New base 789 special 17 february 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 17 February 2016 - Issue No. 788 Edited & Produced by: Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
Oil output freeze agreed between Saudi Arabia,
Qatar, Russia and Venezuela
The Bational - Adam Bouyamourn
Russia and Saudi Arabia, the world’s largest oil producers, have agreed to freeze production at
January levels in a bid to prevent further declines in prices, which scraped 12-year lows last
month.
At a closed-door meeting in Doha, which also included ministers from Qatar and Venezuela, Saudi
oil minister Ali Al Naimi agreed to end the Opec policy of unrestricted pumping, which has sent
prices plummeting to below US$30 a barrel since June 2014 highs of $110.

The Organisation of Petroleum Exporting Countries’ January output, at 33.1 million barrels a day,
was its highest ever, meaning that any impact on the oil price from the freeze is likely to be small.
Russia, which is not a member of Opec, produced 10.9 million barrels a day that month, its
highest level in history.
But the move represents a shift away from the policy adopted at Opec’s December meeting, when
the group scrapped production caps altogether.
“Freezing now at the January level is adequate for the market, we believe,” Mr Al Naimi said. “We
recognise today the supply is going down because of current prices. We also recognise that
demand is on the rise.”
“It is the beginning of a process which we will assess in the next few months and decide if we
need other steps to stabilise and improve the market,” he said.
The four country’s oil ministers said that the deal would depend on other oil producers, including
Iran, also agreeing to freeze production.
Sanctions on Iran ended in early January, allowing the country to ramp up oil production. Bijan
Namdar Zaganeh, Iran’s oil minister, has repeatedly insisted that it does not intend to cut
production, as the country seeks to use revenue from sales to lift its economy out of recession.
The low oil price has caused economic pain across the Gulf, leading governments including Saudi
Arabia and the UAE to cut public spending in a bid to preserve their financial reserves.
But the agreement is “unlikely to significantly alter the economic outlook for the Gulf Cooperation
Council”, said Jason Tuvey, emerging markets economist at Capital Economics.
Even if all Opec members, including Iran, agree to comply with the target, high production will still
keep oil prices low, depressing the economic outlook for Gulf states, he said.

Algeria: In Salah Gas Brings Southern Fields Project Online
PB + NewBase + Rigzone
In Salah Gas, a joint venture between Sonatrach, BP and Statoil, announced Tuesday the start-up
of its Southern Fields project in Algeria.
The project is the latest stage in the development of seven gas fields in central Algeria. The In
Salah Gas joint venture commenced production in 2004 from three fields in the north of the area -
Krechba, Teguentour and Reg – and the Southern Fields project involves the development of four
dry gas fields - Gour Mahmoud, In Salah, Garet el Befinat and Hassi Moumene. Developing the
Southern Fields will maintain planned production at 317 billion cubic feet per year.
Commenting on the start-up, BP North Africa Regional President Hesham Mekawi said in a
company statement:
“The safe start–up of Southern Fields is an important example of the strength and quality of the
longstanding partnership between Sonatrach, BP and Statoil and is evidence of BP’s continued
commitment to invest in Algeria. I am pleased to congratulate the team at In Salah Gas on this
significant achievement that will sustain production for years to come.”
The drilling of 26 planned southern field wells began in 2014 and is planned to continue until 2018.
The project’s scope includes a new 500 million standard cubic feet per day gas dehydration
central processing facility close to Hassi Moumene, brownfield modifications to existing
processing facilities at Reg, Teg and Krechba, 93 miles of carbon steel export pipelines, 99 miles
of 13 percent chrome corrosion resistant alloy infield flowlines and the drilling and tie in of the 26
new wells.

