New base 774 special 27 january 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 27 January 2016 - Issue No. 774 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: ADWEA continues its leadership role in the area of
sustainability in support of renewable energy
(WAM) - The Abu Dhabi Water and Electricity Authority (ADWEA) and its group companies exert
significant efforts to achieve sustainability in the field of electrical power generation, and work on
improving the efficiency of traditional generation plants, relying upon innovations that contribute
towards developing sustainable production, including the application of the most up-to-date means
and most efficient and smart technologies.
In line with this focus, and in furtherance of government policies aimed at strengthening
sustainability and diversifying sources of production, ADWEA is working firmly towards
implementing its first major project in the field of renewable power through the establishment of a
solar power plant having a 350 MW capacity in the Sweihan area in the Emirate of Abu Dhabi,
using solar photovoltaic technology, which will be implemented using the IPP structure adopted by
ADWEA.
The project is considered one of the largest solar power projects in the gulf region and the wider
Middle East, and the establishment of the plant will contribute towards enhancing the profile of the
United Arab Emirates more generally and the Emirate of Abu Dhabi more specifically as global
centers in the field of solar power and as pioneers in the power sector which is witnessing
continued growth.

It is worth noting that in addition to generating 350 MW of renewable energy, there will be an
added benefit relating to the reduction in the use of gas required to general power using traditional
means. The project is also expected to result in the generation of electrical capacity based on
competitive economic terms, which will contribute towards achieving savings for the water and
electricity sector.
As part of its participation as strategic partner in the
2016 International Water Summit, and as part of its
participation in the Abu Dhabi Sustainability Week,
ADWEA received much appreciation for its
sustainability efforts, particularly in the field of
renewable energy.
Participants from various local and international
governmental authorities, companies, specialists,
research centers and innovators, welcomed
ADWEA’s efforts in support of renewable energy.
Additionally, many dignitaries visiting ADWEA’s
stand expressed a lot of interest in the Sweihan
solar power project and emphasized its importance.
They also enquired about certain project details, and
listened to additional explanations from ADWEA and
the Abu Dhabi Water and Electricity Company (ADWEC) about the project and what is being
planned, in realization of the efforts of the Emirate of Abu Dhabi which are well known
internationally in this field.
ADWEA had previously issued invitations to express interest for the Sweihan solar power project
via local and international media, to ensure competition in choosing a developer or consortium of
developers that would implement the project.
The number of responses received from international and local companies specialized in
renewable energy have so far reached about 90, including leading companies in the areas of
manufacturing, scientific research, development, investment and implementation of major projects
in the field of solar energy.
This indicates the high level of trust that local and international investors, developers and
governmental and non-governmental entities have in ADWEA projects and the water and
electricity sector in the Emirate, as well as in the IPP structure developed by ADWEA which is
being successfully implemented in the Emirate of Abu Dhabi.
It is worth noting that the number of IWPP plants (the first of which commenced in 1998) currently
stands at ten plants. Such plants were established in partnership with international companies
with high level expertise in the field of generation of electricity and desalination of water.
The amount of total investments in the IWPP plants have reached almost AED 70 billion, with a
total capacity of more than 15,000 MW of electricity and more than 900 million gallons of water per
day. Since the start of the IWPP structure, the Emirate has not faced any blackouts or shortages
in supply, despite the significant development and speedy growth witnessed by the Emirate, which
is something that is considered unique in fast-growing economies.

The latest developments in connection with the Sweihan solar power project relate to having a
number of specialized and well-known technical, financial and legal consulting firms submit
proposals seeking their appointment as consultants to the project.
ADWEA and ADWEC are assessing the proposals which have been received, and it is expected
that consultants will be appointed before the end of this month. Following such appointment, the
first coordination meeting will be held with consultants in February, so that the various work
streams can officially commence.
Once all
expressions of
interests are
reviewed, the various
entities will be
informed as to
whether or not they
have progressed to
the next stage.
ADWEA and
ADWEC will send a
request for statement
of qualifications to
selected entities, and
such statement will
include additional
details on the
project, applicable
qualification criteria,
and the tender procedure. It is expected that the tender will be issued during the first half of this
year, and ADWEA and ADWEC intend to select the winning bidder following that in the second
half of 2016. According to the preliminary timeline currently in place, it is expected that financial
close will be achieved during the first half of 2017, and that the project will commence commercial
operation and generate electricity during 2019.

