New base 1010 special 12 march 2017

Copyright © 2015 NewBase www.hawkenergy.net Edited by Khaled Al Awadi – Energy Consultant All rights reserved. No part of this publication may be reproduced, redistributed,
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NewBase 12 March 2017 - Issue No. 1010 Senior Editor Eng. Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
UAE: Mubadala’s Al Kaabi says oil slump has poised the
company for growth .. The Mational - Anthony McAuley
The head of the newly merged petroleum division at Mubadala Investment Company says the
tough oil price environment of the past two years forced the company to transform the way it
operates upstream and has left the new larger company poised for growth.
Musabbeh Al Kaabi, the chief executive of Mubadala Petroleum who will formally take over in
May as head of the US$40 billion merged
Petroleum & Petrochemicals division, which will
absorb the much larger assets from International
Petroleum Investment Company (Ipic), told oil
industry executives at the CeraWeek gathering
in Houston that the oil price crash forced
Mubadala Petroleum to take drastic action to
steer the division back to profitability.
He said that the merger of the two Abu Dhabi
strategic development companies has created
an integrated oil and gas division that is now
well positioned to take advantage of
opportunities in an industry still recovering from the slump.
"As a larger player with a fully integrated value chain, the new petroleum and petrochemicals
business is uniquely positioned to leverage its relationships, unlock synergies among its asset
companies and deploy its financial strength to take advantage of new investment opportunities,"
he said on Tuesday in Houston.
The merger brings together Mubadala’s legacy assets – which include operatorship of offshore
marginal fields in the Gulf of Thailand; Dolphin Energy, which imports and distributes Qatari
natural gas; and participation in the Occidental-operated Mukhaizna oilfield in south-central Oman
– with Ipic’s mainly downstream assets, including full ownership of Spain-based integrated oil
company Cepsa, Nova Chemicals of Canada, a controlling interest in Austria’s Borealis
petrochemicals and a major share of Austria’s OMV integrated oil company.

Mubadala’s upstream assets suffered like most of the industry from the slump, especially because
of the marginal nature of its Asian fields. Mr Al Kaabi described, as an example of the
retrenchment and search for lower costs, how the company transformed operations of the
Jasmine field offshore Thailand, a field whose production had peaked at 28,000 barrels per day in
2008.
In the past two years, Mubadala renegotiated contracts with its main oil services partner, Petrofac,
cut 55 per cent from drilling costs by innovations such as use of geosteering horizontal drilling
techniques, as well as operational efforts such as cutting $1 million a year by sharing and
reorganising its helicopter use.
Mr Al Kaabi said the result on this field was to extend its life well beyond 2022 with a total
production target of more than 100 million barrels, compared to original expectations that the field
would be depleted by 2015 having recovered only 10 million barrels.
The Mubadala oil chief talked of synergies and growth for the new larger group, but he didn’t
specifically address what opportunities the company will focus on as it brings together the
disparate interests that are run currently by a number of fairly autonomous chief executives.
The Abu Dhabi energy leadership – including Abu Dhabi National Oil Company chief executive
Sultan Al Jaber, who spoke earlier at CeraWeek – has made it clear that they plan to leverage the
strong positions of companies like Borealis, Nova Chemicals and the downstream operations of
Cepsa to realise goals of tripling Abu Dhabi’s petrochemicals output to about 12 million tonnes a
year by 2021.
But it is not yet clear how Abu Dhabi will pursue upstream diversification internationally, which will
fall to Mr Al Kaabi’s division. Interestingly, he also cited the Oil Search interest inherited from Ipic,
though that has hitherto been seen primarily as a marginal financial interest in a Papua New
Guinea liquefied natural gas project.`

