New base 780 special 04 februaury 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,
or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this
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NewBase 04 February 2016 - Issue No. 780 Edited & Produced by: Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
Qatar: Dolphin Energy achieves major output milestone of 6 TCF
Gulf Times
Dolphin Energy has reached a major gas production milestone of 6tn standard cubic feet (scf),
since the company started operations in 2007.
The Dolphin Gas Project achieved full throughput in February 2008 and since then Dolphin
Energy has been delivering 2bn scf of natural gas a day to the UAE and Oman. It is meeting 30%
of the UAE’s energy requirements and delivering significant volumes of natural gas to each of the
country’s seven emirates.
Dolphin Energy’s major strategic initiative, the Dolphin Gas Project, involves the production and
processing of natural gas from Qatar’s North Field, and transportation of the dry gas by sub-sea
export pipeline from Qatar to the UAE, which began in July 2007.
On the achievement, Dolphin Energy chief executive officer Adel Ahmed Albuainain said, “This
milestone is significant because it demonstrates the important role Dolphin Energy continues to
play in sustaining energy security in both countries, driving industrial growth and economic
development as well as supporting the transition to a low carbon future. To have met this
cumulative production total is a source of enormous pride.”
The 6tn scf production total was achieved in spite of a challenging year when three new export
gas compressors were commissioned at Dolphin Energy’s upstream facilities to support the six
compressors that are already in operation. “This was a huge undertaking from an operational,
technical and safety perspective. Installation of the three new compressors has helped enhance
availability and reliability of natural gas supplies for the southern Gulf,” Albuainain continued.
In addition, the company is on course to register at the end of February 100% plant availability for
the seventh consecutive year.
Dolphin Energy’s Ras Laffan plant. The Dolphin Gas Project achieved full throughput in
February 2008, Dolphin Energy’s Ras Laffan plant. The Dolphin Gas Project achieved full
throughput in February 2008 and since then Dolphin Energy has been delivering 2bn scf of
natural gas a day to the UAE and Oman.

Dolphin Energy general manager (Qatar) Hassan al-Emadi said, “We have a strong track record in
maintaining plant availability because of our commitment to the highest levels of HSE, asset
performance and integrity.
Strong communication, teamwork and utilising the skills and experience of our employees and
contractors are also essential factors as is a commitment to continuous improvement. We will
continue to make every effort to ensure gas supply to our customers.”
Indonesia: Andalas Energy and Power Farms Into Indonesian
Oil, Gas Concession
ADL
Isle of Man based Andalas Energy and Power (ADL) has signed a non-binding heads of
agreement to buy stake in Indonesian oil and gas concession.
In a statement published Wednesday, the company said under the terms of the proposed farm in,
Andalas will acquire a 30 percent direct working interest in Tuba Obi East oil and gas
concession (TOE) in Jambi province, Sumatra, Indonesia through the execution of a single well
work programme.
Block operator PT Akar
Golindo and Andalas will
jointly operate during the
work programme, which is
expected to cost around
$1.075 million. Andalas has
agreed to pay a further sum
of $500,000 to PT Akar
Golindo if the concession is
renewed.
Any future gas production
from the concession may
support either gas export
with the project located close
to a major export route; or
gas-to-power being located
in an area where a significant
shortfall in energy generation
exists.
“TOE is ideally located adjacent to the major Sumatran gas pipeline to Duri and Singapore, and
close to the provincial capital city of Jambi which is in critical need of power generation. We see
great potential to add further value by expanding the concession to capture additional gas
discoveries just outside the acreage,” Andalas CEO, David Whitby, said.
According to Andalas, Tuba Obi East has tested gas in the key South Sumatra hydrocarbon
bearing formations, namely, the Air Benakat Formation (ABF) and the Talang Akar Formation
(TAF).

