New base 830 special 14 april 2016

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NewBase 14 April 2016 - Issue No. 830 Edited & Produced by: Khaled Al Awadi

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

Masdar in clean transport and power deal with China’s BYD The National - LeAnne Graves

As the UAE looks to further its renewable energy ambitions, Abu Dhabi-based Masdar has announced a partnership with the Chinese company BYD to commercialise clean transport and battery storage systems.

The preferred partnership agreement will potentially lead to expanding its activities to include solar panel technology for utility-scale applications and rooftop projects, LED lighting and solar-powered street lighting.

Mohamed Al Ramahi, the chief executive of Masdar, said that the deal coincided with the research and development already taking place at Masdar City. “[The deal will] strengthen the city’s positioning as an ‘innovation ecosystem’ connecting research and development, education, business and investment," he said.

“We are looking forward to working with BYD on a range of cutting-edge projects, and to integrating their expertise as we pursue the many growth opportunities in the clean energy sector, particularly in Mena."

This deal will help to integrate BYD technology with ongoing research at Masdar Institute of Science and Technology and could further some of its demonstration projects such as the Personal Rapid Transit, or the driverless vehicle programme, and the Electric Energy Storage Solutions Hub.

“The agreement will raise our profile in the UAE and the wider Middle East, and help us to deliver on our ‘Three Green Dreams’ for the region: affordable solar power generation, efficient energy storage and electrified public transportation," said AD Huang, general manager of the Middle East and Africa for BYD.




Qatar Ras Gas :Investments in new LNG projects crucial to avoid potential under supply in 2020s Gulf Times

Globally LNG production has increased to more than 230mn tonnes a year and is expected to further increase to 370mn a year by 2020, RasGas chief executive officer Hamad Mubarak al-Muhannadi has said.

Yet, the growth in demand for LNG has been as significant, al-Muhannadi said at LNG 18 International Conference and Exhibition on Liquefied Natural Gas in Perth, Australia. “Approximately, 30 countries currently import LNG, twice the number of countries importing just 10 years ago, and RasGas anticipates that the pace of growth will continue, and that many more customers and countries will be importing LNG in the next decade,” he said. Despite a potential near-term oversupply of liquefied natural gas, investment in new liquefaction projects

will be crucial to avoid a possible under-supply situation in the early 2020s, al-Muhannadi said. In his speech titled ‘The Globalisation of Gas,’ al-Muhannadi examined the LNG industry’s changing market dynamics, focusing on the past decade’s rapid increase in production capacity and liquidity, and ever-growing global LNG demand. Given this significant increase in global demand, al-Muhannadi indicated that under supply could be the market reality in the early 2020s “if no new projects are sanctioned”. “As the global market for LNG continues to evolve, we must remember that it is still a business that requires significant capital investment in both the upstream and downstream. In order for companies to succeed in the new global market, they will require a long-term vision and the resilience to overcome short-term uncertainty,” he said. RasGas exports to countries across Asia, Europe and the Americas with a total LNG production capacity of approximately 37mn tonnes a year. More than 2,000 participants are attending the LNG 18 Conference, where worldwide industry leaders will address the evolving technological, commercial, social and environmental challenges facing the LNG industry.

Al-Muhannadi speaking at LNG 18 International

Conference and Exhibition in Perth, Australia.




QP highlights Qatar achievements at LNG 18 in Australia Gulf Times

Qatar Petroleum (QP), along with its joint venture companies, RasGas and Qatargas, took part in the “18th International Conference & Exhibition on Liquefied Natural Gas (LNG 18)” held in Perth, Australia.

LNG 18 is considered the premier event for the world’s LNG industry as it features the largest number of high-level LNG industry leaders as plenary speakers. The four-day event is presented by the International Gas Union (IGU), the Gas Technology Institute (GTI), and the International Institute of Refrigeration (IIR), with the support of the Australian Petroleum Production & Exploration Association (Appea).

QP joined other major oil and gas companies exhibiting at LNG 18 at the Perth Convention and Exhibition Centre. The QP exhibition stand showcases the activities of the corporation’s Industrial

Cities Directorate, as well as the operations of Qatargas and RasGas, the “Global Sponsor” of the event.

