New base 798 special 01 march 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 01 March 2016 - Issue No. 798 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 Drone maker ADASI eyes oil & Gas sector
The National - Shereen El Gazzar
The UAE drone maker Abu Dhabi Autonomous Systems Investments (Adasi) is eyeing the sale of
commercial drones to companies in the energy sector.
On the sidelines of an event yesterday for next week’s Unmanned System Exhibition (Umex) to be
held in Abu Dhabi, Adasi’s chief executive Ali Al Yafei said it was in talks with Abu Dhabi National
Oil Company and Dubai Electricity and Water Authority.
“We are in discussions with Adnoc to provide them with drones to monitor pipelines and detect
leaks,” said Mr Al Yafei. Adasi, which comes under the umbrella of the Emirates Defence
Industries Company, specialises in the manufacture of autonomous, or unmanned, systems for
air, land and sea use.
By 2020, spending on unmanned systems in the GCC is expected to reach US$1 billion, and
globally the industry is forecast to grow to $8.8bn by then.
The online retailer Amazon is already keen to fly drones to deliver products to its consumers.
Other proponents of drones in commercial activities include Google and Intel, and they are
lobbying the US Congress for more flexible rules.
The use of drones has been under regulatory scrutiny around the world. Currently, the UAE’s civil
aviation authority requires a permit for the commercial and entertainment usage of drones.

In the US, the federal aviation administration requires that companies get a special permit to fly
drones. An operator must fly the aircraft away from crowds and buildings and keep the drone in
his sight.
As part of Abu Dhabi Aviation and Aerospace Week, Umex will start on Sunday with 90
international and local companies exhibiting this year, compared to 34 in 2015, organisers said
yesterday.
About 22 countries will be participating in the fast-growing event this year.
TYPES OF UNMANNED SYSTEMS
Unmanned Aerial Vehicles (UAVs) operate in the air.
Unmanned Ground Vehicles (UGVs) operate on all types of terrain.
Unmanned Surface Vehicles (USVs) are floating systems that operate on water.
Unmanned Underwater Vehicles (UUVs) operate below the surface of both shallow and deep
waters.

Oman: Masirah Oil Spuds Manarah-1 Prospect in Offshore Block 50
by Rex International Holding Ltd
Rex International Holding Limited (Rex International Holding, Rex or the Company, and together
with its subsidiaries, the Group), a new-generation technology-driven oil company, referred Friday
to the Feb. 23 press release issued by Masirah Oil Limited (MOL), in which the Group has a 61.76
percent effective interest. The MOL press release announced the following:
“Feb. 23, 2016 - Masirah Oil Limited and its partners today announced that the drilling of
exploration well Manarah-1 in Block 50 Oman has started on Feb. 21 2016.
The prospect Manarah-1 is targeted for a depth of more than 1.8 miles (3 kilometers), and is
located on a structural closure approximately 8 miles (13 kilometers) away from the earlier GAS-1
discovery well at a water depth of 75 feet (23 meters). The well objective is to explore multiple
target horizons in the central part of the Masirah basin.
The well location was selected by integrating conventional methodologies and the proprietary
technology Rex Virtual Drilling. The well is being drilled using the independent leg cantilever
jackup Aban VII (250' ILC).
The shareholders of Masirah Oil Limited are Rex Oman Ltd at 57.6 per cent, Lime Petroleum Plc
at 6.4 per cent and Petroci at 36.0 per cent.” Rex Oman Ltd. is the Company’s indirect wholly-
owned subsidiary. Together with the Company’s 65 percent indirect interest in Lime Petroleum
Plc, the Company’s effective interest in MOL is 61.76 percent.

Saudia: needs sustainable and diverse energy matrix , nuclear
BY: Alexander Uvarov + Saudi Gazette
NOWADAYS Saudi Arabia, among other Gulf states, is facing the challenge of creating an
efficient and sustainable energy system. Kingdom has very ambitious plans to diversify its power
generation sources and improve overall energy efficiency focusing on alternative sources of
energy instead of burning oil and gas to provide needed electricity supply.
In particular, The Kingdom announced the project which implementation assumes the install 50
GWe of renewable capacity by 2032 and construction of 16 nuclear power reactors with 17GWe
nuclear capacity by 2040.
Obviously, Saudis have an increasing electricity demand due to growing of Kingdom’s population
and rapid industrial development. Part of the country’s growth – GDP rose by more than 4% in
2014 – has come from the expansion of manufacturing activities. The Kingdom had more than 32
times as many factories in 2013 as in 1974, and its industrial spending over the same time period
increased by 750%.
In this regard, Saudi Arabia should consider the ‘base load’ as the minimum amount of power
needed by the grid to effectively run an economy. This term is frequently used worldwide
discussing the energy needs. Industry cannot operate effectively, let alone grow, without a stable
source of base load power.