Oman: Orpic plans strategic fuel reserves in the Sultanate
Oman Observer - Conrad Prabhu
Orpic, the Sultanate’s refining and petrochemicals flagship, is planning to establish fuel depots at
strategic locations in the country, according to a top official of the wholly state-owned company.
Ahmed al Jahdhami (pictured), Chief Executive Officer, said one such strategic fuel reserve is
planned at Al Jifnain (just outside Muscat Governorate) where Orpic Logistics LLC, the
partnership of Orpic and Spanish fuel transportation and storage specialist Compañía Logística de
Hidrocarburos (CLH), is building a major fuel storage and distribution terminal.
“We are working with the government on our project called ‘strategic reserves’ in Al Jifnain and
other areas,” Al Jahdhami said. The official made the
revelation at the Oman & Italy Business Forum 2017,
which was held last Wednesday to spotlight opportunities
for In-Country Value (ICV) development linked to the
implementation of part of Orpic’s mammoth $6.4 billion
Liwa Plastics Industrial Complex (LPIC) at Suhar. The
event showcased, among other things, opportunities
associated with Italian-based technology giant Maire
Tecnimont’s $888 million contract for the execution of
Package 2 of the LPIC project, covering the construction
of polyethylene and polypropylene plants.
In his presentation — his first public engagement since taking over as Orpic CEO with effect from
January 1, 2017 — Al Jahdhami said the Muscat-Suhar Product Pipeline project, which includes
the centrepiece Al Jifnain Terminal, is due for completion this year.
The MSPP project connects Orpic’s Mina Al Fahal (MAF) refinery in Muscat with its Suhar refinery
via a bidirectional 290 km multi-product pipeline to an intermediate distribution and storage facility
in Al Jifnain. The overall project is made up of three distinct components: A 40 km section linking
MAF with Al Jifnain Terminal; a 30 km section connecting Al Jifnain Terminal with Muscat
International Airport, and 220 km section connecting Suhar Refinery with Al Jifnain Terminal.
Upon completion, most of the refined fuels will be distributed from Al Jifnain Terminal — a move
that will also help reduce road fuel tanker traffic between Muscat and Suhar. The MSPP fuel
storage and distribution infrastructure, the CEO said, is one of three ‘growth projects’ currently
under implementation by Orpic with an investment that will raise the company’s total asset base to
$12 billion, up from $4 billion. It will also improve the overall profitability of the group, he noted.
Similarly, the Suhar Refinery Improvement Project (SRIP), slated for commissioning in summer, is
driven by a desire to improve the overall environmental safety features of Orpic’s flagship refinery,
in addition to meeting strong demand growth in automotive fuels and refined petroleum products,
Al Jahdhami said. Additionally, the upgrade will dramatically reduce Orpic’s dependence on
imported feedstock for its aromatic and polypropylene units.
But the biggest of the ‘growth projects’ is the Liwa Plastics Industrial Complex, comprising a
Natural Gas Liquids plant in Fahud, a steam cracker in Suhar, a pipeline linking the Fahud and
Suhar facilities, and polyethylene and polypropylene plants also at Suhar. The giant venture will
not only increase Orpic’s product portfolio, but also boost the company’s profitability, Al Jahdhami
said.
Importantly, LPIC will also give rise to the establishment of an in-house marketing arm dedicated
to the marketing of the project’s polyethylene and polypropylene output, the CEO said.

Saudia: Preparation for Aramco IPO on Saudi prince’s long ’17
to-do list ..Bloomberg/Riyadh
Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman has a daunting to-do list as the real
work begins on his plan to transform the world’s biggest oil exporter into an economy no longer
reliant on crude.
“2017 is a reality check,” said John
Sfakianakis, director of economic research at
the Gulf Research Center. “We’re done with the
announcements. Now it’s the teeth that need to
show behind the actual plan. The global
investor community will be looking at that.”
From planning potentially the world’s biggest
initial public offering to rolling out taxes and
protecting Saudis from the impact of spending
cutbacks, here are six developments to watch
this year:
Shielding the poor
The Citizen’s Account is a programme meant to
soften the impact of austerity measures on low-
and middle-income Saudis. It will start with
20bn to 25bn riyals ($6.7bn) of disbursements
this year, and increase to 60bn to 70bn riyals
by 2020.
Registration opened on February 1, and more than half of Saudi Arabia’s 20mn citizens have
already signed up. With the government planning to begin payments later this year, newspapers
and social media have reflected the widespread confusion over eligibility. Should Uber drivers
report their side-income? Can ministers also sign up? What about professional soccer players?
The programme goes to the heart of Saudi Arabia’s generous welfare system.
“You have to assume that there will be mistakes,” said Crispin Hawes, London-based managing
director at Teneo Intelligence. “You just have to make sure they’re not so egregious that they
dilute the process of political authority.”
Saudi Arabia reviewed other countries’ experiences and developed plans “aimed at hedging
against possible errors,” a senior source in the Council of Economic and Development Affairs said
in a written statement to Bloomberg, adding that the plans are based on a conservative numbers
to ensure adequate coverage.
“In case we detected that the programme did not cover an entitled category, we will adjust it and
pay them retroactively to achieve justice in coverage and support,” the source said in the
statement.
Taxes
The government is also planning new taxes as it seeks to balance the budget. In April, it will
impose an excise tax on “harmful products,” doubling the price of tobacco and energy drinks and
putting a 50% levy on soda.

