new base 816 special 27 march 2016

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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 publication. However, no warranty is given to the accuracy of its content. Page 1 NewBase 27 March 2016 - Issue No. 816 Edited & Produced by: Khaled Al Awadi NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE Saudi Arabia 10 projects in win ‘MEED Quality Awards’ Saudi Gazette Saudi Arabia achieved a major breakthrough when 10 of its highest quality projects were named national winners at the MEED Quality Awards for Projects, in association with Mashreq. In Saudi Arabia, the winning projects, valued at over $23 billion, include :- The Municipality of the Governorate of Jeddah’s The Kingdom Flag Pole, Jeddah Project (entered by SAK Consultant) as Leisure & Tourism Project of the Year Ma’aden Gold and Base Metals Co.’s Ad’Duwieh Gold Project Electrical Distribution and E House Project (entered by Schneider Electric) as Innovation Project of the Year; Rabigh Refining and Petrochemical Co.’s Upgrade of Refinery Substations Project-Phase 1 (entered by Schneider Electric) as Small Project of the Year; Saudi Aramco’s King Abdullah Petroleum Studies and Research Centre Project (entered by Drake & Scull) as Sustainable Project of the Year, sponsored by Besix; Elkhereiji Group’s Head Office Building Project (entered by SAK Consultant) Saudi Arabia as Mixed Use Project of the Year; Saudi Electric Company’s Rabigh 2 Power Project (4x700MW) Project as Power & Water Project of the Year; Burj Rafal Real Estate Development Co.’s Boulevard Project as Retail Project of the Year; Omarana’s Waha Office Building Project as Building Project of the Year. Saudi Aramco and Sinopec JV scooped the National Award for Oil & Gas Project of the Year, sponsored by Parsons, with the Yanbu Aramco Sinopec Refining Company Ltd. Refinery Project Saudi Electric Company’s Rabigh 2 Power Project (4x700MW) project selected as Power & Water Project of the Year

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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

publication. However, no warranty is given to the accuracy of its content. Page 1

NewBase 27 March 2016 - Issue No. 816 Edited & Produced by: Khaled Al Awadi

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

Saudi Arabia 10 projects in win ‘MEED Quality Awards’ Saudi Gazette

Saudi Arabia achieved a major breakthrough when 10 of its highest quality projects were named national winners at the MEED Quality Awards for Projects, in association with Mashreq.

In Saudi Arabia, the winning projects, valued at over $23 billion, include :-

• The Municipality of the Governorate of Jeddah’s The Kingdom Flag Pole, Jeddah Project (entered by SAK Consultant) as Leisure & Tourism Project of the Year

• Ma’aden Gold and Base Metals Co.’s Ad’Duwieh Gold Project Electrical Distribution and E House Project (entered by Schneider Electric) as Innovation Project of the Year;

• Rabigh Refining and Petrochemical Co.’s Upgrade of Refinery Substations Project-Phase 1 (entered by Schneider Electric) as Small Project of the Year;

• Saudi Aramco’s King Abdullah Petroleum Studies and Research Centre Project (entered by Drake & Scull) as Sustainable Project of the Year, sponsored by Besix;

• Elkhereiji Group’s Head Office Building Project (entered by SAK Consultant) Saudi Arabia as Mixed Use Project of the Year;

• Saudi Electric Company’s Rabigh 2 Power Project (4x700MW) Project as Power & Water Project of the Year;

• Burj Rafal Real Estate Development Co.’s Boulevard Project as Retail Project of the Year;

• Omarana’s Waha Office Building Project as Building Project of the Year.

Saudi Aramco and Sinopec JV scooped the National Award for Oil & Gas Project of the Year, sponsored by Parsons, with the Yanbu Aramco Sinopec Refining Company Ltd. Refinery Project

Saudi Electric Company’s Rabigh 2 Power Project

(4x700MW) project selected as Power & Water Project

of the Year

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

publication. However, no warranty is given to the accuracy of its content. Page 2

(nominated by YASFER); while the Rehabilitation, Expansion and Development of the Prince Mohammad Bin Abdulaziz International Airport Project owned by GACA, represented by TIBAH Airports Development Company Ltd and entered by TAV Construction, won Saudi Arabia’s Airport Project of the Year.

John Iossifidis, Executive Vice President, Group Head of Corporate & Investment Banking at Mashreq which is the headline sponsor of the awards, said “Saudi Arabia’s construction industry is projected to exhibit sustainable growth prospects in the next few years.