Base load is required 24 hours a day, 365 days a year to run heavy industry such as smelters,
mills, hospitals and refineries. Blackouts in these heavy operations cause massive disruptions,
damage equipment, put lives at extreme risk and ultimately cost the economy billions. Now it is
established that base load is of great importance and must look at the criteria for base load power.
Base load needs to be constant, reliable, predictable and economical. Therefore, generally base
load requires the burning of fossil fuels, which the region is trying replace with alternative
resources of energy. It’s well known worldwide that fossil fuels are very detrimental to the
environment and to human health.
According to the latest report compiled by The World Bank, Saudi Arabia is on the third place
among countries with the highest air pollution levels in the Middle East.
Definitely there is misconception among the general public that renewables are able to supply
base load power. This is simply due to the fact that the output from renewable energy is linked
directly with weather conditions.
Put simply, the sun does not shine 24 hours a day and the wind does not blow 365 days a year at
a particular surface area to generate continuous power. This makes the technology rather
unpredictable and is referred to as intermittent power.
Moreover important to mention, that according to International Energy Agency solar power
systems present challenges in hot dusty conditions: dust impairs operations, and efficiency falls at
temperatures above 30 degrees Celsius. A number of research establishments in the Gulf region
are working on ways to tackle these problems. Therefore when considering the costs of renewable
energy sources, back-up generators need to be factored into the price.
Following facts above it becomes clear that nuclear power plants are the best source to supply
base load power and to provide energy security. So what is needed – an optimal mix of nuclear
energy as main source of base load power and renewables as a complimenting source to satisfy
the Kingdom’s demand for sustainable and diverse alternative energy matrix.
The Kingdom has already made significant steps in the direction of nuclear energy development.
King Abdullah City for Atomic and Renewable Energy (K.A.CARE) was established in 2010 and
during last five years several agreements on cooperation in the field of nuclear energy for peaceful
uses has been concluded with many countries, including European, Asian and others.
Most recently, during the visit of president Xi Jinping China and Saudi Arabia have signed a
memorandum of understanding on the construction of a high-temperature gas-cooled reactor.
Furthermore, a meeting between K.A.CARE and Russian State Nuclear Corporation ROSATOM
took place in Riyadh in the middle of last December.
The two sides discussed ways and means to further joint cooperation in the field of atomic energy
within the framework of intergovernmental agreement for cooperation in this area signed between
Saudis and Russians in June 2015.
In addition, worth noting that the use of nuclear technology in power has the added advantage,
especially for Saudi Arabia – water desalination. Desalination is more common in Saudi Arabia
than in any other country in the Gulf region and even more important, that 70% of the fresh water
used by Kingdom’s cities is obtained through desalination. Actually it is the country’s only option:
there are no permanent bodies of water in the country’s interior and very little rain.

Iraq is second-leading contributor to global oil supply growth in 2015
Source: U.S. Energy Information Administration, Short-Term Energy Outlook
Iraq was the second-leading contributor to the growth in global oil supply in 2015, behind only the
United States. Crude oil production in Iraq, including fields in the Kurdistan Region of northern
Iraq, averaged 4.0 million barrels per day (b/d) in 2015, almost 700,000 b/d above the 2014 level.
Iraq is the second-largest oil producer in the Organization of the Petroleum Exporting Countries
(OPEC) and accounted for about 75% of total OPEC production growth in 2015. Iraq's oil
consumption decreased slightly in 2015, and as a result, all of the crude oil production increase
was exported to international markets.
In southern Iraq, where almost 90% of the country's oil was produced in 2015, the upgrade of
midstream infrastructure (pipeline pumping stations and storage facilities) and improvements to
crude oil quality contributed to increased production. In June 2015, Iraq started marketing Basra
Heavy grade crude oil, distinguishing it from the Basra crude it had traditionally marketed as a
light crude oil.
Before this distinction, Iraq limited its production at oil fields producing heavy oils to maintain the
minimum standard for the light grade Basra crude oil. Once Iraq began marketing Basra heavy
separately from Basra light, it was able to increase production at fields producing the heavier oil
and improve the quality of Basra light.
In northern Iraq, where the remaining 10% of Iraq's oil was produced in 2015, the Kurdistan
Regional Government (KRG) increased the capacity of its independent pipeline, allowing output
increases.
Despite the record level of production and exports, the Iraqi government has asked international
oil companies (IOCs) to reduce spending plans at southern oil fields in 2016 because Iraq has
been struggling to keep up its share of payments to IOCs.