The stand prominently highlights the state of Qatar’s current standing as the world’s No 1 producer and exporter of LNG, with its 77mn tonnes per annum (mta) of production capacity. The delegation from Qatar is headed by Hamad Mubarak al-Muhannadi, CEO of RasGas, who delivered a speech at the event’s

second plenary session on “The Globalisation of Gas.” Many members of the Qatari delegation are attending the LNG 18 conference, with two senior officials from Qatargas also set to deliver presentations in the commercial and special interest streams of the conference sessions. Their presentations focused on the incentives needed to meet future LNG demand and their programme for effective flare reduction in the industry.

LNG 18 has attracted the participation of over 5,000 industry professionals from over 60 countries from across the world. In addition to the conference and exhibition, the event also features workshops, a training course on the basics of LNG, poster sessions, a student forum, networking opportunities, and technical tours to major LNG facilities in Australia.

The overall theme of the event is “Redrawing the Global Map of Gas” to emphasise the changing LNG market realities due to various factors such as international trade, geopolitics, technological innovations, investments, and regulations.

First launched in Chicago, Illinois in 1968, the “International Conference & Exhibition on Liquefied Natural Gas” is organised every three years, and the 14th edition of the event was hosted in Doha in 2004. The next event, LNG 19, will be held in Shanghai, China, on April 1-5, 2019.

legation from QP and joint venture companies, RasGas and Qatargas, during the

LNG 18 Conference in Perth, Australia




Oman: Masirah Island wind power project go on Oman Observer - Conrad Prabhu

By Conrad Prabhu — MUSCAT: April 13: The wholly government-owned Rural Areas Electricity Company (RAECO), a subsidiary of The Electricity Holding Company (Nama Group), is moving ahead with plans for the establishment of a pilot wind-based power project on Masirah Island off the Sultanate’s eastern seaboard.

The proposed 1.7 megawatt (MW) capacity project is expected to be Sultanate’s first commercial wind-powered plant with an implementation timeframe that is set to precede the much-anticipated 50 MW Wind Farm project planned at Thamrait in Dhofar Governorate. The latter scheme, originally planned for launch by 2017, is being jointly implemented by RAECO and Masdar (an investment vehicle of the Abu Dhabi government) at a cost of $125 million.

According to a senior RAECO executive, the Masirah Wind Power project will be developed by Gulf Renewable Energy (GRE MENA), a subsidiary of US-based Southern Energy Partners which is behind a string of renewable projects in a number of countries around the world.

GRE MENA was selected by the Authority for Electricity Regulation Oman to implement the Masirah Wind Energy pilot as part of the government’s efforts to reduce diesel consumption for electricity generation in areas covered by RAECO.

“The Masirah pilot project will be implemented soon as part of a hybrid solution combining wind generation capacity and RAECO’s existing diesel based capacity on the island,” said Khalil al Mandhari, Renewable Energy Specialist at RAECO.

“The technical and financial submissions of the developer are currently under review, and the proposal is for 1.7 MW of capacity consisting of two wind turbines.

These turbines are connected to RAECO’s existing system on Masirah Island,” Al Mandhari stated in a presentation on the company’s Renewable Energy strategy at a symposium titled ‘Energy




Solution — Made in Germany’, held at the Grand Hyatt Muscat on Tuesday. According to the official, tenders are also due to be floated shortly for a pair of hybrid photovoltaic and diesel based power plants at two locations within RAECO’s sprawling jurisdiction.

The sites, said Al Mandhari, have been chosen from six locations recommended by international consultant CESI as feasible for the establishment of renewable energy capacity. Plans drawn up by RAECO envisage photovoltaic based plants of 2-3 MW capacity operated in conjunction with diesel capacity to ensure uninterrupted electricity supply especially when renewable capacity is inadequate to meet demand, notably during the hot summer months.

“Competitive tenders will be floated very soon for these two projects after getting the necessary approvals,” said Al Mandhari. “The proposed hybrid system will help displace diesel as the primary fuel for electricity generation in these areas, as well as reduce the run-time of diesel plants, the operation and maintenance of which are far from optimal for a variety of reasons,” the official stated.

