new base special 05 january 2014

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NewBase 05 January 2014 Khaled Al Awadi

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

Sea Dragon nets Egypt offshore stake http://www.upstreamonline.com/live/article1347837.ece UK junior Sea Dragon Energy has snapped up a sizeable stake in a concession offshore Egypt with one

wildcat in sight. The explorer has grabbed a 12.75% slice in the The 10-year concession calls for $23

million of investment, which includes the drilling of one well and facility upgrades.

Pico International Petroleum is the operator on 37.25% with local player General Petroleum Company on

50%. The concession covers 26.2 square kilometres and sits in water depths of 27 metres.

There are two proven productive horizons on the concession that between them have to date produced 3.75

million barrels of light oil from two wells. The acreage sits between the Ramadan field and the Saggara

field.




Kosmos to Use ‘Maersk Discoverer’ Rig for Eagle-1 Well in Morocco Press Release Posted on Jan 3rd, 2014 = kosmos,

Kosmos Energy Ltd. has entered into a one well rig share agreement with BP plc and Maersk

Drilling for the semi-submersible rig Maersk Discoverer.

The rig is expected to begin drilling operations on the FA-1 (formally Eagle-1) exploration well in the Foum Assaka Offshore block in Morocco during the first half of 2014. Under the terms of the Agadir farm-out agreement with BP announced in October, BP will fund Kosmos’ share of the well costs, subject to an agreed maximum spend.

Constructed in 2009, the Maersk Discoverer is a sixth generation, ultra-deepwater, dynamically positioned semi-submersible rig capable of drilling to total depths of up to 30,000 feet, and operating in water depths of up to 10,000 feet.

Darrell McKenna, chief operating officer, said, “We are pleased to have finalized the rig share agreement

with BP and Maersk Drilling for this highly capable and efficient rig, currently working in the

Mediterranean region. In conjunction with our long-term rig agreement for the Atwood Achiever, we have

secured the required rig resources to execute on our exploration program beginning in 2014. Based on the

current schedule, we expect to spud the FA-1 well in the first half of the year and anticipate operations will

take approximately three months to complete.”

MÆRSK EXPLORER began drilling in the Caspian Sea in 2003 and since then we have optimised their

design and increased both drilling depth and production capacity. The newest rigs are capable of drilling

10,000 m (30,000 ft) into the sub-soil measured from the seabed. This makes the rig particularly well-

suited to drilling in deep and geologically complicated areas like the Gulf of Mexico




Recovery ahead? Fitch ratings upgrades Egypt to 'negative to stable' Published January 5th, 2014 - 03:55 GMT via SyndiGate.info (http://www.albawaba.com/business/egypt-economy-stability--544873 )

Fitch also kept short-term foreign currency credit at B.

Fitch Ratings raises Egypt's economic outlook from negative to stable however, the International

credit rating agency kept its long-term foreign and local currency sovereign credit ratings at B-, a

press release from Egyptian Finance Ministry said on Friday. Fitch also kept short-term foreign

currency credit at B.

It is the first time that Fitch upgrades Egypt's economic outlook since 25 January revolution. Fitch

said a relative improvement in the political situation, an availability of foreign currency and the

financial aids from gulf countries that alleviated pressures on the budget has helped improving

Egypt's outlook.

The agency also referred to the rise of Egypt's International reserves and a decrease of foreign

debt to 18.9 percent of the GDP. Fitch report mentioned that the increase of the public debt and

the high budget deficit are the main risks when evaluation the Egyptian economy.

Other rating agency, Standard & Poor's has raised its long- and short-term foreign and local

currency sovereign credit ratings on November, with a "stable" rating outlook as well.

Copper and oil slide, world equities dip http://uk.reuters.com/article/2014/01/04/uk-markets-global-idUKBRE9920LO20140104

Copper futures dropped on Friday on concerns over Chinese growth and as the U.S. dollar

strengthened, while crude oil extended recent losses and a global gauge of equities drifted lower.

Stocks were little changed on Wall Street, with low volume due in part to a snowstorm that blanketed the U.S. Northeast -including financial hubs New York and Boston. Federal Reserve Chairman Ben Bernanke said the U.S. central bank is committed to highly accommodative policy even after deciding last month to trim its bond-buying stimulus.

European shares rose, bucking a wave of risk aversion that swept across Asia, where stocks slid after a measure of activity in China's services sector slipped in December to a four-month low. At the closing bell in New York, the Dow Jones industrial average rose 28.64 points, or 0.17 percent, at 16,469.99. The S&P 500 dipped 0.62 points, or 0.03 percent, at 1,831.36. The Nasdaq Composite fell 11.16 points, or 0.27




percent, at 4,131.91. The benchmark FTSEurofirst 300 index rose 0.5 percent, and MSCI's index of equities in 45 countries was down 0.16 percent. Three-month copper dropped 1.1 percent to $7,315 (4,456.02 pounds) a tonne in its largest daily drop since December 2. "Chinese worries are playing into recent commodity weakness," said Jim Russell, senior equities strategist at U.S. Bank Wealth Management. "There is concern on the outlook for 2014, many think it will represent a step down in growth rate in China as compared to recent years."