In 2015, Iraq (excluding KRG) earned slightly more than $49 billion dollars in crude oil export
revenue, $35 billion dollars less than the previous year, despite a substantial increase in export
volumes.
The shortfall in revenue has posed a significant economic challenge, as crude oil export revenue
accounted for 93% of Iraq's total government revenue in 2014, according to the International
Monetary Fund. EIA expects Iraq's production growth to slow in 2016 because of constraints
arising from reduced export revenue.
The Iraqi Oil Ministry publishes monthly data on exports and revenues. On average, Iraqi crude
typically sells $5/b to $10/b less than Brent, a global crude oil price benchmark. The KRG does
not publish its official selling price, though crude marketed by the KRG is typically sold at a lower
price than the rest of Iraq.
The KRG is also experiencing budgetary constraints that are causing payment delays to IOCs,
which will likely contribute to slowing production growth this year.
Because northern Iraq is landlocked, oil produced there is transported through a KRG-owned
pipeline for export through the Ceyhan port in Turkey.
The KRG started transferring a portion of the oil produced in the north to the federal government
of Iraq (Baghdad) at Ceyhan in late 2014 after the two governments signed a deal on outstanding
budgetary and revenue issues.
However, both sides were unable to sustain their commitments under the deal, and the KRG has
not transferred any oil produced in the north to Baghdad since August 2015, as represented in the
chart below.

Iran Sells South Pars Condensate to Hanwha in Challenge to Qatar
Bloomberg - Serene Cheong
Iran sold a light hydrocarbon liquid pumped from its South Pars fields to South Korea’s
Hanwha Total Petrochemicals Ltd., as the removal of sanctions help it challenge producers of
similar supplies such as Qatar.
The National Iranian Oil Co. will load in April a cargo of condensate to be shipped to the South
Korean petrochemical maker, according to an official from the state-run producer in the Middle
East nation. That’s the first shipment of supply from the offshore South Pars natural gas fields to
the Asian company, which had been purchasing Qatar’s competing Deodorized Field Condensate
while sanctions were in place on the Persian Gulf state.
The premium traders pay over benchmark Dubai crude prices for the Qatari supply is predicted to
shrink amid expectations that cargoes of similar-quality South Pars condensate, a raw material for
chemical factories, will become available to buyers. Iran has vowed to regain the market share it
lost in Asia, the world’s biggest oil market, after the sanctions that curbed its exports were
removed as part of a deal over its nuclear program with world powers.
“This changes the dynamics in the DFC market significantly,” Tushar Tarun Bansal, a Singapore-
based analyst at industry consultant FGE, said by phone on Monday. “Essentially the Qataris now
have more competition, as those who buy DFC can also refine South Pars without much issue.
There will be some head-on competition.”
Qatari Premiums
Qatar International Petroleum Marketing Co., known as Tasweeq, may sell term supplies of the
nation’s Deodorized Field Condensate for loading from April to June at $3.50 to $3.80 a barrel
more than the benchmark Dubai price, according to a Bloomberg survey of 5 traders earlier this
month. That would be lower than the $3.90 to $4-a-barrel premium the Middle East nation
received for shipments in January to March.
As Iran seeks to regain lost market share in Asia, it’s planning to increase exports by 1 million
barrels a day this year, dismissing the possibility of joining an output freeze agreed by major
producers including Saudi Arabia.