This industry experienced enormous investments from the public and private enterprises during the past few years and there are optimistic signs that this will continue. We congratulate all the winners for delivering and contributing towards the growth and sustainability of the industry.”

This is Saudi Arabia’s best performance in the awards, with 10 projects winning the National Winner accolade compared to seven in last year’s edition. They will now compete at the regional level against national winners from Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates for GCC-wide recognition in various categories.

“The projects were evaluated by an esteemed judging panel against criteria that included not only engineering and construction excellence; but also sustainability and innovation,” said Richard Thompson, Editorial Director at MEED.

“They are a testament to the quality of projects being built throughout the Gulf and MEED is honored to be able to recognizse these achievements to highlight their contribution towards the future development of the projects industry in the region.”

The winners of the 2016 MEED Quality Awards for Projects, in association with Mashreq, will be announced at a ceremony on May 25, 2016 that will serve as the culmination of the MEED Construction Leadership Summit, a high-level gathering of the Gulf’s construction leaders, which seeks to promote open dialogue between stakeholders to explore the strategic direction of the region’s construction industry.

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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Kuwait oil company says it’s found new oil and gas field Preliminary tests suggest the new field in the al-Jathatheel region will provide a significant boost to the country’s resource reserves AP + Gulf News

Kuwait’s state oil company says it has discovered a new oil and gas field in the Western part of the country.

Kuwait Oil Company said in a statement to the country’s state news agency Thursday that preliminary tests suggest the new field in the al-Jathatheel region will provide a significant boost to the country’s resource reserves. It says company teams are currently carrying out tests at the field.

The statement gave no estimate on the size of the field, and a company spokesman did not immediately respond to a request for comment.

According to the US Energy Information Administration, Kuwait has the sixth largest

crude oil reserves worldwide. Kuwait is a member of Opec bordering Iraq and Saudi Arabia at the northern end of the Gulf.

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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Kuwait Korean Consortium to Build LNG Terminal

A consortium of Hyundai E&C, Hyundai Engineering and KOGAS have won a contract to build a large-scale liquefied natural gas (LNG) plant in Kuwait. The deal is valued at 3.6 trillion won ($3 bn), Hyundai E&C said in a statement published on its website earlier this month. The Al-Zour LNG import terminal project includes the construction of a regasification facility and eight LNG storage tanks and the civil works for coastal facilities in Al-Zour, 90 kilometers south of Kuwait’s capital, Kuwait City.

Hyundai E&C is expected to be in charge of the construction of the LNG tanks and the docking facilities while Hyundai Engineering will build the regasification facility. KOGAS is responsible for commissioning and operation training for the client. Construction will take 58 months and is scheduled to be completed in 2020. As the number of orders from the Middle East has been decreasing due to low oil prices, the Al-Zour LNG Import Terminal Project is attracting attention as a new model where private and public companies join hands together to take the highly profitable deal in the area, Hyundai E&C said.

Construction will take 58 months and is scheduled to be completed in 2020.

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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Algeria: PTTEP announces significant substantial flow rate at Hassi Bir Rekaiz field, Source: PTTEP

Limited have reported successful drilling results in the third exploration phase of the Hassi Bir Rekaiz project onshore Algeria. Under the third exploration phase, the Rhourde Ez Zita-1bis (REZ-1bis) exploration well was drilled at 4,037 meter depth.

Drill Stem Test (DST) was conducted with cru de oil in the formations of Triassic Argilo Greseux Inférieur (TAGI) at the average crude oil flow of 6,152 barrels per day (BPD) and associated gas flow of 6.5 million standard cubic feet per day (MMSCFD), and in formations of Ordovician (Ouargla Sandstone) with the average flow rates of crude oil at 302 BPD and associated gas of 0.2 MMSCFD. Then this well confirms the huge potential for BOG discovery.

Somporn Vongvuthipornchai, PTTEP President and CEO, said 'We are very satisfied with results of REZ-1bis. It marks a significant oil flow rate in the Hassi Bir Rekaiz project added up to the previous exploration campaigns.'

The exploration campaign in Hassi Bir Rekaiz has started since 2014 and found both crude oil and associated gas in 10 exploration wells out of 11 wells totally.

The Hassi Bir Rekaiz field is located onshore in the Eastern part of Algeria. It covers an area of 5,378 square meters. PTTEP is the operator during exploration period with 24.5% interest. Its joint venture partners are SONATRACH, the Algerian National Oil and Gas Company with 51% interest, and CNOOC Ltd., China’s largest producer of offshore crude oil and natural gas with 24.5% interest.

