New base energy news issue 864 dated 02 june 2016

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 Energy News 02 June 2016 - Issue No. 863 Edited & Produced by: Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
UAE IPIC reaches agreement to extend stake in Austria’s OMV
The National - Anthony McAuley
Abu Dhabi’s state-owned oil and gas investment company, International Petroleum Investment
Company, has agreed to extend its stake in the Austria-based oil company OMV, after prolonged
negotiations with the Austrian government.
The deal means that Ipic will not exercise a put option to sell its stake of 24.9 per cent of OMV,
which has a market value currently of about €2 billion (Dh8.2bn). The potential sale had been a
concern for the Austrian government since early last year, when talks began.
The Austrian government owns 31.5 per cent of OMV via its investment holding company
Österreichische Bundes- und Industriebeteiligungen (Obib).
Ipic originally bought a stake of just under 20 per cent in 1994 and raised that to its current level,
so that the two government entities own a combined 56.4 per cent in OMV, with the rest held via
publicly listed shares.
Suhail Al Mazrouei, UAE Minister of Energy and managing director of Ipic, and ÖBIB
secretary-general Martha Oberndorfer sign the agreement in Vienna. Courtesy Ipic

“Our mutual shareholding in OMV represents decades of collaboration and success between the
UAE and Austria, we look forward to what the future holds for both countries and our energy
interests," said Ipic managing director and UAE Minister of Energy Suhail Al Mazrouei, who is in
Vienna for the twice-yearly Opec ministers meeting.
Also at the signing yesterday was the OMV supervisory board chairman Peter Löscher, who
formally took over from Peter Oswald last week. Mr Oswald announced in March he would be
leaving as OMV continued to struggle with efforts to set a new strategic direction and improve
results.
OMV shares have stabilised over the past year after Rainer Seele was appointed chief executive
and cut exposure to risky upstream investments, including Libya. But the shares are still worth
less than half of what they were seven years ago.
The downstream has been a better performing sector for OMV, including its petrochemicals
division Borealis, which it co-owns with Ipic. Abu Dhabi National Oil Company (Adnoc) and
Borealis, in turn, are joint venture partners in Borouge, which recently completed a US$10bn
upgrade.
Borealis said in March that it nearly doubled profit to €988 million last year and its chief executive
said this week that it was looking at North American expansion opportunities.
The Ipic announcement yesterday did not offer any details of the new shareholding agreement
between the two governments, but local Austrian press said the deal included a put option for Ipic
that can be exercised in 2022.

Dubai’s Sustainable City switches on green energy for 500 villas
The National - LeAnne Graves
Sustainable City, Dubai’s first residential solar project, is now online and producing green energy
for more than 500 villas.
City Solar, one of the contractors involved in Sustainable City, said it had installed about 5,000
solar panels throughout the complex.
Dubai’s Sustainable City has said it is now successfully producing clean and sustainable energy
using solar panels. Courtesy The Sustainable City
“Energy production will reach 1.2 megawatts, with the surplus energy stores in the Dubai
Electricity and Water Authority’s grid to be later drawn upon to operate more than 200 villas with
clean, renewable energy," said Anwa Zebn, the chief executive of City Solar.
Once complete, the company expects 40,000 panels to decorate rooftops throughout the complex
and produce up to 10MW of power at maximum capacity.
In addition, the villas come equipped with other energy-saving solutions such as insulation, solar
water heaters and home appliances. All of these components will halve the energy consumption in
each villa.
The solar rooftop scheme is in line with Dubai’s Shams Initiative, which supports solar rooftop
installations on commercial and residential buildings. This will help the emirate reach its clean
energy target of 7 per cent in power generation by 2020. Dubai plans to increase this to 25 per
cent by 2030.

Iraq: WesternZagros receives approval for Garmian Field D.P.
Source: WesternZagros
WesternZagros Resources has announced the approval of the Garmian Block Field Development
Plan ('FDP') from the Kurdistan Regional Government ('KRG') and the submission of the Kurdamir
Block FDP. Both blocks are located in the Kurdistan Region of Iraq.
'This approval is a key milestone for WesternZagros and reconfirms our commitment to continue
to grow the Company,' said Simon Hatfield, Chief Executive Officer of WesternZagros.
The Garmian FDP is focused on the development of the Jeribe / Upper Dhiban reservoir which is
estimated to contain 13 million barrels (MMbbl) of 2P oil Reserves and 66 MMbbl of unrisked P50
Prospective oil Resources (both Gross Block). The first phase of development includes the
continuation of production from the Sarqala-1 well, and the drilling of two additional development
wells to increase production and to convert prospective resources into reserves.
Since production began, the Sarqala-1 well has produced over 3 MMbbl of 40 degree API, light oil
with no formation water and no hydrogen sulphide. The field is currently producing approximately
5,000 barrels per day (bbl/d) of oil from Sarqala-1 through the existing surface facility which has
the capacity of up to 15,000 bbl/d.
The Sarqala-2 well is anticipated to spud in the first half of 2017 and is planned to target a
fractured portion of the reservoir identified on the 3D seismic. The Sarqala-3well will follow with
similar objectives. The potential for further development of the Jeribe / Upper Dhiban reservoir will
be assessed following the results from this first phase.