South Sudan, Sudan agree to peg crude pipeline fees to oil price
By Reuters - Denis Dumo
Transit fees that Sudan charges its neighbour South Sudan will be based on prevailing crude oil
prices, a move away from a fixed fee, South Sudan's petroleum minister said on Wednesday.
In recent weeks, local media have reported of a growing standoff between Sudan and South
Sudan over oil transit fees, with the south wanting a cut as the collapse in global oil prices mean
transit costs sometimes exceeded the price of crude.
Sudan previously charged South Sudan about $24.50 a barrel in transit fees. Benchmark Brent
crude was trading around $33.30 per barrel on Wednesday. The official Sudan News Agency
reported in late January that Sudan had offered a fee cut, but gave no details.
The two countries' petroleum ministers met in South Sudan's capital Juba on Wednesday.
"When we negotiate on ... fees in particular, that thing would not be fixed ... It will fluctuate up and
down depending on the prices of the crude globally," South Sudan Petroleum Minister Stephen
Dhieu Dau told reporters after meeting with his Sudanese counterpart, Mohammed Zayed Awad.
Dau said the new fee would be agreed upon by a technical team in not less than one month. "We
have agreed in principle but we need the technical people to work on it and in a week to come we
will reach the conclusion," Awad said, declining to give figures.
Sudan lost most of its oil earnings when the south seceded in 2011 and is acutely short of
revenue. South Sudan's crude production stands at about 165,000 barrels per day.
Oil rich Abyei area that has been the
source of conflict between the northern
and the southern

Russia steals Saudi's crown as China’s top oil supplier
Reuters - Sergei Karpukhin
Moscow is gaining momentum as the biggest seller of crude oil to China, with Russian crude
supplies overtaking those from Saudi Arabia.
According to data from RBC Capital Markets, the Saudi share of Chinese crude imports at the
beginning of the decade was about 20 percent, while Russia's was below 7 percent. The situation
has changed. "Russia is the biggest rival to the Saudis in the single-largest oil demand growth
country in the world," Michael Tran, RBC Capital Markets' commodity strategist told Business
Insider.
"The rising tide of Chinese growth has meant that notional volumes for both countries have
increased in the years since, but Russia's gains have been outsized," he added. Tran said Saudi
Arabia now finds itself “neck and neck with Moscow for the lead in Chinese market share, with
both jostling in the 13-14percent range, yet the momentum resides with the latter."
Over the past five years, Saudi Arabia increased exports to China by only about 120,000 barrels a
day while Russia managed to increase exports by 550,000 barrels a day in the same period.
Russia managed to overtake the Saudis as the biggest crude exporter to China four times in 2015.
In the past five years Saudi Arabia has lost the top spot only six times.
Statistics from China's General Administration of Customs (GAC) showed that in December
Beijing bought 4.81 million tons of crude oil from Russia. The volume was up 30 percent
compared with the previous year.
Imports from Saudi Arabia dropped 1.2 percent year on year to 4.47 million tons. The fall was
blamed on a hike in the official Saudi selling price and the closure of several large Chinese
refineries for planned overhauls.
"Saudi Arabia is losing its crown as its selling prices in Asia haven't been attractive enough," Gao
Jian, an analyst at SCI International, a Shandong-based energy consultant, told Bloomberg back
in June. Analysts say that Russia’s readiness to accept Chinese yuan as payment for its oil is one
of the key tipping points.
The Russian-Chinese financial cooperation program includes a three-year ruble-yuan currency
swap worth more than $20 billion. The swap agreement was signed in 2014 by the central banks
of Moscow and Beijing with the aim of boosting trade using national currencies.

India:Essar Group holds talks with Aramco, Iran firm on stake sale
Bloomberg + Gulf Times
Essar Group, controlled by India’s billionaire Ruia brothers, has held preliminary discussions with
the national oil companies of Saudi Arabia and Iran about selling a stake in its refinery business,
people with knowledge of the matter said.
Exploratory talks began last month between Saudi Arabian Oil Co and the Indian conglomerate
about a stake in Essar Oil, which has a market value of about $5.5bn, according to the people.
Essar Group officials discussed a potential deal during a meeting with Aramco executives at the
World Economic Forum in Davos, three of the people said, asking not to be identified as the
information is private.
National Iranian Oil Co also met Essar Group recently about a possible purchase of a stake in
Essar Oil, according to three people. The talks, which touched on the refinery deal as well as a
potential increase in purchases of Iranian crude by the private Indian refiner, took place two to
three weeks ago in Iran, one of the people said.
Essar Group is selling assets after earnings were hurt by a fall in commodity prices, weak demand
and lower capacity usage at its businesses. Saudi Aramco, the world’s biggest oil producer, is
moving beyond producing and exporting crude and expanding into the processing and sale of oil
products, which can fetch higher prices on world markets.

