New base 496 special 14 december 2014

Copyright © 2014 NewBase www.hawkenergy.net Edited by Khaled Al Awadi – Energy Consultant All rights reserved. No part of this publication may be reproduced,
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NewBase 14 December 2014 - Issue No. 496 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
GCC Rail, Metro Conference ’15 presents investments for SMEs
Saudi Gazette + NewBase
As much as $149 billion worth of rail projects are in the planning or construction stages in
the Arabian Gulf up to 2030, according to Zawya data. These projects include plans for
national railway systems, city rail systems or metros, and trams.
Some of these will ultimately converge to form part of the ambitious GCC Rail project,
which aims to unify the region and enhance people connectivity and freight movement.
Since conservative budget projections have always left room for larger surpluses, it firmly
underpins the GCC governments’ wider commitment to sustaining long-term development
in infrastructure, education, healthcare and social and economic projects in keeping with
the growing demographics in the region.
The population of the six Arabian Gulf countries is expected to grow to 49.4 million in
2016, according to research by Riyadh-based Samba Financial Group. The Sultanate of
Oman, represented by the Ministry of Transport and Communications, will host the two-
day GCC Rail and Metro Conference 2015 on Jan. 11-12, 2015 at Al Bustan Palace Hotel,
Muscat.
The conference is the first joint event that endeavors to unite the GCC efforts in the rail
and metro industries and services towards sustainable development for the GCC
economies through maximizing the benefit from investment in this sector.

The conference will present the manufacturing, service and training opportunities available
for investors and the private sector including SMEs in all GCC projects. Further, the
conference will tackle the challenges facing the private sector to effectively participate in
the railways sector. It will also discuss developing policies and plans to overcome such
impediments and encouraging the private sector's participation.
Along with decision-makers in the rail and metro sectors in the GCC countries, elite
speakers and experts in the related industries, services and training will take part in the
conference.
The conference is the first joint event that endeavors to unite the GCC efforts in the rail
and metro industries and services towards sustainable development for the GCC
economies through maximizing the benefit from investment in this sector.
The conference will present the manufacturing, service and training opportunities available
for investors and the private sector including SMEs in all GCC projects.Further, the
conference will tackle the challenges facing the private sector to effectively participate in
the railways sector. It will also discuss developing policies and plans to overcome such
impediments and encouraging the private sector's participation.
Along with decision-makers in the rail and metro sectors in the GCC countries, elite
speakers and experts in the related industries, services and training will take part in the
conference.

UAE: Alsa engineering to spend $100 million in expansion
+ NewBAse
Abu Dhabi: Alsa engineering and construction is planning to spend over $100 million in the next
18 months as part of its expansion strategy in the UAE. It is eyeing new projects and get into
offshore sector to increase its presence in the country. Chief executive officer, Gassan S Arbid
said that the company is growing from strength to strength.
“In the UAE, the next push from our side is to get into offshore. We acquired two million square
meters of land to start our work in shallow water pipe laying and fabrication,” Arbid told Gulf News.
The company, which is active in the oil and gas sector in Abu Dhabi, has completed projects
including supplying gas to Emal’s aluminium smelter plant and Ruwais refinery. “There are other
projects in the pipeline which we are bidding. They are good size projects. We are doing it on our
own as well as joining hands with our partners.”
The company is also planning to start its operations in Kuwait and Saudi Arabia by mid-next year.
According to Arbid, the biggest strength has been its workforce. “Sky is the limit if you have right
kind of people working for you. The company employs 2,500 people. We have camps in all the
major oilfield areas.”
On the falling oil prices and whether it would have any impact on the company’s operations, he
said that if the price slides below $65 per barrel then they might see some kind of impact. “Drop in
prices is good for oil producing countries because in the long run, it could put a break to shale oil
production as it is too expensive to operate,” he said.
Oil prices closed at $61.85 on Friday. The Organisation of Petroleum Exporting Countries (Opec),
cut the forecast for how much crude it will need to produce next year by about 300,000 barrels a
day to 28.9 million, the least since many years.
In January this year, the company was has been awarded the $300 million Abu Dhabi Company
for Onshore oil Operations (Adco) CO2 injection project. The 25-month project, Alsa’s biggest to
date — will see the company construct the facilities and pipelines to enable the first CO2 injection
project of its kind in the Middle East from Masdar to Rumaitha North and Bab Far North fields.
The growth of the company has been good over the years, he said. “We have never allowed
ourselves to grow beyond the level what we cannot maintain. We have been careful to take up a
project that fits into our capability and financial strength. The growth is coming. We will continue to
grow at a pace that we will be maintain without any difficulty.”