The new levies are a prelude to a planned 5% value-
added tax in 2018, which will have an even broader
impact on the cost-of-living for Saudi residents. Riyadh-
based Jadwa Investment Co expects inflation to rise
toward the end of this year, as Saudis front-load
purchases ahead of the new tax.
Subsidy Cuts
The government began a multiyear programme of gradual
reductions to fuel, water and electricity subsidies with a surprise announcement in late 2015,
sending Saudis rushing to gasoline stations to fill up. Energy Minister Khalid al-Falih said in
December the next round of cuts will happen before the end of the year. “The intent is to do it
soon enough,” he said.
Foreigner fees
From July, the government will charge an unprecedented monthly fee for foreign workers with
dependents in the kingdom. The levy will increase each year until it reaches 400 riyals per month
per dependent by 2020.
While potentially popular among locals, private sector reaction may be more challenging for the
government. Large Saudi-owned businesses including the construction conglomerate Saudi
Binladin Group “are massively dependent on low-cost foreign labour,” Hawes said.
Stimulus
Introducing the expatriate fee and other measures in a way that doesn’t “choke the economy” will
be difficult, Sfakianakis said. Growth slowed to 1.1% last year from 3.4% in 2015, according to a
Bloomberg survey of economists, and will decelerate further to 0.9% this year.
The government is responding with a stimulus package of 200bn riyals through 2020. Commerce
Minister Majid al-Qasabi said in December that target areas would be announced within three
months.
“The financial reforms are expected to cause some slowdown in economic growth,” the Saudi
source said in the statement. “However, the state is working to cushion the slowdown” with higher
government spending, the settlement of delayed payments to contractors and the easing of export
restrictions, among other measures.
“The future of oil should not be taken for granted, so these measures are just necessary,” said
Fahad Nazer, a consultant to the Saudi Arabian embassy in Washington, DC, who does not speak
for the government. “Probably in the minds of some people they’re moving too fast, but frankly in
the minds of others they should be moving even faster.”
Listing a giant
Much of the groundwork for the 2018 listing of as much as 5% of Saudi Arabian Oil Co, known as
Aramco, must be done this year. There’s growing debate about the potential market valuation, and
a profitable IPO is critical to overhauling the economy; it’s the anchor for a sovereign wealth fund
meant to generate enough income to dominate state revenue by 2030.
As with the taxes and subsidy cuts, the IPO carries potential risks – from foreigners buying a stake
in the Saudi economy’s crown jewel to a clear picture of Aramco’s financial health becoming
visible for the first time.

Japan: LNG 'still at forefront of Japan’s energy future'
Mitsui Co, one of Japan’s largest companies, has underlined the importance of a stable liquefied
natural gas (LNG) supply in order to fulfil future energy demand in Japan.
Chief operating officer of Energy Business Unit II of Mitsui Co, Hirotatsu Fujiwara, said: “LNG
and gas will continue to play an important role long-term in a low-carbon global economy.”
He also stated that regardless of the fact it is forecasted that renewable energy may grow at a
steady 2 percent per year, fossil fuels, especially LNG, will continue to be a significant source for
meeting energy demand even in 2040.
*
As the world’s largest importer of
LNG – importing nearly one third of
all global supplies – Japan relies on
stable and trustworthy supplies of
LNG. Following liberalisation of its
electricity market, which has led to
new competition among electric
utilities, Japan’s retail gas market is
also planned to be liberalised in
2017, which makes this year one of
the most pivotal in the country’s
energy market.
Major utilities such as Tokyo Gas
and JERA (a joint venture between
Tokyo Electric and Chubu Electric)
are leading the way in driving new
international partnerships with Asian
customers seeking to drive improved
terms and conditions in their fuel
procurement.
These recent movements in the energy market will be discussed and debated from April 4 to 7 in
Tokyo, when the world’s gas and LNG industries descend on Japan for the international Gastech
Japan 2017 conference exhibition – of which Mitsui Co are co-hosts, along with nine other
major Japanese energy stakeholders including Tokyo Gas, JERA, Mitsubishi, INPEX, ITOCHU,
JAPEX, JX Group, Marubeni and Sumitomo Corporation.
The event arrives in Japan for the first time in its 45-year history, during a pivotal period for
Japan’s energy industry and the government’s energy policy. It will allow the world’s largest
customer of LNG to host the world’s leading suppliers and industry professionals, with more than
20,000 expected to attend the exhibition and around 2,000 to attend the conference.
Fujiwara said: “We are proud to be one of the hosting companies of Gastech 2017, as it serves as
an essential platform for networking among players in the global gas industry including producing
countries and customers. We are expecting innovative discussions at Gastech on the production
and liquefaction of gas, and we’re excited to see many of the technology and engineering
companies getting involved.”
7

