New base 775 special 28 january 2016 r2

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NewBase 28 January 2016 - Issue No. 775 Edited & Produced by: Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
Kuwait plans to expand crude production to
Bloomberg Gulf News + NewBase
Kuwait Petroleum Corp. is considering selling bonds to help pay for a planned investment of $100
billion over the next five years to boost oil output, echoing plans by Saudi Arabia to maintain
spending on energy projects as global producers compete for market share.
State-run KPC is looking at issuing bonds and Islamic securities known as sukuk, the company’s
chief executive officer Nizar Al Adsani said at a conference in Kuwait City. KPC had announced
plans earlier this month to arrange a $10 billion loan to expand refineries to make cleaner-burning
fuels. Kuwait, OPEC’s fourth-biggest producer, plans to expand its crude- production capacity to 4
million barrels a day by 2020, he said Tuesday.
A -Adsani’s remarks came a day after Khalid Al Falih, chairman of state-owned Saudi Arabian Oil
Co., said his company, the world’s biggest producer, has formulated a new strategy in response to
cheaper crude and is keeping up its investments. Together, the comments of both officials
suggest that at least two of OPEC’s core Arab producers are doubling down in long-term bets on
their energy assets.
“The world market will need around 5 to 6 million barrels a day of new crude annually,” Al Adsani
said. “This shows the importance of continuity in investments in upstream globally for the sake of
stable market supply and to avoid volatility and spikes in oil prices.”

Opec Production
Kuwait, with fellow Arab producers in the Arabian Gulf including Saudi Arabia, led the
Organisation of Petroleum Exporting Countries to abandon output limits on Dec. 4 amid efforts to
squeeze higher-cost producers such as Russia and US shale drillers from the market. The small
nation of 3.7 million people holds 101.5 billion barrels in crude reserves. Its production rose by
50,000 barrels a day to 2.9 million barrels a day in December, according to data compiled by
Bloomberg.
Kuwait will study other means of financing its oil-investment push, including bonds, sukuk, and
project bonds, KPC’s Al Adsani said. “This will open up the possibility for KPC to be rated by
international credit agencies,” he said.
“KPC will continue in its role in the market as set in its strategy to 2030 which requires launching
many mega-projects and investments in refining and petrochemicals outside of Kuwait, beside
raising the daily crude production capacity,” Al Adsani said.
Saudi Aramco
Oil producers in the Gulf region shouldn’t reduce output and risk losing buyers, Ali al-Jarwan, chief
executive officer of state-run Abu Dhabi Marine Operating Co., said at the same conference.
Crude prices will remain low for a long period, he said, without specifying prices or the length of
time.
“We should not be surprised that Opec countries are defending their market share because oil is a
main source of revenues for their economies,” Kuwait’s Opec Governor Nawal Al Fezaia told
reporters in Kuwait on Tuesday.
Benchmark Brent
crude tumbled 35
per cent last year
and an additional
16 per cent this
month as volatility
in global markets
compounds concern
over brimming US
stockpiles,
unfettered
production from
Saudi Arabia and
Russia and an
expected revival
in Iranian
shipments after
the end of sanctions. Brent was trading at $31.27 a barrel Wednesday at 9.24pm in London.
Saudi Arabian Oil, known also as Aramco, pumped more than 10 million barrels a day in each of
the last 10 months as it sought to assert its role as the world’s lowest-cost producer. The
company’s output was 10.25 million barrels a day in December, adding to a global supply glut.
Aramco is studying options to sell shares in its parent company and downstream refining and
chemical operations, Al Falih said.