Kurds and Iraq reach significant deal to share oil revenues
The Kurdish Globe 2014 + NewBase
The Iraqi Government agreed to a long-term accord with the autonomous Kurdish Region to share
the country's oil wealth and military resources in a far-reaching deal that helps reunite the country
in the face of a bitter war with Islamic extremists.
The Iraqi Government agreed to a long-term accord with
the autonomous Kurdish Region to share the country's oil
wealth and military resources in a far-reaching deal that
helps reunite the country in the face of a bitter war with
Islamic extremists.
The deal settles a long dispute between Baghdad and
Erbil, the Kurdish capital, over oil revenue and budget
payments. In a news conference here Tuesday, Nechirvan Barzani, the Kurdish Region's Prime
Minister, alluded to the tensions of the Maliki era and praised Abadi.
Abadi's desire to reach an agreement was motivational,' he said. 'We hope to turn this into a new
chapter in the relations between Baghdad and Erbil, and we never accepted the threatening tone
which was commonly used before.'
Barzani added that the agreement includes 200 billion Iraqi dinars for the Kurdish Peshmerga
forces. 'The money which will be sent by Baghdad will not be counted on the KRG budget but on
the budget of Iraqi Defense Ministry,' he revealed.
'What we have done is not enough but it is a good beginning for solving other pending issues,'
Barzani said. 'I am happy with the agreement and it is a good achievement for all the parties.'
As the jihadists marched toward Baghdad in June, routing Iraqi Army forces, the Kurds took
control of Kirkuk and its rich oil fields. And they intensified efforts to market Kurdish oil
independently, arguing that the government had withheld payments to Kurdistan that were badly
needed to keep up the fight against the Islamic State in the army's absence.
Now, Prime Minister Haider al-Abadi's Government has agreed to pay the salaries of Kurdish
security forces, known as the Peshmerga, and will also allow the flow of weapons from the United
States to the Kurds, with the government in Baghdad as intermediary.
'Now the priority really is to confront ISIS,' Hoshyar Zebari, Iraq's Finance Minister, said in an
interview after emerging from the cabinet meeting to complete the deal after several days of talks.
In reaching a deal, Abadi, who has been Prime Minister for less than three months, has further
distanced his government from a legacy of bitter sectarian and ethnic division under his
predecessor, Nuri Kamal al-Maliki.
As the Prime Minister, Maliki deeply alienated the Kurds and enraged Iraq's Sunni Arab minority
with his confrontational personality and policies that were seen as exclusive and abusive. 'The
new team, under Abadi, is a cooperative team, a positive team,' said Zebari, a Kurdish politician
who was Iraq's Foreign Minister in the Maliki Government.