Malaysia’s Petronas delays its second FLNG project
LNG World News Staff
Malaysia’s Petronas said Monday it has delayed the startup of its second FLNG facility as the
energy giant is cutting costs in a depressed oil price environment.
“We have taken the decision to re-phase the Petronas Floating LNG 2 project, to be
commissioned at a later date than originally planned,” Petronas’ President and CEO, Datuk Wan
Zulkiflee Wan Ariffin said at a press conference announcing the company’s 2015 results.
However, the CEO did not reveal a new timeframe for the startup of Petronas’ PFLNG2. The
floating LNG facility, with a capacity of 1.5 million tonnes per annum (mtpa), was previously
expected to start production in 2018.
Petronas held a keel laying
ceremony for PFLNG2 at
Samsung Heavy Industry’s
shipyard on Geoje Island,
South Korea in October last
year. The second floating
LNG facility for Petronas will
be used for the liquefaction,
production and offloading of
natural gas in the Rotan field,
130 kilometers offshore
Sabah.
Petronas’ first floating LNG
unit, the PFLNG1, being built
at South Korea’s Daewoo
Shipbuilding & Marine
Engineering (DSME) shipyard
in Okpo, is expected to commence operations in 2016.

Venezuela is making 'surreal, suicidal' debt payments
CNBC + Reuters contributed to this report.
Venezuela just made a full payment on a $1.5 billion bond, but the country is hardly out of the debt
woods yet. Experts say the country, plagued by hyperinflation and a shortage of basic goods, will
almost definitely default — the question is how, and when.
Venezuela's central bank said earlier this month that the country's economy shrank 5.7 percent,
and the official rate of inflation came in at 180.9 percent in 2015. That spells trouble for the
country, which has a $10 billion total debt burden for the year.
Still, the country has been able to maintain its obligations by draining its foreign currency and gold
reserves — even as its citizens struggle in a deep recession. That's despite suggestions from
some quarters last year that the country could default in 2015.
In a Spanish-language statement on its website, the Venezuelan finance ministry said its debt
payment on Friday was proof of "willingness and capacity to honor its financial commitments in a
timely manner," but the boast of an "impeccable" payment record doesn't address a more
interesting question: Why is Venezuela willing to go so much further to pay its debts than many
other struggling countries are?
"They always find ways to pay: These guys are really scraping the bottom of whatever," Diego
Ferro, co-chief investment officer at Greylock Capital, said Thursday during a panel discussion on
Venezuelan debt. "The willingness to pay that, they have shown, is just surreal, suicidal, crazy,
you can define it how you want."
Even so, he added, "my sense is that they really run out of everything at the beginning of next
year."

It remains an open question, however, whether Venezuela will see a default or debt restructuring
under President Nicolas Maduro, or if political unrest will spur a new government to come in and
negotiate with creditors, Ferro said.
Others at the panel were even less optimistic. Martin Schubert, CEO at European InterAmerican
Finance, said he is watching an October payment from state-owned oil company PDVSA.
"There is a big difference between having the willingness to pay and having the ability to pay," he
said, adding that the price of oil will be key to how much liquidity Venezuela has to meet its
obligations.
Moody's analyst Jaime Reusche said his agency's Caa3 rating includes an assessment that there
is an 80 percent chance of Venezuela seeing a default or debt restructuring, with a base-line
assumption apparently for the fourth quarter of this year.
But Ferro argued that Venezuela is likely so adamant about avoiding default because it sees
some chance that its economic fortunes could improve with a sudden price increase in oil.
"What if oil goes back to
50 or 60" dollars per
barrel? Ferro asked
during his appearance at
the Americas
Society/Council of the
Americas panel. "So
keep the oil option open,
maybe you get lucky,
maybe something
happens to Iran, maybe
Iran and Saudi Arabia get
into a war, who knows?
You get oil higher and
they can continue doing all the things they've been doing."
At its core, Venezuela's problem is different from the troubles faced by Argentina in recent years,
as it has tremendous potential wealth in the form of the world's largest proven oil reserves. Ferro
contended that the government's policies have caused undue stress on a country that would
otherwise be prosperous.
"This is more an issue of liquidity than solvency," he said. "Run the right way, Venezuela should
be a very rich country." And that expectation could be part of why the country has evidenced its
extreme willingness to pay its debts: It doesn't want to risk a court putting a lien on productive oil
infrastructure assets.
Oil remains well below $40, and some traders have suggested it could go much lower. Venezuela
has been floating the idea of a producer freeze on output that could help support the price. Oil
prices began a slide from above $100 a barrel in mid-2014, but OPEC has declined to trim
production without help from nonmembers, which so far have refused to participate.
A production freeze could amount to a compromise in that it would limit further increases in the
supply glut that sent prices to a 12-year low of $27.10 a barrel last month, while not requiring
countries to cut supply and give up market share.