Saudi Aramco dials back IPO talk
The National - Anthony McAuley
Now that Saudi Arabia’s state oil company Aramco has taken its main asset – its oil reserves – off
the table, what part of the company might it actually offer for sale to the public?
Ever since the idea of an initial public offering of shares in Aramco was floated by Mohammed bin
Salman, deputy crown prince and 30-year-old son of Saudi Arabia’s King Salman, in an interview
with The Economist this month, Aramco officials have been busy dialling back expectations.
The latest comments came
from Aramco’s chairman,
Khalid Al Falih, who took
the air out of all the excited
talk of a “multitrillion-dollar”
flotation, although still
leaving it vague what
assets might actually be
up for sale.
“The oil reserves belong to
the state,” he said in an
interview with Al Arabiya, a
Saudi-owned broadcaster,
while attending the Davos
summit. “What will be
offered is the economic
value of Saudi Aramco,
and not its oil reserves …
[that is to say] the ability of
the company to produce from those reserves.” In typically Delphic fashion, he expanded slightly
on those comments this week at a conference in Riyadh, saying options being considered include
a percentage of “everything we do” and some form of bundling “together a significant downstream
portfolio”.
Seasoned industry observers say that at least it is clear what is off the table. “I never thought they
would put Aramco as a whole up for IPO,” said Louis Besland, the Abu Dhabi-based head of
Middle East oil and gas at AlixPartners, a firm of consultants. Even if Aramco were to consider
selling a percentage of “everything we do” minus the oil reserves, it would be an extremely hard
entity for investors to value.
The share price of international oil companies – BP, ExxonMobil, Royal Dutch Shell, etc – are
based to a large extent on the value investors put on their oil and gas reserves. For Aramco to
legally remove title to its reserves and then try to sell shares on a claim to some measure of oil
production seems to many like a pointless exercise.
“As things stand, private investment in Saudi Aramco [as a whole] looks very unattractive,” said
Paul Stevens, an energy expert at the Royal Institute for International Affairs in London. “You
won’t know what you are buying because of a total absence of transparency, and the company is
not at all profitable after tax.”

Saudi Arabia would never relinquish control over its oil output, which is its principal tool for
domestic and foreign policy control, leaving analysts to parse the deputy crown prince’s move and
Aramco officials’ reaction for their true meaning.
“I think that the motivation was to do with flagging the fact that serious economic reforms and
changes are under way,” said Mr Stevens. “What better than to appear to attack the sacred cow?”
Even much-scaled-down ambitions, where Aramco might look for outside equity participation in
corners of its operations, could have that desired effect.
“It has always been extremely unlikely they would IPO the exploration and production part of the
business. But even when you start to think about listing the smaller parts of Aramco, it could bring
a lot of transparency and I think that was [the deputy crown prince’s] key message,” said Sachin
Mohindra, a portfolio manager at Invest AD, an Abu Dhabi investment fund.
There is a precedent for that kind of offering. Petro Rabigh, for example, is a petrochemical
refining complex that is part-owned by Aramco and Japan’s Sumitomo Chemical – each has a
37.5 per cent stake – with the remaining shares having been offered via the Saudi stock exchange
in 2008, when 4.5 million Saudi individuals oversubscribed five-fold for a stake.
Petro Rabigh shares have had a pretty torrid time, having been launched in the midst of a world
financial crisis, which involved them dropping from a high after launch of 64 Saudi riyals to below
20 riyals. After a period of relative stability they have dropped to a recent low of 7 riyals as the oil
price crash took its toll.
Still, says Mr Mohindra, Aramco officials have learnt from the experience and have made
management changes at Rabigh last year that should help to fix some of the issues it has faced,
such as supply chain disruptions.
He says the most likely assets for Aramco to sell first would be similar joint ventures where there
is already a degree of transparency via a publicly-listed partner and an operating history – Mr
Mohindra points to Sadara Chemical Company, the US$20 billion Aramco joint venture with Dow
Chemical, which recently began to ramp up.
“I don’t see any reason why that, or something like that, can’t be brought in part to the market,” he
says. Mr Besland agrees that the more mundane option of offering pieces of Aramco’s vast
downstream operations is the strategy that best meets its goals.
“Really, the most sensible option and most probable option, in the short term at least, would be to
float participation in the downstream businesses,” he said. “That makes sense and it is where they
really need to invest in the future to create more economic development.”
In any case, “whatever they would like to IPO it will be too big to be ignored,” said Sebastien
Henin, head of asset management at The National Investor in Abu Dhabi. “Even the downstream
part of the business might be interesting – margins have improved recently in that subsector,
which can bring more attention from investors.”
That certainly wouldn’t be the radical free market jolt that the crown prince was musing over, but it
would be a more realistic objective.