Reconciling Sunnis with the Central Government is widely seen as an essential step to retaking
land from the Islamic State. Mr. Abadi has backed a plan, supported by the United States, to set
up local National Guard forces that would fight alongside the Iraqi army.
But that plan has stalled, as have intermediate steps to arm Sunni tribes in the face of opposition
by some Shiite factions. Those factions worry that the Government would be raising a Sunni army
that could then turn on the Shiites.
The oil deal, which put a final imprimatur on a
temporary pact that was agreed to three
weeks ago, also represented a significant
victory for the United States, which has made
a priority of pushing the Kurds and the Central
Government to settle their political and
economic differences. American officials had
expressed fear that if the two parties did not
reach an arrangement, the country would
break up, with the Kurds pushing forward on
longstanding ambitions for independence. The
deal also appeared to be a blow to the
ambitions of Turkey, which had positioned
itself as the saviour of the Kurds by reaching
deals during the impasse of the Maliki years in
which the Kurds would export their oil and gas
unilaterally through Turkey. Those agreements were considered illegal by Baghdad and the
United States. The rapprochement between Baghdad and the autonomous Kurdish region also
appeared to validate one element of President Obama's strategy in confronting the Islamic State:
the push for a more inclusive leader of Iraq. When the extremists swept into Mosul, Obama
decided that Maliki had to go before the United States would ramp up its military efforts against
the Islamic State.
He has removed corrupt officials and military officers who were seen as loyalists to Maliki, and has
reached out to Sunni Arab countries like Saudi Arabia that has historically been hostile to the
Shiite-led government here. He has even reduced his salary and those of his ministers, in a bow
to public anger over the compensation for lawmakers.
Under the deal, the Kurdistan region will provide 550,000 barrels of oil a day that will be sold
through government channels, with the proceeds divided between Baghdad and Erbil. This
includes 300,000 barrels a day from the disputed region of Kirkuk, which the Kurds took control
over in June after the onslaught by the Islamic State forced the retreat of Iraq's Army.
At a time when oil revenue is so critical to Iraq, the unlocking of those oil shipments may actually
have a temporarily negative effect for the country as a whole: with prices recently hitting a five-
year low, adding more Iraqi oil to a glutted market may drive them down even further, industry
experts say.
The deal signed also stipulates that Baghdad will permanently resume payments to the Region
which had been halted under Maliki that amount to 17 percent of the national budget, and another
$1 billion to pay for salaries and weapons for the Peshmerga, who are on the front lines fighting
ISIS, sometimes with Iraqi security forces and Shiite militias.

UAE:Italian firm( Maire Tech) wins $2.25bn Adco project
The National + NewBase
Italy’s Maire Tecnimont has won a US$2.25 billion contract for an oil and gas project from the Abu
Dhabi National Company for Onshore Oil Operations (Adco), the Milan-listed firm said on
Thursday. The contract is for
implementing process and associated
units for the Al Dabb’iya Surface
Facilities Phase III project in Abu Dhabi,
the company said. Adco, a unit of Abu
Dhabi National Oil Company (Adnoc),
operates the Al Dabb’iya field, which is
located 40 kilometre south-west of the
capital.
The project is part of Adco’s North East
Bab development programme and
includes gathering crude oil through a
network of pipelines, oil and gas export
pipelines and a central process plant,
the company said.
“For its magnitude and technical
standing, this can be considered Maire
Tecnimont Group’s flagship project in terms of oil and gas business experience, following the
successful completion of Gasco Habshan 5,” the firm said. “Moreover, it will consolidate the long
lasting presence in the country and will represent the top reference for the group.”
Pierroberto Folgiero, the firm’s chief executive, said the project confirmed Maire Tecnimont’s
strategy of pursuing opportunities in “selective, well known geographies”. In March the firm won a
contract to develop facilities for a petrochemicals complex in Egypt worth between $1.7bn and
$1.95bn. The project is split evenly with the Dutch group Archirodon.
Adco is set to invest up to $7bn to meet its production target of 1.8 million barrels per day (bpd) by
the end of 2017 from the current capacity of 1.6 million bpd. Adco operates the largest onshore
oilfields, which are currently responsible for about 40 per cent of the country’s output of 2.8 million
bpd. The country aims to increase its total output to 3.5 million bpd by 2017.
Adnoc took 100 per cent ownership of the onshore fields when the concessions with major oil
companies expired in January after 75 years. The most pressing issue for reaching the 2017
target is the renewal of the concessions and any uncertainty surrounding their tenure and the
partners that will be involved, analysts have said.
“[The Italian producer] Eni is keen to be a part of the UAE market and made an excellent technical
offer [to Adnoc], and we await the decision of the UAE authorities,” said Giorgio Starace, Italy’s
ambassador to the UAE.
“These are all strategic agreements that are in the framework in the growing bilateral partnership
between Italy and the UAE,” he said after the announcement of the Maire Tecnimont deal, which
he said gave “prestige” to Italian companies looking to work in the region.

