emerge as the industry's top loser,' it said, forecasting production looked set to contract by 560,000 bpd from 2014 to 2020.
Partly as a result of lower non-OPEC output, the IEA predicted global demand for OPEC crude will rise in 2016 to 29.90 million bpd, after holding at 29.4 million bpd this year. Other forecasters see lower prices and investment cuts to have a larger impact on non-OPEC supply. OPEC itself, in a monthly report on Monday, forecast demand for its oil this year would be higher than
expected as its strategy to not prop up prices hits other producers.
The IEA's latest report contrasts with its previous medium-term outlook published in June, which had higher oil demand forecasts and highlighted risks to supply such as from violence Iraq. Now, the IEA expects global growth in oil demand to accelerate to 1.13 million bpd in 2016 from 910,000 bpd in 2015. Still, it saw the price decline as having a marginal impact on
demand growth for the rest of the decade.
'Expectations of global economic growth have been repeatedly revised downwards in the last six months despite steeply falling prices, slashing prior forecasts of oil demand growth for the rest of the decade by about 1.1 million bpd,' the report said.
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IEA expects no quick recovery in oil prices Oil prices will not rebound to US$100 a barrel any time soon as US shale takes over as swing producer, the International Energy Agency (IEA) said yesterday in its medium-term oil market report covering the next five years.
Last summer oil prices peaked at $115 a barrel and moved under $50 last month. Yesterday Brent was trading just above $58. The West’s energy watchdog said that oil would remain around $55 this year and inch up to $73 a barrel in 2020.
Maria van der Hoeven, the executive director at the IEA, said that shale oil had changed the market, and Opec’s refusal to cut production levels was a turning point. “[Opec] may have effectively turned [shale oil] into the new swing producer, but [Opec] will not drive it out of the market. Light tight oil might in fact come out stronger.”
The ratings agency Standard & Poor’s also released a statement yesterday echoing the IEA, revising its oil price assumptions down for the next three years. The ratings agency believes that the price of oil will teeter around $55 a barrel this year, down from its October review of $105 a barrel.
The IEA said that global supply capacity will expand by 5.2 million barrels per day by 2020, but the toll on production will vary by country. The US is still expected to remain the leader for supply growth for the remainder of the decade, while Russia will take the brunt of the blows from market volatility.
Opec’s share of global supply is expected to increase from its recent lows, but the IEA said it would not recover to the levels reached before the US shale boom. Opec said on Monday that demand for its oil would average 29.21 million bpd this year, an increase of 430,000 bpd from its previous forecast.
The UK-based research consultancy Energy Aspects believes that the IEA is not taking into account the effects of large companies reducing spending in places.
“The IEA is underestimating the impact on non-Opec production, like the US, where huge capital expenditure cutbacks are being implemented,” said Amrita Sen, the chief oil analyst at Energy
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Aspects. “The loss in supplies can be huge and prices are likely to rally higher and earlier than 2020.”
The steepest oil rout in five years has forced oil companies to slash capital expenditures, signalling a slower growth in supply. ConocoPhillips, the third-largest US energy producer, cut its capital budget for this year by 20 per cent — the largest by an American company.
Dubai-based Al Masah Capital said in the second half of the year a new supply picture will appear as a result of structural changes like the shutting down of US rigs. “We will then possibly see the new trading range and a possible bottom to the oil price,” said Akber Naqvi, the executive director at Al Masah. “Up until that point, volatility will be the only winner.”
The latest data from the oilfield services company Baker Hughes showed that the total number of US oil rigs in use has dropped to its lowest levels since the end of 2011.
Market volatility, particularly over the last quarter, resulted in onshore drilling rig activity in the US declining by 16 per cent. The US energy information administration predicts that number to drop further to 24 per cent by the end of October.
“Bottom line is the oil market is going through a significant, seismic change where the old set-up of suppliers and consumers is being turned upside-down. And that in itself needs time to play out,” said Mr Naqvi.
Oil falls as IEA warns oil stocks may hit all-time high
Oil stocks held by countries in the Organisation for Economic Cooperation and Development may come close to the all-time high of 2.83 billion barrels in the middle of 2015, said the IEA, which advises the West on energy policy.
"Despite expectations of tightening balances by end-2015, downward market pressures may not have run their course just yet," the IEA said in a monthly report. Brent crude slipped 66 cents to $57.68 by 0926 GMT, ending a three-day rally. The benchmark gained more than 9 percent last week, its biggest weekly rise since February 2011. U.S. crude futures dropped to $52.06, down 80 cents.
China's consumer inflation came in at a five-year low for January, raising worries about oil demand in the world's second-largest economy. "Economic activity is slowing, especially in heavy industry and that inevitably weighs on commodities," Michal
Meidan, director of independent consultancy China Matters, said in the Reuters Global Oil Forum.
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Oil prices received a boost on Monday after a monthly report by the Organization of the Petroleum Exporting Countries (OPEC) raised the forecast for 2015 demand for its oil to 29.2 million barrels per day (bpd), up 430,000 bpd from an earlier forecast.