Senegal: Kosmos Energy Makes 'Significant' Gas Find Offshore
by Andreas Exarheas|Rigzone Staff
Kosmos Energy announced Wednesday that the Guembeul-1 exploration well, located in the
northern part of the St. Louis offshore profond license area in Senegal, has made a “significant”
gas discovery.
Located approximately three miles south of the basin-opening Tortue-1 gas discovery (renamed
Ahmeyim) in approximately 8,858 feet of water, Guembeul-1 was drilled to a total depth of 17,208
feet. The well encountered 331 feet of net gas pay in two “excellent quality” reservoirs, according
to a company statement, comprising 184 feet in the Lower Cenomanian and 148 feet in the
underlying Albian. No water was found with the discoveries.
Kosmos stated that Guembeul-1 demonstrated reservoir continuity and static pressure
communication with the Tortue-1 well in the Lower Cenomanian, suggesting a single, large gas
accumulation. Based on Guembeul-1 well results, Kosmos estimates that mean gross resources
for the Tortue West structure have increased to 11 trillion cubic feet from 8 Tcf. The company also
believes that mean gross resource estimates for the Greater Tortue Complex have increased to
17 Tcf from 14 Tcf.

Commenting on the find, Andrew G. Inglis, chairman and chief executive officer of Kosmos
Energy, said in a company statement:
“We are pleased to have delivered another major discovery with our first exploration well offshore
Senegal. Guembeul-1 confirms the presence of a world class gas resource that extends into both
Senegal and Mauritania. With our successful appraisal program and support of both governments,
the initial gas development is gaining momentum.
“The Guembeul-1 well continues our 100
percent success rate in the outboard
Cretaceous petroleum system offshore
Senegaland Mauritania, which we believe
is a strategically important new oil and gas
province and we are focused on unlocking
the basin’s full potential.”
The Atwood Achiever (UDW drillship),
which was used to drill the well, will now
proceed to Mauritania to drill the Ahmeyim-
2 delineation well in the southern part of
Mauritania’s Block C-8. Kosmos holds a 60
percent interest in the Guembeul-1 well,
along with Timis Corporation Limited at 30
percent and Petrosen at 10 percent.
At the end of 2014, Cairn – along with its
joint venture partners ConocoPhillips, FAR Ltd. and Petrosen – made two separate oil discoveries
in Senegal at the FAN-1 exploration well in the Sangomar Deep block and the SNE-1 well in the
Sangomar Offshore block. The two discoveries generated widespread excitement across the oil
and gas community and ignited a string of exploration activity across the West African country.
As part of an ongoing evaluation strategy to assess the SNE field, the joint venture recently
commenced drilling operations at the SNE-3 well and plans are in place to spud the BEL-1 well by
2Q 2016. SNE-3 will test the southern extent of the field and BEL-1 well will initially test the
Bellatrix prospect before evaluating the northern part of SNE.
The JV also has a program and budget outline for three further optional wells in Senegal for
2016/2017. T5 Oil & Gas could also potentially drill a well in Senegal this year, considering the
first exploration period on its 90 percent owned onshore Louga Block lapses in July 2016. This
demands the acquisition of 683 miles of 2D seismic and the drilling of one exploration well to
9,842 feet.
Venturing slightly further south, Oryx Petroleum is planning exploration activity in the AGC
Shallow and AGC Central blocks this year, which are joint petroleum exploitation zones
established by Senegal and Guinea-Bissau.
Oryx, which is the operator of the blocks, has identified three structures in AGC Shallow, of which
two are drill-ready prospects, and plans to drill an exploration well in 2016, according to Edison
Investment Research Limited. Edison also outlined that Oryx has found shelf-edge plays similar to
SNE on seismic data in the deepwater AGC Central block, and stated that Oryx expects to acquire
new seismic data in the region in 2016.