Oman’s maiden commercial-scale solar based venture, which came on line in Al Mazyounah in Dhofar Governorate last year, continues to perform commendably, according to the official. The 300-kilowatt capacity plant, which combines thin film and polycrystalline technologies, is helping inspire new renewable energy initiatives elsewhere around RAECO’s vast jurisdiction, he said.

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UK: Premier Oil announces first oil from the Solan field Source: Premier Oil Premier Oil has announced that first oil from the Solan field, located West of Shetland, was safely achieved on 12th April 2016. The first producer well (P1) is being naturally flowed at a deliberately restricted initial rate. It is planned that the well will remain free flowing for a short time after which the ESP (pump) will be turned on.

Following this initial period and, taking advantage of the availability of the Superior Flotel, over which Premier has contractual options until the end of May, Premier intends to carry out a planned production shut down to complete the final commissioning of the water injection plant, the tie in of the second water injection well (W2) and preparation for the tie in of the second producer well (P2).

The Ocean Valiant rig is currently drilling the second producer well (P2y), where 1,500ft of high quality reservoir sands have been intersected and which is expected to be completed and tied-in by mid-year. Production from the field is expected to build up to an anticipated production rate of 20-25 kbeopd in the second half of 2016 when both pairs of producer-injector wells will be on stream.




Nigeria: Lekoil announces successful well test at the Otakikpo Marginal Field in the Niger Delta… Source: Lekoil AIM-listed Lekoil, the oil and gas exploration and development company with a focus on Africa, has announced an update on operations from the Otakikpo Marginal Field. The Otakikpo-002 well flowed oil from two upper zones during two production tests concluded on 10 April 2016. The C5 zone flowed at a peak rate of 6,404 bopd at a 36/64 choke while the C6 zone successfully flowed oil at a peak rate of 5,684 bopd at a 36/64 inch choke, for over 24 hours.

Production testing at the well was curtailed due to storage capacity limits on well-testing equipment. The Company expects to start commercial production by the end of Q2 2016.

As previously announced on 7 September 2015, the lower E1 zone produced from the first of four planned production tests, flowing oil at various choke sizes for over 24 hours at a peak rate of 5,703 bopd at a 36/64 inch choke.

However, during completion operations the well encountered cementing issues resulting in the temporary suspension of the E1 zone to allow remedial work to take place. To keep Phase 1 of the Field Development Plan ("FDP") on track and under budget, the Company prioritised production from the second and third planned production zones, in the C5 and C6 reservoirs, and will pursue development options for the E1 zone in the future. The encouraging flow tests of upper zones, C5 and C6, reconfirm the sizeable potential of the oil field.

Following the completion of Otakikpo-002, well re-entry operations on Otakikpo-003 are expected to begin later in Q2 and will target the E1 and C5 zones. The Company expects to commence commercial production from Otakikpo-003 in Q3 2016 and expects to be producing 10,000 bopd by year-end 2016. The facilities construction and permits are at an advanced stage to meet the Company's timeline for commercial production.

As previously announced, the Addendum to the Competent Persons Report prepared by AGR TRACS International indicated Lekoil expected to produce a total of 6,000 bopd from four production strings at Otakikpo-002 and -003. Based on combined preliminary results from testing in three zones, the Company reconfirms that it expects this production estimate is likely to be significantly exceeded.

Following the conclusion of Phase 1 of the FDP, which is expected by the end of 2016, the Company will then proceed to Phase 2 with new wells planned to bring aggregate production to a targeted estimated 20,000 bopd by the end of 2017.




US:Retail gasoline prices this summer expected to be lowest since 2004 Source: U.S. Energy Information Administration, Short-Term Energy Outlook April 2016

The U.S. Energy Information Administration forecasts that U.S. drivers will pay an average of $2.04 per gallon (gal) this summer for regular gasoline, according to EIA's Short-Term Energy and Summer Fuels Outlook. The forecast price for summer 2016 (which runs from April through September) is 59 cents/gal lower than the average price last summer, and it would be the lowest average summer price since 2004. Monthly average gasoline prices are expected to increase to $2.08/gal in June, then fall to $1.93/gal in September.

In the United States, slightly more than half of the vehicle-miles driven in a year occur in the six months from April through September. For the full-year 2016, EIA forecasts U.S. regular gasoline prices to average $1.94/gal. Based on this annual average price, EIA estimates the average household will spend about $350 less on gasoline in 2016 than in 2015 and about $1,000 less than in 2014, when retail gasoline prices averaged more than $3/gal.