The IEA's medium-term report released on Tuesday predicted demand for OPEC oil would hold at 29.4 million bpd this year, and said U.S. shale oil output growth would pause before regaining momentum. U.S. crude snapped three days of gains after a preliminary survey showed that U.S. commercial crude stockpiles likely hit a record high last week. "Another report of strong builds in inventories in this week's EIA market report could halt oil's rally," ANZ bank said, referring to the U.S. Energy Information Administration's stockpile data due on Wednesday.
Elsewhere, a strike by security guards that closed Libya's eastern oil port of Hariga, the country's last functioning export port apart from two offshore fields, ended late on Monday.
Rosneft’s Sechin Slams OPEC, Warns On Possible Oil Shortage OPEC ministers and delegates have blamed non-OPEC producers such as Russia, Mexico
and Kazakhstan, as well as U.S. shale oil production, for the oversupply in the market. By Reuters + NewBase
The head of top Russian oil producer Rosneft criticised OPEC policy on Tuesday and warned lower oil output as a result of falls in crude prices may lead to a supply shortage as early as the fourth quarter.
Oil prices collapsed in 2014 in a decline that deepened after the Organization of the Petroleum Exporting Countries, a producer group of which Russia is not a member, in November chose not to cut its own output.
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“OPEC has lost its teeth,” Rosneft Chief Executive Igor Sechin said through an official translator at London’s IP Week, an annual industry event. OPEC’s decision to let prices fall had led to a “destabilisation” of the market, he said.
The 12-country OPEC shifted strategy by moving to retain its market share, which has been eroded by rival supply sources such as U.S. shale oil.
“The share of OPEC is pretty stable at around 39 per cent,” Sechin said. “This organisation lost the unity of its members and in some cases is not respecting of some of its members.”
OPEC ministers and delegates have blamed non-OPEC producers such as Russia, Mexico and Kazakhstan, as well as U.S. shale oil production, for the oversupply in the market.
When OPEC, led by Saudi Arabia, decided against cutting output when it last met in November in Vienna, some OPEC ministers suggested the cartel could act only in tandem with non-OPEC producers such as Russia to help balance the market.
Sechin was part of a Russian delegation that travelled to the Austrian capital, where he held talks with a number of officials from OPEC and outside the group. But no agreement on cutting supply was reached, OPEC left its output steady and prices fell further.
Russia is the world’s biggest oil producer and its output hit a post-Soviet high at an average 10.58 million barrels per day last year, but Western sanctions over Ukraine and low prices threaten what is the country’s key source of revenue.
The International Energy Agency on Tuesday issued a medium-term outlook that predicted the U.S. oil sector would largely ride out the drop in prices, while Russia would likely be the industry’s “top loser”.
Sechin also said oil market fundamentals did not tally with the recent sharp drop in prices.
Oil Producers Outside OPEC Caught in Crossfire With Shale Bloomberg + NewBase
Oil producers outside OPEC and U.S. shale fields are getting caught in the confrontation over market supremacy that has brought crude prices to near six-year lows.
High-cost regions from aging North Sea fields to untapped resources in East Siberia and deep-water projects off Latin America will suffer the most from the clash, say Standard Chartered Plc, Citigroup Inc. and BNP Paribas SA.
The Organization of Petroleum Exporting Countries refused to cut output in November to eliminate a surplus caused in large part by U.S. production at a three-decade high, leaving more expensive operators to reduce supply. International oil companies including Royal Dutch Shell Plc and Chevron Corp. have announced more than $40 billion in spending cuts since early November.
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“What’s going to tighten the market for next year and the year after will be the longer-lasting damage done to the rest of non-OPEC,” Paul Horsnell, an analyst at Standard Chartered in London, said by phone. Oil production from non-OPEC nations grew by 2 million barrels a day last year, with about 75 percent of the new supply coming from the U.S., according to the International Energy Agency, a Paris-based adviser to 29 nations.
Surplus Supply A supply surplus of about 1.5 million barrels of oil is pumped into the market daily, OPEC Secretary-General Abdalla El-Badri said Jan. 26. Brent crude, the global benchmark, fell for eight straight months, the longest slump on record, to the lowest level since March 2009. Futures for March settlement traded at $56.43 a barrel Tuesday, down 51 percent since June, on the London-based ICE Futures Europe exchange.
U.S. shale-oil drillers have been among the first to respond to lower prices. They cut rigs targeting U.S. oil by a record 435 to 1,140 in the nine weeks ended Feb. 6, according to Baker Hughes Inc. That’s the lowest total since December 2011 as explorers slow efforts in the Permian Basin in Texas and North Dakota’s Bakken formation.
Yet the U.S. will still contribute the most of any country to the expansion of global oil supplies this decade, with the current slowdown marking a pause, not an end to the boom, the IEA said in a report Tuesday. Drilling from hard-to-penetrate rock formations including shale will still add about 1.6 million barrels a day to global markets by 2020, it said.