Russian gas exports to Europe surge
Russina Times
Exports of natural gas to Western Europe have increased 37.5 percent in January, the head of
Gazprom told President Vladimir Putin.
Gazprom proposes new gas pipeline to Southern Europe
Since the beginning of the year, the state gas
monopoly has increased exports to Germany by 44
percent, Italy by 42 percent, France by 73 percent and
Austria by 52 percent, according to Gazprom CEO
Aleksey Miller.
"If the total 2015 increase in exports totaled 11.8 billion
cubic meters of gas, we saw an increase of 7.5 billion
cubic meters of gas just within the first two months of
this year,"said Miller. “Therefore, without any doubt,
the constructions of new gas transport routes to North-Western Europe are economically viable
projects that are supported by the growing demand,“added the head of Gazprom.
Miller was referring to the Nord Stream-2 gas pipeline from Russia to Germany. It will include two
new pipelines that will deliver an additional 55 billion cubic meters to the existing Nord Stream
pipeline. In 2015, Gazprom boosted its non-CIS exports by 8 percent - up to 159.4 billion cubic
meters. In particular, shipments to Germany rose by 17.1 percent, reaching a record 45.3 billion
cubic meters.
Another important project on the table for Gazprom is a proposal to build a new pipeline to
Southern Europe. The pipeline will pass under the Black Sea and deliver Russian natural gas to
Greece by transit through an unnamed third country and continue to Italy. The corresponding
memorandum was signed last week by Russia, Italy and Greece.

NewBase 01 March 2016 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
Oil drops on China manufacturing slump, but tighter supply supports
Reuters + NewBase
Crude prices dipped on Tuesday as another slump in China's manufacturing sector outweighed
overnight reports of falling U.S. and OPEC production and strong oil demand.
U.S. West Texas Intermediate (WTI) crude futures were trading at $33.63 per barrel at 0122 GMT,
down 12 cents from their last settlement. But they were still up 30 percent from Feb. 11, when the
contract hit a 2016-low of just over $26 a barrel, a level last seen in 2003.
International benchmark Brent crude futures were down 17 cents at $36.40 per barrel, though still
Activity in China's manufacturing sector shrank more than expected in February, with the official
Purchasing Managers' Index (PMI) coming in at 49.0, down from the previous month's reading of
49.4 and below the 50-point mark that separates growth from contraction on a monthly basis.
Analysts polled by Reuters had predicted a reading of 49.3.
Despite this, analysts said that there were shifts in oil supply and demand fundamentals that were
supporting the market, especially strong demand and dipping oil production in the United States
and the Organization of the Petroleum Exporting Countries (OPEC). "Overall (U.S. oil)
consumption rose to 19.4 million barrels per day (bpd) in 2015 (up by 290,000 bpd year-on-year),
marking the highest annual rate of consumption since 2008," Barclays bank said on Tuesday.
Oil price special
coverage

U.S. government data on Monday showed crude output last December fell for a third straight
month by 43,000 bpd to 9.26 million bpd, its lowest in a year, although average annual 2015 crude
production of 9.43 million bpd was still 720,000 bpd above the previous year.
Supply from OPEC has also
declined, falling by 280,000 bpd
between January and February to
32.37 million bpd, according to a
Reuters survey based on shipping
data and information from sources
at oil companies, OPEC as well as
from consultants.
But there were also voices of
caution, pointing to a remaining
crude production overhang of well
over 1 million bpd that has left storage tanks around the world swelling with unsold crude.
"The prospect of a detente between two of the largest oil producers in the world (Saudi Arabia and
Russia), already at loggerheads over the Syria conflict, was almost too good to be true,"
Singapore Exchange (SGX) said in a monthly note on Tuesday.
"Alas, this turned out to be the case with the meeting yielding no more than a production freeze
subject to compliance from Iran and Iraq. A production freeze is nothing near to a production cut,"
it added.
Oil prices to face more downside pressure
Saudi Gazette + Camille Accad
The price of Brent crude fell to the lowest monthly average in a decade in January at $30.8 per
barrel. Brent price averaged $52 last year and $99 in 2014. Oil supply outpaced demand in the
last two years, but the market is expecting a tighter market in 2016.