Kurdamir Block Field Development Plan Submission
WesternZagros and its co-venturer, a subsidiary of Repsol, Talisman (Block K44), have submitted
a FDP to the KRG to develop the significant oil and gas resources discovered on the Kurdamir
Block.
'We are encouraged by Repsol's leadership on this project and the submission of the FDP is a
significant step forward to extract value from our Kurdamir discovery,' said Simon Hatfield.
The Kurdamir FDP is a phased development that will be executed over a period of several years.
Phase 1 is focused on the development of the Oligocene oil and gas discovery and includes a
central processing facility shared equally between the Kurdamir Block and Repsol's adjacent
Topkhana Block. The facility will have a capacity of 150 million standard cubic feet of gas per day
with liquids handling for condensate and oil. Repsol is the operator of both the Topkhana and
Kurdamir blocks.
The co-venturers and the KRG continue to negotiate a gas sales agreement to provide Phase 1
gas from the Kurdamir and Topkhana blocks to the domestic market. In addition, the KRG is
responsible for the construction of a gas pipeline from the Kurdamir/Topkhana block boundary to a
tie in point at Chemchemal. A final investment decision to advance the project is anticipated upon
completion of the gas sales negotiations, the pipeline engineering, procurement and construction
award and approval of the FDP.

Saudi Post-Oil Plan Success May Still Depend on Crude Prices
Bloomberg - Vivian Nereim viviannereim
As Saudi Arabia prepares to tap international debt markets, potential investors will soon be
scrutinizing details of the kingdom’s blueprint for a post-oil era. They may find the plan’s viability
hinges on the very thing it’s been designed
to ignore: crude prices.
Saudi authorities are set to unveil the so-
called National Transformation Program this
month, and have a target to balance the
budget by 2020 -- after posting a shortfall of
about 15 percent of economic output last
year. Deputy Crown Prince Mohammed bin
Salman has said cutting subsidies and other
measures will add $100 billion of non-oil
revenue.
Below are three potential scenarios for Saudi’s fiscal outlook in 2020.
Scenario 1: Plan delivers
If subsidy cuts, value-added taxation and a green card-type program for foreign workers deliver an
additional $20 billion of new revenue each year, Saudi Arabia could balance its budget by 2020,
according to EFG-Hermes economist Mohamed Abu Basha.
That scenario assumes 7 percent annual spending growth and a gradual rise in Brent crude prices
to $65 a barrel by 2020. If oil prices rise faster, the government will also balance its budget
sooner, Abu Basha said in an e-mail.

Scenario 2: Partial success
The government’s goal to boost non-oil revenue to 20 percent of economic output from 6 percent
by 2020 is “unrealistic,” according to Garbis Iradian, chief economist for the Middle East and North
Africa at the Institute of International Finance (IIF). An increase to 15 percent is more likely, while
oil prices may only be about $52 a barrel in 2020, the IIF predicts.
If a 13 percent spending cut this year is followed by modest 3 percent increases from 2017, Saudi
Arabia’s budget deficit would narrow to 2.5 percent of economic output by 2020 -- or about $21
billion, IIF says. Public debt would also rise sharply as the government borrows to finance the
shortfall, from 6 percent of economic output last year to 31 percent by 2020, or $262 billion.
Scenario 3: Plan pushed aside
If Saudi Arabia does nothing to reform, even an oil rebound to $71 a barrel won’t achieve a
balanced budget, according to a hypothetical model from Jadwa Investment. In this "no action"
scenario, the budget deficit would be about $57 billion in 2020, or 6.4 percent of economic output.
Public debt would rise to more than a third of economic output.
"Despite the recovery in
oil prices, our model
showed a rapid depletion
to the kingdom’s fiscal
buffers," Jadwa said in a
report in May. "This
vision, with its emphasis
on untapped
opportunities, core
capabilities, and need for
economic prosperity
comes at a critical
juncture for the
kingdom."

Oman plans to tender five oil blocks for development in October
© Times of Oman 2016
Oman government plans to start tendering of around five oil blocks sometime in October this year,
a senior official at the Ministry of Oil and Gas told Times of Oman. These oil and gas blocks
spread in different parts of the country will be awarded, after a tending process, on production
sharing basis.
"There are a number of locations. We are evaluating few of them and in October we will go to the
market. I would probably say an average of five, but we (may) have more or less, depending on
the readiness of data collection and evaluation," Eng. Salim bin Nasser Al Aufi, undersecretary at
the Ministry of Oil and Gas, said, on the sidelines of a function organised by BP to honour small
and medium enterprises.
Although these blocks have both oil and gas deposits, these are predominantly oil blocks.
Presently, majority state-owned Petroleum Development Oman contributes 68 per cent of Oman's