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‘Biggest Impact’
“Everyone is looking at the U.S., at when the lower U.S. rig count is going to feed through into lower production,” said Seth Kleinman, head of European energy research at Citigroup Inc. in London. “But probably the biggest impact on supply is going to come from” maintenance reductions in other parts of the world, he said.
Chevron lowered its 2015 capital-spending target, the majority of which is dedicated to supporting existing production, by 13 percent to $35 billion on Jan. 31. BP expects to cut spending to $20 billion this year, compared with previous guidance of $24 billion to $26 billion.
Lower spending on maintenance of existing oil fields can accelerate the decline in production by 1 or 2 percent, Kleinman said. Add this up across all the affected regions and “you’re talking about losing a million barrels of oil in 12 months.” That’s roughly equal to the global supply surplus, he said.
‘Top Loser’
“Russia, facing a perfect storm of collapsing prices, international sanctions and currency depreciation, will likely emerge as the industry’s top loser,” the IEA said in the report Tuesday. Its production will fall by 500,000 barrels day to 10.4 million in 2020, the biggest drop of any nation, the agency said.
Projects in the North Sea, Latin America and Canadian oil sands require oil prices above $60 a barrel, according to Energy Aspects Ltd., a consulting company based in London.
The North Sea is under a lot of stress, with current prices potentially shortening the economic lifespan of oil fields and affecting how soon they will be decommissioned, BP Chief Executive Officer Bob Dudley said in an interview with Bloomberg Television Feb. 3.
Brazil’s oil supply growth will dwindle to below 100,000 barrels a day this year, less than half the rate of 2014, Energy Aspects estimates. The country’s deep-water offshore projects require an oil price of more than $80 a barrel to cover costs, according to BNP Paribas.
Bouncing Back
When oil prices eventually recover, shale producers will bounce back first because they need to spend less money upfront and can move more quickly from starting drilling to receiving production, said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas. Offshore fields or oil sands projects, which have high upfront capital costs and can’t scale up so rapidly, will suffer more, he said.
“Unlike U.S. shale, conventional production elsewhere has high upfront capital costs, is slow to start up and will be the main victim of OPEC’s decision to keep output steady,” he said.
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World's Biggest Oil Trader Warns Crude Prices Could Dive Again Bloomberg + NewBase
The world’s biggest independent oil trader said crude could resume a slump that saw prices fall 61 percent between June and January, as unrelenting growth in U.S. output leads to a “dramatic” build in the nation’s stockpiles.
The oil market is slightly oversupplied, making another downward move possible in the first half before supply and demand balance in the last six months of the year, Ian Taylor, chief executive officer of Vitol Group, said Tuesday. There are no signs of slowing U.S. output even as the country’s drillers idle rigs, he said.
Brent crude, a global benchmark, has rallied 27 percent from its low point this year. It’s still down by half from last year’s peak as the U.S. pumps the most oil in three decades and OPEC responds by maintaining its own output to keep market share. While companies have pulled rigs off oil fields and cut billions of dollars of planned spending, it will be some time before there is an impact on production, according to the International Energy Agency.
“The market looks a little bit long in the first half of the year,” Taylor said in an interview at a conference in London. “It’s very difficult to be sure you’ve seen the bottom, particularly when in the U.S. production is still going up. We think there are going to be quite dramatic builds in stock for the next few months.”
Oil inventories in industrialized nations may climb near a record 2.83 billion barrels by the middle of the year because supplies remain abundant, the IEA said in a report.
Extreme Cuts
While prices probably aren’t sustainable at current levels in the long term they will remain “relatively modest for the foreseeable future,” said Taylor. It’s possible there will be “another move down” in prices before a recovery, he said. Vitol trades more than 5 million barrels of crude and fuels each day, according to data on its website.
The IEA, a Paris-based adviser to 29 nations, cut its forecast for oil-supply growth from nations outside the Organization of Petroleum Exporting Countries for a second consecutive month, citing cuts in company spending. Production will increase by 800,000 barrels a day this year, the slowest rate of expansion since 2012 and down from an estimate of 1.3 million a day in December.
Supply Risk
“Extreme cuts in investment in output now could lead to an oil deficit by the fourth quarter,” Igor Sechin, chief executive of Russia’s largest oil producer OAO Rosneft, said in a speech at the London conference.
The price slump has prompted retrenchment across the industry with companies including Chevron Corp. and Royal Dutch Shell Plc announcing more than $40 billion in spending cuts since
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Nov. 1. Investments across the whole industry might drop by about $100 billion this year, according to the IEA.
Rosneft’s projects are viable with crude at $50 a barrel and investments won’t be cut from the 2014 level, Sechin said. The company’s output will remain unchanged this year, he said.
OPEC is “destabilizing” oil markets through its policy of maintaining output to defend market share, Sechin said. The 12-member group gave Russia the chance to join as a member, an offer the country refused because it is unable to reduce output, he said. Russia instead unsuccessfully sought observer status at OPEC, said Sechin.
Russian Energy Minister Alexander Novak last year said Russia couldn’t join in OPEC output cuts because it can’t force the publicly-traded companies that produce its oil to reduce output.
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