The consensus view is that oil prices will gradually bottom out from January’s low, remaining
below last year’s level. US Energy Information Administration forecasts Brent price to average
$37.4 per barrel in 2016, reaching $43 by December.
Market views are roughly aligned, as Brent futures contracts averaged $35 per barrel for 2016 as
of last week. The market may be underestimating future supply and overestimating future
demand, which would result in oil prices falling below EIA’s forecast for a third consecutive year.
The International Monetary Fund projects a recovery in economic growth, from 3.1% YoY in 2015
to 3.4% YoY this year. In our view, global demand will most likely decelerate, to around 2.8%. The
IMF expects US growth to rise slightly this year, but recent data suggest otherwise.
Investment and consumption are sluggish, the industrial sector is contracting and the labor and
property markets are showing early signs of a slowdown. The IMF expects the euro zone and
Japan to accelerate too, but these economies show no signs of strength. February’s PMI figures
suggest a deceleration in all three developed markets.
Moreover, China, the world’s largest oil importer, will continue on its deceleration path this year
due to its structural rebalancing. EIA and International Energy Agency expect oil demand growth
to decelerate slightly from 1.5% YoY in 2015 to 1.3% this year. In our view, these growth
estimates are too high.
EIA and IEA estimate oil supply growth to fall from 2.5% YoY in 2015 to 0.5% and 0.3% YoY
respectively, driven mainly by a decline in shale output. The low oil price environment has forced
US and Canadian companies to cut back on investment and close down rigs.
However, the effect is yet to be seen on crude stockpiles, which are still around all-time highs.
Upside risks to supply are more evident in other markets such as Iran, Iraq and Libya. Iran and
Iraq are producing below their full capacity.
The recent removal of sanctions on Iran and the return of Iraq’s energy industry following years of
devastating conflicts is driving a reemergence in their output. Sectarian tensions in the region
have complicated the relationship between Saudi Arabia, Iran and Iraq.
As such, these countries’ production levels are likely to increase in an uncoordinated manner. A
return of Libyan crude to global markets would also raise global supply further. Libya is currently
producing 400,000 barrels per day, a quarter of its output before the Arab Spring. However,
although a strong comeback is unlikely, slow progress towards the formation of a unity
government raises the possibility of a small upturn.
There is no conclusive evidence that the supply gap will narrow this year, and we expect oil prices
to remain lower than EIA’s estimates. This year, we expect low oil prices to have stronger
economic implications on oil-producing and oil-consuming countries. In oil-producing economies
such as the GCC, deteriorating fiscal balances will lead to more aggressive measures.
Meanwhile, net oil consumers may feel more positive effects of low oil prices as the lagged price
transmission mechanism of the energy supply chain takes effect. On the market front, the impact
of oil market developments should begin to subside this year.
* Economist at Asiya Investments Company

NewBase Special Coverage
News Agencies News Release 01 March 2016
US shale tells Opec: above $40, we are coming back
Reuters
Less than a year ago major shale firms were saying they needed oil above $60 a barrel to
produce more; now some say they will settle for far less in deciding whether to crank up output
after the worst oil price crash in a generation.
Their latest comments highlight the industry’s remarkable resilience, but also serve as a warning
to rivals and traders: a retreat in US oil production that would help ease global oversupply and let
prices recover may prove shorter than some may have expected.
Continental Resources, led by billionaire wildcatter Harold Hamm, is prepared to increase capital
spending if US crude reaches the low- to mid-$40s range, allowing it to boost 2017 production by
more than 10 per cent, chief financial official John Hart said last week.
Rival Whiting Petroleum, the biggest producer in North Dakota’s Bakken formation, will stop
fracking new wells by the end of March, but would “consider completing some of these wells” if oil
reached $40 to $45 a barrel, chairman and CEO Jim Volker told analysts. Less than a year ago,
when the company was still in spending mode, Volker said it might deploy more rigs if US crude
hit $70.