UK: Mainstream announces equity consortium ready to take £2 billion
Scottish Offshore wind farm to construction.. Source: Mainstream Renewable Power
Mainstream Renewable Power has announced it is in exclusive discussions with a consortium
led by power company InterGen, whose European headquarters are in Edinburgh, to take its
450 megawatts offshore wind farm to financial close and into construction. The consortium also
includes Siemens Project Ventures, The Marguerite Fund and Infrared Capital.
Located in the Outer Forth Estuary in the North Sea, theNeart na Gaoithe offshore wind
farm secured a fifteen year Contract for Difference (CfD) from the UK’s National Grid in March
2015 which gives the wind farm an inflation-linked strike price for electricity produced. In October
2014 Scottish Ministers awarded offshore planning consent and the project is expected to be fully
commissioned and generating electricity by 2020, subject to the outcome of a judicial review
currently under consideration by the Scottish courts.
Speaking Tuesday at the Scottish Renewables Offshore Wind Conference in Glasgow,
Mainstream’s Chief Operating Officer Andy Kinsella said: 'This £2 billion pound infrastructure
project has very significant benefits for Scotland. It will create over 500 jobs during construction
and over 100 permanent jobs during the 25 year operational phase. More than £540 million will
be directly spent in Scotland during the construction phase and a further £610m will be spent
during the operational phase.'
He continued: 'Neart na Gaoithe will generate the cheapest electricity from any offshore wind
farm in the UK. Several PPA offers have been received and are under negotiation for the full
output of the plant and for the full duration of the CfD contract. Our CfD strike price of £114.38 is
the lowest in the UK and between 18% and 26% below the FID enabling CFD contracts
previously awarded. This strongly underpins government policy of driving the price of renewables
down for the benefit of consumers.'
He concluded: 'All the building blocks are now in place to deliver this power plant into operation
by 2020; all consents have been received; the CfD was awarded; the technology and
construction contractors are in place and, very significantly, the required debt funding for the
project has been sourced from commercial banks.'

UK: Hinkley Point go-ahead delayed amid EDF funding doubts
The Telegraph - Emily Gosden, Energy Editor
EDF has delayed its final investment decision on the Hinkley Point new nuclear plant yet again,
amid claims it is still struggling to finalise funding for the £18bn project.
The French energy giant had been scheduled to take the long-awaited decision at a board
meeting on January 27, but is now thought unlikely to do so until its annual results on February 16
at the earliest.
EDF had said in October it would take the decision within "a few weeks", after unveiling a
deal for Chinese nuclear group CGN to take a 33.5pc stake in the project. But it is reportedly still
struggling to find the cash for its own 66.5pc stake, as its finances come under pressure from
falling wholesale power prices and its acquisition of Areva’s reactor-making business.
It is now "putting pressure on the [French] state, which owns 84.5pc of EDF, to come up with fresh
funds" and looking to find new investors, according to French newspaper Les Echos. The
reports contrast with public statements from Jean-Bernard Lévy, EDF group chief executive,
who said as recently as this weekend that Hinkley was ready for a final investment decision
and that EDF would take a two-thirds stake.
A UK Government source indicated it remained confident EDF would proceed with Hinkley, which
would be the country’s first new nuclear plant in a generation and is expected to deliver 7pc of UK
electricity when it is scheduled to start operating in 2025.
But the continued delays to the project – once due to start generating in 2017 - are likely to raise
further concerns about the UK’s energy strategy and the prospects for EDF being able to fund a
second planned plant at Sizewell as well as a third, Chinese-led plant at Bradwell.
Artist's impression of the proposed plant Photo: EDF

EDF had said in October that it would look to sell down its stake in Hinkley in due course but that it
had “no time pressure to do so”. Analysts at Bank of America Merrill Lynch said: "The key change
with today's report appears to be that a new financial partner could be a precondition to EDF's
ability to go ahead with the project.
"We estimate a 66.5pc stake in the project implies an equity investment of c€5.5bn in today's
prices, suggesting c€1.3bn in external equity is needed to reduce EDF's share to just over 50pc."
EDF had originally been expected to use project financing for Hinkley, backed up by up to £16bn
in UK Government guarantees via Infrastructure UK.
But Mr Lévy announced in October a “radical change” to what he said was a “more efficient”
option of delivering its £12bn share of the project from EDF’s own balance sheet. It has since
emerged the UK had attached a sub-investment grade BB+ credit rating to the project.
Unions in France have raised a series of concerns about EDF’s investment in Hinkley, which
comes at a time EDF is shedding up to 6,000 jobs worldwide. John Sauven, executive director of
Greenpeace, said: "The EDF board is clearly rattled as they delay yet again this crucial investment
decision. It could well signal curtains for Hinkley.
"EDF managers as well as employee representatives on the board are deeply concerned this
project is too risky and too expensive.” But Peter Atherton, utilities analyst at Jefferies, said he
believed Hinkley would still proceed, especially as EDF had already spent £2bn on the project and
the French Government wanted to export its reactor technology.
“We are so far down the line it would be staggering if it now collapsed,” he said. “This is a
colossally expensive project that is clearly and always has been a great strain on EDF’s finances -
that’s why they brought the partners in and are looking to sell some more of the equity. It is pretty
surprising we reach this stage with apparently some questions still unanswered."
The site where Hinkley Point will be built Photo: EDF

