new base 754 special 23 december 2015

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NewBase 23 December 2015 - Issue No. 754 Edited & Produced by: Khaled Al Awadi

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UAE: US lifting of ban on crude export not to impact the market

The UAE Energy Minister expects oil markets to stabilise next year Gulf News - Fareed Rahman, Senior Business Reporter

The decision by the US government to lift ban on the export of crude will not have an impact on the supply and demand of oil in the market, the UAE Energy Minister said on Tuesday.

“Every country has the right to make its own laws and regulation s. We don’t think the US decision will change the supply, demand balance,” said Suhail Al Mazroui, while speaking to reporters in Abu Dhabi.

In a landmark decision, the US President Barack Obama on Friday ended 40 years of US crude oil export limits by signing off on a spending bill passed by Congress. The new law allows US oil producers to sell crude to the already oversupplied international m arket.

Oil prices plunged by more than 60 per cent in the last one year as supply outpaces demand. From $115 per barrel in June 2014, oil prices plunged to less than $40 per barrel. In a move aimed at maintaining market share, Opec has refused to cut oil production.

Al Mazroui expects the market to stabilise and reach a balance in 2016.




“Is it going to stabilise in early 2016 or late 2016? We have to wait. It depends on supply and demand. At Opec (Organisation of Petroleum Exporting Countries), we said we will see the effect in about a year or two, so we need to wait a little bit to allow the market to stabilise.”

Subsidies The UAE has been putting a lot of efforts into diversifying its economy away from oil as oil prices reduce. Al Mazroui said new pricing regulations of fuel (petrol) prices, which removed government subsidies, has been successful. “The success that we saw with the deregulation of fuel prices will be the basis for our strategy for energy and water ... and what we’re hoping to see is a shift in consumer attitudes. “

Speaking about the new strategy on water and electricity consumption, he said it can result in a 30 per cent drop in consumption, part of which is electricity, air conditioning, lighting and water.

“The total energy bill per building every month can be 30 per cent lower. We’re also targeting mosques, schools, and government buildings ... even corporations now are looking at moving to energy-saving buildings.”

The Ministry of Energy submitted to the UAE cabinet to start the implementation of the plan to control the consumption of water and power starting from 2017, he added.

The UAE is also focusing on giving an impetus to solar power technology. According to Al Mazroui three international companies submitted proposals to use solar technology in desalination of water. “This will help us to reduce using of natural gas and other fuels. We are studying it now.”

Meanwhile, Undersecretary of the Ministry of Energy Dr Matar Al Neyadi said fuel prices might go down for the month of January due to drop in global oil prices but refused to speculate.

“We cannot speculate how much that would be. Gasoline price is linked to other aspects. In summer it is different than in winter. So there is lot of input to determine the fuel price.”

“So far the feedback has been good for the deregulation of fuel prices.

Whenever we go either regionally or internationally, people commend the UAE for the good decision. I am sure other countries are considering adopting the same procedure.”




Malaysia's Reach Energy Seeks Acquisition as Oil Prices Tumble Bloomberg - Pooi Koon Chong

Reach Energy Bhd., backed by Norway’s sovereign wealth fund, may complete its first acquisition ahead of schedule as plunging crude prices make more assets available for sale.

The Malaysian company set up to buy oil and gas fields has narrowed in on two potential targets after having a “very busy” year evaluating more than 50 assets globally, and expects to close a deal in early 2016, Managing Director Shahul Hamid Mohd Ismail said in an interview Tuesday. It has about 750 million ringgit ($174 million) parked in a trust fund raised mainly from aninitial public offering in 2014, he said.

“This is the best time to buy because oil price is depressed and there are a lot of companies, big and small, rationalizing their portfolios,” said Shahul, a former Royal Dutch Shell Plc executive who had managed exploration and production assets in Brunei and the East Malaysian states of Sabah and Sarawak. “A lot of the players may say, OK, if I divest here I can get the funds to develop this one because I need the funding, since revenue is down.”

Oil has slumped about 32 percent in New York this year and is poised for a second annual decline amid signs a global glut will be prolonged after the Organization of Petroleum Exporting Countries effectively abandoned output limits at a meeting earlier this month. The plunge is unsustainable for many producers and is providing acquisition opportunities for cash-rich companies such as Thailand’s biggest firm PTT Pcl, which said earlier this month it’s a “chance of a lifetime” to buy weaker players.

Reach Energy is a special-purpose acquisition company, or SPAC, otherwise known as a blank-check entity that sells shares to raise money for buying businesses they haven’t identified. Backed by investors including Norway’s $840 billion Norges Bank Investment Management, Reach Energy has up till August 2017 to identify a mature oil field.