Shashi and Ravi Ruia, who founded Essar Group, plan to pay off some of the conglomerate’s
loans with the proceeds from selling the refinery unit stake, the people said. Essar Group had
been seeking about $3bn from a sale of a 49% stake in the unit to Rosneft OAO, the people said.
Rosneft signed a non-binding agreement in July to buy 49% of Essar Oil, conditional on due
diligence and negotiations on price. Essar Group entered talks with Aramco in order to have an
alternative buyer in case the discussions with Rosneft fall through, according to two of the people.
Aramco declined to comment in an e-mailed statement, while NIOC’s deputy director of
international affairs, Mohsen Ghamsari, didn’t respond to three phone calls seeking comment.
Essar Group said by e-mail it has signed a non-binding term sheet with Rosneft for exclusive
negotiations about the potential purchase of a 49% stake in Essar Oil. It declined to comment
further.
“Rosneft has not changed its plans and continues work in accordance with the signed agreement
on terms for the company’s possible entry into shareholding structure of Essar Oil,” the Russian
company’s press office said in an e-mailed statement.
“Talks on this project continue on the working group level in accordance with the existing
agreement on exclusivity.” Discussions with the Middle Eastern oil producers are at an early
stage, and there’s no certainty they will proceed further in the negotiations, according to the
people.
Essar Group is still in talks with Rosneft, and the Russian company is likely to complete due
diligence in the next month, one of the people said. Saudi Aramco plans to boost its total refining
capacity to between 8mn and 10mn barrels a day by the end of the decade from about 5.4mn
currently.
The state-owned company is maintaining investments in oil and gas projects amid the fall in crude
prices, chairman Khalid Al-Falih said last month, and is also studying options including the sale of
shares in the parent company and downstream refining and chemical operations.
Stanlow refinery, UK
Essar Energy acquired the Stanlow refinery in 2011. With a nameplate capacity of 296,000 bpsd,
it is UK's second biggest oil refinery, meeting approximately 15 per cent of the country's
transportation fuel requirements.
This world-class 20-million tonne or 405,000-bpsd refinery produces fuels compliant with the
latest Euro IV and Euro V emission standards.

British Gas to cut 500 jobs as it shuts insulation business
The Telegraph - Emily Gosden
Energy supplier British Gas is to make 500 staff redundant as it shuts its loft and cavity
wall insulation business. The cuts form part of parent company Centrica's previously-
announced plan to shed 6,000 jobs in an attempt to slash its costs and become more
efficient.
A spokesman said the 500 job losses announced today would be at various locations around the
country but about 100 of them would be in Leeds.
The affected staff had been working on installing home insulation in order to hit Government
energy efficiency targets. However those targets have been scaled back significantly in recent
years and British Gas now plans to outsource any further energy efficiency work that is required.
British Gas said it needed to keep costs down for its customers. Photo: PA
Centrica said last summer that 5,000 of the 6,000 job losses would be in the UK, where the vast
majority of its 33,000 staff are employed within the British Gas business. About half of the total
losses were expected to be made through redundancies, and the company also plans to create
2,000 new jobs.
Mark Hodges, chief executive of UK energy supply & services for British Gas, said: "We are
focused on improving the efficiency and effectiveness of our organisation to meet the changing
needs of our customers. British Gas is well positioned to grow, but we must ensure that our costs
allow us to be competitive for our customers.
Ministers have scaled back household energy efficiency programmes. "I recognise that this will be
difficult news for the employees who may be affected. However I believe today’s announcement is
in the best long-term interests of the business.
"Our priority is to support all those potentially impacted, and to ensure a fair and transparent
consultation process."
Brian Strutton, national officer of the GMB union, said: "The closure of the loft and cavity wall
business with a loss of 500 jobs is a real sickener.
"At the end of last year we went through a reorganisation which, we were told, was to make that
business competitive, and everyone thought that was behind us.
"But it seems while we were doing that the company was hatching secret plans to shut the whole
operation down. Staff will feel gutted and we will think twice about believing anything the company
says now."