total crude oil production, while the remaining 32 per cent are contributed by national and
multinational oil firms.
The average crude oil production target this year is estimated at 990,000 barrels per day, slightly
higher than 980,000 barrels per day in 2015. The country's average daily crude oil production in
January-February period exceeded this target at one million barrels per day. However, oil
production declined in March due to heavy rains, but it recovered to 994,303 barrels per day the
following month.
Oman government directly or indirectly holds stake in several major oil producing firms, including
Occidental Oman, in the country. As huge investment is required for bringing oil above the ground
in view of the peculiar nature of reservoirs in Oman, the government has been encouraging
multinational firms to undertake exploration on production sharing basis.
Asked about whether the recent slump in oil prices is affecting attractiveness of multinational firms
to invest in Oman, Eng. Al Aufi said; "We have to be smart in negotiation. We need to recognise
that companies will be using lower oil production forecast when they bid and to be smart enough
to accept it today. Also, we have to introduce mechanisms in such a way that we gain from the
deal when oil prices go up."

India ONGC and Russia Rosneft Close Vankorneft Deal
Rosneft has closed the $1.27 billion deal to sell 15 percent stake in Vankorneft to Indian state
owned firm ONGC Videsh (OVL).
On September 4, 2015 Rosneft and OVL, the overseas arm on ONGC, signed the sale and
purchase agreement. The document was signed by Igor Sechin, Rosneft Chairman of the
Management Board, and Narendra Verma, Managing Director of OVL. The deal got Russian
government's go ahead in March this year.
“The closed transaction is symbolic for both the companies and marks transition to a new level of
cooperation in the Russian-Indian relations in sphere of energy. ONGC gets substantial interest
and relevant rights in one of the biggest large-scale projects of Rosneft of the last decade,
whereas Rosneft retains major shares in the project and will operate on the field through the
operator company RN-Vankor,” Rosneft said on Tuesday.
This acquisition also has significant strategic importance to India, both in terms of augmentation of
India’s energy security as well as adding a new dimension to the relationship between Rosneft
and OVL.
Vankorneft is a 100-percent subsidiary of Rosneft, and Vankor is the largest oil and gas field
discovered in Russia in the past 25 years. The field is located in the North of Eastern
Siberia. Plans are in place to produce about 500 million tonnes of oil and about 182 billion cubic
metres of gas jointly by the Russian and Indian sides at this field alone.
In March, the two parties also signed an initial deal which would allow the Indian to firm buy
additional 11 percent stake in Vankorneft. The finer details of this deal are yet to be worked out.
As on January 1, 2016 Vankor field 2P reserves by PRMS classification are 265 mln tonne of oil
and condensate and 88 bcm of gas, according to Rosneft website.

Nigerian militant group blows up two Chevron wells
Source: Reuters via Yahoo! Finance
A Nigerian militant group said on Wednesday that it had blown up two Chevron oil
wells in the second such attack in a week on the company's facilities in Nigeria's oil-
producing Delta region.
An oil spill was seen in waterways and wetlands surrounding the Chevron sites after the attack,
according to a Reuters witness and a local official, though the volume spilled could not be
immediately determined.
The attacks occurred as tensions flared
between international oil companies and
Niger Delta residents, some of whom are
pushing foreign energy companies to leave
Africa's largest economy in a bid for
greater economic self-reliance.
A group calling itself the Niger Delta
Avengers said in a post on Twitter that it
used '100 Gunboats, 4 Warships and Jet
Bombers' to attack Chevron's RMP 23
and 24 wells early on Wednesday
morning. It claimed the wells were
Chevron's highest-producing in the
country.
The attacks have reduced Nigeria's total oil output to below that of rival producer Angola, sharply
affecting the national budget which relies on oil tax revenue.
The Niger Delta Avengers, a relatively new radical group that has claimed responsibility for a
number of pipeline bombings in the country this year, had told Chevron and other oil companies to
leave Nigeria by the end of May.
Last week the group claimed responsibility for blowing up electricity feeds to Chevron's facilities,
forcing the company to shutter onshore operations. Attacks carried out by the group since
February have cut Nigeria's oil output by at least 300,000 barrels of oil per day (bpd) and
shuttered two refineries. The group has also attacked facilities owned by Royal Dutch Shell.
The wells attacked on Wednesday are in the Dibi field near Warri, about 265 miles (426 kms)
southeast of Lagos, Nigeria's largest city. Local residents confirmed to Reuters that an attack had
taken place.
In response to a request for comment, Chevron spokesman Kurt Glaubitz said, 'As a matter of
long-standing policy, we do not comment on the safety and security of our personnel and
operations.'
It was not clear what effect the attacks would have on Chevron's daily Nigerian output. Last year
Chevron pumped about 224,000 bpd in Nigeria, about 9 percent of the company's global output.
Militancy has been rife over the past decade in the Delta, one of the country's poorest areas
despite generating 70 percent of state income.