U.S. shale firms, struggling to profit with $30 oil, slash spending more
REUTERS - ANDREW CULLEN
Three major U.S. shale oil companies have slashed their 2016 capital spending plans more than
expected in a bid to survive $30 a barrel oil prices, with one of them saying prices would need to
rise more than 20 percent just to turn a profit.
The cuts on Monday from Hess Corp (HES.N), Continental Resources (CLR.N) and Noble Energy
(NBL.N) ranged from 40 percent to 66 percent. This marks the second straight year of pullbacks
by a trio of companies normally seen as among the most resilient shale oil producers.
The cuts were steeper than expected. Analysts at Bernstein Energy had forecast an average 2016
spending cut for the sector of 38 percent.
The reductions show budgets may shrink more this year than they did last year, when spending
fell between 20 percent and 50 percent. Output at some companies may fall for the first time ever.
"It's very rare to have spending decline two years in a row," said Mike Breard, oil company analyst
with Hodges Capital Management in Dallas. "Any budget you see published now is going to be
much lower than last year."
But last year many operators managed to lift output as they devised new ways to coax more oil
from rock, a feat that seems unlikely to be repeated.

In a sign that a reckoning has come, Continental admitted it will pump about 10 percent less oil
this year as it can no longer afford or innovate and sell more oil at depressed prices.
The U.S. government projects domestic crude output to fall by about 700,000 barrels per day
(bpd) by the end of this year to around 8.5 million bpd.
Depressed spending typically means fewer drilling rigs. All three companies said they would cut
the number of rigs boring new wells in U.S. shale oil fields across Texas, North Dakota and
elsewhere.
"If you cut your budget 60 percent, you may drill 40 percent fewer wells and your production is
going to drop a considerable amount," said Breard.
Continental, North Dakota's second-largest oil producer, said it would slash its 2016 capital budget
by 66 percent. The company made the risky move of getting rid of hedges in the fall of 2014.
[L2N15A2MB] Led by billionaire wildcatter Harold Hamm, Continental plans to spend $920 million
this year, down from $2.7 billion in 2015.
Oklahoma City-based Continental said it will not become profitable until oil prices CLc1 return to
$37 per barrel. U.S. oil prices closed Tuesday at $31.45 per barrel.
Meanwhile, New York-based Hess plans to spend $2.4 billion in 2016, down 40 percent from $4
billion last year . Noble cut its quarterly dividend 44 percent and said it will cut spending about 50
percent this year.
On the other end of the spectrum, Pioneer Natural Resources (PXD.N), known for its aggressive
hedging program, said this month it would spend between $2.4 billion and $2.6 billion this year.
Though Pioneer will fund its 2016 budget in part from a $500 million asset sale, the modest
increase from $2.2 billion in 2015 makes the company a relative outlier at a time when most
companies are trimming capex by amounts similar to last year's drastic cutbacks.

NewBase 28 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 back & jumpings on hopes of Russia, OPEC cooperation
Reuters + NewBase
Crude oil futures fell around 1 percent in Asian trading on Thursday, eroding gains of nearly 3
percent made in the previous session after Russia held out the possibility of cooperating with
OPEC to control global oversupply.
But falls were curbed by a weaker dollar following the Federal Reserve's decision to keep its
overnight interest rate unchanged and the release of a statement suggesting concern about global
events had diminished but not squashed chances of a rate hike in March.
Saudi Arabia's deputy minister for company affairs at the Ministry of Petroleum and Mineral
Resources said on Thursday in Tokyo that OPEC estimates global oversupply to be around 2
million barrels per day (bpd).
"So it will take some time for the market to rebalance," said Aabed A. Al-Saadoun. But he added
that "we feel that the market will begin to come into balance in 2016 and that demand for energy in
all forms will continue to increase".
Brent crude had eased 30 cents to $32.80 a barrel by 0455 GMT, after ending up 4.1 percent at
$33.10. U.S. crude declined 39 cents to $31.91 a barrel. It settled the previous session up 85
cents at $32.30, a 2.7 percent gain.
Oil price special
coverage