Saudia: Solar power revolutionizes irrigation in Kingdom
Saudi Gazette
A pilot project to evaluate the use of solar electricity to sustainably power irrigation in the Kingdom
was successfully completed in a farm in Al-Jouf province.
The project is jointly funded by First Solar, Inc. and Al Watania Agriculture Company, a press
statement said on Tuesday.
The 684-kilowatt plant powers groundwater extraction and distribution operations at a 25,688-
square meter site on the Al Watania Organic farm located in Al Jouf.
The farm, which covers an area of 319.21 square kilometers, is the Kingdom’s largest producer of
organic products and currently uses conventional fuel to pump water from 150 bore wells.
The facility produces 1,476 MWh of electricity per year, reducing greenhouse gas emissions by
1,100 tons per year based on national averages, which is equivalent to planting 28,000 trees per
year. The solar power plant replaces a diesel generator, which would ordinarily consume 628,000
liters of diesel per year, if run continuously.
“We are proud to partner with First Solar on this exciting new project, which will not only help
reduce our carbon footprint, but will also allow us to explore the potential for solar to reliably
support our energy needs,” said Eng. Ibrahim Aboabat, Al-Watania Agriculture CEO.
The advanced thin film modules deployed at the site are ideally suited to local environmental
conditions, offering a combination of a superior temperature coefficient and spectral performance,
allowing optimum performance in weather like that in Saudi Arabia. The installed PV generator will
pump over 3,1 million cubic meters of water per year, unaided by conventional generators.
“This project is an excellent example of the scalability and flexibility that solar PV offers. Easy-to-
deploy and able to address very specific needs, innovative solar-powered solutions can address a
wide range of energy challenges, as this pilot facility demonstrates,” said Dr. Raed Bkayrat, Vice
President of Business for First Solar in the Middle East.

Omani start-up ventures into solar energy
Oman Obverder - Zainab Al Nasseri
Three young, ambitious and enterprising Omanis have joined forces to explore and develop
commercial opportunities in the Sultanate’s nascent renewable and alternative energy sector.
‘Nafath’, a wholly Omani company set up by buddies Abdullah al Saidi, Nasser al Jabri and Musab
al Farsi, has developed an automatic dust cleaning system for photovoltaic panels. The innovative
system affords a great deal of ease and convenience in the operation of PV panels and promises
to lend solid impetus to the commercialisation of solar energy use in the Sultanate.
“The idea came to us during our final year at Sultan Qaboos University (SQU) when we were
working on our class project,” said Nasser al Jabri, Head of Software Development at Nafath. “We
were blowing dust away from photovoltaic panel when it struck us that we could develop
maintenance-free, clean energy solutions for Oman.”
Recognition of the start-up’s design solution first came at the Al Royal Economic Awards for small
and medium enterprises when Nafath scooped the second prize for scientific inventions. The
company has since affixed its maintenance-free device to solar panel systems installed at a
number of schools and corporate establishments in Muscat.
Al Jabri is hopeful that the innovative device, coupled with the fact that the sun’s energy is
abundant in the Sultanate, augurs well for the widespread uptake of PV panels as a source of
renewable energy.
“Solar energy is the easiest resource that can be developed in the Sultanate because of its
abundance. As an environmental friendly energy resource, its commercial exploitation will also
drive economic development if we commit to investing in renewables,” the entrepreneur said.
However, launching Nafath was not without its challenges, he lamented. “Securing financial
support was a major hurdle. We launched our project as fresh graduates with no funding support.
Nevertheless, we managed to convince a few individuals who believed in our project to support
our venture,” said Al Jabri.
The project’s founders are now exploring avenues for taking Nafath to the next level. “We are
looking to start manufacturing solar energy components here in Oman to cater to the growing
demand for renewables. Hopefully, growing public acceptance and awareness of solar energy,
and the importance of renewables in the face of the oil price crisis, will stimulate the growth of this
market,” he added.