Production is planned to ramp up to 500 million cubic feet per day as wells in the Hassi Moumene
and Garet el Befinat field are brought on line over the next two months.
BP in Algeria
BP has helped to deliver two major gas developments at In Salah Gas and In Amenas, both of
which are joint ventures with Sonatrach and Statoil.
The In Amenas joint venture is one of the largest wet gas projects in Algeria and involves the
development and production of natural gas and gas liquids from fields in the Illizi Basin in south
eastern Algeria. First gas was produced at In Amenas in 2006. The In Amenas Compression
Project is the final stage of planned development, installing Compression facilities to boost
production. Start-up of the compression project is anticipated in 2016.
The In Salah Gas joint venture is one of the largest dry gas joint venture projects in the country
and involves the development of seven proven gas fields in the southern Sahara, 1,200km south
of Algiers. The first phase of development came on-stream in July 2004, developing the largest
three fields.
The In Salah Southern Fields Project, due on line at the end of 2015, is the final stage of planned
development by the In Salah Gas joint venture and will maintain plateau production by developing
the remaining four fields. This requires investment in a new processing facility, located close to the
town of In Salah, construction of pipelines and gathering systems and the drilling of 26 additional
wells.

Oman: Punj Lloyd wins Pipeline contracts worth US$ 304 Mill.
Punj Lloyd, the diversified engineering, procurement and construction conglomerate today
announced winning oil & gas EPC orders worth MU$D 304 from Oman Oil Refineries and
Petroleum Industries Company (Orpic) and Oman Gas Company (OGC) which are owned by the
Government of the Sultanate of Oman and Oman Oil Company SAOC.
The scope of work for the contracts includes the construction of a 14” dia, 300 km natural gas
liquid (NGL) pipeline and a 32” dia, 301 km gas pipeline. The 14” dia pipeline, part of Orpic’s US$
6.4bn Liwa Plastic Industries Complex (LPIC), will travel from the New Fahud NGL Plant to the
Steam Cracker Unit at Sohar in Oman.
In view of the increased gas demand and to ensure availability of supply, Punj Lloyd will be laying
another 32” dia gas pipeline parallel to the existing 32” dia Fahud – Sohar pipeline for OGC. The
pipeline is being laid to supply gas for North Power station. The scope of work also includes
construction of block valve and pigging stations.
Both the pipelines need to be completed within 38 and 35 months respectively. Speaking on this
significant win, Atul Jain, President and CEO, Pipeline & Tankage - Punj Lloyd, said, “We feel
proud as we were selected due to the strength of our technical and financial bids. Also Punj Lloyd
was the only Indian contractor in Oman to be awarded a sizable contract of the LPIC mega
complex.
Our past experience of delivering strategic projects in Oman and our prowess in pipelines globally,
both stood testament to our capabilities.” His Excellency, Sultan bin Salim Al Habsi, Chairman,
Orpic, stated, “LPIC will enhance the in-country value of products and will provide the necessary
material to grow a downstream sector in the Sultanate, with a focus on the plastics industry.
LPIC will also enhance the contribution of the industrial sector towards domestic production to 9%
by 2020 and will create more than 13,000 new employment opportunities for Omanis.” The
Group’s order backlog stands at USD 3,900 Millions.
The order backlog is the value of unexecuted orders on December 31, 2015 plus new orders
received after that date.
About Punj Lloyd Punj Lloyd Ltd.
The Punj Lloyd Group is a diversified international conglomerate offering EPC services in Energy
and Infrastructure along with engineering and manufacturing capabilities in the Defence sector.
Known for its capabilities in delivering mega projects “on time,” thereby ensuring repeat
customers, the Group possesses a rich experience of successfully delivered projects across the
globe, while maintaining the highest standards of health, safety, environment and quality (HSEQ).