GCC energy subsidy lowest in Qatar at 5.5% of GDP: StanChart
Gulf Times + NewBase
Energy subsidy in the GCC region is the lowest in Qatar at 5.5% of the country’s gross domestic
product, a new report has shown. Saudi Arabia has a very high energy subsidy, totalling nearly
11.5% of the kingdom’s GDP, shows a report by Standard Chartered bank.
In the case of Saudi Arabia, the bank estimates that energy subsidies may cost $71bn in 2014
alone. For the GCC (Gulf Co-operation Council) as a whole, the bill has been estimated at $150bn
for this year. “Energy-subsidy reform should be a regional priority in 2015 given the tighter fiscal
environment,” StanChart said in its “Global focus 2015”.
The International Monetary Fund estimates that energy subsidies in the Mena (Middle East and
North Africa) region totalled nearly $237bn in 2011, equivalent to 8.6% of regional GDP, 22% of
government revenues, and 48% of global energy subsidies. “Subsidies create distortions. The
current strategy of providing household energy subsidies in order to encourage lower fuel and
energy consumption is ineffective,” the bank said.
In wealthy oil-exporting countries like in the GCC, the benefit of fuel subsidies is questionable.
This is especially true given high per-capita GDP and the fact that even in the absence of
subsidies, oil prices would still be significantly lower than anywhere else in the world (without
subsidies) due to the tax-free environment, it said.
Subsidies in the GCC place a burden on budgets, especially in an environment of falling oil prices,
StanChart said. “With GCC countries committed to improving infrastructure and diversifying their
economies, energy-subsidy reform should be considered in order to free up energy and fiscal
resources for more productive investments,” the report said.
Steps are being taken to rationalise subsidies, it said. Egypt and Jordan have already moved to
reduce power and energy
subsidies, and Abu Dhabi has
announced higher utility tariffs as
of 1 January 2015.
In Saudi Arabia, policy makers
are discussing the possibility of
adopting smart tariffs that apply
energy subsidies according to
income brackets. While more
needs to be done, these are
steps in the right direction.
“The recent decline in oil prices is a timely reminder that government expenditure cannot rise
indefinitely,” StanChart said. It also highlights the fact that while there has been a strong push to
diversify GCC economies, government revenues remain heavily dependent on oil.
“In our view, diversifying sources of budget financing is a key step GCC countries can take to
mitigate the impact of lower oil prices. We have long argued that the region should be pushing
strongly to establish local-currency debt capital markets. “This would provide financing for
sovereigns and improve access to funding for local corporates and smaller businesses. As fiscal
surpluses fall and the potential for deficits increases, 2015 should be a year of greater progress
towards discipline and prioritisation of spending; tackling subsidies should be a starting point,” the
report said.

Qatar SNC-Lavalin , Kentz awarded four-year contract by Qatar Shell
SNC-Lavalin + NewBase
SNC-Lavalin is pleased to announce that Qatar Kentz, a member of the SNC-Lavalin Group, has
been awarded a four-year multi-million-dollar call-off contract, with a possible two-year extension,
by Qatar Shell for its Pearl Gas-To-Liquids (GTL) onshore and offshore facilities in Qatar.
As EPCM and construction contractor for onshore and offshore Pearl GTL facilities, Kentz will
manage the EPCM work for all services related to plant changes, as well as minor, base and
medium projects. This will include project management, engineering and specialist studies,
procurement and logistics, construction and commissioning management, and the execution of
construction works.
Located in Ras Laffan Industrial City, Pearl GTL is the world’s largest source of GTL products,
capable of producing 140,000 barrels of GTL products each day. The plant also produces 120,000
barrels per day of natural gas liquids and ethane. The new phase of the project will allow Qatar
Shell to continue to enhance local development.
The project award follows the acquisition of Kentz by SNC-Lavalin on August 22, 2014. The
acquisition of one of the world’s top oil and gas service providers has transformed SNC-Lavalin's
capabilities in the sector, creating a group of approximately 20,000 high-caliber employees with
end-to-end expertise for large and complex projects. SNC-Lavalin and Kentz are now combining
their industry leading capabilities for the direct benefit of clients.
“We are thrilled to have an opportunity to strengthen our excellent relationship with Qatar Shell,
which began with our first contract for Pearl several years ago,” said Christian Brown, President,
Oil & Gas, SNC-Lavalin Group Inc. “This is a highly strategic contract for us since we will be
providing complete EPCM services to our client as needed for at least four years.”