U.S. crude oil and natural gas production both fell in 2016
Source: U.S. EIA, Monthly Crude Oil, Lease Condensate, and Natural Gas Production Report
Based on data in EIA’s Monthly Crude Oil, Lease Condensate, and Natural Gas Production
Report, average crude oil production in the Lower 48 states fell to 8.39 million barrels per day
(b/d) in 2016, a decrease of approximately 0.55 million b/d, or 6.1% from the 2015 average.
Natural gas gross withdrawals in the Lower 48 states also decreased in 2016, averaging 80.39
billion cubic feet per day (Bcf/d), or 1.03 Bcf/d (1.3%) lower than in 2015. EIA now has two
complete years of monthly survey-based data on crude oil and natural gas production
since expanding the EIA-914 survey in 2015.
After declining throughout 2015, crude oil and natural gas prices began to recover in 2016,
increasing through much of the year, which drove production increases in the second half of 2016.
The price for West Texas Intermediate (WTI) crude oil, after reaching a monthly low of $30 per
barrel (b) in February 2016, began to increase in March and most recently averaged $53/b in

January 2017. Natural gas gross withdrawals increased in August and November 2016 as Henry
Hub natural gas prices rose from an average of $2.00 per million British thermal units (MMBtu) in
the first quarter of 2016 to an average of $2.88/MMBtu in the third quarter of 2016. Natural gas
and crude oil prices are expected to increase in 2017 and 2018.
The largest increase in crude oil production was in the Gulf of Mexico, which increased 96,000 b/d
(35 million barrels) from 2015 to 2016 as new projects, which were planned in 2012–14, began to
come online. Onshore crude oil production saw small increases in New Mexico and West Virginia,
partially in response to higher WTI crude oil prices.
Texas oil production had the largest volumetric decrease at 239,000 b/d (87.5 million barrels).
Texas crude oil production declines were partially offset by production increases in the Permian
region, where producers continued operations while prices were low and increased drilling
rig counts as WTI prices increased. The largest production decline on a percentage basis
occurred in the Federal Offshore Pacific, where production declined 44% in 2015, due in part to a
pipeline disruption in May 2015.
Annual natural gas production increased from 2015 to 2016 in Pennsylvania and Ohio, reflecting
higher production from the Utica and Marcellus shale plays. In Ohio, natural gas production in the
Utica Shale, including the Point Pleasant formation, has continued to increase since
2011 because of increases in production efficiencies and favorable geologic conditions. Efficiency
improvements in horizontal drilling and hydraulic fracturing in the Marcellus Shale have also driven
natural gas production increases in Pennsylvania and West Virginia. Outside of the Marcellus and
Utica regions, annual natural gas production fell because of lower natural gas prices.
EIA’s Monthly Crude Oil, Lease Condensate, and Natural Gas Production Report collects monthly
oil and natural gas production data from a sample of operators of oil and natural gas wells in 15
states, the Federal Offshore Gulf of Mexico, and collectively from the remaining states and the
Federal Offshore Pacific. EIA published the first survey-based reporting of monthly crude oil
production in August 2015.
The survey covers roughly 90% of crude oil and natural gas production in the Lower 48 states,
improving EIA estimates of total production. Previous estimates of U.S. crude oil production were
based on tax and production data obtained directly from state agencies that may have
been incomplete at the time of publication. EIA’s survey-based data collection provides a more
consistent, timely way to assess production trends across states.