Canada, Mexico, United States launch North American Cooperation on
Energy Information site ..Source: http://www.nacei.org/
The Energy Minister and Secretaries from Canada, Mexico, and the United States are launching a
framework for sharing energy information for North America, hosted at www.nacei.org. The
website can be displayed in English, French, and Spanish and has links to all three countries'
energy statistical agencies.
The collaboration grew out of
a December 2014
Memorandum of
Understanding among the
three countries to create an
institutional framework for
consultation and sharing
publicly available materials to
improve energy information
and energy outlooks for North
America.
The current areas of focus include:
• Comparing, validating, and improving respective energy import and export information
• Sharing publicly available geospatial information related to energy infrastructure
• Exchanging views and information on projections of cross-border energy flows
• Harmonizing terminology, concepts, and definitions of energy products
The United States section links to a page on EIA's beta website specifically focused on the goals
of the trilateral, with public information on trade statistics, static and interactive maps, results of a
trilateral energy outlook project that applied common assumptions within the modeling frameworks
used by each country, and a cross reference for energy terminology in all three languages.
Canada, Mexico, and the United States plan to convene working groups to validate trade statistics
for liquid fuels, natural gas, and electricity, as well as to work to reconcile trade data
discrepancies. The working groups will continue validation of geographic information system (GIS)
data and will expand energy infrastructure maps to include additional elements and functionality.
The three countries will also maintain regular consultations on outlooks for energy markets.
The primary participating agencies include the Department of Natural Resources, Statistics
Canada, and the National Energy Board from Canada; the Secretaría de Energía (SENER)
(Secretariat of Energy), Comisión Reguladora de Energía, Comisión Nacional de Hidrocarburos,
Petróleos Mexicanos, Comisión Federal de Electricidad, Centro Nacional de Control de Gas
Natural, Centro Nacional de Control de Energía, and the Instituto Nacional de Estadística y
Geografía (INEGI) (National Institute of Statistics and Geography) from Mexico; and the U.S.
Energy Information Administration and Office of Fossil Energy of the U.S. Department of Energy
and the U.S. Census Bureau from the United States.

Kenya: ERHC Energy preparing to spud Tarach-1 well in Block 11A
Source: ERHC Energy
ERHC Energy has issued an update on exploration progress in Kenya Block 11A, where it
plans to spud the Tarach-1 exploration wellnear the end of the first quarter 2016.
The rig is being mobilised to the drill site where concreting work and installation of conductors
have already been completed. The contracting parties have completed over 80 kms (50 miles) of
access road. The Tarach-1 well is designed to drill from a 20-inch surface casing through
intermediate casings down to 2,442 meters and set a seven-inch liner down to total depth (TD) of
3,000 meters.
As disclosed previously, the Tarach-1 prospect's mean estimate of oil prospective unrisked
resources is 66 million barrels. Mean unrisked prospective resources of all prospects and leads
in Block 11A totals 662 million barrels.
ERHC holds a 35 percent interest in Block 11A. As previously disclosed, ERHC is obligated,
under existing agreements, to pay 25 percent of its proportionate share of the costs of well and is
carried for the remaining 75 percent of its proportionate share. ERHC has paid all cash calls
relating to its obligations for the costs of the well to date.

Cyprus plans third offshore licensing round
Source: Reuters via Yahoo! Finance / energy-pedia
Cyprus said on Tuesday it was planning a third offshore licensing round for hydrocarbons
exploration in the eastern Mediterranean, moves which have triggered opposition from Turkey in
the past.
Cyprus discovered natural gas offshore in late 2011 in an area close to a sea boundary with
Israel, where some of the world's largest natural gas discoveries have been made in the past
decade.
'Cabinet today decided to move ahead with a third licensing round ... it authorised the energy
minister to submit the relevant proposals to implement the proposal the soonest possible,'
government spokesman Nikos Christodoulides told journalists.
Cyprus's attempts to tap offshore reserves have previously been a source of friction with Turkey,
which supports a breakaway Turkish Cypriot state in northern Cyprus. The island was split in a
Turkish invasion in 1974 after a brief Greek Cypriot coup, and Turkey does not recognise the
Cypriot government conducting the licensing rounds.
Cyprus has 13 offshore licence blocks, five of which are already licensed to Italy's ENI,
France's Total and a consortium comprised of Noble Energy, BG International and
Israel's Delek Drillingand Avner.
Cyprus's previous licensing round - the 2nd licensing round - was announced February 11
2012. The round saw 15 bids submitted by 29 companies.

UK: 'Significant' Oil Flows at Horse Hill-1Exarheas|Rigzone Staff
A “significant” amount of oil has flowed to the surface at the Horse Hill-1 discovery, located in the
UK’s Weald Basin, according to UK Oil & Gas Investments plc.
The flow commenced Monday at around 10am GMT from an 80-foot zone within the Lower
Kimmeridge limestone interval at a depth of approximately 3,000 feet below ground level. An
initial rate in excess of 700 barrels per day was reported at the site, using a one inch choke, in an
approximate mix of 50:50 oil to water. The well was then choked back to 32/64 inches resulting in
a steady early oil rate in excess of 463 barrels of oil per day over a further 7.3-hour period, in an
approximate mix of over 99 percent oil and less than 1 percent water.
The Lower Kimmeridge flow period was planned to continue today at 7am GMT following an
overnight shut-in from 7pm GMT Monday. Upon completion, phase 2 and phase 3 operations will
move to the shallower Upper Kimmeridge limestone and Portland sandstone zones at
approximately 2,755 feet and 2,017 feet below ground level, respectively. Situated within the
onshore exploration Licence PEDL137 on the northern side of the Weald Basin near Gatwick
Airport, the HH-1 discovery well completed its original exploration drilling phase at the end of
2014.