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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Mozambique : Exxon in Talks to Buy Stake in Eni's Area 4 Gas Field Exxon Mobil is holding discussions to buy around 15 percent stake in Eni’s Area 4 gas field in Mozambique, sources have told news agency Reuters.

Eni is the operator of Area 4 with a 50 percent indirect interest, owned through Eni East Africa (EEA), which holds a 70 percent stake of Area 4. The other partners are Galp Energia, KOGAS and Empresa Nacional de Hidrocarbonetos (ENH) with a 10 percent stake each. CNPC owns a 20 percent indirect interest in Area 4 through Eni East Africa.

The Italian firm has earlier indicated that it aimed to sell around 15 percent of the field. Two sources said Exxon was in talks to buy a stake of that size, one of whom said Eni was also negotiating with other firms, Reuters reported.

A banking source familiar with the matter said Exxon was interested in buying Eni's whole 50 percent stake, while a fourth source said Exxon was looking at unspecified stakes in all Eni holdings up for sale, also including assets in Egypt and elsewhere in Africa.

Earlier this year, Eni received Mozambican government’s nod for the Coral FLNG project. The company said the approval relates to the first phase of development of 5 trillion cubic feet of gas in the Coral discovery, located in the Area 4 permit. The giant discovery, made in May 2012 and outlined in 2013, proved the existence of a high quality field of Eocenic age with excellent productivity. It is estimated to contain around 16 trillion cubic feet (TCF) of gas in place, wholly located in Area 4. The ‘Plan of Development’, the very first one to be approved in the Rovuma Basin, foresees the drilling and completion of 6 subsea wells and the construction and installation of a technologically advanced state-of-the-art Floating LNG facility, the capacity of which will be around 3.4 MTPA.

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Malaysia: SapuraKencana and GE Oil & Gas JV awarded long term service agreement by PETRONAS Floating LNG…Source: SapuraKencana SapuraKencana GE Oil & Gas Services (SKGE), a joint venture between SapuraKencana Services and GE Power Systems, has been awarded a Long Term Service Agreement by PETRONAS Floating LNG (PFLNG) to provide maintenance services for PETRONAS’ two forthcoming floating LNG vessels.

A Contract Exchange ceremony for the award was held in Kuala Lumpur on Thursday, 24 March 2016 between PFLNG and SKGE.

Under the agreement, SKGE will provide PETRONAS with complete maintenance services for their fleet of twelve gas turbines as well as their fleet of GE compressors, generators and electric motors to be installed on their floating LNG vessels. These maintenance activities will be fully executed by the joint venture’s growing pool of local qualified field service engineers and diagnostic experts.

The PETRONAS floating LNG vessels are examples of the emerging trend in the industry for smaller, more flexible plants which allow for more efficient extraction from remote fields without the capital expenditure of a traditional LNG facility. The first of the two vessels, PFLNG SATU will be deployed on the Kanowit field offshore Sarawak. It will add approximately 1.2mtpa of LNG production to Malaysia’s LNG exports and is another step in increasing the country’s presence in global markets.

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'What we have today is a Malaysia-based repair and maintenance centre that is one of the most cost-competitive within the entire GE Oil & Gas repair network,' said Tan Sri Shahril Shamsuddin, President and Group Chief Executive Officer, SapuraKencana Petroleum Berhad.

'The success of the centre bears testimony to the local talent we have trained and who will over time become experts and leaders in delivering FLNG solutions. Looking ahead, we strive to achieve top operational performance while continuing to keep our costs down. We will continue to expand our regional footprint and remain committed to the long-term sustainability of the industry in Malaysia.'

'I would like to thank our partner, GE Oil & Gas and PETRONAS for entrusting us with this significant task,' he added. Mr. Lorenzo Simonelli, President and CEO, GE Oil & Gas said: 'This agreement represents another example of how GE Oil & Gas is continuing to partner with PETRONAS and our commitment to providing equipment and maintenance for innovative projects around the world.'

'We are very proud to be able to partner with our customers and deliver improved reliability and increased periods between maintenance thanks to our equipment and digital solutions'.

Mr. Visal Leng, General Manager for Asia Pacific, GE Oil & Gas added, 'This is the first contract of its kind in the world for a long-term maintenance agreement on an FLNG vessel. As the industry evolves and LNG operators are looking to make the most of their investments, our proven maintenance expertise and the direct contact PETRONAS will have with our Diagnostic Engineers, some of whom are here in Kuala L umpur will provide them with the support they need to operate their FLNG vessels.'