NewBase 12 march 2017 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
Oil prices slumps to close out biggest 3-day loss in a year, 9%
Reuters + NewBase
Oil prices skidded again on Friday, pushing prices to three-month lows as investors continued to
flee bullish positions on worries that OPEC-led production cuts have not yet reduced a global glut
of crude.
U.S. crude slumped nearly 9 percent since Tuesday's close, the biggest three-day decline since
February of 2016. The bullish outlook that prevailed for most of the last few months has been
undercut by persistently high inventory figures, and was instrumental in herding speculators to the
exits in the latter half of this week.
U.S. crude CLc1 settled down 79 cents, or 1.6 percent, to $48.49 a barrel, while Brent crude
LCOc1 ended down 82 cents, or 1.6 percent, to $51.37 a barrel. Selling appeared to accelerate
in the afternoon after U.S. crude fell through the 200-day moving average of $48.68 a barrel.
Prices began to slide earlier this week, after news of another big rise in U.S. crude inventories to
record highs. On Friday, oil services firm Baker Hughes reported another weekly increase in the
U.S. drilling rig count.
We have not seen production cuts undertaken by the world's producers really alleviate the
overhang in inventories, said Gene McGillian, manager of market research at Tradition Energy in
Stamford, Connecticut.
On Thursday, U.S. crude tumbled below $50 a barrel for the first time since December. Major oil
producers like Saudi Arabia and United Arab Emirates expressed worries that the resurgent U.S.
shale industry would undo their efforts to restrict supply.
Oil price special
coverage

U.S. oil and gas drilling has picked up, with producers planning to expand production in North
Dakota, Oklahoma and other shale regions, while output has jumped in the Permian, America's
largest oilfield.
U.S. drillers added eight rigs in the latest week, lifting the rig count to 617, its highest since
September of 2015, Baker Hughes said.
Senior Saudi officials told U.S. oil companies in a closed-door meeting they should not assume
OPEC would extend output curbs to offset rising U.S. production, industry sources told Reuters on
Thursday.
Separately, Suhail bin Mohammed al-Mazrouei, energy minister for the United Arab Emirates, told
Reuters this week the rise in U.S. inventories was a worry, and that investors need to be
cautious not to bring so much production on line.
That has cast doubt on how long OPEC will be willing to cut output if prices keep falling. Ministers
from Saudi Arabia and Iraq said this week at an energy conference in Houston that it was too
early to consider whether cuts would be extended beyond June.
The Organization of the Petroleum Exporting Countries and other exporters including Russia
agreed last year to cut output by around 1.8 million barrels per day in the first half of 2017, but so
far the move has had little impact on inventory levels.
U.S. crude inventories swelled 8.2 million barrels last week to a record 528.4 million barrels.
[EIA/S]
To the extent that people are concerned that OPEC decides not to extend, you have a real
concern about downside weakness, where breaking back below $40 a barrel I don't think is out of
the question, said Tony Scott, managing director of analytics at BTU Analytics in Denver.
Volume was again strong, with nearly 750,000 front-month U.S. crude contracts changing hands,
in what has been the busiest period for the oil markets since OPEC cut production in late
November.
Speculators cut their long positions in crude contracts again, according to government data, but
the net long position of 401,000 futures and options contracts remains historically high. That data

is current through Tuesday, however, and analysts expect speculators and funds likely reduced
their positions during the three-day rout.
Oil ministers say more effort is needed to make output deal work
The National - Anthony McAuley
Top oil ministers in Houston have been reassuring the world that their output deal is working,
although it wasn’t enough to stop the largest one-day oil price drop in a year amid fears of a
persistent world oil glut.
Oil prices fell again yesterday following the previous day’s 5 per cent drop, with world benchmark
North Sea Brent futures at US$51.87 late afternoon in the Arabian Gulf, down $1.24 on the day
and the lowest since Opec
reached its production deal at
the end of November.
Saudi Arabia’s oil minister,
speaking at an annual industry
gathering in Houston earlier in
the week, had talked of
cautious optimism but
subsequently couldn’t help but
indicate his frustrations with the
oversized burden he feels the
kingdom has been bearing to
balance the market.
Saudi Arabia has been bearing
a significant part of the load for