In August last year, Schlumberger calculated that 10.993 billion barrels of mean oil in place was
imbedded within the 55 square miles of the PEDL137 and PEDL246 Horse Hill licenses.
Schlumberger’s latest estimates build on the company’s previous petrophysical evaluation of the
Horse Hill-1 well, located in PEDL137 near to London Gatwick Airport, which estimated the gross
OIP for the Jurassic section of the UK’s HH-1 well to be approximately 271 million barrels of oil
per square mile. A previous
report by US petrophysical
analysis firm Nutech
estimated that the Horse Hill-
1 well contained a total OIP
value of 158 million barrels
per square mile.
Schlumberger’s latest report
incorporates the analysis of a
further nine wells located
within and beyond the license
area.
UKOG’s Executive Chairman
Stephen Sanderson
commented in a company
statement:
“This is a very significant event for the company and for oil and gas activity in the Weald basin of
southern England. Importantly, tests so far show oil has flowed to the surface under its own
pressure and has not, so far, required artificial lift.
“The flow test, the first ever in the Lower Kimmeridge limestone within the Weald basin, provides
proof that significant quantities of moveable oil exist within the Kimmeridge section of the well
and can be brought to surface at excellent flow rates. In this case from a vertical well with
minimal stimulation.
“While these flow rates are significant and in excess of management’s expectations, it should be
borne in mind that the planned future use of a horizontal well and appropriate conventional
reservoir stimulation techniques could likely increase flow rates even further.
“We look forward to more news from the final test results from the Lower Kimmeridge limestone
and the shallower tests. The company will be starting the regulatory permit process forthwith, so
we can return to the well to seek to demonstrate sustainable commercial production.”
In a separate statement, Solo Oil plc’s Chairman Neil Ritson also praised the “extremely
encouraging” results from the discovery:
"Early reports from the wellsite are extremely encouraging and certainly exceed our expectations
for natural flow from the Kimmeridge limestones. We look forward to more news from the final
test results from the Lower Kimmeridge limestone and the remaining Portland Sandstone tests in
due course."
UKOG owns a 20.163 percent interest in PEDL137, with Solo Oil holding a 6.5 percent stake.

Nigeria: Eland Oil & Gas announces operational update
Source: Eland Oil & Gas
AIM-listed Eland Oil & Gas, an oil & gas production and development company operating in
West Africa with an initial focus on Nigeria, has announced an operational update:
George Maxwell, CEO of Eland, commented:
'The strong production performance from the Opuama field in OML40 continued throughout
2015, with production and uptime at record levels. Following a highly successful workover of
Opuama-1 in Q4, production from the field increased by more than 50% to 4,500 bopd, and has
remained at these higher levels since.
Following the successful work-over of Opuama-1, we now turn our attention to two further low
capex, high production workovers on OML 40. We are excited by the prospect of completing the
further workover opportunity on Opuama-3 within the next two months. This involves intervention
on both production strings which we expect will increase gross production by a further 50 to 100
per cent. We also see the potential for re-entry, completion and production of Gbetiokun-1 well
later this year. The successful completion of these two workover projects are expected to
increase production on OML 40 without using a drilling rig and whilst the Opuama-5 production
was disappointing, the anticipated incremental production gains from that well have been largely
offset by the better than expected performance of Opuama-1.
At the year end of 2015 we had available cash of over $8m, having drawn only $15m of a $35m
committed facility from Standard Chartered Bank. Our short-term focus on highly accretive
workovers will insure that our capital expenditure requirements for 2016 remain modest.
Following the success of the Opuama-1 workover, we have placed renewed focus on low cost
workover potential in the licence. It is most welcome that we have seen a material and
sustainable increase in production from this initiative. With further workovers planned, we have a
number of options to continue these production increases prior to commencement of the
development drilling campaign. Whilst we await formal ratification of operatorship of OML40, our
ability to substantially boost production via workover operations is extremely encouraging'.
2015 HIGHLIGHTS
Operational