About SNC-Lavalin
Founded in 1911, SNC-Lavalin is one of the leading engineering
and construction groups in the world and a major player in the
ownership of infrastructure. From offices in over 50 countries, SNC-
Lavalin’s employees provide EPC and EPCM services to clients in a
variety of industry sectors, including mining and metallurgy, oil and
gas, environment and water, infrastructure and clean power. SNC-
Lavalin can also combine these services with its financing and operations and maintenance
capabilities to provide complete end-to-end project solutions. www.snclavalin.com
About Qatar Shell
Qatar Petroleum and Shell delivered two of the largest energy projects in the world in Ras Laffan
Industrial City. Pearl Gas to Liquids (GTL) is the world’s largest GTL plant and cements Qatar’s
position as the GTL capital of the world.
The Qatargas 4 Liquefied Natural Gas project (QP (70%) and Shell (30%)) combines Shell’s
global leadership in LNG with Qatar’s position as the world’s largest LNG supplier.
Shell has established a world-class research and development facility and a learning centre, the
Qatar Shell Research & Technology Centre, at the Qatar Science & Technology Park. Shell has a
financial commitment to invest up to $100 million on programmes at the Centre over a 10-year
period.
In December 2011 Shell and QP signed a HOA to jointly develop a world-class petrochemicals
complex in Ras Laffan Industrial City. For more information visit: www.shell.com.qa

UK: Wood Group secures major BP contract
Source: Wood Group + NewBase
Wood Group has been awarded a five year contract with an estimated value of $750million
from BP. Under the contract Wood Group PSN (WGPSN) will deliver engineering, procurement
and construction services to six UK continental shelf (UKCS) offshore upstream assets and the
Forties Pipeline System (FPS) onshore midstream facilities in Grangemouth.
Effective January 2015, the contract will create 150 new jobs and secure more than 700 existing
positions. This is WGPSN’s largest contract award in 2014 and includes an option for two, one-
year extensions.
WGPSN already provide engineering, procurement and construction services for six BP offshore
assets - Clair, Magnus, ETAP, Andrew, Bruce, and its new Glen Lyon FPSO which is currently
being constructed and is due to come online in 2016. This is the first time WGPSN has secured a
contract for the FPS onshore facilities and adds to the company’s current contract to support
BP’s Sullom Voe Terminal in Shetland.
Dave Stewart, UK managing director of WGPSN said:
'Wood Group has more than 40 years of experience working with BP globally and this new
contract is testament to the partnership and understanding we have developed. Providing this
combined service across upstream and midstream operations for the first time positions us well
for continued excellence in delivering safe, collaborative and innovative services directed at
maximizing productivity and efficiency across BP’s assets in the UK.'
In the UK, Wood Group now employs more than 10,000 people working onshore and offshore.

Finland grants EUR 27.6 mln for HaminaKotka LNG terminal
FME&E + NewBase
The Finnish Ministry of Employment and Economy has granted €27.6 million to support the
construction of an LNG terminal at the port of HaminaKotka.
Earlier this year, the Ministry granted financial support totaling €65.2 for three LNG terminals for
Manga LNG, Skangass and Aga AB.
The Finnish state set aside €124 million for investment in LNG terminals this year with the aim to
build a comprehensive network of terminals along the Finnish coast, creating the alternative
supply routes for the transportation industry, said Minister of Economic Affairs, Jan
Vapaavuori. The terminal is part of the country’s push to improve the infrastructure that would
enable the use of LNG in marine and road transport.
Hamina Energia plans to complete the terminal at the port of HaminaKotka by 2018. The terminal
would consist of one 30,000 cbm storage tank and the accompanyin g LNG receiving and
unloading facilities.