He said strength in the U.S. dollar was also weighing on parts of the commodities complex, including oil. Expectations for a rise in Libyan supply and speculation of a buildup in U.S. stockpiles kept pressure on oil prices after they tumbled Thursday. U.S. crude fell for a fourth consecutive day and hit a one-month low, and Brent dipped after posting its largest daily drop since late June. "The sentiment is still bearish for sure, and I think Libya is still going to be the key driving factor," said Amrita Sen, chief analyst at consultants Energy Aspects.

U.S. crude was recently down 1.4 percent at $94.15 a barrel, and Brent fell 0.8 percent to $106.95. Spot gold rose for a fourth session to hit a two-week high as weaker equities spurred demand for the metal as a safe-haven asset. It was recently up 1 percent at $1,236.29 per ounce. U.S. Bank's Russell said that after a 28 percent drop last year some traders see value in gold, but "we think headwinds remain in place."

GREENBACK HOLDS RECENT GAINS

The yen was little changed near five-year lows against the dollar. The greenback last traded flat against the Japanese currency, at 104.78 yen, with a five-year high of 105.44 yen set Thursday in sight. The euro, the top-performing major currency of 2013, shed 0.6 percent against the yen, to 142.38 yen, following Thursday's more than 1 percent slide. Against the dollar, the euro lost 0.6 percent to $1.3591.

"You have a holiday week, which is always going to be pretty light on volume, and with most of the Northeast digging itself out of the snowstorm that has made activity especially light, even for a holiday week," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, D.C.

The greenback added 0.3 percent against a basket of currencies. U.S. Treasuries prices ticked down, with benchmark 10-year yields hovering near 3 percent, with no major economic releases due and investors cautious heading into a busy week that includes the release of December's payrolls report. The 10-year yield traded in its tightest range in three weeks.




NewBase Special Report

Russia 2013 oil output reaches post-Soviet high

Russian oil output likely stayed above that of Saudi Arabia, which kept production steady at around 9.7 million bpd in October and NovemberRussia, the world’s biggest oil producer, raised output to a post-Soviet era high of 10.51 million barrels per day (bpd) in 2013 buoyed by high prices and exports to China.

That was a rise of almost 1.4 per cent and took production to 523.276 million tonnes, Energy Ministry data showed on Thursday.The rise defied some predictions for a decline from aging oilfields in West Siberia, which together with natural gas sales generate over half of Russia’s state budget revenues.

December’s monthly production averaged 10.63 million bpd, also a post-Soviet high.

Last year, output grew at almost all of Russia’s large producers, which boosted drilling as oil prices stayed above $100 (Dh367) per barrel and increased by around $3 per barrel on the domestic market thanks to increased demand for refining. Lukoil, Russia’s second-largest oil producer and top non-state oil company, managed to halt a decline in production seen in the last three years.

Lukoil’s output rose by almost two per cent to 85.8 million tonnes. The data covers production only in Russia. The company expects to boost its overall output with the launch of Iraq’s West Qurna-2 oilfield this year. Rosneft, the world’s top listed oil producer after it acquired Anglo-Russian oil firm TNK-BP, produced an average of 3.1 million bpd in 2013.

Its Vankor oilfield in eastern Siberia increased output by more than 17 per cent to 21.4 million tonnes or 430,560 bpd, still below a target of 500,000 bpd. Vankor is a main source of Rosneft’s oil flows to China, which it agreed to almost triple in coming years from more than 300,000 bpd in 2012. China will likely replace Germany as the largest customer for Russian pipeline crude in the first quarter of 2014.




Russia increased oil supplies to China via the East Siberia-Pacific Ocean pipeline to 15.8 million tonnes from 15.1 million in 2012. Exports from the Pacific port of Kozmino reached 21.3 million tonnes in 2013 and are expected to rise.

Analysis on Russia’s oil production :

The Soviets went to great lengths to try to extract their vast reserves of unconventional oil. In the far north of Russia, near the Pechora river estuary, they even experimented with nuclear explosives. These only succeeded in fusing the sandstone into glass.

But decades later, Russia’s oil companies are far closer to figuring out how to harness the country’s shale riches.

The lion’s share of those reserves lie in the Bazhenov, a huge geological formation in the heart of Siberia about 2,000 miles east of Moscow. Experts believe that it could be one of the largest accumulations of shale oil on the planet. One estimate suggests that the dense rock could contain as much as 100bn barrels of recoverable oil, making it five-times larger than North Dakota’s Bakken shale, the engine of America’s oil renaissance.