While the target was to close a deal in the first two years, the company now wants to complete a transaction sooner to take advantage of the lower crude price, Shahul said. One of the two acquisition candidates is from the Asia Pacific region, he said. Reach Energy is aiming for a 15 percent internal rate of return for assets found within this region and 20 percent for purchases elsewhere, he said. Shares of Reach Energy have climbed 5 percent this year, compared with a 6.7 percent drop in the benchmark FTSE Bursa Malaysia KLCI Index.




Russia: Conoco exits Russia after 25 years By Jack Farchy, Financial Times

ConocoPhillips, one of the pioneers of foreign investment in the Russian oil and gas industry, has completed a full retreat from the country by selling out of its Polar Lights joint venture with Rosneft.

A spokesman for the US oil and gas producer confirmed it had sold its 50 per cent stake in the venture, which is focused on the far north-west of Russia. Rosneft, the Russian state oil company, also sold its stake in the asset last week, in a deal that valued the business at about $150m-$200m, according to one person familiar with the matter.

Conoco’s decision to exit from Russia after more than 25 years highlights the challenges facing foreign investors in the country’s energy sector, which has been hit by recent political tensions and the tumble in oil prices.

“In the past, the view was that hydrocarbons were scarce, Russia has a lot of them: we have to be there,” said Matthew Sagers, senior director of Russia & Caspian Energy at IHS. “Now, it’s very different: there are hydrocarbons in a lot of places — including Williston, North Dakota — so you don’t have to go off to these exotic places any more.”

Conoco — before its merger with Phillips — was one of the earliest western oil groups to invest in Russia, having started negotiations before the collapse of the Soviet Union. Its Polar Lights joint venture, registered in 1992, made it the largest foreign investor in the Russian energy sector in the early 1990s.

“Conoco was really one of the first,” recalled Thane Gustafson, author of Wheel of Fortune, a history of the Russian oil industry.




After a few years, however, the Polar Lights joint venture became ensnared in domestic Russian politics, and its tax bill increased sharply. “Conoco’s proposition was very much based on its relationship with the regional government,” Mr Gustafson said. “The problem was, the regions lost power relative to the centre; you could no longer run an operation on the basis of your local connections.”

In 2004, Conoco increased its commitment to Russia, taking an 8 per cent stake in Lukoil, one of Russia’s largest oil producers, which it later raised to 20 per cent.

However, the investment failed to give Conoco the access to Russia’s vast oil and gas reserves it had hoped for, and by 2011 it had sold off its stake. It also undertook a broader retreat from the region, selling a 30 per cent stake in a joint venture with Lukoil in 2012 and its stake in Kazakhstan’s troubled Kashagan field in 2013.

“Russia was a region where they sai d look, it’s not working; let’s get out,” said one person familiar with Conoco’s thinking. “It turned out to be a great decision.”

Conoco first announced it would seek a buyer for its stake in Polar Lights last year. A person familiar with the deal said the joint venture had been sold to a company owned by the Khotin family. Originally, the Khotins, led by father and son, made money from real estate development in Moscow. In recent years, though, they have started to invest in oil, through the acquisition of a small company in the Irkutsk region and a 29.9 per cent stake in London-listed Exillon Energy.

A Conoco spokesman said: “We sold our 50 per cent interest to Trisonnery Asset Limited. We no longer have operations in Russia.” Rosneft declined to comment on the identity of the buyer, and the Khotin family could not be reached for comment.




US: Texas hunkers down for another oil bust Bloomberg - John W. Schoen

It's easy to see what Texas is bracing for: another oil bust. But there are early signs the latest crash in crude may not inflict as much damage on Texas as past energy downturns, especially in parts of the Lone Star State that have diversified away from energy-related goods and services.

After California, Texas is the largest economy in the U.S. At nearly $1.5 trillion in gross state product last year, Texas produced more goods and services than South Korea or Australia.

Workers bag pinto beans at the Weststar Foods Co. LLC facility at the Port Of Corpus Christi in Corpus Christi, Texas.

This year's crash in crude prices hit the oil producing state hard, and a continued global supply glut will likely weigh on Texas and the rest of the U.S. oil patch next year.

When oil prices began the latest historic pullback — from over $100 a barrel in July 2014 to less than $35 a barrel this week — Texas braced for another one of the painful economic recessions that have

periodically swept through the state since the Lucas gusher on Spindletop Hill in 1901 gave rise to the modern Texas oil industry.