the first three months of this agreement but we are not going to do it indefinitely, said Khalid Al
Falih, the kingdom’s energy minister, in an interview on Wednesday with US television, while
attending the CeraWeek confab in Houston.
The deal reached by Opec at the end of November called for cuts of 1.2 million barrels per day
from the producer group’s October output levels, accompanied by a deal in December among a
non-Opec group, led by Russia, to cut a combined 558,000 bpd.
While Opec’s compliance has been very high, that is due largely to Saudi Arabia cutting much
deeper than it had pledged, saying last month that January output averaged 9.7 million bpd,
compared to record levels as high as 10.6 million bpd before the deal.
Russia, on the other hand, which has pledged to cut 300,000 bpd from its post-Soviet era record
output of 11.2 million bpd, has been slow to meet its commitment.
They are getting there, said Mr Al Falih, but slower than I would like.
He said he had met his Russian counterpart, Alexander Novak, in Houston. He informed me that
the first week of March has been very positive, they’ve added another 40,000 barrels [per day] of
cuts to bring it to 160,000 bpd.
Mr Novak himself said in Houston that he expected Russian production cuts to reach 200,000 bpd
this month and promised full compliance later on, but unless Russia was to cut very deeply in
April, May and June it would come nowhere close to meeting the pledge to cut average production
by 300,000 bpd over the six- month period through June.
The UAE has also lagged in its commitment, and its energy minister said that the country would
cut deeply in March and April when it carries out oilfield maintenance, and indeed the Abu Dhabi
National Oil Co (Adnoc) sent an email to customers last Monday telling them to expect between 3
per cent and 5 per cent less oil during those months.
Oil ministers, including Mr Al Falih and the UAE’s Suhail Al Mazrouei, who had previously been
hesitant to talk of extending the output deal beyond June, were more open about the need for
prolonged output restraint.
Mr Al Mazrouei said in Houston that a decision on extension will depend on three factors: whether
oil in storage drops significantly, whether there has been a sustained oil price rise, and the effect
on US shale oil production.
Wednesday’s oil price drop came after a report in the US showing a large build last week in crude
inventories of 8.2 million, while US shale output has been rebounding for months.
We will assess all this in May and how the market is responding, said Mr Al Falih. If there is a
need for an extension we will consider it.
An extension of the deal has been widely expected in the industry.
Six months is too short a time to have any real effect, particularly when we consider the phase-in
period for compliance, said Robin Mills, chief executive of Qamar Energy, a Dubai-based
consultancy. But then, he added, there is nothing wrong with a few market wobbles to keep the
shale oil producers and financiers on their toes.

NewBase Special Coverage
News Agencies News Release 12 March 2017
Oil Producers Race to Bottom on Costs May Cause Oil to Choke
on Supplies
Houston hosted two events this week: the nation’s largest energy conference and the town’s
famous rodeo. They have more in common than you’d think.
In both cases, the key for top performers is how efficiently they perform. For cowboys, it means
tightly controlling every muscle to stick on a bucking bronco. For energy executives, it means
controlling every cost to lower the break-even price and survive what’s been a wild ride on the oil
market.
When companies can lower the price at which they break-even, it means they can approve more
projects and produce more oil, keeping dividends safe and investors happy. The risk: By drilling
up their share price, they can also end up drilling down the price of oil. Welcome to 2017, the year
after a two-year market rout made companies more efficient. At the CERAWeek by IHS Markit
conference this week, fears of too much supply were palpable.
Everyone is driving break-even prices down, Deborah Byers, head of U.S. oil and gas at
consultants Ernst Young LLP in Houston, said in an interview at the meeting, the largest annual
gathering of industry executives in the world. It isn’t just shale companies; it’s everyone, from
deep-water to conventional.
As the conference was ongoing, those fears took physical form as West Texas Intermediate, the
U.S. crude benchmark, plunged 9.1 percent this week, closing below the key $50-a-barrel level for
the first time this year. It settled at $48.49 on Friday.