Gasoline prices have four main components: crude oil prices, wholesale margins, retail distribution costs, and taxes. Because the latter two are generally stable, movements in gasoline prices are primarily the result of changes in crude oil prices and wholesale margins. Each dollar per barrel of sustained price change in crude oil and/or gasoline wholesale margins results in a change of 2.4 cents/gal in product prices.

Gasoline prices in the United States typically reflect changes in the Brent global oil benchmark. The Brent crude oil price is forecast to average $35/barrel (83 cents/gal) this summer, about $22/barrel (50 cents/gal) lower than last summer. Crude oil prices are lower this year because global oil supplies have continued to exceed consumption,leading to persistently large inventory builds. EIA expects these inventory builds to persist through 2016, keeping crude oil prices below $40/barrel.

EIA expects wholesale gasoline margins (the difference between the wholesale price of gasoline and the Brent crude oil price) will average 47 cents/gal this summer, about 13 cents/gal lower than last summer. Gasoline production has been higher recently, and several of the severe refinery outages that caused high prices last summer (particularly on the West Coast) have since been resolved or accommodated by obtaining supply from other sources. Regional differences in retail gasoline prices can be significant, and EIA forecasts average summer prices to range from a low of $1.80/gal on the Gulf Coast to $2.51/gal on the West Coast.




NewBase 14 April 2016 Khaled Al Awadi

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

Oil hold to WTI at 41.3 and Brent at 43.6 ahead of producer meeting Reuters + NewBase

Oil prices holding / slightly fell on Thursday 14/04/2016 as OPEC warned of slowing demand and Russia hinted that there would only be a loose agreement with little commitments at the upcoming exporter meeting to rein in ballooning oversupply.

Meanwhile, Goldman Sachs said that productivity gains by U.S. shale producers were keeping alive its "deflationary outlook" for oil prices as drillers manage to adjust to lower prices instead of going out of business.

Brent crude futures LCOc1 were at $43.66 a barrel at 0123 GMT, half a dollar, or 1 percent, below their last close. U.S. West Texas Intermediate (WTI) futures CLc1 were also down 1 percent at $41.60.

Russian oil minister Alexander Novak told a briefing that a deal on an output freeze scheduled this weekend will be loosely-framed with few detailed commitments. "The agreement will not be very rigidly formulated, it is more of a gentlemen's agreement," one of those present said, paraphrasing Novak's words at the gathering.

A second person present said: "there is no plan to sign binding documents."

This would make it unlikely that the meeting by top exporters in Qatar on Sunday will successfully rein in production of around 2 million barrels per day (bpd) of crude in excess of demand.

Oil price special

coverage




Morgan Stanley said in a note that "we think any agreement actually sets up bearish catalysts for the months ahead."

With the likelihood of a binding freeze by the Organization of the Petroleum Exporting Countries (OPEC) and Russia fading, analysts will look to the U.S. oil industry to see if lower drilling will result in falling production.

Here too, the outlook is for production to remain higher than many expected.

"Shale productivity gains remain a key driver of our long-term deflationary outlook for oil prices," said Goldman Sachs.

"Our analysis of shale productivity... (is) broadly in line with our expectations for 3 percent to 10 percent yoy (year-on-year) increases," it added.

With no end in sight to the supply glut, much will depend on demand to determine the size of the market's oversupply.

While demand has been strong, supported largely from Asia, OPEC on Wednesday cut its 2016 forecast for global demand growth and warned of further reductions.

World demand will grow by 1.20 million bpd in 2016, OPEC said in its monthly report, 50,000 bpd less than expected previously.

"Economic developments in Latin America and China are of concern... Current negative factors seem to outweigh positive ones and possibly imply downward revisions in oil demand growth."

Morgan Stanley pointed to several bearish risks for oil, including "significant selling pressure from producer hedging if prices rise... (and) reemerging macro headwinds."

The bank said it was "bearish oil prices into 2H16" and that "sustaining a price above $45 WTI in the front will be difficult... into 2017."