In some ways, the Texas oil industry today is a victim of its own success. After a steady output decline in the 1980s and '90s, U.S. oil producers staged a remarkable and widely unexpected revival over the past decade by deploying new seismic and drilling technologies. By coaxing drill bits to move horizontally, and breaking up "tight" oil formations with fracking, millions of barrels of oil have been produced from decades-old fields once left for dead.

The result was a flood of oil on world markets that has sent prices plunging to less than a third of 2014 peak levels. While major Mideast oil producers like Saudi Arabia could once be counted on to curb their production to keep supplies tight and prices high, foreign oil producers today are heavily reliant on oil profits and show no signs of slowing output. As global stockpiles continue to build, there's little sign that prices are headed back up anytime soon.




That's brought a drop in rig counts — and a rise in layoffs — across most energy-producing regions in the U.S. In Texas, the cuts have slammed the brakes on the state's economy. Real gross state product fell from 4.8 percent in the first quarter of this year to just 0.5 percent in the second quarter, the latest data available.

Like other major energy producing states, Texas is also feeling the pinch from a steep drop in so-called severance taxes — which are based on the value of oil, gas and other raw materials produced in the state. Those revenues paid for roughly $6 billion in state spending in 2013 (the latest data available) — or about 10 cents for every dollar of state revenue.

Just like the location of pockets of oil and gas underground, the rewards of the latest Texas oil boom weren't spread evenly across the state. Wages rose sharply in oil producing cities like Midland, where the jobless rate is still well below the national average. But wages have fallen elsewhere in the state, and jobless rates are rising above the 5.0 percent national average.

The Houston metro area has seen four months of net job losses so far this year, according to economists at Comerica Bank, while the Dallas/Fort Worth area has seen just two months of job losses.

The energy downturn has also hurt the northern part of the state, but "its economic diversity is paying dividends," Comerica wrote in a recent research report. Defense contractor Lockheed Martin, which has a large manufacturing facility in Dallas, recently won a $1 billion contract to build military




airplanes. North Texas also continues to attract out-of-state companies, helping to fuel ongoing growth in commercial and residential real estate construction, the researchers added.

That economic diversity may help Texas avoid the kind of painful recessions of the past, when the state was more heavily reliant on oil and gas production. While the economy slowed sharply, there are signs it may be finding a footing. A local economic index developed by Comerica bumped up slightly in September, after steadily declining since October 2014.

"Labor and housing indicators have mostly remained resilient at the state level," said Robert Dye, Comerica's chief economist. "This month's gain does not represent a sea change for the state economy, but does show the strength of the state's economic diversity."

But the state's jobless rate continued to tick higher last month — up two-tenths percent to 4.6 percent — as the energy industry continues to cut jobs, but still below the U.S. rate of 5 percent.

With oil prices expected to remain low for the foreseeable future, a lot depends on how long oil producers can hang on and wait out the financial storm. Many producers are currently losing money at current prices and are hoping to stay in business until production becomes profitable again.

But with many of those producers already heavily in debt, not all of them are expected to survive. That consolidation will remain a continued economic headwind for the state in 2016.




NewBase 23 December - 2015 Khaled Al Awadi

NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE

U.S. crude briefly rises to premium over Brent as exports loom Reuters + NewBase

U.S. crude prices briefly rose to a premium over internationally traded Brent on Wednesday following a report of a surprise dip in U.S. inventories and the potential for more exports in an oil market which still suffers from ballooning oversupply.

Front-month U.S. West Texas Intermediate (WTI) crude futures CLc1 were trading at $36.38 per barrel at 0340 GMT, up 24 cents from their last settlement.

Brent crude earlier traded as low as $36.28 a barrel, briefly flipping WTI from a long-standing discount into a slight premium over the international benchmark for the first time since a short period in November 2014. Brent edged back to $36.44 by 0340 GMT. Except for November last year, WTI has traded at a discount to Brent since 2010.

Spreads for contracts delivered further into 2016 CL-LCO8=R CL-LCO3=R have already seen a WTI premium over Brent for much of December.

Prior to 2010, WTI was usually at a premium to Brent as the U.S. shale oil boom had yet to kick off, meaning that the world's biggest oil consumer had higher crude and fuel imports.

U.S. petroleum imports have fallen from a peak of almost 14 million barrels per day (bpd) to around 9 million bpd, according to government data.

Oil price special

coverage




But as shale output dips and the government lifts a decades-old crude export ban, the U.S. market could tighten while supplies globally keep ballooning on the back of soaring output from Russia and the Organization of the Petroleum Exporting Countries (OPEC).

The U.S. Congress this month voted to lift the ban to export domestic crude supplies, and although no immediate large-scale exports are expected, some American oil will flow from the United States into the global market next year.