Oil Price Drop Special Coverage
Oil market free fall unbridled
THE carnage continues! Markets are in free fall. Benchmark US oil price dropped this week below
$60 a barrel for the first time since July 2009, whereas Brent for January settlement appeared
hovering at around $63 on the London-based ICE Futures Europe Exchange.
This was its lowest close since July 16, 2009. Crude took this fresh drubbing when, in view of the
surging US output, OPEC had to reduce the estimates of call on its crude for 2015 and Kuwait
offered new discounts to Asian customers, offering the biggest discount to its Asian customers
since December 2008.
It announced setting the price of its crude at $3.95 a barrel below a Middle East benchmark for
next month. Growing US crude output continued to add to the glut. US production expanded to
9.12 million barrels a day in the week ending December 5, the Energy Information Administration
reported. That’s the fastest rate in weekly records that started in January 1983, according to the
EIA.
Major stakeholders are also getting another message, clearly and boldly – global crude demand
growth is softening. Demand for crude from the Organization of Petroleum Exporting Countries will
drop next year by about 300,000 barrels a day to 28.9 million, the least since 2003, OPEC said in
a report last week.
In its monthly oil report, OPEC forecast for call on its output was down 280,000 bpd from its
previous expectation and over 1 million bpd less than it is currently producing. OPEC output was
30.56 million barrels a day in November, exceeding its target for a sixth straight month, a
Bloomberg survey of companies, producers and analysts showed.
The US Energy Information Administration too has revised down its forecast for global
consumption by 200,000 barrels per day next year. According to the EIA’s estimates, global oil
consumption will climb by only 880,000 bpd next year.
Previously it had assumed an increase of 1.12m bpd. At the same time the EIA has said that US
oil production growth would slow too and it now expects US oil production to only increase by
between 130,000 bpd and 720,000 bpd, to average 9.3 million bpd in 2015.
And in the meantime, adding to the overall gloom is the Saudi insistence that crude is a cyclical
market and that it would ultimately stabilize without any interference in the form of output cut.
“Why should I cut production?” Minister Al-Naimi asked reporters in Lima, Peru.
“This is a market and I’m selling in a market,” he insisted, reiterating that the Kingdom produced
9.6 to 9.7 million bpd of crude in November, a figure consistent with October estimates.

“That is not going to change unless other customers come and say they want more oil,” he
underlined. Asked whether the market was oversupplied, he said, “you can see from the price.
You know what a market does for any commodity: It goes up and down and up and down.”
A bearish sentiment is hence getting hold of the markets. Crude market prices will slump to $50 a
barrel over coming months as market forces shake out the weakest producers, Bank of America is
now warning.
With $60 mark already there,
some others too are now saying
that $50 is in sight. “That’s not
out of the question. It’s
happening faster than I thought it
would happen. I was calling for
$50 but I was envisioning that
happening in February,” said
John Kilduff, oil analyst at Again
Capital.
“It seems like the market can’t
find a bottom yet,” said Gene
McGillian, analyst at Tradition Energy was quoted as saying. “Right now the market is in free fall
status. ... It appears we’re going to break $60 and get near the $50 mark.”
Analysts at investment bank Morgan Stanley too are warning that oil could fall to $43 a barrel in
the second quarter of next year unless output is reduced. “Without OPEC intervention, markets
risk becoming unbalanced, with peak oversupply likely in the second quarter of 2015,” it said in a
report.
Morgan Stanley also slashed its 2015 base case forecast for Brent to $70 from $98 a barrel and
for 2016 to $88 from $102 a barrel. In its bear-case scenario, the bank sees the crude benchmark
falling to a low of $43 a barrel in the second quarter of next year.
A top Iranian oil official too underlined at an industry conference in Dubai last week that unless
leading producers can find common ground, the world could be looking at prices as low as $40 a
barrel in the coming months.
“Any break in OPEC solidarity or a price war will lead to an enormous price dive-shock” that would
push prices to that level, Mohammad Sadegh Memarian, head of market analysis for Iran’s oil
ministry, told the audience at the conference in Dubai.
Trade data from China has also not been very encouraging. The growing evidence of economic
weakness in the world’s No. 2 oil consumer seems likely to pile more pressure on crude markets.
China’s imports fell 6.7 percent in November from a year earlier, coming in well below
expectations and adding to concerns the world’s second-largest economy could be facing a
sharper slowdown.
Oil prices will stay around $60 a barrel for the next five years as China’s economy cools down,
economist Andy Xie, the former Morgan Stanley and IMF senior economist told CNBC on
Thursday.
Oil prices had been rising because of China’s boom, Xie said in CNBC’s “Squawk Box” program.