• Opuama exited the period with production at circa. 4,500 bopd (2,025 bopd net to Elcrest
Exploration and Production Nigeria Ltd, Eland's joint venture company). Average uptime on
the field remained high throughout the year and averaged 84%, with Q4 running at 82%
uptime.
• Elcrest (Eland's joint venture company) recorded total liftings (unaudited) of 341,000 bbls
of crude in 2015, a 195% increase on 2014. Elcrest has completed the loading and sale of
38,000 bbls so far in 2016.
• Elcrest undertook a highly successful workover on Opuama-1, which completed in
November. A successful intervention in the field resulted in a material 50% increase in
average gross production output to 4,500 bopd (2,025 bopd net to Elcrest)
• The Opuama-5 workover did not deliver the expected 400-600 bopd of incremental short
term production from the E2000 reservoir due to higher than expected water cut and the
well was shut in on the 20th of January 2016. However, the workover has provided
valuable information on the E2000 reservoir, which will be a drilling target in future wells,
while Opuama-5 will be utilised as a water disposal well which will result in significantly
reduced tariffs and operating expenditure. In addition, the operational lessons learned
resulted in increased efficiency during the recent Opuama-1 workover and have been
incorporated in our planning of the forthcoming Opuama-3 workover.
Financial
• In 2015 the Company embarked upon a cost reduction programme in response to the
falling oil price. We anticipate hitting our targeted reduction of 30% in operating costs by the
end of Q1 2016.
• Cash and cash equivalents held as at 31 December 2015 of US$8.4 million (31 December
2014 US$15.0 million).
• A Reserve Based Lending (RBL) facility of up to $75 million was signed with Standard
Chartered Bank to fund development of OML 40. Of this amount, $35 million has been
committed. As at 31 December 2015, $15m had been drawn from the RBL. Due to their
very attractive high production relative to capex spend, the workovers are excellent
candidates to be worked into our Reserve Based Lending Facility.
Outlook
• The Opuama-3 workover is funded and scheduled for Q1-2016 and is expected to lead to
a material increase in production from the Opuama field, which we believe could be in the
order of 2,000-4,000 bopd (on a gross basis). Following detailed technical work, including
interference testing in January 2016, it is planned to initiate production from the
undeveloped D1000 Upper and D2000 reservoirs. Both are high quality reservoirs
containing light oil and are at original (D1000 Upper) or near-original (D2000) conditions.
The new zones will be perforated using a state of the art directional perforating system and
are expected to flow at up to 2,000 bopd each.
• We are also currently evaluating the re-entry, completion and production of Gbetiokun-1
well, whilst continuing our evaluation and execution of additional work-over opportunities on
OML 40.
• To the east, in OML 17, we are considering options of achieving early production at low
cost from the Ubima Field discovery by re-entering, completing and producing well Ubima-

NewBase 14 February 2016 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
Oil prices rebound on investor optimism over oil producers deal
Reuters + NewBase
Crude oil futures rebounded on Wednesday on investor hopes that a deal between Saudi Arabia
and Russia to freeze oil output at January levels would lead to a wider pact among producers that
could eventually see production cuts to support prices.
Brent crude had climbed 45 cents to $32.63 a barrel by 0258 GMT, after settling down $1.21 in
the previous session. It had surged to $35.55 a barrel in early trade on Tuesday. U.S. crude was
up 29 cents at $29.33 a barrel, having ended the last session down 40 cents.
Top oil producers Russia and Saudi Arabia on Tuesday agreed to limit oil production at January
levels, provided other oil exporters joined in, but stopped short of agreeing cuts in oil output.
Iraq, Qatar and Venezuela said they would freeze output at January levels provided a deal could
be agreed, while OPEC member Iran could be offered special terms to freeze oil production
levels, sources said.
Oil price special
coverage