NewBase 02 June 2016 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
Oil prices tread water ahead of OPEC meeting
Reuters + NewBase
Oil prices were steady on Thursday on mixed market signals ahead of an OPEC meeting in
Vienna, which analysts said was not expected to result in restrictions on crude output.
International Brent crude oil futures were trading at $49.77 per barrel at 0200 GMT, up 5 cents
from their last settlement, while U.S. West Texas Intermediate (WTI) crude was down 9 cents at
$48.92 a barrel.
The Organization of the Petroleum Exporting Countries (OPEC) is set for another showdown
between rivals Saudi Arabia and Iran when it meets on Thursday in the Austrian capital, with
Riyadh trying to revive coordinated action or a formal oil output target, but Tehran refusing to
cooperate.
"An output ceiling has no benefit to us," said Iranian Oil Minister Bijan Zanganeh as the country
tries to recoup lost market share following the lifting of sanctions against it in January.
Despite rising output by OPEC's Middle Eastern producers, the group's overall production has
remained largely flat this year, currently standing at 32.5 million barrels per day (bpd), capped by
disruptions especially in Nigeria, Libya and Venezuela.
Citi said it expected oil prices to rise above $50 per barrel "in the near future" as attacks on oil
infrastructure in Nigeria, power outages and payment issues in Venezuela and chaos in Libya
have reined in total OPEC production even as Iran has ramped up harder and faster than
expected.
Oil price special
coverage

Because of supply disruptions elsewhere, the Middle East's low cost producers see little reason to
restrain output as overall market conditions have improved significantly for them this year.
"Since January 20, oil prices have almost doubled from near $26 per barrel to almost $50 per
barrel, at the same time total OPEC production has increased by around 100,000 bpd, despite
heavy outages in Nigeria," BMI Research said.
"This indicates the strategy championed by Saudi Arabia... to let the oil market balance without
intervening, is gradually playing out," it added.
Despite this, producers are eyeing China's slowing economy with concern.
"OPEC members will be keeping a close eye on China, with the low factory activity data that has
been released possibly signalling a diminishing demand for oil - something that could do real
damage to oil prices," said Mihir Kapadia, CEO at Sun Global Investments.
Car sales in China, an important gauge for gasoline and, by extension, crude oil demand, have
also fallen by almost a quarter since the end of 2015 to 2.12 million new registered vehicles in
April.
OPEC states that wanted production cuts buckle under the new oil order
CNBC - Tom DiChristopher | John W. Schoen
Saudi Arabia engineered OPEC's policy to kill off U.S. shale oil production. The plan was
straightforward: Keep pumping oil, maintain market share and outlast the Americans. But the plan
is also producing casualties within the cartel itself: Angola,Nigeria and a Venezuela that's on the
verge of implosion.
Six months after OPEC left its high-production policy in place, some of the cartel members who
called loudest for output cuts are feeling the most pain. Inflation is soaring and currencies have
plummeted in lesser petro states, as top exporter Saudi Arabia continues to dictate policy.
While Riyadh tries to embark on a new path toward economic diversification under its influential
deputy crown prince, those other OPEC states are seeing fragile gains slip away and threats to
stability creep in.
For the moment, relief is elusive.
The Organization of the Petroleum Exporting Countries is not expected to cut production at its
meeting Thursday. Nor is it likely that members will agree to freeze production, an idea that failed
at an April meetingafter the Saudis balked at capping output without participation from Iran.

NewBase Special Coverage
News Agencies News Release 02 June 2016
Inside Vitol: How the World's Largest Oil Trader Makes Billions
Bloomberg - Javier Blas (Blas is chief energy correspondent in London. Hoffman covers commodities in Geneva.)
It wasn't a normal business trip, even for Ian Taylor. Over an almost 40-year career in oil, the
Oxford-educated Brit had set down in plenty of hot spots, from Tehran to Caracas, Baghdad to
Lagos. Yet this journey—destination Benghazi, Libya, in the midst of a civil war—was different.
All Taylor had to do was p eer out the window of the private plane he was in for a reminder. A
thousand feet below, a NATO drone chaperoned the aircraft.
Taylor, the compactly built chief executive officer of Vitol Group, the
world’s biggest independent oil trader, found himself wishing it
were a proper fighter jet.
It was early 2011. Forces revolting against the 42-year
dictatorship of Colonel Muammar Qaddafi had just taken
control of the city and founded their own government. This
meeting with the ragtag group of former military officials
and local politicians had come together quickly, but if
anybody could arrange something with them, Taylor
figured, it was Vitol. A few weeks earlier, one of his top
executives, Christopher Bake, had fielded a call from Doha.
Qatar’s oil minister, an intermediary explained, wanted to
know if Vitol would be willing to supply fuel to the Qatari-backed Libyan rebels. Vitol had just four
hours to reply.
Bake, based in Dubai, signaled Vitol’s interest “in about four minutes.” He then looped in his
colleagues, most of them in London, to pull together a firm proposal. Vitol, he soon told the
intermediary, was in. That they could move on a deal like this—in a bloody war zone—spoke
volumes about the company’s culture. As anybody in the oil business could attest, Vitol was a
nimble and hungry opportunist, always ready to pounce.
Now, inside the plane, Taylor and Bake, who looks almost like a bodyguard thanks to his rugby-
player frame, were en route to clinch the deal. But there was a catch: The rebels had no money.
Vitol would have to be paid in crude. Western governments tacitly approved the arrangement,
although aside from the lone drone, there wasn’t any official support. If something went wrong,
Taylor and his company were on their own.
The two men braced themselves as the plane banked hard. The risk of anti-aircraft fire from
Qaddafi forces made a conventional landing impossible, so the pilot descended rapidly in a series
of stomach-churning turns. Once on the ground, Taylor and Bake made their way to the
designated meeting point.