While the comments were couched with caution, they serve as a reminder of how a dramatic
decline in costs and rapid efficiency gains have turned US shale, initially seen by rivals as a
marginal, high cost sector, into a major player - and a thorn in the side of big Opec producers.
Nimble shale drillers are now helping mitigate the nearly 70-per cent slide crude price rout by
cutting back output, but may also limit any rally by quickly turning up the spigots once prices start
recovering from current levels just above $30.
The threat of a shale rebound is “putting a cap on oil prices,” said John Kilduff, partner at Again
Capital. “If there’s some bullish outlook for demand or the economy, they will try to get ahead of
the curve and increase production even sooner.”
Some producers have already began hedging future production, with prices for 2017 oil trading at
near $45 a barrel, which could put a floor under any future production cuts.
While the worst oil downturn since the 1980s sounds the death knell for scores of debt-laden
shale producers, it has also hastened the decline in costs of hydraulic fracturing and
improvements of the still-developing technology.
For example, Hess Corp, which pumps one of every 15 barrels of North Dakota crude, cut the cost
of a new Bakken oil well by 28 per cent last year.
What once helped fatten margins is now key to survival in what Saudi oil minister Ali Al Naimi
described last week as the “harsh” reality of a global market in which Opec is no longer willing to
curb its supplies to bolster prices.
While Deloitte auditing and consulting warns that a third of US oil producers may face bankruptcy,
leading shale producers say their ambitions go beyond just outrunning domestic rivals.
“It’s no longer enough to be the low cost producer in US horizontal shale,” Bill Thomas, chairman
of EOG Resources, said on Friday. “EOG’s goal is to be competitive, low-cost oil producer in the
global market.”
Thomas did not say what price would spur EOG to boost output this year, but said it had a
“premium inventory” of 3,200 well locations that can yield returns of 30 per cent or more with oil at
$40.
Apache Corp forecasts its output will drop by as much as 11 per cent this year, but said it would
probably manage to match 2015 North American production if oil averaged $45 this year.
One reason shale producers can be so fleet-footed is the record backlog of wells that have
already been drilled but wait to get fractured to keep oil trapped in shale rocks flowing.
There were 945 such wells in North Dakota, birthplace of the US shale boom in December,
compared to 585 in mid-2014, when prices peaked, according to the latest available data from the
Department of Mineral Resources. Their numbers are growing as firms like Whiting keep drilling,
but hold off with fracking.
Some warn that fracking the uncompleted wells can offer only a short-term supply boost and a
sustained increase would require costly drilling of new wells and therefore higher prices.
“It’s going to take a move up to $55 before we see anyone plan new production,” says Carl Larry,
director of business development for oil and gas at Frost & Sullivan.

To be sure, it is far from certain whether oil prices will even reach $40 any time soon. Morgan
Stanley and ANZ expect average prices in the low $30s for the full year.
Some analysts also warn resuming drilling quickly may prove hard after firms laid off thousands of
workers and idled more than three-quarters of their rigs since late 2014.
In fact, John Hess, chief executive of Hess Corp last week took issue with labeling US shale oil as
a “swing producer”. Hess told Reuters in an interview that US shale firms should be rather
considered as “short-cycle” producers, which might need up to a year to stop or restart production.
And even scarred veterans of past boom-bust oil cycles are not sure what will happen once prices
start to recover - during the last big upswing a decade ago, shale oil did not even exist.
“We are a little concerned that this time there is one dynamic we’ve never had previously,” said
Darrell Hollek, vice president of US onshore at Anadarko Petroleum Corp.

NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
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For additional free subscription emails please contact Hawk Energy
Khaled Malallah Al Awadi,
Energy Consultant
MS & BS Mechanical Engineering (HON), USA
Emarat member since 1990
ASME member since 1995
Hawk Energy member 2010
Mobile: +97150-4822502
khdmohd@hawkenergy.net
khdmohd@hotmail.com
Khaled Al Awadi is a UAE National with a total of 25 years of experience in
the Oil & Gas sector. Currently working as Technical Affairs Specialist for
Emirates General Petroleum Corp. “Emarat“ with external voluntary Energy
consultation for the GCC area via Hawk Energy Service as a UAE
operations base , Most of the experience were spent as the Gas Operations
Manager in Emarat , responsible for Emarat Gas Pipeline Network Facility &
gas compressor stations . Through the years, he has developed great
experiences in the designing & constructing of gas pipelines, gas metering &
regulating stations and in the engineering of supply routes. Many years were spent drafting, &
compiling gas transportation, operation & maintenance agreements along with many MOUs for the
local authorities. He has become a reference for many of the Oil & Gas Conferences held in the
UAE and Energy program broadcasted internationally, via GCC leading satellite Channels.
NewBase : For discussion or further details on the news above you may contact us on +971504822502 , Dubai , UAE
NewBase 01 March 2016 K. Al Awadi

New base 798 special 01 march 2016

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