The slump came as Scott Sheffield, chairman of Pioneer Natural Resources Co., said prices could
fall to $40 if OPEC doesn’t extend its existing agreement to cut production. Shale billionaire
Harold Hamm, the CEO of Continental Resources Inc., warned undisciplined growth could kill
the oil market.
The buzzword was efficiency. In panel discussions and keynote speeches, executive after
executive tried to outdo rivals in announcing their low break-even prices. Eldar Saetre, head of the
Norwegian oil giant Statoil ASA, told delegates that break even for his company’s next generation
of projects had fallen from $70-plus to well below $30 a barrel.
The downturn has been long and painful, but has presented the industry with a unique
opportunity to strengthen ourselves, Saetre said.
He wasn’t alone in noting the new efficiencies. From Patrick Pouyanne of Total SA to Darren
Woods of Exxon Mobil Corp., almost every executive commented on the lower break-evens. For
some new projects tying back to existing facilities, executives said they could avoid losses even at
$12 a barrel. According to Rystad Energy, a Norway-based industry consultant, the well-head
break-even costs for U.S. shale plays declined 46 percent between 2014 and 2016.
Re-engineering
Although some of the drop is due to lower costs, including for drilling rigs, steel pipes and other kit,
company executives and analysts at the Houston meeting said most is due to efficiency and re-
engineering.
Wael Sawan, the head of Shell’s deep-water business, said the company had been able to reduce
the cost of its wells by 50 percent over two years. The biggest reason: Shell now uses just four
standard well designs worldwide, compared with dozens previously, according to Sawan.
We are going to see more material cost saving in the next couple of years, he said in an
interview.
With costs down from shale to mega-projects, companies big and small are starting to green-light
more investment. Shell for example just approved the Kaikas deepwater oil field in the U.S. Gulf of
Mexico, the first to get a go-head from the company in more than two years. The project will make
money at less than $40 a barrel after Shell reduced its projected costs by a50 percent.
Total’s 10 Projects
The Total CEO Pouyanne told delegates that his company is planning to approve as many as 10
big projects in the next year and a half. All in all, after two years in a row of lower spending, 2017
is looking like the year that marks the recovery in investment.
What we are seeing is a really tough retrenching of the cost structure, Bob Dudley, the head of
BP Plc, said in his comments at the meeting. We will bring on more projects this year than we
have in the history of the company.
U.S. shale companies including EOG Resources Inc. and RSP Permian Inc. went even further,
telling delegates they plan to boost annual output by 20-30 percent over several years.

The International Energy Agency forecasts daily oil production outside the Organization of
Petroleum Exporting Countries will grow by 400,000 barrels in 2017, a turnaround from the
contraction of 100,000 barrels it forecast just a year ago. For 2018, the Paris-based IEA
anticipates non-OPEC supply to grow by 1.2 million barrels, double last year’s forecast.
Although several reasons may explain why oil prices plunged this week, including another build-up
in U.S. crude stockpiles, some traders and hedge funds attributed at least part of the drop to the
ongoing CERAWeek discussions on break-even prices.
Investors remain concerned with supply growth in 2018 potentially putting a damper on
commodity upside, said Tudor, Pickering, Holt Co., the Houston-based oil boutique investment
bank, in a note to clients.
OPEC is watching. Khalid Al-Falih, the Saudi Arabian oil minister, said he was happy to see
green shoots in the oil industry, but worried some were growing too fast. Ryan Lance, the head
of ConocoPhillips who spoke later, quipped the shoots referred to by Al-Falih were already
becoming trees.
Oil’s plunge is bringing some excitement back into the market.
As futures in New York slipped to the lowest since OPEC’s output deal in November, options
trading surged and signaled the biggest bias toward a price decline in six weeks. That’s a stark
departure from last month, when the West Texas Intermediate benchmark traded at the narrowest
price band since 2003.
“We were in such a tight range,” Tariq Zahir, a New York-based commodity fund manager at
Tyche Capital Advisors LLC, said by telephone. “There is definitely going to be some volatility put
in the options market because you are seeing a bigger movement in price.”
Futures had been trading between about $50 and $55 a barrel this year as the Organization of
Petroleum Exporting Countries and 11 other major producers implemented historic supply cuts to