Morocco: Sound Energy acquires further further interest in Sidi
Moktar in deal with PetroMaroc . Source: Sound Energy
Morocco: Sound Energy acquires further further interest in Sidi Moktar in deal with PetroMaroc
Sound Energy has reached heads of agreement with PetroMaroc Corp in respect of Sound
Energy's acquisition of PetroMaroc's 50% operated interest in three onshore gas permits located
in Morocco (together the 'Sidi Moktar Licences').
These heads of agreement follow Sound Energy's announcement of14 January 2016, in which
the Company announced the acquisition of an initial 25% interest in the Sidi Moktar Licences
from Maghreb Petroleum Exploration.
The Sidi Moktar
Licences cover
2,700 sq kms in the
Essaouira basin,
central Morocco
and contain a
material existing
gas discovery in the
Lower Liassic
('Kechoula'). Two
wells have already
been drilled at
Kechoula and a
near term extended
well test is awaited
prior to expected
commercial
production.
Kechoula is close to
existing
infrastructure and
has been estimated
to have an unrisked mid case GOIP of 293 Bscf (100% working interest). The Sidi Moktar
Licences are also estimated to have significant (in excess of 1 Tcf of unrisked GOIP; 100%)
Triassic exploration potential.
Under the heads of agreement, subject to contract and regulatory and other approvals, Sound
Energy will acquire PetroMaroc's 50% working interest in, and operatorship of, the Sidi Moktar
Licences (the "Acquisition").
On completion of the Acquisition, Sound Energy will issue PetroMaroc with new ordinary shares
in the Company with a market value of £3,650,000 and will grant PetroMaroc: (i) a 10% net profit
interest in any future cash flows from the Kechoula discovery; and (ii) a 5% net profit interest in
any future cash flows from structures within the Sidi Moktar Licences other than the Kechoula
discovery.
The Company also announces that, with support from PetroMaroc, discussions with prospective
farm in partners are progressing well.

Iran's petroleum production seen rising as many sanctions are lifted
US EIA – Short term energy outlook Report Jan 2016
Over last weekend, Iran took a step toward increased oil and other liquid fuels production and
exports as the international community lifted many of the nuclear-related sanctions that severely
constrained Iran's ability to operate in the global market.
As EIA has already reported, the sanctions were lifted on January 16, which was implementation
day for the Joint Comprehensive Plan of Action (JCPOA), an agreement among the P5+1 (the five
permanent members of the United Nations Security Council and Germany), the European Union
(EU), and Iran.
On that day, the International Atomic Energy Agency verified that Iran had completed the key
physical steps required to trigger sanctions relief. With this milestone, the United States, the EU,
and the United Nations have lifted nuclear-related sanctions against Iran, which include oil-related
sanctions that have limited Iran's ability to sell its oil on the global market since late 2011. With
nuclear-related sanctions being lifted:
• Some Iranian banks can get back on the Society for Worldwide Interbank Financial
Telecommunication (SWIFT) system to conduct financial transactions electronically on the
world market.
• Iran can access its foreign reserves held in banks worldwide. According to the U.S.
Department of Treasury, Iran's Central Bank has $100 billion to $125 billion in foreign
exchange assets globally, but Treasury estimates Iran's usable liquid assets to be just
slightly more than $50 billion.