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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 27 March 2016 Khaled Al Awadi

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

US oil closes at $39.46 & Brebt at 40.44 at ends week 5 Reuters + NewBase

Oil prices pared losses on Thursday, but still posted their first weekly loss in over a month, pressured by record high U.S. stockpiles, weakening equity markets, and a strong dollar. The number of oil rigs operating in the United States fell by 15 in the previous week, oilfield services firm Baker Hughes reported Thursday. The rig count rose last week after 12 weeks of cuts. With crude futures losing as much as 6 percent since Tuesday's settlement — their biggest slide in two days since mid-February — analysts said the oil rally of the past five weeks that brought prices up from mid-$20 levels may be unraveling.

U.S. government data on Wednesday showed crude stockpiles jumped 9.4 million barrels last week, three times more than forecast by analysts in a Reuters poll.

A senior executive from the International Energy Agency, meanwhile, said a deal among a few OPEC producers and Russia to freeze production was likely to be "meaningless" as Saudi Arabia was the only one with the ability to raise output.

Brent crude futures were down 2 cents at $40.45 a barrel. It recorded a nealry3-percent drop on the week, its biggest weekly slide since mid-January. U.S. crude futures settled down 33 cents, or 0.8 percent, at $39.46 a barrel. For the week, it lost about 5 percent, its first weekly loss since mid-February.

The firming in crude prices came as the energy complex moved

higher, with gasoline

futures up about 0.75 percent. Earlier this week, both the benchmarks were up more than 50 percent from multi-year lows hit in January.

"A dose of reality (has) derailed the current perception (of a) rally, at least for the time being," said Dominick Chirichella, analyst at New York's Energy Management Institute.

Oil price special

coverage

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Shares on Wall Street, trading in tandem with crude most of this year, headed for their first weekly drop in six weeks. Financial markets were broadly risk averse with volumes thin ahead of the Good Friday and Easter break.

The dollar's first weekly gain since late February also made oil and other commodities denominated in the greenback less affordable to holders of the euro and other currencies.

Trading houses were betting on oil being oversupplied at least two more years, while Russia looked to export more crude to Europe in April than any month since 2013.

Scott Shelton, energy broker at ICAP in Durham, North Carolina, feared of big builds in U.S. distillates, which include heating oil and diesel, as refineries emerge from maintenance. "We need to export large quantities of distillate," he said. "Production has not fallen enough."

On Thurday, Iraq's Oil Minister Abdul Mahdi confirmed he will suspend attendance of cabinet meetings and ministry functions, following earlier reports he had resigned. Maydi asked one of his aides to carry out his functions at the ministry until parliament votes on his offer to resign that he presented last summer, according to the minister's Facebook page.

His move came as Prime Minister Haider al-Abadi announced last month a plan to overhaul the government and replace the ministers by technocrats not affiliated with political parties in order to fight rampant graft.

Qatar: Doha meeting to look at best recipe to raise prices The size of the cut should be at least 5% of the combined total production of Opec and Russia Gulf News - Jumana Al-Tamimi

When oil ministers from both Opec and non-OPEC countries meet on April 17 in Doha, they will face a challenge; they need to find a way to cut oil production — not just freeze crude production to support prices, oil experts said.

Freezing oil production levels alone at January’s peak levels, a move that will likely not have the support of smaller oil producers, will not be sufficient to raise prices, the experts say.

“An agreement to freeze production at the January 2016 levels is meaningless and will not lead to a rise in oil prices. Only a cut of production exceeding 2 million barrels a day (bpd) will do the trick,” Mamdouh G Salameh, international oil economist and visiting professor of Energy Economies at ESCP Europe business School in London told Gulf News.

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Others energy researchers expressed similar view.

“There is a need to cut,” said Hasan Ozertem, energy researcher at Ankara-based International Strategic Research Organization (USAK). “Freezing at the peak level (of production) is not a clear message given to the markets,” nor does it means limiting global production, Ozertem added in an interview with Gulf News.

Ozertem explained that freezing production means there will be sustainable production in the upcoming year; however, without the participation of “Iran, Iraq and other countries, namely Libya, the production level might be higher and the freezing of Saudi Arabia and Russia won’t take the prices at higher levels. There is a need for a cut,” stressed the Turkish energy oil expert.

Agreement on a freeze to the production levels of “couple of years ago, could also mean a kind of cut,” said Ozertem.