OPEC Cuts 2016 Oil Demand Growth Forecast, Warns Of More by Reuters|Alex Lawler

OPEC on Wednesday cut its forecast for global oil demand growth in 2016 and warned of further reductions citing concern about Latin America and China, pointing to a larger supply surplus this year. The Organization of the Petroleum Exporting Countries also said top exporter Saudi Arabia kept output steady in March - a sign Riyadh is serious about a plan to be discussed this weekend to freeze output and support prices - while OPEC supply overall rose only slightly. World demand will grow by 1.20 million barrels per day (bpd) in 2016, OPEC said in its monthly report, 50,000 bpd less than expected previously. It also cited the impact of warmer weather and the removal of fuel subsidies in some countries.

"Economic developments in Latin America and China are of concern," OPEC said. "Current negative factors seem to outweigh positive ones and possibly imply downward revisions in oildemand growth, should existing signs persist going forward." OPEC's view contrasts with that of the U.S. Energy Information Administration, which on Tuesday raised its demand forecast slightly. A third closely watched oil report, from the International Energy Agency, is due on Thursday. A big slowdown in demand could complicate producers' efforts to bolster prices by freezing output. The plan, to be discussed on Sunday in Doha, has helped oil prices to rally above $41 a barrel from a 12-year low close to $27 hit in January. OPEC's refusal to cut output in late 2014 helped accelerate a drop in prices, which is slowing the development of relatively expensive rival supply sources such as U.S. shale oil and other projects worldwide. In its report, OPEC said it expected supply from outside the group to fall by 730,000 bpd this year, more than the 700,000-bpd drop expected previously. But it reiterated that producer efforts to maintain output were making the forecast uncertain. Despite the slightly larger non-OPEC decline expected, OPEC projects demand for its crude will average 31.46 million bpd in 2016, down 60,000 bpd from last month's forecast.




The 13-member group pumped 32.25 million bpd in March, the report said citing secondary sources, up 15,000 bpd from February. Saudi Arabia told OPEC it kept output in March steady at 10.22 million bpd. Riyadh in February struck a preliminary deal with fellow OPEC members Venezuela and Qatar, plus non-OPEC Russia, to freeze output. Iran, which wants to regain market share after the lifting of Western sanctions on Tehran rather than freeze output, told OPEC it raised output by a minor 15,000 bpd to 3.40 million bpd. The report points to a 790,000-bpd excess supply in 2016 if the group keeps pumping at March's rate, up from 760,000 bpd implied in last month's report.

NewBase Special Coverage

News Agencies News Release 14 April 2016

Exxon Says `$25 Billion Rule' Will Sink Deepwater Oil Drilling Bloomberg - Joe Carroll

The world’s biggest oil explorers are fighting a U.S. plan to toughen offshore drilling rules that Exxon Mobil Corp. said will cost $25 billion over 10 years and render many offshore discoveries worthless.

The Obama administration is expected to issue the sweeping new regulations Thursday, a person familiar with the decision said, as part of an effort to reduce the number of well blowouts after the explosion aboard the Deepwater Horizon rig in 2010. The government has pegged the rules’ costs at less than $1 billion.

The changes would arrive amid the worst oil slump in a generation. ConocoPhillips and Chevron Corp. have already abandoned some Gulf prospects because they wouldn’t be profitable at current prices. If the proposals are enacted, exploration outlays in the Gulf will tumble by 70 percent over the next two decades, wiping out as many as 190,000 jobs, according to consulting firm Wood Mackenzie Ltd.

“The Gulf of Mexico is already in a deep downturn as a result of lower oil prices,” said Robin Shoemaker, an industry analyst at Keybanc Capital Markets Inc. “Oil companies and the service providers are trying to come up with ways to reduce costs so the idea that they can absorb any additional expenses -- they’re not in that ballpark at all.”




The regulations, first proposed last year, have been in the final stage of review by the White House Office of Management and Budget. The proposal restricts the fluids pumped into wells, require redundant safety devices and stipulate continuous monitoring from shore. They’re needed because well blowouts have continued at about the same rate as before the explosion at BP Plc’s Macondo well in 2010 that killed 11 and spewed millions of gallons of crude, the government says.

Environmental groups say the new rules don’t go far enough to safeguard marine life and the people who depend on it for their livelihoods. Friends of the Earth has called on the government to halt all auctions of offshore drilling leases.