Back then, the center of Benghazi, a tired collection of dusty 1970s buildings around a fetid
lagoon, was a far more dangerous place than the one portrayed in this year’s Hollywood film 13
Hours: The Secret Soldiers of Benghazi, about the attack that killed U.S. Ambassador to Libya J.
Christopher Stevens in September 2012. In the early days of the civil war, Benghazi was a city
where nearly every man—and often even children—carried a Kalashnikov, and the rest of the
population lived under the constant threat that Qaddafi troops could breach the city’s defenses.
After some discussion, Vitol accepted the deal. Things went awry within days. Despite promising
to keep it secret, the rebels announced they’d made an arrangement to sell oil. In response,
Qaddafi’s forces immediately blew up a key pipeline. Without oil, Vitol couldn’t be paid.
Still, the company upheld its end of the bargain. Over the coming months, its tankers shipped
cargo after cargo of gasoline, diesel, and fuel oil into eastern Libya. “The fuel from Vitol was very
important for the military,” Abdeljalil Mayuf, an official at rebel-controlled Arabian Gulf Oil in
Benghazi, later said.
In the end, the rebels brought down Qaddafi, and once the fighting subsided, Vitol got its oil. At
one point, as everyone waited for production to restart, the amount owed by the rebel government
ballooned to more than $1 billion.
Five years later, Taylor, now 60, recalls the Benghazi affair over breakfast at London’s St.
Pancras station ahead of the 9:18 a.m. Eurostar to Paris. “It was a deal which, to be honest, got
much larger than it should have,” he says.
The boldness of the Benghazi deal epitomizes the world of Vitol—a high-stakes mix of business
and energy geopolitics conducted in some of the most difficult corners of the world. The closely
held company, which last year made a net profit of $1.6 billion, is a hidden giant of the global
economy, handling more than 6 million barrels a day, enough to meet the combined daily needs of
Germany, France, Italy, and Spain.
Over half a century (the company will celebrate its 50th anniversary in August) Vitol has never
suffered an annual loss. Profits surged from just $22.9 million in 1995 to a record $2.28 billion in
2009, according to documents reviewed by Bloomberg Markets.
At its peak, Vitol’s return on equity, a measure of profitability compared with the money that
partners have invested, was a geyserlike 56 percent. Even Wall Street pales in comparison;
Goldman Sachs’s best ROE since going public in 1999 is 31 percent. “Vitol has established itself
as the ultimate energy trader,” says Jean-François Lambert, who as former global head of
commodity and structured trade finance at HSBC dealt extensively with the company.
This is the story of how Vitol got there and how at times it stumbled along the way—reconstructed
by Bloomberg Markets through two dozen interviews with current and former executives and

others in the industry, and reviewing hundreds of pages of previously unreported financial and
legal records filed in the Netherlands, the U.S., and Luxembourg.
Vitol, which trades about 6.5 percent of the world’s oil, fights in a tough arena. It competes with
other independents such as Glencore, Trafigura Group, Mercuria Energy Group, Gunvor Group,
and Castleton Commodities International. It also grapples for market share against Big Oil’s in-
house trading arms, including those of BP, Royal Dutch Shell, Total, and, increasingly, state-
owned Chinese oil companies.
As for the future, Vitol faces a daunting fact: The best days of oil trading are almost undoubtedly in
the rearview mirror. Margins are shrinking as the market becomes ever more transparent and
competitors emerge fighting for the same barrels. Even as Vitol sinks more capital into assets
such as refineries and terminals, returns are falling. Last year’s ROE was 16 percent—for Vitol, a
less-than-stellar number.
Taylor became an oil trader by chance. Of Scottish descent, raised and educated in England, he
went to work at Shell for a simple reason: It paid better than other jobs he was considering.
Starting in 1978 he learned the oil-trading ropes through stints in Singapore and Caracas, where
he met his wife.
Vitol has grown like a Silicon Valley startup under Taylor, who came on in 1985 and took the top
job a decade later, transforming the company into one of the world’s top traders as oil demand
surged in China and other emerging markets. During his time as CEO, Vitol has increased its
equity value by 3,500 percent, from $278 million in 1996 to almost $10 billion last year. Over the
same period, Glencore went from $1.2 billion to $35 billion, a smaller though still impressive 2,800
percent rise.
Vitol was born amid more modest ambitions. In August 1966, two Dutchmen, Henk Viëtor and
Jacques Detiger, invested 10,000 Dutch guilders (about $2,800 at the time) to start a Rotterdam
company with the aim of buying and selling refined petroleum products by barge up and down the
Rhine. They crunched Viëtor and “oil” to get Vitol. The money was a loan from Vietor’s father and
the pair agreed to pay an annual interest rate of 8 percent. Detinger, now 81 years old,
remembers that Vietor’s father told him: “You have 6 months—if it doesn’t work, you’re out.”
The company’s first accounts showed a small profit and a balance sheet of 200,000 guilders
including the value of the owners’ two cars. The business grew as the competition—major
producers that controlled long-term contracts—began breaking apart in the late 1960s and ’70s.
Small traders, including Vitol, started buying and selling oil on the nascent spot market.
“It was tricky,” Detinger says in an interview in London. He’s sitting alongside Taylor—recalling
some “very dangerous” moments, such as the first oil crisis in
1973-74, when the price of refined products fluctuated wildly.
Back then, the energy market had yet to develop any futures,
options or swaps contracts to hedge price risks, so traders
like Vitol were facing a massive exposure every time they
bought a cargo: If the market moved against them, they could
loss everything.
As business grew, Vitol expanded geographically, opening offices from Switzerland to London to
New York. Tension followed, with the founders split on strategy. In 1976, Viëtor, then CEO, left,