Russian officials have decided they should talk to Saudi Arabia and other OPEC countries about
output cuts to bolster oil prices, the head of Russia's pipeline monopoly said on Wednesday.
The Energy Information Administration said on Wednesday that U.S. crude inventories climbed by
8.4 million barrels last week, higher than analyst expectations for a rise of 3.3 million barrels. That
brought crude inventories to the highest level since the EIA began tracking the data.
But crude stocks at the Cushing, Oklahoma, delivery hub fell by 771,000 barrels, which supported
oil prices. "Overall inventories rose by 8.38 million barrels. This helped to narrow the spread
between Brent and WTI overnight," ANZ said in a note on Thursday.
Daniel Ang at Phillip Futures said: "We remain slightly skeptical of further increases with the
current weak fundamentals. We believe that the slight weakening of the U.S. dollar could be giving
the extra push to break the current resistance for WTI and Brent, however, that should not last for
long."
On the outlook for the global upstream sector this year, Wood Mackenzie said in a report: "As
companies re-shape their portfolios for the lower oil price environment, exploration spend will be
hit hard, to less than half of the 2014 peak."

NewBase Special Coverage
News Agencies News Release 28 January 2016
Cheap Oil Bails Out Free-Spending U.K. Consumers
Bloomberg - Tomas Hirst
The new year was supposed to be a celebratory moment for the U.K. After growing 2.9 percent in
2014, the fastest pace among G7 economies, and 2.2 percent last year, 2016 was to see that
recovery become established, particularly for workers.
Instead, the consumer engine that's powering the economy is running on the fumes of low oil
prices.
Following the Great Recession, the U.K. consumer has helped pull the country from its slump.
Between 2009 and 2014 household consumption contributed 4.3 percentage points to GDP
growth, far more than consumers in countries such as Germany, where growth was balanced
between trade, investment and household spending.
Indeed, net trade restrained the U.K. recovery, taking 0.9 percentage points off growth over that
period.

Expenditure contributions to total GDP growth for selected major economies from 2009 to 2014
A combination of inflation persistently above the Bank of England's 2 percent target and weak
wage growth meant that real incomes of the median worker fell by 8 percent to 10 percent
between 2008 and 2014. So instead of earning and spending more, households dipped into
savings to buy more stuff.
The household saving ratio - a measure of spending on goods and services, housing and financial
services subtracted from income - has fallen its lowest point in over 50 years.
From the start of 2014, the fall in real wages went into reverse. While this was good news, what
has surprised (and worried) economists is that the majority of these gains have been driven not by
increases in the U.K. employment to record levels - and related wage gains - but due to falling
consumer price inflation caused by oil's collapse.

What all this means: If household consumption depends on cheap oil, what happens should the
crude market rebound?
Warning Signs
The question remains key to Britain's economic prospects. Despite rising household disposable
income and buoyant sales, there are concerns that the boom will ultimately stall without a faster
pace of earnings growth.
As the Office for National Statistics puts it in its latest data release on U.K. retail sales:
"Although the annual change in the quantity bought was strong (4.5%) between 2014 and 2015,
the amount spent increased by only 1.1%. This could be explained by falling prices in stores,
which decreased by 3.2%, as shown in Figure 2. Essentially, as a consequence of falling prices,
consumers were buying more items which were costing less."
At the heart of the problem is the surprising lack of nominal wage gains, even with record
employment.
It may be that the recession left workers timid in wage negotiations. Or low inflation may itself
anchor wage demands. Whatever the case, with aggregate household savings already at record
lows it will be harder to continue to fund the recent levels of consumer spending into 2016 absent
a significant easing in credit conditions or a pick-up in earnings.
Even then, if consumers suspect current income gains are temporary - because of cheap oil - they
may decide to rein in spending and build a rainy-day fund.