“There’s no such thing as safe offshore drilling,” said Marissa Knodel, a climate campaigner for the Washington-based group. “Tougher rules aren’t going to mitigate the human and environmental costs of allowing more drilling to occur.” Government Shortcomings

In a closed-door meeting last month, BP, the largest driller in the U.S., said the government underestimated the time and complexity needed to implement the rules, ignored the reduced production and stranded reserves that would result, and added unneeded operations that could boost risks rather than decrease them. The comments came in slides Exxon presented at the meeting and were posted on a government website.

The Deepwater Horizon disaster looms large over federal attempts to tighten requirements. The blowout at the $153 million well sank a $365 million drillship, paralyzed the Gulf region for months and cost BP more than $40 billion in penalties, compensation and restoration costs.




Exxon, in the closed-door meeting with White House and Interior Department officials on March 7, outlined its assertion that the rules will cost $25 billion and argued they would increase the danger of a blowout by wresting decision-making from on-site engineers with decades of experience. Increasing Risk

Some rock formations can’t handle the heft of drilling fluids that would be required, while the proposal for pouring cement around the steel pipe lining a well would boost the risk of dangerous air pockets and cracks, according to slides Exxon presented at the meeting.

Emily Cain, an Office of Management and Budget spokeswoman, declined to comment. Bill Holbrook, an Exxon spokesman, also declined to comment for this article.

“It is abundantly clear that despite post-Macondo improvements in safety and technological advancements, there are still issues that must be addressed,” Brian Salerno, director of the Bureau of Safety and Environmental Enforcement, said in December testimony before the Senate Energy and Natural Resources Committee.

In 2013 and 2014, drillers in the Gulf lost control of eight and seven wells, respectively, according to Salerno. One incident resulted in a blowout “that caused a massive explosion and fire on the rig,” he told the senators. More Dire

Exxon’s $25 billion warning isn’t even the most dire forecast out there. An analysis conducted by consulting firms Quest Offshore and Blade Energy Partners on behalf of the industry-funded American Petroleum Institute estimated extra costs over 10 years at $31.8 billion and result in the the loss of the equivalent of 500,000 barrels of crude a day by 2030.

Crude output from the U.S sector of the Gulf will reach a record 1.91 million barrels a day by the end of next year as discoveries dating as far back as 2005 come online after years of design, drilling and construction work, the Energy Information Administration said last month.

In the March 7 meeting, Exxon cited an industry review of 175 Gulf wells drilled since 2010 that concluded 63 percent couldn’t be drilled as designed if the new rules had been in place.

Other explorers, rig operators and equipment makers who sought and conducted closed-door meetings with bureau personnel included Chevron, Royal Dutch Shell Plc, Halliburton Co., Murphy Oil Corp., GE Oil & Gas, National Oilwell Varco Inc. and Transocean Ltd., according to attendance logs published on the government website.

A requirement that would set a safe drilling margin was a major point of contention. Concerns evolved over time, and, in the end, were less about the provision and more about how the agency would interpret it.

“We heard them loud and clear that that was a big issue,” Allyson Anderson Book, associate director of the Bureau of Safety and Environmental Enforcement, said. “We have taken that to heart,” she said, “and I think it will help them down the road when they have an understanding of how it would be implemented.” C R E D I T : R E Z A / C O N T R I B U T O R




Saudi Oil Gambit Moves to Phase Two , more drilling Bloomberg - Julian Lee

There's an oil supply crunch looming and Saudi Arabia and its local allies are positioning themselves to take advantage.

In what would be the second phase of the kingdom's strategy to defend its market share against rival producers (most visibly U.S. shale), Gulf states are planning to raise output capacity to fill the hole left by the lack of investment in new projects elsewhere.

It may seem odd talking about an oil shortage when the world seems awash with the stuff and storage tanks are brimming, but listed oil companies are slashing spending for the second year running, leading the International Energy Agency's Neil Atkinson to warn of possible oil-security surprises in the “not too distant” future.

There are too few new projects being sanctioned by non-state oil companies to offset the inevitable decline in output from existing fields and to meet additional demand. This is expected to increase by 1.2 million barrels a day each year for the rest of the decade. New fields due to start producing this year and next are the result of investment decisions taken when oil was about $100 and expected to stay there.