and Detiger took over. By the time Taylor joined to run the crude oil side of the business, Vitol was
handling about 450,000 barrels a day—a decent figure but only half what the industry’s leaders
did. The kings of the oil trading game back then were Phibro, which had just bought Salomon
Brothers, the investment bank, for $550 million; Marc Rich + Co., founded by the eponymous
trader and onetime tax fugitive; and Transworld Oil, controlled by John Deuss, who’d risen to
prominence and infamy by doing business with South Africa in the days of apartheid.
The modern Vitol began to take shape in 1990, when Detiger and seven other partners sold the
company for $100 million to $200 million (the actual figure wasn’t disclosed) to a group of about
40 employees, including Taylor. The management buyout was financed by what was then ABN,
the Dutch bank, and trader Ton Vonk took over as CEO.
Since that time, no single shareholder has controlled more than 5 percent, creating what Taylor
and others describe as a “we” culture that’s the cornerstone of Vitol’s success. “If anyone thinks
they are bigger or better than the sum of the entity,” says Bake, “he tends to get indirectly
smacked down.”
Vonk pushed Vitol into crude trading, expanding beyond refined products, and started signing so-
called processing deals with refiners, supplying crude and receiving fuels. Those agreements led
to what would be the most profitable deal ever for Vitol—and one that also almost brought the
company down.
In the early 1990s, Vitol was processing crude at a seemingly cursed refinery in a town called
Come by Chance on the eastern edge of Canada. When a fire tipped the refinery into bankruptcy,
Vitol bought it for $300 million in 1995, then booked a $1 billion profit when it sold the plant a
decade later. It remains the company’s best-ever return from a single deal.
What’s little known is that Vitol almost went belly-up as it struggled under the cost of upgrading the
Come by Chance refinery just as its trading business floundered. In 1997 net profit fell to just $6.6
million, far below the consistent earnings ranging from $60 million to $70 million it achieved in
1992, 1993, and 1994 before it bought Come by Chance. As an investment, the refinery “was too
big” relative to the company’s size, says Kho Hui Meng, head of Vitol in Asia.
The experience continues to resonate. In the wake of Come by Chance, Vitol became fanatically
conservative and overcapitalized. (Rating companies S&P Global Ratings and Fitch Ratings
privately give Vitol an investment-grade BBB rating, according to a presentation reviewed by
Bloomberg Markets.) Since then, Vitol has sought out partners, including an Abu Dhabi sovereign
wealth fund, when buying assets. Today it co-owns five refineries with a capacity of 390,000
barrels per day. But Kho says Vitol never forgets its key strength. “Our core business is trading,
moving oil from A to B efficiently,” he says.