Oil producing countries have faced drastically falling oil prices since June of 2014, when oil was a $115 a barrel, due to a flood of US shale oil. Rather than cut oil production in hopes of raising prices, Opec nations, led by Saudi Arabia, decided to fight for market share instead.

The global surplus in oil caused the commodity to drop as low at $27 per barrel in January. Prices have since recovered slight to a range between $38 to $42 a barrel, thanks mainly to an agreement in February between Saudi Arabia, Russia, Qatar and Venezuela to freeze their output at January levels.

Oil prices have retreated on Thursday from the $40 a barrel (Dh147) range, while the global Brent benchmark was down 2.6% at $39.42 a barrel on the ICE Futures Europe exchange, with concerns over growing oil stocks of the US crude supplies. US Department of Energy data showed US crude supplied climbed by 9.4 million barrels last week, three times higher than previously estimated by analysts.

Qatar announced later it would host a meeting for Opec and non-OPEC members on April 17 to discuss a global pact to freeze the production. According to the OPEC’s Secretary-General Abdallah Salem Al Badri, nearly 15 oil producers — including the UAE — are expected to attend.

Al Badri was quoted as telling reporters in Vienna that freeze talks have already positively affected prices, but it was too early to say whether producers could decide on other actions in the future to stabilise prices.

“I hope it will be a successful meeting,” he said.

Participating oil producers realise the importance of reaching an agreement, said oil experts.

“The prospects of reaching an agreement are good because all producers from inside and outside Opec are feeling the pain and damage to their economies caused by the steep decline of crude oil prices,” said Salameh.

“Whatever name they may call it, the objective is to find a formula to cut production to bolster the oil prices,” Salameh responded to a question on freezing decision.

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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Mustaf Al Ansani, energy expert and researchers at Dammam-based Arab Petroleum Investments Corporation (APICORP) in Saudi Arabia, called Oil prices “unpredictable” and “despite many signals for cuts and freezing in production, there are obviously many variables that will continue to influence the prices,” he said.

APICORP is a multilateral development bank established in 1974 to foster the development of the Arab world’s oil and gas industries. Overproduction and increasing amount of stockpiled crude oil are among the factors influencing the prices, Ansari told Gulf News.

According to energy organisations figures, the global oil supplies of 96 million barrels exceeds the demand by two million barrel a day.

“Every day you are seeing a substantial access of two million barrel … The market, at the moment, is over supplied. It has to be balanced first. The balance, according to most projections won’t happen before 2017 or early 2018,” added Al Ansari.

By then, the demand will increase and the stockpiles will be withdrawn, which will lead to a balance in the markets and a prices raise, he said.

Responding to a question on price reaction to any cut or freeze in crude production, Ansari said prices react differently. Sometimes, a whisper might disrupt the prices, and sometimes a physical change will not lead to any change.

What is important is that any decision has to be “collectively and realistically” to have an impact, Ansari said. “How much the cut is and for how long, these are important questions,” he said.

The size of the cuts is among the main obstacles in the way of reaching an agreement in Doha, said Salameh.

“The size of the cut should be at least 5% of the combined total production of Opec and Russia. Opec is currently producing 32.3 million bpd and Russia 11 million bpd, a total of 43.3 million bpd. A 5 per cent cut amounts to 2.165 million bpd. This is more than capable of absorbing the glut in the market,” he said.

“Provided members of Opec and Russia agree to cut production by at least 2 million bpd, the oil price could start to rise reaching within a few weeks to $60-$70/barrel. And once it has reached that level, then the momentum will take it further to beyond $80/barrel by early 2017,” Salameh believed.

However, the shale oil producers in the US say that once oil prices begin to raise about $40 a barrel, their production levels, which have slowed significantly in connection with the price of oil, could increase again. This added shale oil production could add to the global glut, meaning that Opec and Russia would have to further cut production to balance the market.

Continental Resources Inc, a US shale oil producer, said it 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 told media last month. US crude on Friday was trading at $39.09.

Salameh adds that Opec members will need to stick to any agreement they reach.

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“However, this depends on all members of Opec abiding by the cuts. Opec members have a long history of cheating and overproducing above their production quotas. They were the ones who caused the glut in the market by producing 32.3 million bpd or 2.3 million bpd above the agreed production ceiling of 30 million bpd,” he said.

But meanwhile, one meeting is enough to push the prices up.