Stronger WTI prices were also supported by an unexpected fall in U.S. crude stocks, as reported by industry group the American Petroleum Institute.

Crude inventories fell by 3.6 million barrels in the week to 486.7 million, compared with analysts' expectations for a increase of 1.1 million barrels.

Official inventory data is due to be published later on Wednesday.

The general outlook for the oil market is for low prices to remain as production stays near record levels until operators are forced to shut down due to financial losses.

"We see risks to our OPEC production forecast of 32 million bpd next year as skewed to the upside (and) storage continues to fill with the potential for hitting storage constraints by the spring rising," Goldman Sachs said this week, adding that U.S. drilling activity also remained too high for a significant production cut.

Crude prices may need to fall to $20 per barrel to force shutdowns and bring production back in line with demand, the bank said.

Global production currently exceeds demand by between 0.5 million and 2 million barrels per day, based on analyst estimates.




Extreme Oil Bears Bet on $25, $20 and Even $15 a Barrel in 2016 Bloomberg

Oil speculators are buying options contracts that will only pay out if crude drops to as low as $15 a

barrel next year, the latest sign some investors expect an even deeper slump in energy prices.

The bearish wagers come as OPEC’s effective scrapping of output limits, Iran’s anticipated return to the market and the resilience of production from countries such as Russia raise the prospect of a prolonged global oil glut.

"We view the oversupply as continuing well into next year," Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., wrote in a note on Tuesday, adding there’s a risk oil prices would fall to $20 a barrel to force production shutdowns if mild weather continues to damp demand.

The bearish outlook has prompted investors to buy put options -- which give them the right to sell at a predetermined price and time -- at strike prices of $30, $25, $20 and even $15 a barrel, according to data from the New York Mercantile Exchange and the U.S. Depository Trust & Clearing Corp. West Texas Intermediate, the U.S. benchmark, is currently trading at about $36 a barrel.

The data, which only cover options deals that have been put through the U.S. exchange or cleared, is viewed as a proxy for the overall market and volumes have increased this week as oil plunged. Investors can buy options contracts in the bilateral, over-the-counter market too.




Investors have bought increasing volumes of put options that will pay out if the price of WTI drops to $20 to $30 a barrel next year, the data show. The largest open interest across options contracts -- both bullish and bearish -- for December 2016 is for puts at $30 a barrel.

The number of outstanding contracts -- or open interest -- below $30 a barrel is relatively small. But the open interest for June 2016 put options at $25 a barrel has nearly doubled over the last week.

Investors have even bought put options that will pay if WTI drops below $15 a barrel by December next year. The volume of financial bets at that level is tiny -- 640,000 barrels in total.

Investors buy put options not only to bet that prices will drop, but they also take them as insurance. For example, long-only equity investors, which buy the stock of companies such as Exxon Mobil Corp. and Royal Dutch Shell Plc, often hedge their portfolios by buying put options that will profit if prices drop.

WTI fell below $34 a barrel on Monday, approaching an 11-year low. On Tuesday, U.S. oil futures for February delivery rose to as high as $36.26 a barrel. In London, benchmark Brent crude plunged to $36.04 on Monday, its lowest since 2004, before rebounding to as high as $36.72 a barrel on Tuesday.

“Overall it’s still very bearish,” Gareth Lewis-Davies, a London-based energy strategist at BNP Paribas SA, said.

NewBase Special Coverage

News Agencies News Release 01 Dec.. 2015

Shell Cuts 2016 Spending by $2 Billion as It Prepares for BG Bloomberg - Rakteem Katakey

Royal Dutch Shell Plc, Europe’s largest oil company, further reduced spending plans for this year and 2016 as it prepares to take over BG Group Plc amid slumping prices for crude.

The combined company plans to spend $33 billion next year, lower than Shell’s previous guidance of $35 billion, the company said Tuesday in a statement. Shell also cut its spending forecast for this year by $1 billion to $29 billion.

Oil’s collapse to less than $37 a barrel from about $55 on the day the deal was announced in April has prompted some investors to question whether Shell is paying too much. The oil producer has justified the deal by saying that it boosts its ability to maintain dividends, makes it the world’s biggest liquefied natural gas company and gives it oil and gas assets from Australia to Brazil.




“The two companies are combining during a low oil-price environment and cutting their spending plans makes a lot of sense,” said Jason Gammel, a London-based analyst with Jefferies International Ltd. “This moves the plans for the deal forward.”