• Non-U.S. companies can invest in Iran's oil and natural gas industry, including the sale,
supply, and transfer of equipment and technology.
• Countries within the EU and elsewhere that had ceased imports of energy from Iran can
again import Iranian oil, natural gas, and petrochemical products. Countries that are
already importing from Iran can increase their purchases.
• European protection and indemnity (P&I) clubs can provide Iranian oil tankers with
insurance and reinsurance.
Nonetheless, U.S. sanctions related to human rights abuses and terrorism are still in place, and
some Iranian individuals and entities that were delisted under nuclear sanctions are still covered
under existing sanctions. As a result, non-U.S. companies may be slow to rush back into Iran as
they figure out how to resume business with Iran without violating the non-nuclear sanctions that
remain in effect.
Ultimately, nuclear-related sanctions relief will lead to an increase in Iran's oil production and
exports (Figure 1). Iran's crude oil production has been relatively flat over the past three years
while sanctions were in place, averaging 2.8 million barrels per day (b/d) in 2015, representing 9%
of total crude oil production from the Organization of the Petroleum Exporting Countries (OPEC).
In EIA's JanuaryShort-Term Energy Outlook STEO, which assumed implementation day to occur
this quarter, Iran's annual average crude oil production is forecast at 3.1 million b/d in 2016 (10%
of projected total OPEC production), and almost 3.6 million b/d in 2017.
Consistent with these forecasts for average annual production, Iran's crude oil production is
expected to reach 3.3 million b/d at the end of 2016 and 3.7 million b/d at the end of 2017. EIA
estimates an uncertainty range of +/- 250,000 b/d surrounding these year-end projections, with

actual outcomes dependent on Iran's ability to mitigate production decline rates, deal with
technical challenges, and bring new oil fields into production.
Most of Iran's forecast production growth comes from its preexisting crude oil production capacity
that is currently shut in, while the remainder comes from newly developed fields. Iran has a
number of new oil fields that Iranian and Chinese companies have been developing over the past
several years, which have the potential to add 100,000 b/d to 200,000 b/d of crude oil production
capacity by 2017. The STEO forecast also accounts for production declines at Iran's mature oil
fields (Figure 2).
Beyond crude oil, Iran's condensate and natural gas plant liquids (NGPL) production is currently
almost 750,000 b/d, of which 75% is condensate and the remainder NGPL. Iran's noncrude liquids
production has grown over the past few years. The main buyers of Iran's noncrude liquids have
been in countries in Asia, mainly China, and the United Arab Emirates (UAE).
Iran's noncrude liquids production is expected to grow by 150,000 b/d by the end of 2016 and by
an additional 100,000 b/d by the end of 2017, as more project phases at the South Pars natural
gas field come online. More than 80% of Iran's condensate production comes from the South Pars
field located offshore in the Persian Gulf, which is Iran's largest nonassociated gas field.
Lack of foreign investment and insufficient financing, stemming from international sanctions, have
slowed the development of South Pars. However, some progress has been made in recent years,
and sanctions relief is expected to quicken the pace of development of its remaining phases over
the next decade.
With Iran's petroleum and other liquid fuels consumption expected to remain flat over the next two
years, crude oil and other liquid fuels from the production increase is likely to be sold in export

markets. The pace at which Iran will ramp up its exports now that sanctions are lifted is uncertain.
Iran has a considerable amount of oil stored offshore in tankers (between 30 million and 50 million
barrels), most of which is condensate, and crude oil stored at onshore facilities. Initial post-
sanction increases in Iranian exports will most likely come from storage, while meaningful
production increases will occur after some of the storage is cleared.
Iran is targeting its traditional customers in an attempt to reestablish trade links and regain market
share. The anticipated global inventory builds in 2016 will present challenges to Iran in regaining
market share quickly. Iran lost a significant amount of its market share in Asia, Europe, Turkey,
and South Africa after the last round of sanctions hit, causing a more than 1.0 million b/d drop in
Iran's crude oil and condensate exports after 2011.
Iran lost an average of 3% of its market share in Asia, which was mostly purchasing Iranian heavy
crude oil. Iran lost 5% of its market share in Europe, which mostly purchased Iranian light crude
oil. Iran lost 22% and 20% of its market share in Turkey and South Africa, respectively, where Iran
previously was the top oil supplier.
Displaced Iranian oil was substituted by multiple countries, including Nigeria, Iraq, Russia, Angola,
UAE, Kuwait, and Saudi Arabia. Nigerian barrels were the top substitute in Europe and South
Africa, Russian barrels in Asia, and Iraqi barrels in Turkey (Table 1 and Figure 3).
In 2017, EIA expects the global oil market to become more balanced as global consumption
catches up to production. Also, with the exception of Iraq and to a lesser extent Angola,
production from the countries that substituted for lost Iranian barrels is forecast to remain flat or
decline in 2016 and 2017. As a result, Iran has the potential to regain a significant portion of
market share lost since 2011 during the two-year forecast period.