On a sunny April morning in Rotterdam, Jack de Moel oversees the bread and butter of Vitol’s
business. The company owns the massive Euro Tank Terminal here, which De Moel manages,
and the barges Noorozee and Citrine are taking on fuel oil from tank 404, which rises taller than a
10-story building. A few meters away, a big tanker, the 144-meter-long (472-foot) Blue Emerald, is
also loading fuel ahead of a North Sea crossing. Its ultimate destination is the Thames Estuary in
England.
The terminal loaded 3,900 barges and tankers last year—one every two and a half hours. Each of
those ships represents a potential profit, albeit a relatively small one. As the round-the-clock work
here shows, oil trading is a business of big volumes but razor-thin margins. It also requires a huge
investment. Since 2006, Vitol has built 28 towering storage tanks alongside Rotterdam’s deep-
water Calandkanaal. They can hold enough fuel to fill up 22 million Volkswagen Golfs.
Vitol’s financial health isn’t linked to oil prices the way Big Oil’s fortunes are. “We are long
volatility,” says Paul Greenslade, who was Vitol’s head of trading until he retired in 2014. That’s
industry jargon meaning Vitol benefits from price fluctuations, regardless of market prices. In
2009, for instance, the year the company reported its best profit, oil plunged to $30 a barrel from a
record $150. Last year, as most of the energy industry struggled amid cascading oil prices, Vitol
reported its fourth-highest profit.
For Vitol, oil is just a starting
point. It blends different fuels to
create the exact grade needed for
each region, customer, and even
season. To ensure supply, Vitol
will provide cash upfront to
companies such as Russia’s
Rosneft or governments like the
one that runs oil-rich Kurdistan in
northern Iraq—more than
recouping its money when it sells
the oil.
“The perception of them is as
speculators,” says Craig Pirrong,
a finance professor at the
University of Houston. But, in
reality, he says, Vitol is an intermediary between consumers and producers. It will turn
supertankers into floating storage farms, timing sales to beat roller-coastering prices. In 2015 it
hired one of the world’s largest tankers—a 380-meter vessel as long as the Empire State Building
is tall—to store crude. On any given day, Vitol has about 200 ships at sea. Last year the company
logged 6,629 ship voyages.
For the most part, Vitol is a passenger riding the oil market. Sometimes the market severely
restricts profit-making; this was the case in 2012, 2013, and the late 1990s. At other times, the
market provides opportunities, often unexpectedly. The war in Libya was one such case; the 2011
nuclear crisis in Fukushima was another, leading to a massive shift in energy flows to Japan.
“Opportunity is defined externally,” says Russell Hardy, a senior Vitol executive. The job of the
company’s traders, he says, is to find ways to profit from those opportunities.

Vitol's opportunity-driven culture has forged a fiercely loyal staff. It can’t hurt that many have
become fabulously wealthy. They keep a notoriously low profile, and little is known about their
individual wealth. However, a messy divorce proceeding a decade ago involving one of the
company’s most senior traders offers a rare glimpse into Vitol’s riches.
According to documents filed in Texas’ 14th Court of Appeals, Mike Loya, who heads the
company in the Americas out of Houston, controlled Vitol shares valued at $140 million at the end
of 2007. Since then, Vitol’s book value has almost doubled, with profits and payouts surging,
suggesting that top executives are each worth hundreds of millions. Loya says that what lured him
to move from his old job at Transworld in the 1990s was a chance to earn a stake in a dynamic
business. “If you do well, you become one of the owners,” he says.
In 2014 alone, according to documents reviewed by Bloomberg Markets, Vitol distributed a special
dividend-like payment of more than $1.1 billion to its 350 or so employee shareholder-partners.
From 2008 to 2014, these shareholders were awarded payouts totaling almost $5.6 billion. Even
so, says Chief Financial Officer Jeff Dellapina, “over the past 10 years we’ve reinvested 50
percent of the profits in the business—an appropriate level for an established and growing
company.”
Vitol is a private company in more ways than one, and it’s never found the oxygen of publicity to
be particularly inviting. “When Vitol makes headlines, they are bad headlines,” says Oliver
Classen of the Berne Declaration, a Swiss nongovernmental organization that has researched
commodity trading and advocates formal regulation of the industry.
In 1995, for instance, Vitol paid a Serbian warlord $1 million for help resolving a business dispute.
Zeljko Raznjatovic, known as “Arkan,” was indicted in 1997 by the International Criminal Tribunal
for the former Yugoslavia in The Hague for crimes against humanity. He was assassinated in
2000 before his trial could go to court.
Vitol took its most damaging reputational hit in 2007 over paying the regime of Saddam Hussein
about $13 million in
“surcharges” to secure oil
shipments under the United
Nation’s scandal-plagued
Oil-for-Food Programme.
The investigation, led by
Paul Volcker, the former U.S.
Federal Reserve chairman,
exposed a world of illicit
payments, secret bank
accounts, and diplomats for
hire. Rather than paying a
fine without admitting
wrongdoing, Vitol agreed to
plead guilty in the Supreme
Court of the State of New
York; other companies, including Chevron, resolved similar civil and criminal cases at the time, but
only a few pleaded guilty. “We did a settlement to protect our own staff,” Taylor says, suggesting
that without the deal, U.S. prosecutors could have charged individual traders. He points out that