The collapse in company spending is illustrated perfectly by the level of drilling activity. After all, if you don't drill, you can't get the oil out of the ground.

Drilling Collapse

In March, the worldwide rig count hit its lowest level since September 1999




Data exclude Russia and China throughout, Iran from 2006 onwards and Iraq before June 2012

Baker Hughes updated its monthly international drilling statistics last week. Unsurprisingly, they showed another steep drop in rigs drilling for oil, a 12 percent decline between February and March. There were 1,551 rigs active last month in the countries covered by Baker Hughes, the least since September 1999 and down nearly 60 percent in little more than a year.

But one part of the world is bucking the trend and drilling furiously to add the capacity needed when demand once again exceeds supply. Three countries on the Arabian Peninsula -- Saudi Arabia, Kuwait and the United Arab Emirates -- are seeing near-record drilling rates.

Arabian Surge

The number of rigs drilling for oil in three Arab countries has more than doubled since 2010

All three saw drilling reach at least 20-year records in 2015 and activity remains close to that peak. An expansion at Saudi Arabia's Shaybah field should add 250,000 barrels a day as early as June, while the Khurais field could contribute another 300,000 barrels by the end of 2017. State-owned Saudi Aramco says this will let it ease pumping from older fields yet maintain a production capacity of more than 12 million barrels per day, 2 million barrels above its current rate.

For Kuwait and the U.A.E., the goals are even higher. Kuwait plans to raise production capacity by 5 percent from 3 million barrels a day by the third quarter, and to reach 4 million barrels by 2020. Abu Dhabi means to lift production capacity to 3.5 million barrels a day by 2017 from about 3 million.

For Saudi Arabia the expansion is as much about gas as oil. The number of rigs drilling for gas there has jumped from about 20 in early 2013 to 60 last month, as the country tries to develop its own resources to support a growing petrochemicals industry and free up oil for export.




The first part of Saudi Arabia's "market share" strategy saw it refuse to continue cutting output to prop up high-cost producers elsewhere. As a result, U.S. production has fallen by about 600,000 barrels a day from its recent peak and other high-cost areas are following.

The Saudis may not have announced part two of the strategy yet, but it's well underway.

A record number of rigs are drilling for oil and gas on the Arabian peninsula even as drilling in the rest of the world tumbles in response to low prices. There were almost 290 rigs active in Saudi Arabia and the neighbouring states of Kuwait, the United Arab Emirates and Oman in March, according to oilfield services company Baker Hughes. The rig count has increased by 50 since oil prices started to fall in mid-2014 and has almost doubled over the last five years (http://tmsnrt.rs/1TQYcXj). As a result, the Arabian peninsula now accounts for nearly 30 percent of all active rigs outside North America, up from less than 18 percent when the slump began (http://tmsnrt.rs/1TQYkG7). Saudi Arabia alone had 127 operating rigs in March, with 67 targeting primarily oil-bearing formations and 60 hunting for gas (http://tmsnrt.rs/1TQYq0t). Some analysts suggest the drilling uptick is part of Saudi Arabia's strategy of defending or even increasing its oil market share ("Saudi oil gambit moves to phase two", Bloomberg, April 10). There have even been suggestions the kingdom is reviving its previously abandoned plan to raise capacity from 12.5 million to 15.0 million barrels per day ("Saudi Arabia is on a drilling binge", Quartz, April 12). But it is at least as likely the increase in drilling is driven by the need to replace declining output from mature fields and the need to develop new sources of gas for power generation.

Twilight In The Desert Writing about Saudi Arabia's oil reserves, future production and spare capacity is a professional graveyard for oil analysts. Ten years ago, respected oil analyst Matthew Simmons wrote an alarming book about the depletion of Saudi oil reserves and its impact on the global economy ("Twilight in the desert", Simmons, 2005). On the basis of a detailed study of field production records, Simmons argued the Saudis were overstating the remaining recoverable reserves and would struggle to maintain let alone increase their output in future. As oil prices surged between 2004 and 2008, Simmons' book provided powerful ammunition for analysts convinced global oil supplies were peaking. Subsequent events proved Simmons wrong, as Saudi Arabia increased oil and gas production to record levels and appeared to have no difficulty sustaining them.