Oil prices initially surged on Tuesday on news of the deal but early gains were wiped out by the
realization that there would be no immediate supply cuts to tackle global oversupply.
"It was a 'buy the rumor, sell the fact' event," said Ben Le Brun, market analyst at Sydney's
OptionsXpress.
"The market is coming around to the idea that it is not bad news, but not as good news as it was
anticipating," he said, adding that investors were hoping for production cuts.
Moves to freeze output at January levels will make little difference to the overall supply-demand
balance this year and won't be enough to clear the 600,000 barrels per day surplus projected for
the year, analysts FGE said in a note on Wednesday.
"It could pave the wave for further action to be taken should the likes of Saudi Arabia, other OPEC
members and Russia deem it necessary," FGE said.
April crude futures will remain range-bound, Singapore's Phillip Futures said in a note on
Wednesday.
Saudi Arabia's oil production has stagnated at slightly more than 10 million bpd throughout 2015,
meaning that "all that was achieved was an agreement to continue what they were doing", Phillip
Futures said.
Investors are also eyeing U.S. oil inventory data later on Wednesday for further direction on oil
prices.
U.S. crude stocks rose by 3.9 million barrels to 505.9 million barrels in the week to Feb. 12,
according to a Reuters poll of analysts on Tuesday.
Weekly inventory reports from industry group the American Petroleum Institute (API) and the U.S.
Department of Energy's Energy Information Administration (EIA) will be released on Wednesday
and Thursday respectively, a day later than usual because of a public holiday on Monday.

NewBase Special Coverage
News Agencies News Release 04 February 2016
Secret Petro-Diplomacy Starts to Pay Off in Echo of '99 Deal
Bloomberg - Javier Blas
For more than a year, oil diplomats have been busy behind the scenes trying to forge a deal
between OPEC and nations outside the cartel to revive prices by curbing output.
The maneuvering, led first by Algeria and now Qatar, started to bear fruit Tuesday, when Russia
and Saudi Arabia, at odds over the war in Syria, agreed to freeze production at January levels.
The first public one-on-one meeting between the oil chiefs of the two largest producers in eight
months essentially suspended a war for market share and capped months of secret talks, people
familiar with the matter said.
Ali al-Naimi, left, sits with Mohammed Saleh
al-Sada, center, and Alexander Novak.Now
officials face a second, more complicated task
-- getting other producers, notably Iran, which
has just been unshackled from sanctions over
its nuclear program, to freeze and then cut
production. This phase of negotiations could
take months and success is far from certain.
The Islamic republic plans to regain the
market share it lost during sanctions
regardless of prices, according to a person
familiar with the country’s strategy.
Saudi oil chief Ali al-Naimi said the freeze
marks “the beginning of a process” that may include other steps in the coming months. The goal,
he told reporters in Doha after meeting his Russian counterpart Alexander Novak, is “to stabilize
and improve the market.”
History Lesson
The shuttle diplomacy shows how oil’s collapse is bringing countries that disagree on other issues
closer together. The revenue squeeze being felt from Moscow to Riyadh, Caracas to Oslo,
increases the likelihood of a “grand bargain” that may go beyond oil and include political issues
such as the proxy wars in Syria and Yemen, several analysts said.
OPEC has pulled it off before, forging a common front against a slumping market in 1998 and
1999 that helped trigger a decade-long bull market, lifting crude from $10 a barrel to more than
$140. Back then, ministers spent months meeting privately in hotel suites and embassies from
Miami to The Hague before surprising the market with a round of cuts that included not only
OPEC but also leading exporters Mexico and Norway. Russia’s contribution was limited to
cheering.
If the cartel is successful again, the world may not know about it until the last minute, according to
Jason Bordoff, director of the Center on Global Energy Policy at Columbia University and a former
White House official.