China Energy Giant Signals Nation's Fuel Oversupply Is Worsening
Bloomberg News
China’s biggest energy company predicted the nation’s
refineries will increase output in 2016, exacerbating a
fuel glut and boosting exports of the surplus to regional
markets.
Net export of oil products -- which strips out imports -- will
rise by 31 percent this year to 25 million metric tons,
China National Petroleum Corp. said in its annual
research report. The country’s refineries will increase oil
processing by 5.3 percent while net crude imports will
rise 7.3 percent to 357 million tons. “China is set to ship
record oil products overseas amid its slowing domestic
demand,” Jean Zuo, an analyst at ICIS China, said by phone from Guangzhou. “The country will
remain enthusiastic for crude imports this year amid low prices and as strategic crude stockpile
facilities are due to come online.”
China exported a record amount of diesel, kerosene and gasoline last year and for the first time
shipped more products abroad than it imported amid the slowest economic expansion in 25 years.
Meanwhile, its crude purchases increased to a record in 2015 as the world’s second-biggest oil
consumer sought to fill its strategic oil reserve and the government allowed small private
processors called teapots to buy foreign supplies.
The teapots, clustered around the eastern Chinese province of Shandong, will account for the bulk
of the increase in oil processing this year as the country’s bigger state-owned processors
decrease output, CNPC said in its report.
"China’s fuel glut is in its worst shape," Dai Jiaquan, director of CNPC’s oil market department,
said Tuesday. "This is mainly due to weak demand and fast growth of refining projects in recent
years. Now low oil prices have boosted refinery operating rates, especially for teapots, who are
snatching market share rapidly from major refineries.”
The country’s oil consumption will rise 4.3 percent to 566 million tons this year, with imports
satisfying 62 percent of total demand, according to CNPC. The country had 495 million barrels of
oil storage capacity, consisting of 180 million for strategic petroleum reserves and 315 million for
commercial use.

Russia, OPEC hint at oil production cuts
Sergei Karpukhin / Reuters
Both Russia and OPEC have separately implied they are ready to cut crude output amid
collapsing prices.
According to Russian Deputy Prime Minister Arkady Dvorkovich, Moscow has the instruments to
keep the oil output at the current level, but the prices could take a toll.“If prices remain low for a
long time, a production cut is possible. This is what our partners - other countries – know,” he said
on Tuesday.
Russia could cut oil exports by 6%
Dvorkovich added that after a
period of low investment in
this area in the whole
world, "oil prices will almost
inevitably rise, but to what
level - no one knows, and then
production will begin to grow
again."
This came as OPEC Governor
Nawal al-Fuzaia hinted on
Tuesday that OPEC is ready
to cut production in an effort to
slow down the plunge in oil
prices. The governor told an
energy forum in Kuwait that OPEC is ready to "cooperate"with others to stabilize the crude
market.
"OPEC is willing to cooperate with producers outside the group if they show that they are serious
about cooperating with OPEC. Non-OPEC producers keep on making statements that they are
willing to cooperate, but the reality is different," she said, quoted by Dow Jones Newswires.
Al-Fuzaia also said prices are unlikely
to rebound to the highs of 2014, but
still could grow to $40-$60 per barrel
through 2020. Brent crude was
trading at $30.67 per barrel, while
West Texas Intermediate stood at
$30.62 as of 2:15pm GMT Tuesday.