The acquisition will break even with Brent crude prices in the low $60s and add to operating cash flow per share at $50 a barrel in 2016, the company said Tuesday. It expects the deal to be accretive to earnings per share, excluding identified items, in 2017 at $65 Brent prices. Shares Rise

Shell’s B shares, the class of stock used in the deal, rose 2.9 percent to 1,493 pence in London. BG gained 3.3 percent to 929.7 pence.

Shell in April offered to pay 0.4454 of its B shares and 383 pence in cash for each BG share in a deal valued at $70 billion. A decline in Shell’s stock has cut that to about $53 billion as of Dec. 18, the company said in Tuesday’s statement.

Shell’s shareholders are scheduled to vote on the deal on Jan. 27 and BG’s the next day. Shell requires the backing of 50 percent of its holders. In BG’s case, votes in favor must represent at least 75 percent of the total value of BG shares. The merger is likely to become effective from Feb. 15, Shell said.




OPEC Tries to Squeeze Rivals, One of Its Own Feels the Pinch Bloomberg

Forget the opposition. OPEC is doing more to ruin the holiday season for Venezuela President Nicolas Maduro than any of his rival lawmakers.

Maduro stepped up attacks on his opponents this month after they won enough seats in congressional elections to challenge his government. While bonds initially rallied on optimism the opposition victory could lead to more market-friendly policies, Maduro’s comments quickly killed that euphoria. Now, it’s the rout in oil that’s doing the most damage to the prices of the securities.

Oil, by far Venezuela’s biggest export, has plunged 17 percent to an 11-year low since the Organization of Petroleum Exporting Countries abandoned production limits at its Dec. 4 meeting. Venezuela’s benchmark bonds due in 2027 are at the cheapest since August, and traders see a 71 percent probability that the country will default in the next 12 months, credit-default swaps show. That’s up from 61 percent the day before the OPEC decision.

“The initial reaction to the election results was positive, but then oil just collapsed,” said Phillip Blackwood, a managing director at EM Quest, which advises Sydbank A/S on its debt holdings. “The bills still need to be paid and that comes from oil.”

Oil at these levels could prevent Venezuela from meeting its debt obligations as soon as February, Barclays Plc said Friday. The OPEC member relies on income from oil sales for almost all of its hard currency. It may need to sell $20 billion of gold or other assets to meet next year’s commitments, Alejandro Arreaza, Alejandro Grisanti and Sebastian Vargas, analysts at Barclays, said in a report to clients. Venezuela’s crude basket fell to an 11-year low $29.17 last week.

“The latest decline in oil may have undermined government confidence, putting even this payment at risk,” they wrote.




The yield on Venezuela’s bonds due in 2027 rose 4.56 percentage points from Dec. 9 to 26.16 percent as of 11:05 a.m. in New York on Tuesday, handing investors a loss of 17.5 percent in less than two weeks, the steepest in emerging markets.

Trying to pinpoint the exact oil price that Venezuela needs to guarantee its debt payments is tricky, because up-to-date economic and fiscal reports from the government are rare. Barclays estimates that it needs at least $50 oil on average; Nomura Holdings Inc.’s head of fixed-income strategy Siobhan Morden puts the number at $62.

“We always thought with oil prices between $40 and $50 and a good plan of economic adjustments, it wouldn’t be necessary to modify debt or restructure,” said Henkel Garcia, director of Caracas-based consultancy Econometrica. “Now, the current cash flow of dollars makes paying debt difficult, even if the right measures are taken.”

At a chaotic meeting in Vienna that was expected to last four hours but extended to nearly seven, OPEC tossed aside the idea of limiting production to control prices. Instead, it went for the one-year-old Saudi Arabia-led policy of pumping, pumping, pumping until rivals are squeezed out of market share. Brent crude oil plunged to the lowest since July 2004 on Monday, trading as low as $36.04 a barrel in London.

Venezuela’s foreign-currency reserves fell 31 percent to $14.64 billion on Thursday from a year earlier, according to the central bank. The government has $5.2 billion of bond payments due next year, plus an additional $5.5 billion to cover PDVSA’s debt, data compiled by Bloomberg show.

Venezuela is struggling after years of nationalizations and intervention left the country dependent on oil giant Petroleos de Venezuela for almost all its exports. But production at the company known as PDVSA has been falling. Output is down 0.6 percent from its 2014 average, compared with an increase of 4.7 percent across the Organization of Petroleum Exporting Countries, according to data compiled by Bloomberg.

“I don’t think many people in the market believe they’ll continue to service their debt in the medium term with oil at $35,” Blackwood said. “It’s now a question of whether they get through 2016. No one’s looking much beyond that and even that’s a tough call.”




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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 [email protected] [email protected]

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 23 December 2015 K. Al Awadi