‘Serious Talks’
"If Venezuela, Saudi Arabia, Iran, Russia and other top exporters were engaged in serious talks to
cut output, history suggests these would be occurring in secret," Bordoff said.
The 1990s accord started with a confidential memo that Adrian Lajuous, then the head of Mexico’s
national oil champion, sent to his country’s president titled simply “Oil Diplomacy.” The final pact
surprised almost everyone and rattled the market, creating a cautionary tale traders haven’t
forgotten.
Ian Taylor, chief executive officer of Vitol Group BV, the world’s largest oil trader, said before the
Russian and Saudi freeze was announced Tuesday that a new deal between OPEC and non-
OPEC producers is “a real possibility.”
Brent fell 2.8 percent to $32.47 a barrel at 5:14 p.m. London time on Tuesday, erasing an earlier
gain of 6.5 percent.
‘Early Days’
This time, it’s Qatar taking the lead after Algeria’s oil minister, Youcef Yousfi, stepped down late
last year. Yousfi, who played a key role in the 1999 pact, pushed hard to kick-start back-channel
negotiations, including with the Saudis in Germany.
"These are still very early days and nothing concrete has been agreed, but there is a growing
sense that countries could be more flexible, although Riyadh would insist that everyone else
contribute to the cut," said Amrita Sen, chief oil analyst from consultant Energy Aspects Ltd.
The hurdles to reaching a more comprehensive agreement are significant. "The Doha deal is a
very poor cousin to the start of the 1998-99 petro-diplomacy," said Bob McNally, president of
consultant Rapidan Group in Washington and a former senior oil official at the White House.

First, the main reason for the glut -- the surge in U.S. shale production -- is outside the control of
any government, unlike last time. And the biggest players, led by Saudi Arabia and Russia, have
been locked in an aggressive battle for market share amid fears that slower growth in China will
dampen demand.
War, Religion
Second, diplomatic relations are far more strained than two decades ago. Back then, Iran and
Saudi Arabia were enjoying a rare thaw in ties after Mohammad Khatami came to power in
Tehran. Today, the two religious rivals are fighting each other via proxies from Syria to Yemen.
Russia and Saudi Arabia are backing opposite sides of the war in Syria, where President Vladimir
Putin has been conducting almost daily bombing raids in support of his ally Bashar al-Assad,
whom Saudi Arabia is seeking to overthrow. Putin will make the final call on any agreement with
OPEC as a whole and so far he hasn’t decided, one official in Moscow said.
A third factor weighing against a deal is Saudi Arabia’s stockpile of cash -- enough for the
kingdom to survive a price war of attrition. Two decades ago, it held less than $25 billion and debt
almost equal to gross domestic output. Today, it has more than $600 billion and its debt is less
than 10 percent of GDP.
Still, OPEC Secretary-General Abdalla El-Badri has called on all countries, both inside and
outside the group, to join efforts to revive prices. “It should be viewed as something OPEC and
non-OPEC tackle together," El-Badri said in London in late January. “It is crucial that all major
producers sit down to come up with a solution to this."

Deepwater Sector In Deep Trouble
by Deon Daugherty|Rigzone Staff
Drilling activity in the deepest parts of the world’s waters can yield tremendous oil volumes, but
exploring thousands of feet below sea level is also the most expensive of energy’s high tech
endeavors. And in an environment of $30 oil, investment in deepwater production is pouring out.
Beyond a rebound in oil prices, recovery of the deepwater sector could take an additional two
years, Sajjad Alam, senior vice president at Moody’s Investors Service told Rigzone.
Matt FoxMatt Fox, Executive VP for E&P, Conoco Phillips Executive VP
for E&P, ConocoPhillips
And some companies are opting to not even try to make deepwater work.
In an Oct. 29 earnings call with analysts, ConocoPhillips Executive Vice
President for Exploration and Production Matt Fox said one of the
company’s largest assets includes 2.2 million acres in the Gulf of Mexico,
which includes three existing discoveries. But the supermajor made it
clear the company won’t be drilling there.
“This is a strategic decision to leave – to exit deepwater exploration,” he
said.
ConocoPhillips isn’t the only deepwater investor reconsidering its
options. In a January 2016 report, Wood Mackenzie (Wood Mac) noted
that 22 major projects worth 7 billion barrels of oil equivalent (Bboe) in
commercial reserves have been delayed during the last six months. That’s in addition to the
deferral of 46 developments and 20 Bboe in reserves the research firm identified last June. All
told, that’s 68 major projects to develop and 27 Bboe put on hold.
“The impact on future production is significant,” Wood Mac wrote. “And with oil prices dipping to
new lows at the start of 2016 and capital allocation tightening, the list will continue to grow.”
Of those projects, deepwater accounts for more than half of the new project deferrals. The
sector’s high project breakeven rates, enormous capital requirements and relative inflexibility
combined to make it unpalatable.