NewBase 27 January 2016 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
Oil falls around 2 percent as profit-taking kicks in
REUTERS - ANDREW CULLEN
Crude oil futures dropped around 2 percent on Wednesday, heading back towards $30 a barrel as
profit-taking wiped out a chunk of the gains notched up in the previous session on hopes for
output cuts.
Prices were also dampened by a bigger-than-expected build in U.S. crude inventory and worries
about the economy in China, the world's second-largest oil consumer.
Brent crude LCOc1 had declined 51 cents to $31.29 a barrel by 0308 GMT, after hitting a session-
low of $31.20 a barrel. It settled up $1.30 at $31.80 on Tuesday. U.S. crude CLc1 fell 72 cents to
$30.73 a barrel, recovering slightly from a session-low of $30.30 a barrel. It ended Tuesday $1.11
higher at $31.45 a barrel.
"The positive sentiment stemmed from strong U.S. corporate earnings and talk of OPEC and
Russia considering production cuts. We consider the likelihood of any agreement between these
parties as extremely low," ANZ said in a note on Wednesday.
"However, rising U.S. crude stockpiles are likely to remain a headwind in the near term. At the
current pace, the U.S. crude stockpiles will cross the all-time high of April last year in the next
month." Daniel Ang at Phillip Futures said: "With the U.S. ability to produce oil in much higher
quantities, it will be difficult to support prices with supply cuts. Therefore, it is probably the case
that even if major producers want higher prices, they may not be able to achieve this without
everyone's blessing."
Oil price special
coverage

World Bank slashes 2016 oil price forecast
Reuters + Gulf news + NewBase
The World Bank has slashed its forecast for crude oil prices by $14 to $37 per barrel for 2016, it
said on Tuesday, amid growing supply and weak demand prospects from emerging markets.
In its annual Commodity Markets Outlook, the World Bank lowered its price forecast for 37 of 46
commodities, including oil, saying that weak demand from emerging economies is likely to
continue.
World Bank economists said weak demand would continue even as oil supply grows with the
resumption of Iranian exports, continued US production and a mild Northern Hemisphere winter.
Oil prices should decline another 27 per cent in 2016 after plummeting by 47 per cent last
year, according to the outlook. The World Bank uses an average of Brent, Dubai and West Texas
Intermediate oil, equally weighted.
“Low prices for oil and commodities are likely to be with us for some time,” said John Baffes,
senior economist and lead author of the report. Global benchmark Brent crude was trading around
$30.50 a barrel late on Monday while US crude dipped just below $30.
World Bank economists said they expect a gradual recovery in oil prices over the course of 2016
but the rebound will be smaller than in previous years that followed sharp declines, including
2008, 1998 and 1986.
A Reuters poll in January showed that crude oil prices were unlikely to rally much in 2016 because
of subdued demand and rising supply, even though non-OPEC output was expected to moderate.
Officials of the Organization of the Petroleum Exporting Countries said on Monday the oil market
was poised to start rebalancing itself. “We already see some signs that supply and demand
fundamentals will start to correct themselves in 2016,” said Opec Secretary-General Abdullah Al
Badri.
Earlier in January, the World Bank cut its forecast for global economic growth due to the weak
performance of emerging economies. All main commodity price indexes are likely to fall in 2016
amid a supply glut and a slowdown in demand for industrial commodities from emerging
economies. Emerging market economies have been the main sources of growth in demand for
commodities since 2000.

NewBase Special Coverage
News Agencies News Release 27 January 2016
How Cheap Oil Is Squeezing Russia's Economy
It's expanding the deficit and spurring inflation Bloomberg - Anna Andrianova
When Vladimir Putin first became Russia’s president back in 2000, oil traded at an average
$28.40 a barrel. After spending much of the past five years above $100 a barrel, crude prices
have come nearly full circle.
In just the past few weeks, oil prices have fallen about 16 percent. That's poised to squeeze an
economy that's heavily dependent on the commodity for its revenues. The Finance Ministry in
Moscow has already warned about a higher deficit if spending cuts and other austerity measures
aren't implemented in the face of cheaper crude. Here's a look at how the oil-price plunge is
rippling through Russia's economy.
The budget deficit may be even worse
Russia, which relies on oil and natural gas for almost half its fiscal revenue, ran a budget deficit of
2.6 percent in 2015, the highest in five years. It's now at risk of topping that level as prices drop
even further, Finance Minister Anton Siluanov warned the government.
This year's budget was initially planned around oil averaging $50 a barrel and a deficit of 3 percent
of gross domestic product. Belt-tightening measures totaling 1.5 trillion rubles ($18.9 billion) are
needed to avoid a shortfall of over 6 percent of output this year, Siluanov said.