China is now transitioning from a 15-year super cycle that built up a massive industrial machine,
and the economy must cool down to digest overinvestment, which will drag down commodity
prices, he said.
“When China goes into normal situation, I think that the oil price will become normal, so $60 would
be the normal price for the next five years or so,” he said, adding over the next four to five years,
China will experience deflation and sluggish demand.
Markets continue to slide, as gloom is taking over. Sentiments stand altered – all around!
Hedging separates the winners in shale plays
Reuters + NewBase
Oil’s slide to the lowest price in more than five years is carving a divide between US shale drillers
who heavily hedged future production and those who didn’t. While financial hedges are commonly
required by many oilfield lenders, the industry’s mid-sized US-focused shale field producers
pursued varied strategies when it came to protecting future revenues.
Those decisions are now coming back to haunt some drillers.
Best-known is Continental Resources, which lifted its hedges in early November, when oil was
trading at around $83 a barrel, leaving it unprotected as prices slipped another $20, the most
dramatic drop since the 2008 crisis. Continental’s share price has been more than halved since
late June.
Apache Corp and Whiting Petroleum are also exposed to lower prices and have underperformed
some peers over the past two weeks. Oil producers typically hedge against lower prices by locking

in some of their future production at favourable prices through swap transactions sold by banks, or
by buying options as insurance against lower prices.
Among major and mid-sized exploration and production companies, some 35 per cent of all 2014
oil production was hedged at an average of $95.5 a barrel as of November, according to an
analysis prepared by RBC. Yet only 14.3 per cent of 2015 production was hedged.
With Opec kingpin Saudi Arabia refusing to cut supply and shore up prices any time soon, firms
face the prospect of lower revenues for months to come. US crude fell below $60 a barrel on
Thursday for the first time since 2009.
At Devon Energy Corp, the effect of tumbling prices “may not be nearly as large as you think”
because of hedging, said Dave Hager, Devon’s chief operating officer. “We’re in outstanding
shape as a company.”
Devon, which pumped over 80 per cent of its oil from US shale fields last quarter, stands out as
the most aggressive hedger among the larger-cap US oil drillers. It has hedged about 140,000
barrels per day (bpd) of crude for all of next year, equivalent to 80 per cent of its third quarter
output, according to company filings.
If US crude prices were to remain at about $65 a barrel next year, those hedges could net Devon
an extra $1.3 billion in revenue, according to Reuters calculations. Devon has been “very good at
not drinking the Kool-Aid” in an industry that had been counting on years of high prices, said Rick
Rule, chairman of Sprott US Holdings, an asset management firm.
For the past several years, hedging was a relatively minor consideration for investors. Oil prices
stayed fairly steady at about $100 a barrel, meaning most hedged positions were neither heavily
in nor out of the money.
Now that the crude price has almost halved in the past six months, and predictions grow for a
prolonged slump in prices, investors are scrutinising filings to understand which corporations were
clever enough to have locked in prices before the slump and therefore have enough cash on hand
to pay increasingly expensive service contracts.
“The purpose of hedging is to secure cash flow regardless of price scenario,” said Robert
Campbell, head of oil products research at Energy Aspects in New York. “The whole thing with
(shale drillers) is cash preservation.”
Most large-cap producers, unlike Devon, don’t hedge as a rule, and many such as Occidental
Petroleum and ConocoPhilips have even outperformed Devon in recent months, aided in part by
their refinery holdings, which generate additional revenue when oil prices are down.
Some analysts point to Apache as an example of the perils of not hedging. While Devon’s shares
have fallen by 32 per cent since June, Apache’s have dropped by 44 per cent as investors raise
alarms about a potential cash crunch.
“They’re basically naked and don’t have any cash flow protection,” said Leo Mariani, a senior
analyst at Capital Markets. While hedging helps producers stem losses when prices are low, it
also caps their potential gains. Many lenders require their clients to place some hedges on future
production in order to smooth out revenue volatility.
But others have much more flexibility.