All of which will lead to a necessary dip in supply, said James West, senior managing director at
Evercore ISI.
“This cancellation of projects is going to leave us a gap in future production, which we will
eventually need,” he told Rigzone. “We may find ourselves in a really tight spot in a few years from
now as this excess oil supply gets soaked up and we’re needing incremental supply ... As we
cancel more of these projects, it can actually help the oil market out because it does take the
future supply off the market, [which] should be able to sniff out that we’re going to get tighter,
faster.”
Taking Debt, Losing Credit
But as Alam noted, things will get worse for offshore drillers before they improve.
“The worst is yet to come from a credit perspective, in terms of where drillers are today versus
where they will most likely end up over time. The reason being [that] in the offshore drilling space,
deterioration happens gradually because of the contractual protection that benefits drillers,” he
said. “As these contracts expire, they will be looking at much lower day rates, and many of their
rigs may not even be re-contracted.”
As a result, the revenue stream dries up, margins continue to compress, and rig companies find
themselves in a world in which they had a capital structure built for certain day rates [and] certain
asset values, he said.
“Now, asset valuation has come down dramatically. Day rates have come down dramatically. So
their debt level is going to look very high, relative to their cash flows,” Alam explained.
Consequently, Moody’s lowered ratings gradually to account for increasing credit risk. After
downgrading most offshore drillers in October 2014, the investors’ service intends to again review
offshore drillers for further downgrade.

A Deluge of Bankruptcies
Across the energy sector, more than 40 companies filed for Chapter 11 bankruptcy protection last
year. Alam noted that the early December bankruptcy of international offshore drilling contractor
Vantage Drilling Co.’s bankruptcy is evidence of what happens when a company is overburdened
by their own debt.
In Vantage’s case, the company had three drillships and four jackups, each built within the last
five years at an average cost of around $650 million per drillship and $25 million per jackup, Alam
said. In today’s market, those drillships are probably worth between $300 million and $350 million,
about half as much as they cost to build. Jackups likely haven’t fared as poorly, but still, they’re
probably worth less than $150 million each. In addition, Vantage had a significant amount of debt,
Alam said.
“So what’s going to happen is essentially the debt holders are going to become equity holders
after taking a significant loss. A lot of these over-levered companies will probably file for
bankruptcy and if that debt goes away, maybe there will be an interested buyer for the rigs,” he
said. “But at their current level of debt, there is not a lot of interest.”
Consolidation in a down market is a natural progression, Alam said, last seen in earnest in the
2010 down cycle.
“Most rig companies feel the earnings prospects look weak, and it’s not going to improve in the
near future. Unless there is a deep, deep discount, [another company] is not going to volunteer to
acquire that rig. Everybody is holding back for prices to come down even more. A lot of these rig

companies – they have attractive assets, but they also have a lot of debt … because equipment is
so expensive,” he explained.
A couple of weeks after Vantage filed for bankruptcy, it was Norway’s Dolphin Group ASA, an
offshore seismic survey company for the oil and gas industry, heading to the bankruptcy courts.
There’s no question that offshore drilling is tough, and while some producers have managed to
shore up their balance sheets, it’s a mixed bag for service providers, West said.
“It’s a question mark in our minds for the supply vessel companies, maybe not so much for the
U.S. based ones, but some of the Norwegian companies and some of the Asian companies, are
likely to go out of business,” he said.
The global market is oversupplied by about a million barrels per day, but that could turn around by
the end of the year if U.S. shale production cuts down, West said. Already, supply appears to be
dwindling in 2016, he said, hinting at a balance between ever-important supply and demand and
giving a bounce to oil prices. That will put rigs onshore back online, but deepwater will likely be the
last of the rig population to return to work.
“We could look at a recovery for deep demand materializing in late ‘17, or early ‘18 but I don’t see
it before that,” West said.

NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
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MS & BS Mechanical Engineering (HON), USA
Emarat member since 1990
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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.
NewBase : For discussion or further details on the news above you may contact us on +971504822502 , Dubai , UAE
NewBase 04 February 2016 K. Al Awadi

New base 789 special 17 february 2016

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