Currency weakness is driving inflation
While consumers were the main drivers of Russia's economy for more than a decade, soft
domestic demand has now become a primary hindrance to growth.
As cheap oil weakens the Russian economy, it also causes its national currency, the ruble, to
depreciate. That means Russian consumers have to shell out more rubles if they want to maintain
their consumption levels.
Geopolitical tensions have added to the ruble's weakness. The currency has nearly halved in
value since Putin's annexation of Crimea in March 2014 and the U.S. and the European Union
imposed sanctions against Russia.
Currency weakness accelerated inflation to a 13-year high of 16.9 percent in March 2015. Annual
consumer-price growth eased to 12.9 percent in December, still more than three times the central
bank’s goal.
GDP may shrink another year
"Where is the bulk of money made? In oil, gas, metals, other commodities," Putin said in his
address to the Russian parliament in April 2001, calling for greater diversification of the Russian
economy. At the time, oil and gas generated some 30 percent of federal budget revenues. In
2015, the figure reached 44 percent, according to the Finance ministry — so much for good
intentions.

Greater dependence on oil and gas means Russia’s GDP is even more linked to the crude-price
dynamics. With the current oil rout, the country’s economy risks shrinking for a second year. It
declined 3.7 percent in 2015, the deepest contraction since 2009, and may shrink 0.5 percent this
year, according to economists surveyed by Bloomberg in December.

Distress in the Shale Oil Patch Spurs New Type of Joint Venture
Bloomberg - Matthew Monks
Joint ventures between oil and gas explorers in the U.S. and their foreign counterparts helped fuel
the shale boom. They’re coming back in a new iteration for the bust. The difference this time:
Shale explorers are partnering with Wall Street financiers to raise money for drilling, instead of
overseas rivals.
Typically, private equity firms invest in energy by buying entire companies or providing capital to
startups. Last year, U.S. oil and gas companies struck a half-dozen joint venture deals with private
equity firms totaling at least $1.4 billion. In December, an affiliate of Fortress Investment Group
agreed to provide National Fuel Gas Co. with as much as $380 million to fund wells in
Pennsylvania, while Blackstone Group LP’s credit arm closed a similar deal in July with Linn
Energy LLC.
Such transactions could accelerate this year as explorers face a cash crunch amid a rout in
commodity prices. They are essentially a source of off-balance sheet financing for producers with
good land but less than stellar credit. The way they are structured makes such deals akin to a
homeowner renting out a room to keep the lights on.
“It’s tough times in the oil patch,” said Ron Gajdica, co-head of energy acquisitions and
divestitures with Citigroup Inc. in Houston. “The traditional ways of raising money are not
available.”
Temporary Stake
Joint ventures with private equity firms are fairly complex but have a simple premise. The investor
pays for a certain number of new wells in exchange for a temporary majority stake in each well it
funds. After booking a specified return, the financier surrenders most of its ownership interest
back to the explorer.