Simmons also missed the advent of the shale revolution in North America which added significantly to global reserves and production. However, even if concerns about reserves have receded, there is still persistent uncertainty about just how much spare production capacity there really is in Saudi Arabia. No one knows for certain just how much more crude the kingdom could produce in an emergency if the order was given to open all the wells to the maximum. Almost nothing is reported publicly about how much is produced from each field, how much they could produce if the spigots were opened fully, and how much still remains to be produced. Field production and reserve figures are closely-held state secrets. It is not even clear if the Saudis themselves have accurate data on reserves and spare capacity. Saudi Reserves Conundrum Saudi Aramco declares it has 267 billion barrels of remaining recoverable oil reserves, a figure which has remained unchanged since 1988/89 (http://tmsnrt.rs/1TQYq0D). Since then, the kingdom has produced 92 billion barrels of oil, which implies it has added a similar amount to the reserve base ("BP Statistical Review of World Energy", 2015). The kingdom has not discovered any new super-giant fields since the 1960s but it is not unusual for reserves in existing fields to be revised upwards as a result of better estimates and improvements in technology. In many countries, reserve growth from existing fields has exceeded the volume of new field discoveries ("Reserve growth in oil and gas fields", USGS, 2013). But Saudi reserves have remained unchanged for almost 30 years despite shifts in technology and oil prices, which would have produced some variation if they were calculated according to normal commercial standards for "proved reserves". Most analysts treat Saudi Arabia's declared reserves as a placeholder. The kingdom clearly has large reserves but just how big no one knows. Following talk about a part-privatisation of Saudi Aramco at the start of the year, many commentators attempted to put a valuation on the company using its declared reserves of 260 billion barrels. The reality is that we have no idea how much oil the country could eventually produce because everything about the production system is shrouded in secrecy. As a result, Aramco's upstream production assets could never be included in any normal stock market listing since there is no reserve basis on which to value them. Sustaining Production The majority of the kingdom's output comes from fields that have been producing for decades and are increasingly mature.




Among the big oilfields, Dammam was discovered in 1938, Abqaiq in 1940, Qatif in 1945, Ghawar in 1948, Safaniya in 1951, Khursaniya in 1956, Khurais and Manifa in 1957, Berri in 1964, Zuluf in 1965, Jana, Karan and Marjan in 1967, and Shaybah in 1968 ("Trek of the oil finders", American Association of Petroleum Geologists, 1975). Not all these fields were put into production immediately but most have been producing for several decades. As is normal, the natural reservoir energy in all the major fields has declined and the oil-to-water production ratio is falling. Saudi Aramco and its contractors have sustained production by drilling additional wells and employing enhanced oil recovery techniques to sweep the remaining oil towards the wells. But the older fields like Ghawar must be coming under increasing pressure as they enter their fifth and sixth decades. At the same time, Saudi Arabia has been increasing its total production to meet rising demand from domestic consumers and defend its share of export markets. Saudi Arabia raised crude production from an average of 7.6 million barrels per day in 2002 to 9.7 million in 2014 and 10.3 million in the third quarter of 2015, according to the U.S. Energy Information Administration. Sustaining production at these rates and even increasing it has required a Herculean effort to offset the natural field declines. Drilling has been rising for two decades as the kingdom seeks to squeeze more oil from its ageing fields and develop more natural gas for power generation to conserve oil for export. In this context, it makes sense to increase development and production from newer and less-developed fields like Shaybah and Khurais to ease the pressure on older fields like Ghawar. By reducing production pressure on old fields, Saudi Aramco plans to extend their lives and increase the amount of oil ultimately recovered from them. Saudi Aramco has taken advantage of the global downturn to secure big cuts in drilling fees from its contractors. The problem is that increased output and capacity at newer fields tends to be announced but declining output and capacity from older fields remains secret. Without accurate statistics on production and reserves for individual fields, it is impossible to know how much of the drilling is adding net production capacity and how much is offsetting field declines. But it seems safe to assume that at least part, perhaps a big part, of the increased drilling reported over the last decade is being driven by the need to sustain production in the face of heavy exporting from ageing fields. The same is true across the other countries on the Arabian peninsula: more drilling is needed to offset the natural decline in output from ageing fields.




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

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