Italy: Rockhopper Exploration provides update on the Ombrina Mare
Source: Rockhopper Exploration
AIM-listed Rockhopper Exploration has provided an update on the status of theOmbrina Mare
project offshore Italy.
Further to the Company's announcement on 6 January 2016, the Company has been informed
by the Ministry of Economic Development that, following the re-introduction of the ban on
exploration and production activity within 12 nautical miles of the coast of Italy, the Production
Concession covering the Ombrina Mare Field Area will now not be awarded. This is despite the
Ombrina Mare project having completed all the required technical and environmental
authorisations.
The Company retains its interest in the exploration permit covering the Ombrina Mare Field Area.
An extension to the suspension of the Ombrina Mare exploration permit was recently granted to
31 December 2016.
The Company is now considering its options which include both a claim for damages and
compensation against the Republic of Italy under International Treaties for the protection of
foreign investments, and in particular the arbitration process provided for under the Energy
Charter Treaty. None of the Company's other interests in Italy, including the Guendalina gas
field, are expected to be impacted by the changes in legislation.
Ombrina Mare
(Rockhopper 100%)
Operated by Rockhopper, the
Ombrina Mare discovery is an
appraisal / development project
located off the Abruzzo region in
the shallow waters of the
Central Adriatic. Subject to
necessary approvals, Rockhopper
plans to drill and test an
appraisal well to extend existing
resource estimates and to
optimise plans for the
development of the asset prior
to project sanction.

Norway: Statoil dishes out EPC contracts worth $184M
Statoil
Statoil has awarded the contracts that include marine operations, marine construction,
engineering, procurement and construction (EPC) of an unmanned wellhead platform as well as
modifications at the Oseberg Field Centre, in the North Sea offshore Norway.
The contracts have a combined value of approximately NOK 1.6 billion ($184 M). “We are very
pleased to be able to award these contracts now to suppliers that all have a good track record for
Statoil,” says Torger Rød, senior vice president for project development in Statoil.
Statoil submitted the plan for development and operation (PDO) of Oseberg Vestflanken 2 just
before Christmas, and the contract awards are subject to government approval of the PDO.
According to Statoil, the field development will provide 110 million barrels of oil equivalent and will
be profitable even in a low oil price scenario.
– Technip Norway has been
awarded contracts for pipe laying at
Johan Sverdrup and Oseberg
Vestflanken 2. The combined
contract value is approximately NOK
400 million.
– Ocean Installer has been
awarded contracts for marine
construction and installation at
Oseberg Vestflanken 2, Johan
Sverdrup and Gina Krog. The
combined contract value is
approximately NOK 200 million.
– Hereema Fabrication Group has
been awarded the contract for engineering, procurement and construction (EPC) of the unmanned
wellhead platform at Oseberg Vestflanken 2. Hereema Marine Construction will be responsible for
transport and installation of the platform. The combined contract value is approximately NOK 800
million.
– Aibel has been awarded the contract for engineering, procurement, construction and
installation (EPCI) on the Oseberg Field Centre, to prepare the platform for receiving the well
stream from Oseberg Vestflanken 2. This contract has a value of approximately NOK 200 million.
Late last year, FMC was awarded a contract for delivering two subsea trees for the existing
subsea template to be included at Oseberg Vestflanken 2. This contract value is approximately
NOK 120 million plus options.
The Oseberg Vestflanken 2 development will consist of an unmanned wellhead platform with 10
well slots. Two existing subsea wells will also be reused. The well stream will be routed to the
Oseberg Field Centre via a new pipeline, and the wells will be remote-controlled from the Field
Centre.
Statoil said that even though wellhead platforms with no facilities, helicopter deck or lifeboats
represent a new solution in Norway, it has been thoroughly tested in other areas, such as the
Danish and Dutch continental shelves.
This is how the developers envision the solution with an
unmanned wellhead facility. The Oseberg field centre is
in the background and the seabed facility on the
Vestflanken can be seen on the right. Image: Statoil