They make sense right now because low commodity prices means producers are facing budget
shortfalls, and they’re losing access to other types of funding. U.S. crude fell 5.8 percent Monday
to $30.34 a barrel. Last week, oil closed below $30 a barrel in New York for the first time in 12
years.
Bond sales by energy companies with less than prime credit fell 22 percent in 2015 to their lowest
level in four years, according to data compiled by Bloomberg. Oil and gas explorers saw bank
credit lines cut by an average of 5 percent in September and October, when lenders conduct one
of their bi-annual reviews of loans outstanding to drillers. Analysts are forecasting even steeper
cuts this spring if prices don’t rebound.
Drilling Costs
Private equity firms are also eager to invest in energy, and by some estimates have amassed as
much as $100 billion in recent years for oil and gas deals.
“There is a lot of discussion,” said Michael Byrd, a partner with Akin Gump Strauss Hauer & Feld
LLP in Houston. “I’m aware of one investor in this type of transaction that has looked at
somewhere in the neighborhood of 200 of these transactions, but only closed on a handful of
them.”
The last time explorers were so active in seeking a partner to cover drilling costs was about seven
years ago during the U.S. shale boom, as Chesapeake Energy Corp. and Devon Energy Corp.
established joint ventures with explorers from China and Europe. Many foreign companies booked
losses on those deals after natural gas prices collapsed.
Protective Measures
The more recent pacts are designed to protect the private equity shops from that fate. So far, they
have tended to be much smaller. The joint ventures are set up as temporary partnerships with a
pay-as-you-go structure, and investors have oversight over where wells are drilled. The money
also isn’t used to develop virgin prospects that may or may not pay off.
“The parties have a very good understanding of what type of production they can expect from the
wells, what the wells are going to cost,” said Anthony Speier, a partner with Kirkland & Ellis in
Houston. “These deals are usually focused on assets where the companies have proven that their
completion technology works.”
The latest partnerships and earlier joint ventures are both innovations to the classic farmout deal -
- a company bringing in someone else to do some drilling because it can’t afford to -- a staple of
the energy sector for decades, Speier said. Buyout firms including KKR & Co. began developing
the blueprint for the recent deals about three years ago to fund small, private companies with no
access to the traditional debt and equity markets, he said.
The idea began catching on last year with larger explorers as their options for raising capital
narrowed, he said.
Disappearing Runway
“A lot of companies are very quickly running out of runway,” Speier said.
EnerVest Ltd. may consider a drilling partnership when oil and gas prices eventually rebound and

it ramps up production across its 33,000 wells in 17 states, according to John Walker, the
Houston-based company’s chief executive officer.
Having a partner in some of these areas “would allow us to put a lot more rigs out there,” Walker
said. “When prices go up, we’ll see more of them done.”
EnerVest negotiated a drilling partnership last year but tabled the discussions as energy prices
slid and it decided to halt drilling everywhere, he said.
Sliding prices aren’t the only thing that can make drilling partnerships difficult to navigate.
Shale wells tend to dwindle over time after initially gushing. If it takes too long for the investor to
make their money back, wells could be running dry by the time an explorer takes back ownership
of them.
“The operator team is going to do a lot of work with little to show for it,” Citigroup’s Gajdica
said. “Operators don’t want to be working for somebody else.”
The complexity of these partnerships also means they can take a long time to come together, and
may fall apart before an agreement is signed given the volatile nature of commodity prices.
They make sense only in certain areas such as the best parts of the Permian and Eagle Ford
Basins of Texas, or Marcellus Basin in the Eastern U.S. This is because investors are generally
seeking returns of about 15 percent, so the wells have to be able to pay out far better than that.
“For it to be attractive, we need to be drilling wells at 25 percent to 30 percent,” EnerVest’s Walker
said.
If oil and gas prices keep falling, explorers may not be able to find places to use the money they
lined up. For instance, Linn Energy has yet to draw any of the $500 million that Blackstone
Group’s credit arm agreed to provide in June. Last year, the company cut its capital expenditures
program and halted a bond buyback program because of lower commodity prices, making it
unlikely that Blackstone would make a sufficient return.
Also, a drilling partnership won’t necessarily stop a company from collapsing.
Magnum Hunter Resources Corp. struck a $430 million drilling finance about four months
before filing for bankruptcy in December.
Despite all the challenges, some drilling partnerships announced last year seem to have worked
out. ArcLight Capital Partners LLC paid out more than one-third of the $67 million it committed to
Rex Energy Corp. as of September, according to company filings. That enabled Rex to grow
production while cutting spending.
Legacy Reserves has drilled at least six wells in the Permian Basin with funding from a $150
million partnership it established in July with TPG, according to company presentations.
“While it’s too early to comment on production rates, we and TPG are pleased with our execution
of the program,” Paul T. Horne, Legacy’s CEO, said on an earnings conference call in November.

NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
Your partner in Energy Services
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
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 27 January 2016 K. Al Awadi

New base 774 special 27 january 2016

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