“One meeting is enough to declare their intention to cut production to bolster the oil prices. However, Opec members are planning to meet in June this year. This second meeting will give them the chance to stamp their seal of approval to any initial agreement reached in Doha, Qatar in April this year,” Salameh concluded.

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NewBase Special Coverage

News Agencies News Release 27 March 2016

US oil sector pain is deepening The National - Anthony McAuley

There are growing signs that the collapse in oil prices is biting deeper in the US oil patch, a key target for Arabian Gulf producers looking to reverse a world oil glut without cutting their own output.

The US sector had seemed to show resilience early on amid the oil price depression, and even last week oil prices dipped as the market focused on a US government report showing oil inventories growing to a record high.

But a deeper look at the sector shows growing vulnerability, one of the clearest signs of which is stress on bank lending.

“Banks and debt investors are a lot more cautious given the oil price outlook," said Virendra Chauhan, a Singapore-based oil analyst at the consultancy Energy Aspects.

According to a report by Deloitte’s energy consultancy unit last week, 51 oil and gas producers have filed for bankruptcy among the independent North American exploration and production

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sector since the beginning of last year, but that number could be set to soar. There are 175 companies at “high risk" of failing to meet loan covenants, which means they might be forced to take radical action to stave off bankruptcy, Deloitte reckons.

One reason for the vulnerability is the high level of debt the sector carries in relation to its cash flow, which companies have hitherto protected by selling much of their oil for future delivery at preset prices – hedging.

But as Paul O’Donnell, the principal energy analyst at IHS, has pointed out, the independent sector – which accounts for the bulk of North America’s shale producers, which were responsible for doubling US oil output from 2010 to last year – have become more financially vulnerable this year as their ability to hedge has weakened.

“Companies hedge their production to provide a level of protection against oil and gas price fluctuations, and in 2016 and 2017 we see a significant decline in hedging protections, which means more companies are exposed to the current depressed prices and market conditions," Mr O’Donnell said.

That in turn means that the level of debt companies are carrying has soared sharply in relation to their cash flow.

Already, companies have cut spending from US$101 billion last year to a projected $78bn this year, but Mr O’Donnell reckons that unless they cut their spending this year by another $24bn, the independent sector will run into further financial difficulties.

Mr Chauhan agrees. “We have looked at metrics for most companies that have reported [financial results] and despite the capex cuts and efficiency gains, shale remains a cash flow negative business as an industry," he says.

“This explains why we are seeing further cutbacks in spending this year as producers strive for what has so far proven elusive," he adds.

The Wall Street Journal last week reported that “several major banks are reducing their exposure to the energy sector by attempting to sell off souring loans, declining to renew them or clamping down on the ability of oil and gas companies to tap credit lines for cash".

This fundamentally weak scenario for the North American oil sector was somewhat overshadowed by last week’s report from the Energy Information Agency showing inventories rising to a record 535 million barrels.

However, the increase may partly have been because of a backlog of shipments waiting to offload in Houston.

Meanwhile, domestic production figures – at about 9 million barrels per day – reaffirmed a consistent trend of lower production since last summer’s peak around 9.6 million bpd. Also, imports of crude in the past four weeks averaged well above 8 million bpd.

This will be good news for Arabian Gulf producers, especially Saudi Arabia, which is leading the effort to get major exporters to hold steady to allow the world market to come back into equilibrium.

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Saudi Arabia’s oil minister and some of his counterparts from Russia and other producers are scheduled to meet in Doha in three weeks to try to reach a deal to “freeze" their current levels of output.

While such a deal is seen as being largely symbolic – especially as it would exclude Iran, and likely Iraq too, which are the two major contributors to expected Opec output growth – its effect will be strengthened by signs that the Saudi-led policy of the past 18 months is working.

The results have been less clear outside of North America, with North Sea output, for example, growing last year and projected to grow this year, while other provenances such as Brazil’s offshore are feeling the bite of lower capital spending.

“On a global basis, the lagged response in supplies to lower investment is very apparent now," says Mr Chauhan. “We have seen year-on-year declines in crude stocks for three consecutive months now, and with large upstream maintenance planned we expect this trend to continue."

Oil prices are up more than 40 per cent from their lows earlier this year, but the market’s fragility was seen last week as the major benchmarks dipped back below $40 a barrel on the US inventories news.

A steady drumbeat that lower investment is bearing fruit should support prices in the face of short-term setbacks.

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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

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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.

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NewBase 27 March 2016 K. Al Awadi

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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

publication. However, no warranty is given to the accuracy of its content. Page 19