Another possibility is that low interest rates have opened up a savings deficit that households wish
to plug before increasing spending on discretionary goods and services, such as jeans and dining
out.
All of which bring us back to the looming prospect of higher interest rates.
After Governor Mark Carney's attempts to guide expectations of the timing of rate hikes first to the
unemployment rate and latterly to a loose calendar commitment, the Bank of England has all-too-
frequently had to reverse course and reassure the public and financial institutions that they are
minded to hold off until wages and inflation pick up. As Kristin Forbes, a member of the bank's
rate-setting Monetary Policy Committee, noted in a speech on Tuesday:
In the U.K., however, wages and labor costs have not yet gained enough momentum to be
consistent with inflation reaching our 2% target. Tightening monetary policy today would require
faith that our forecasting models will work and the tightness in labor market quantities and
measures of labor market churn will soon translate into stronger wages and then higher inflation.
But, unfortunately, these models have not been working very well recently.
In short, a significant chunk of the U.K. recovery still rests on the dual pillars of credulous
households and collapsing commodity prices.
Shell Wins Investor Approval to Buy BG, Sealing Deal
BloomBerg - Rakteem Katakey
Royal Dutch Shell Plc won shareholder approval to buy BG Group Plc, sealing its biggest
acquisition amid the worst oil-industry slump since the global financial crisis.
More than 83 percent of Shell shareholders voted in favor of the transaction, the company said in
a statement. Most votes were cast by proxy while other investors met in The Hague on
Wednesday.
The approval vindicates Shell’s belief that it can better ride out the market rout by combining with
U.K. oil and gas producer BG. Crude’s tumble since the deal was announced in April prompted
some shareholders to question whether it’s paying too much, yet Chief Executive Officer Ben Van
Beurden has said the acquisition will boost cash flow and enhance Shell’s ability to pay dividends,
while BG’s growing production will help bolster its declining output.
Shareholders have shown confidence in the “strategic logic of the combination,” Van Beurden said
in the statement. He now faces a vote by BG investors on Thursday and final court approval
before the transaction can close in mid-February.
The planned acquisition, which will also make Shell the biggest liquefied natural gas trader and
increase its access to Brazil’s deepwater oil reserves, is valued at about $52 billion, compared
with $70 billion when Shell agreed to the cash-and-shares purchase.
Boosting Resilience
“The enlarged group has stronger growth potential, will benefit from further synergies and cost
reductions, is more resilient in a lower price environment and can maintain the dividend,” Tudor,
Pickering, Holt & Co., the Houston-based oil investment bank, said in a note following the vote.

Benchmark Brent crude has lost almost half its value since the purchase was announced and now
trades near $32 a barrel. That slump, which Shell has said may be prolonged, means the
company may need longer to make a profit on the acquisition. It said last month it will break even
when Brent reaches the low $60s, and add to operating cash flow per share at $50 this year.
Shell is doing “exactly
what you would want a
good management
team and board to be
doing” in an oil-market
downturn, Chris
Cernich, head of special
situations research at
Institutional
Shareholder Services,
said before the vote.
ISS advises many of
Shell’s largest holders
and told them to back
the deal earlier this
month.
Solving Problems
By acquiring BG, Shell is “substantially lowering” oil production costs, replenishing reserves and
gaining “very good natural-gas assets” in Australia, Cernich said. “You solve an awful lot of
problems at a point in time where it’s actually relatively cheap to do it,” he said.
Shell Chief Financial Officer Simon Henry said the purchase would boost cash flow at any oil
price, although the slump to $30 a barrel from $50 will reduce flows from the combined company
by $8 billion a year. Some of the economics of the deal "may indeed be stretched" should low
prices persist over the next two years, he told shareholders in The Hague.
Shell bid 0.4454 of its B shares and 383 pence for each BG share in April, offering a 50 percent
premium. As Shell’s stock dropped with the oil price, the deal’s value has shrunk.
Share Reaction
BG shares erased declines when the result was announced and ended the day up 3.5 percent at
1,029.5 pence in London. Shell’s B shares advanced 2.9 percent to 1,462 pence. Almost 17
percent of shareholders voted against the deal, with some citing concerns that cash flow will suffer
if crude’s crash persists.
“We feel that the downside risks have not been fully reflected,” Paul Koster, chairman of Dutch
investor group VEB, said at the meeting. “We are concerned, we can’t find enough data on what
will happen if oil prices stay low for five years, as low as they are now.”
In the run-up to the vote, Standard Life Investments was the only Shell shareholder that publicly
said it would vote against the combination, believing the acquisition to be “value destructive.”
Since April, Van Beurden has insisted that the deal is an acquisition for the long term and that
rising oil and gas demand will eventually drive a rebound in energy prices. The company
confirmed on Wednesday that it will maintain its dividend this year.

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 28 January 2016 K. Al Awadi

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