NewBase 04 February 2016 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
Oil prices extend gains on dollar-slide, talk of oil producer meeting
Reuters + NewBase
Crude oil futures extended gains from the previous session on Thursday, as a weaker dollar and
unconfirmed talk of producers potentially meeting to discuss output cuts lifted the market despite
record U.S. stocks.
Despite this, analysts said prices would remain low in 2016 and 2017 as production stays high,
global demand slows, and inventories swell.
U.S. crude futures were trading at $32.68 per barrel at 0119 GMT on Thursday, up 40 cents from
the previous session's close when they rallied 8 percent from below $30 per barrel. Brent
crude was up 43 cents at $35.47 per barrel.
Analysts said prices had recovered on a sliding dollar and from ongoing, yet unconfirmed, talk of a
potential meeting of oil producers to cut output in support of prices, which have fallen around 70
percent since mid-2014.
But the main feature of recent oil trading has been volatility, with price swings of more than 10
percent within two trading sessions frequently occurring since mid-January.
"The weaker U.S. dollar provided some interim support to the commodity complex, but volatility in
crude oil remains extreme. Climbing U.S. crude stocks remain an ongoing threat to further price
weakness," ANZ bank said.
Oil price special
coverage

U.S. crude inventories climbed 7.8 million barrels in the week to Jan. 29 to 502.7 million barrels,
compared with analyst expectations for an increase of 4.8 million barrels.
U.S. gasoline inventories rose to a record high, soaring
5.9 million barrels to 254.4 million barrels. Analysts had
forecast a 1.7 million-barrel gain in gasoline inventories.
Despite the latest gains, analysts remain largely bearish
in their oil market outlook, pointing towards persistent
oversupply and swelling inventories as the main factors
that are keeping prices low.
Morgan Stanley on Thursday lowered its average 2016 Brent price forecast to $30 per barrel,
down from $49 previously. The bank only expects an average price of $40 per barrel in 2017 as
oversupply persists.
"Until the market rebalances, prices will drift at low levels. With demand slowing, rebalancing may
not occur until mid-2017 or later," it said, adding that "global supply should grow in 2016 despite
low prices."
Morgan Stanley also said that an emerging willingness of producers to forward hedge at prices not
much above $40 per barrel was also capping prices.
"We now see risk that producers will begin to hedge if the 12-24 month WTI strip moves into the
mid-40s, which should cap prices in the front as well.

NewBase Special Coverage
World's biggest offshore wind farm to add £4.2 billion to energy bills
Telegraph - Emily Gosden, Energy Editor
The world's biggest offshore wind farm is to be built 75 miles off the coast of Grimsby, at an
estimated cost to energy bill-payers of at least £4.2 billion.
The giant Hornsea Project One wind farm will consist of 174 turbines, each 623ft tall - higher than
the Gherkin building in London - and will span an area more than five times the size of Hull.
Developer Dong Energy, which is majority-owned by the Danish state, said it had taken a final
decision to proceed with the 1.2 gigawatt projectthat would be capable of powering one million
homes and create 2,000 jobs during construction.
First electricity from the
project is expected to be
generated in 2019 and
the wind farm should be
fully operational by 2020.
The wind farm was
handed a subsidy
contract by former energy
secretary Ed Davey in
2014 that will see it paid
four times the current
market price of power for
every unit of electricity it
generates for 15 years.
The National Audit
Office was highly
critical of the way in which the contracts were awarded without competition, concluding
ministers had paid too much as a result.
It estimated that the Hornsea One project would require a total of £4.2 billion in subsidies, an
average of about £280 million per year.
Consumers will be on the hook to pay subsidies to make up the difference between the market
price of power - currently about £35 per megawatt-hour - and a guaranteed price, of £140/MWh.
"To have the world’s biggest ever offshore wind farm located off the Yorkshire coast is hugely
significant, and highlights the vital role offshore wind will play in the UK’s need for new low-carbon
energy."
These will be funded by households and businesses through green levies on their energy bills.
Hornsea Project One wind farm will see 174 turbines - each
taller than the Gherkin - built 75 miles off the coast of
Grimsby, spanning an area five times the size of Hull.
Turbines at another Dong Energy wind farm, Westermost
Rough. Photo: DONG Energy