there were plenty of others paying the same surcharges. “It was chaos,” Taylor says of the UN
program.
Vitol’s reputation was rattled again in 2012 after the company purchased Iranian fuel oil, skirting
U.S. and European Union sanctions. Vitol, which used its Bahrain subsidiary for the deal, denied
wrongdoing. Nonetheless, the episode marked a watershed for the company. Scarred by bad
publicity and the negative reaction of some of its banks, Vitol tightened its internal compliance
standards. Other changes soon followed. The company, for example, scaled back much of its
trading activity in Nigeria as corruption allegations piled up against officials under then-President
Goodluck Jonathan.
Even so, Vitol lags in disclosing information that activists such as the Berne Declaration consider
imperative. While Glencore and Trafigura have joined a voluntary scheme to improve
transparency in the commodity sector, Vitol has resisted. Unlike other privately owned traders,
including Cargill, it refuses to disclose its financial results.
Taxes are another rallying point for critics. In 2015, judging from calculations based on the
company’s accounts, Vitol paid an effective global tax rate of 14.1 percent, less than half of
Goldman’s 30.7 percent. Although Vitol is incorporated in Rotterdam, the partner-owners control it
through two Luxembourg-based shell companies, Vitol Holding II and the Tinsel Group, according
to information disclosed in the Loya divorce papers. It settles a large chunk of its trades in tax-
friendly jurisdictions, including Switzerland and Singapore, longtime hubs for commodity traders.
“Our main trading offices were established a long time ago in key trading centers,” says Dellapina.
Although Vitol isn’t the only company that tries to reduce its tax bill, it’s been particularly
successful at it. In 2013 it paid no tax at all—thanks to the use of tax credits—in a year when its
net income was $837 million.
Even though the CEO and most top executives are based at the company’s sleek, minimalist
offices near Buckingham Palace, Vitol pays the bulk of its corporate taxes outside Britain.
Criticism of Vitol’s tax practices—from the Scottish National Party and others—has been
exacerbated by Taylor’s donations of more than $2 million to U.K. Prime Minister David
Cameron’s Conservative Party and to causes supported by him. “Vitol has an open and
transparent relationship with the tax authorities in all the jurisdictions in which it operates and pays
its corporate taxes in each of these jurisdictions,” Dellapina says.

Having thrived for more than two decades, Vitol may need to prepare for choppier seas. Trading
margins keep shrinking as the minute-by-minute movements of the global oil industry are
disseminated on the internet. Possession of market information that others don’t have—once
Vitol’s edge—is fast disappearing. So what will Vitol do?
As quick-witted as he usually is, Taylor struggles a bit to answer the question over his breakfast at
St. Pancras. “You will be surprised,” he finally says. “I don’t know the answer.”
After mulling things over, he says Vitol will benefit from “natural market growth.” He also says he
wants to buy more assets to complete the creation of what in the oil industry is known as “a
system”—a cache of oilfield stakes, refineries, tanks, and petrol stations spanning the cycle from
the ground to the gas tank—just like Big Oil. It would be Vitol’s own brand of vertical integration,
he says, featuring minimal investment or exposure to actual oil production. “I will kill—kill!—to
have that system,” he says.
Although building such a structure wouldn’t come cheap, Taylor, along with his colleagues, is
determined to stay private. Glencore’s 2011 initial public offering, which created several paper
billionaires overnight, doesn’t tempt Taylor or his team, he says.
At least that’s the case now. Bob Finch, a former Vitol senior executive and for years the largest
shareholder, says Vitol considered the idea of hiring a bank to explore going public about 10 years
ago. Unbeknown to those outside Vitol’s inner sanctum, the IPO option reached the executive
committee, where it was defeated by what Finch says was a “narrow vote.” Taylor says the idea of
hiring a bank was “rejected by most members” of the executive committee.
Over the course of Vitol's history, a number of companies expressed an interest in buying the oil
trader. At one point, Vitol talked about selling a stake to Petronas, the state-controlled Malaysian
oil company with which Taylor had developed a close relationship during his time in Singapore. It
didn't happen. Perhaps the most serious conversation happened in the late 1990s when Enron
considered buying the oil trader. The partners turned down the offer, thereby staving off a
disaster: Enron, which went bankrupt in 2001 amid an accounting scandal and criminal
investigations, was offering to pay with its own shares, which later turned out to be worthless.
The biggest challenge for Vitol may be internal as it wrestles with succession. Transitions at other
trading houses show they’re anything but easy. Taylor, who recently battled throat cancer that’s in
remission, says he isn’t going anywhere soon. But he and at least three other members of the
nine-member executive committee are either past or near 60. His lieutenants—including David
Fransen, who heads the office in Geneva, Loya in Houston, and Kho, the boss in Singapore—will
at some point retire. Vitol has been grooming the next generation—including Hardy, Dellapina,
Bake, and Mark Couling, head of crude trading—to take the baton. One of these men, all in their
40s or 50s, is expected to be the next CEO.
Until then, Taylor says he’s adhering to his usual schedule, which means traveling for almost half
the year. The commodities business is still ruled by the centuries-old pledge of “my word is my
bond.” Face-to-face meetings are imperative.
“You need to have relationships,” he says. Which is the reason Taylor flew into Benghazi—a deal
he didn’t want to do “unless I knew who I was dealing with,” he says. “It could have gone very,
very badly wrong.”

NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
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For additional free subscription emails please contact Hawk Energy
Khaled Malallah Al Awadi,
Energy Consultant
MS & BS Mechanical Engineering (HON), USA
Emarat member since 1990
ASME member since 1995
Hawk Energy member 2010
Mobile: +97150-4822502
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 02 June 2016 K. Al Awadi

New base energy news issue 864 dated 02 june 2016

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New base energy news issue 864 dated 02 june 2016