help rebalance the market. But shale producers aren’t helping. A drilling revival in regions like the
Permian Basin of West Texas and southeastern New Mexico has pushed U.S. crude inventories
to record highs, and production topped 9 million barrels a day.
Harold Hamm, the billionaire shale oilman, said at an energy conference in Houston this week that
his industry could “kill” the oil market if companies keep increasing spending to boost drilling.
Saudi Arabia Oil Minister Khalid Al-Falih said at the conference that it’s premature to discuss an
extension to OPEC’s deal. He also said the kingdom wasn’t planning to bear the brunt of
balancing the market alone.
Price Plunge
WTI for April delivery slumped 2 percent to settle at $49.28 a barrel, the lowest level since
November 29. On Wednesday, the U.S. benchmark broke below the 100-day moving average, a
key technical level, also for the first time since late November. Futures are down 7.6 percent this
week.
Implied volatility -- which tends to increase when investors believe prices are set to fall and risk
perception is worsening -- is on the rise. For so-called 25-delta May WTI put options, contracts
that give buyers the right to sell futures at a specific price by a certain date, implied volatility
climbed to the highest level since Jan. 24 on Thursday. The skew on the front-month WTI futures,
which measures the difference in implied volatility between different types of options, rose to the
highest since November.
Growth in U.S. shale output is “one of the reasons as to why people are reluctant to take it long,
and ultimately, they got a little weak-kneed,” Bart Melek, the head of global commodity strategy at
TD Securities in Toronto, said by telephone. “It’s not surprising that during a period of a short
correction, that you would start pricing puts a little bit more aggressively. People who have long
outright positions in futures may want to take protection.”
Options on WTI saw 570,934 lots traded as of 5:01 p.m. in New York, set for the second-highest
volume ever, according to preliminary data compiled by Bloomberg. WTI crude futures volume
was at about 1.57 million on Thursday, following 1.76 million on Wednesday. The most-active WTI
options traded Thursday include April $50 calls, April $48 puts, April $51 calls, April $55 calls and
April $47 puts.
OPEC’s strategy to balance the oil market and bolster prices is facing its biggest test.
The producer group is aiming to revamp the market by eroding a crude inventory surplus that’s
depressed prices since 2014. A deal to cut output announced at the end of November, intended
as a catalyst for trimming global stockpiles, had the side-effect of triggering a surge in U.S.
production and a jump in the nation’s inventories to an all-time high. That’s prompted crude to give
up a chunk of its post-deal gains.
With the focus now shifting to what the Organization of Petroleum Exporting Countries will do
next, here are six charts indicating which way the oil market could be starting to turn.
1. $50 a Barrel Broken
WTI and Brent sank by the most in more than a year on Wednesday, with U.S. crude
subsequently falling through $50 a barrel for the first time since December. “The market will be in
limbo for a few days, the question is how low can it go,” said Richard Fullarton, founder of London-
based commodity hedge fund, Matilda Capital Management. “There’s been so much effort by
OPEC and non-OPEC to show high compliance, that it would be strange for it to fall apart now.”

2. Curve Crumbles
The aim of the supply cuts has been to turn the oil market upside down into a structure known as
backwardation. That means prices in the short-term are at a premium to those further out, swelling
OPEC revenues while limiting those of its competitors. However, the difference between WTI
prices for this December and next has slumped back into contango, while the the nearest 9 Brent
crude contracts are also now in that market structure. “Everything has been put in doubt,” Olivier
Jakob, managing director of consultancy Petromatrix GmbH, said by phone. “It shows that the
market is still very fragile.”

3. Options Bearish
Options markets are also turning increasingly bearish on future prices. The difference in the cost
of bearish and bullish oil contracts, known at the skew, has moved sharply in favor of falling
prices.
That follows the second highest volume of options traded ever on Nymex’s WTI contract on
Wednesday, as investors hunted out near-term protection against declining prices. A slump below
last November’s price levels would be the last thing OPEC planned for when it agreed to cut
supply.
This week’s price drop represents “the first proper challenge to OPEC and its resolve to cut
production,” said Ole Hansen, head of commodities strategy at Saxo Bank.
4. Sellers Return
The slump in prices may also be attracting more short sellers, a further dent in OPEC’s bid for
higher prices. The number of WTI contracts outstanding rose back to near record levels as prices
fell on Wednesday, often a sign of new bets on falling prices.
“The production cuts story also isn’t biting as members of the agreement expected,” said Gerrit
Zambo, trader at BayernLB. “For Brent, $50 a barrel should certainly be a good support. Maybe
the next big mark is at $45 in WTI, but that’s quite a long way.”

5. Technical Trouble
And if all that doesn’t give OPEC enough to think about, there’s also the technical picture. Brent
and WTI settled below their 50-day and 100-day moving averages on Wednesday, and fell further
toward their 200-day markers on Thursday. “Maybe the herd is turning,” said Tamas Varga,
analyst at PVM Oil Associates. “I think this is technical selling.”

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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
NewBase March 2017 K. Al Awadi

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