The market price of power has fallen significantly since the NAO made its estimates, suggesting
the true cost may be even higher.
Less than a year after the contract for Hornsea was awarded, other proposed wind farms were
forced to compete for subsidies, resulting in much lower prices.
The cheapest came in at less than £115/MWh, fuelling concerns that the Hornsea contract
and other earlier deals may have been significantly too generous.
Dong Energy declined to reveal the total cost
of construction of the project, while the
Department of Energy and Climate Change
declined to provide an estimate of its impact
on a household energy bill.
Amber Rudd, the energy secretary,
announced last year that the Government
would make funding available for up to
another 10 gigawatts of offshore wind farm
capacity to be built in the 2020s, subject to
cost reduction conditions.
"Thanks to Government support the UK is the
world leader in offshore wind energy and this
success story is going from strength to
strength."
These conditions have not been disclosed but Ms Rudd has vowed there will be "no more blank
cheques" for offshore wind.
Welcoming the construction of Hornsea, Ms Rudd, said: "Thanks to Government support the UK is
the world leader in offshore wind energy and this success story is going from strength to strength.
"Dong Energy’s investment shows that we are open for business and is a vote of confidence in the
UK and in our plan to tackle the legacy of under-investment and build an energy infrastructure fit
for the 21st century.
"This project means secure, clean energy for the country, jobs and financial security for working
people and their families, and more skills and growth boosting the Northern Powerhouse."
Brent Cheshire, Dong Energy's UK country chairman, said: "Hornsea Project One is a world-
leading infrastructure project being built right here in the UK. It is ground-breaking and innovative,
powering more homes than any offshore wind farm currently in operation.
"We are making a major financial investment to construct this giant wind farm and this underlines
our commitment to the UK market. Hornsea Project One will support the supply chain and help
create local jobs.
"To have the world’s biggest ever offshore wind farm located off the Yorkshire coast is hugely
significant, and highlights the vital role offshore wind will play in the UK’s need for new low-carbon
energy."

Anadarko Ceases Production at Independence Hub in Gulf of Mexico
Karen Boman|Rigzone Staff
The last producing well at the Independence Hub in the U.S. Gulf of Mexico went offline in
December 2015, according to Anadarko Petroleum Corp.’s fourth quarter 2015 operations report.
Gross production from Independence Hub averaged 40 million cubic feet per day (MMcf/d), or 37
MMcf/d net to Anadarko’s interest, during the fourth quarter. Independence Hub produced 1.3
trillion cubic feet gross in eight-and-a-half years, exceeding initial production expectations by
approximately 30 percent. The project hit payout within one-and-a-half years of first production,
Anadarko noted.
Production from the $2 billion Independence Hub project started in 2007. The facility had the
capacity to process up to 1 billion cubic feet of gas production from 10 anchor fields, with excess
payload capacity to tie back up to nine additional subsea flowlines.
Last month, Anadarko reported it had launched oil production from the first three wells at its
Heidelberg field at Green Canyon Block 859 in the U.S. Gulf. The company plans to drill two
additional wells later this year to further boost field production, Anadarko stated in the report. At
the end of fourth quarter 2015, the company had $67 million remaining on an $860 million carried
interest agreement, which could be used to fund development activities this year.
Anadarko is flow testing the sixth well at its Caesar/Tonga development; the well is scheduled to
come online during first quarter 2016. The company stated in its operations report that the
development’s seventh well was near target depth at year-end 2015, and the phase two
development project is moving ahead with first oil expected by year-end 2017.