Whiting Petroleum, which like its peer and rival Continental is heavily focused on the Bakken
shale fields in North Dakota, had hedged only about 3,000 bpd in 2015, according to the firm’s
third-quarter SEC filings, or about 4 per cent of its current daily production.
Its acquisition of Kodiak Energy Inc, expected to close early next year, will add another 6,000
barrels a day of hedged production through 2015, a spokesman said — still only 7 per cent of the
combined company’s output at current levels.
That may explain why Whiting’s stock has fallen almost 65 per cent from all-time highs in late
August, though the pending acquisition and its exposure to the higher-cost Bakken play are also
likely considerations.
Qatar to remain resilient to low oil prices: QNB
The Peninsula + NewBase
Qatar’s economy is expected to remain resilient to lower oil prices. Oil prices are widely expected
to recover gradually once the current supply glut is absorbed, QNB Group analysis noted
yesterday.
Qatar has ample resources to continue implementing its infrastructure investment programme.
The sizeable investments should therefore continue to drive non-hydrocarbon growth and lead to
further economic diversification.
The fundamental shift that has driven the drop in oil prices in recent weeks has been an upward
shift in expectations for a supply glut in 2015, combined with weaker than expected demand,
particularly in China. In July, the IEA estimated that the world oil market would be oversupplied by
around 0.1 million bpd on average in 2015. However, the IEA’s latest report increased its estimate
for this supply glut to 1.3 million bpd, driven by both lower expectations for demand and higher
expectations for supply.

Firstly, lower expectations for demand in 2015 are the result of weaker than expected global
growth. Projections for demand from OECD economies have been revised down by 0.4 million
bpd since July, reflecting the recession in Japan and a weaker eurozone recovery. For Emerging
Markets, the slowdown in China has led to a downward revision in global demand of 0.3 million
bpd. Secondly, on the supply side, expectations for a supply glut are being driven by higher
production from Opec countries and stronger US output. According to the IEA, Opec production
increased by 0.4 million bpd in Q3, 2014, mainly reflecting resumption in Libya’s production.
Meanwhile, production in the US has been rising faster than expected. The IEA has raised its
expectations for overall US production by 0.5 million bpd since June. This is mainly the result of
new technologies to extract oil from shale rock formations. As a result, total US crude oil
production has risen by 67 percent from an average of 5.6 million bpd in 2011 to a projected 9.4
million bpd in 2015.
Prices are expected to recover gradually. This is partly because lower oil prices will stimulate
greater demand but also because lower prices will discourage investment in new production.
The impact on Qatar is expected to be small. Non-hydrocarbon real GDP growth is expected to
continue accelerating as the government implement its investment programme ahead of the 2022
World Cup. While lower oil prices will inevitably lead to lower hydrocarbon exports and fiscal
revenues, the government has ample resources to finance its investment programme. As a result,
the overall economic outlook remains positive amid a continued drive to diversify the economy
and thus reduce reliance on the hydrocarbon sector.

Your Guide to Energy events in your area

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NewBase energy news is produced daily (Sunday to Thursday) and
sponsored by Hawk Energy Service – Dubai, UAE.
For additional free subscription emails please contact Hawk Energy
Khaled Malallah Al Awadi,
Energy Consultant
MSc. & BSc. Mechanical Engineering (HON), USA
ASME member since 1995
Emarat member since 1990
Mobile : +97150-4822502
khdmohd@hawkenergy.net
khdmohd@hotmail.com
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 14 December 2014 K. Al Awadi

New base 496 special 14 december 2014

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