Taking stock of oil’s spell cast over the world
Bloomberg + The National
Even casual observers know that oil is exerting uncommon influence on stocks. What is less clear
is how the energy market has come to dominate sentiment in industries with seemingly no
connection to crude prices.
Understanding why and how oil has mesmerised almost all of the markets is more than an
academic inquiry. The reason matters, given how big the moves have been. Almost $1.6 trillion
has been erased from US stocks this year. If oil is contributing, it would be nice to know why.
Here are four theories on what is underpinning the connection. They range from a straight
economic signal to speculation that oil’s plunge threatens to lay low everything up to and including
the financial system.
None is authoritative – it can’t be – and it’s possible that something else entirely is only making it
seem like oil and stocks are moving in lockstep. But these are the hypotheses most often cited by
equity investors this week.
The economy
Theory: oil traders have sussed out information on the direction of the global economy and the
plunging price reflects a world hurtling into a recession. US stocks have taken note, or have drawn
the same conclusion on their own.
“Oil is a proxy for global demand and growth and there’s a real view that as prices move it’s
reflective of the global economy,” says Michael Arone, the Boston-based chief investment
strategist at State Street Global Advisors’ US Intermediary Business. “Who’s leading who is
perhaps hard to tell here, but it certainly seems both are indicating concerns about the world
economy.”
Sceptics would say oil’s fall is an overproduction issue. The demand side has yet to wane and
signal a collapse in global growth.
Still, coupled with fears of China’s shrinking appetite, bears persist in pinning oil’s plunge to
concern about demand. Credit
Theory: the price of crude underpins the value of so many corporate bonds and loans that its 57
per cent decline since June will ignite a crush of defaults that bankrupt hedge funds and banks.
Energy makes up a fair portion of riskier bonds – 19 per cent of the Bloomberg High Yield Index,
or $284.1 billion.
“The major risk banks have is not to their normal retail-oriented stuff, it’s to the oil space,” said
Andrew Brenner, head of international fixed income at National Alliance Capital Markets in New
York.
“Shale drillers and various oil situations have made up an increasing amount of high yield lately,
and banks have lent a lot of money to energy, so you have the high-yield loop and you have the
financials loop.”
Default rates in the oil patch could reach as much as 15 per cent this year, with the overall
corporate default rate rising to 7 per cent, according to BCA Research in Canada.

That is almost double the pace of the mid-1980s, when a correction in the oil price sent energy
sector defaults soaring. Furthermore, energy companies are on the hook for $190bn, or 2 per cent
of all bank loans, according to BCA.
If prices stay sub-$30 per barrel, smaller energy companies that borrowed money to finance
projects may be unable to repay their debt or funnel cash to shareholders.
There is fear of contagion beyond energy and financials – banks could react by tightening credit
lines, thus magnifying the credit crunch. That fear fuels a broader sell-off in equities.
Investment
Theory: energy and commodity companies do so much hiring and building in the US economy and
when they stop, earnings will suffer both within and outside of the industry.
“The energy space was the fastest-growing part of the US economy post-financial crisis, and now
it reverses. Businesses are shuttered and people are laid off,” said Nick Sargen, chief economist
and senior investment adviser for Fort Washington Investment Advisors.
“There are some people beginning to worry that this thing could spread like the sub-prime crisis.
People had said then that it was too small to matter, and then you find out there are linkages you
didn’t know about.”
Although cheap oil is theoretically a boon to shops and restaurants, equities take a bigger cue
from business spending, much of which is tied to commodities. In 2014, the energy sector
accounted for nearly one third of S&P 500 capital expenditures, according to data compiled by
Bloomberg.
The average energy company spent $5.7bn on capex that year, compared with an average
$1.5bn in the overall index.
Jobs in fields such as drilling, fracking and rigs make up 0.4 per cent of total US employment, and
1.6 per cent of real value added, according to BCA Research. Investors are concerned that
energy’s contribution to the US economy will evaporate as oil sinks, said Mr Sargen.
Pain trade
Theory: the world’s biggest investors are being forced to sell everything that is not nailed down to
offset the hit they are taking on their crude holdings. After being pummelled in commodity trading,
investors may be stepping into stocks and unloading.
“If you have a multi-asset portfolio and you’re looking to de-risk and you have problems in one
sector, you will attempt to sell others to get your overall risk profile lower,” said Krishna Memani,
the chief investment officer at Oppenheimer Funds in New York. “Credit markets were tanking, oil
markets tanking and equities were at their highs so where do you go to reduce risk? You go to
equities.”
One big seller may be oil-rich nations from the Middle East to Latin America, which account for
about 5 per cent to 10 per cent of global assets. After years of using oil money to buy assets, now
they are selling them, sending petrodollars pouring out of investment vehicles such as sovereign-
wealth funds, stabilisation funds, development funds, and foreign-exchange reserves sitting in
central banks. The gross flow of petrodollars into the global economy last year fell to as little as
$200bn, down from nearly $800bn in 2012, according to Royal Bank of Scotland Group.

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 04 February 2016 K. Al Awadi

New base 780 special 04 februaury 2016

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