Many in Moscow hope the Bazhenov will become the new mainstay of the national oil industry, offsetting declines in traditional oil-producing areas and ensuring that Russia remains one of the world’s largest crude exporters for years to come.

Maintaining oil output is critical to the Kremlin’s projection of Russian power. Moscow is heavily dependent on its oil revenues but conventional reserves are depleting. In 2010, the energy ministry warned that without big policy changes, particularly in the sphere of taxation, production could fall to 7.7m barrels a day by 2020 from 10.1m b/d in 2010. Shale is increasingly viewed as Russia’s potential salvation – the means to preserve output and, by extension, the country’s position on the global stage.

“In 20 years, the Bazhenov might be Russia’s main source of oil – even bigger than the Arctic oceans,” says Leonid Fedun, vice-president of Lukoil, the Russian oil major venturing into shale. “It allows us to be a lot more optimistic about the next 50 years of our oil production.”

Ever since US shale production took off during the past decade, oil companies have scoured the globe for fields that could replicate the success of the Bakken and other big US unconventional reservoirs. Geologists have touted Argentina’s Vaca Muerta (“Dead Cow”), and China’s Sichuan Basin as top contenders.

But in terms of sheer size, the Bazhenov eclipses them all. “It is bigger than the 10 to 15 next biggest shale plays combined,” says Tom Reed, chief executive of Ruspetro, a small London-listed oil company with 300,000 acres in the Bazhenov.

That has made it a huge draw for both Russian and western energy groups. Almost all the Russian majors – Rosneft, Gazprom Neft and Surgutneftegaz, as well as Lukoil, are exploring the area. Last year, Rosneft and ExxonMobil formed a joint venture to assess the commercial




potential of Rosneft’s 23 licence blocks in the Bazhenov, which cover more than 10,000 square kilometres.

And Russia is also beginning to tap the expertise of companies behind North America’s shale revolution. Mr Reed says Russian subsidiaries of oil service companies such as Baker Hughes, Halliburton and Schlumberger are shipping equipment, technology and drilling crews from the Bakken and the Eagle Ford in Texas to Siberia, in what is becoming a full-scale west-east technology transfer.

But much remains uncertain about the Bazhenov. Pioneers have complained about a lack of consistency: oil may flow from one well, while another drilled nearby can produce kerogen, a solid organic material that is a precursor to oil and gas.

“The key issue is maturation – is the Bazhenov mature as a source of hydrocarbons?” says Thane Gustafson, author of Wheel of Fortune, a history of the Russian oil industry. “If it isn’t, we may have to wait another few million years until it is.”

Lukoil’s experience reflects the challenges. Dmitry Belenikin, an engineer working at Lukoil’s Sredne-Nazymskoye field in the heart of the Bazhenov, says wells drilled there have recovery rates of only 4 per cent, compared with 30-35 per cent for a conventional oilfield. But over lunch of blinys and smoked muksun, a Siberian whitefish, he says that can easily be increased. “We’re just at the start of the process,” he says.

Sredne-Nazymskoye is deep in the Siberian taiga, a boggy wilderness of woods, lakes and swamps bisected by the mighty river Ob. Elks, wolverines and mink inhabit the dense forests of firs and pines. Conditions here can be brutal: winter temperatures fall to minus 40C while, in summer, the air is thick with midges and gadflies.

Mr Belenikin has a tough commute. He can only drive to the oilfield in winter when the Ob freezes. In summer, the only way in is by helicopter. It is an expensive way to travel.

And transport costs are not the only problem. The advanced technology needed to extract oil from the Bazhenov means wells can cost as much as $10m each, according to Lukoil – or about five times more than a conventional well. The key issue is maturation – is the Bazhenov mature as a source of hydrocarbons? If it isn’t, we may have to wait another few million years until it is

However, Russia’s swingeing taxes meant there was little incentive for producers to exploit such an expensive resource. According to Mr Reed, of every $110 barrel of Urals crude, producers pay about $55 in oil export duty and $23 in mineral extraction tax, leaving revenue of just $22 a barrel. “That’s pretty miserable,” he says.

This is finally changing, though, as the Kremlin pushes through generous tax breaks to kick-start the industry. Russia’s parliament recently granted a 100 per cent waiver of mineral extraction tax for companies operating in the Bazhenov and is now mulling over a cut in export duty as well.

That could increase revenues to about $60 a barrel and make the Bazhenov a lot more commercially attractive, Mr Reed says. Discovered by Siberian geologist Fabian Gurari in 1959, the Bazhenov was formed from the gradual build-up of plankton and other organic matter over 5m-6m years in an area that was once a deep marine basin.




Its dense shales were the source rock of 85 per cent of western Siberia’s conventional reserves – supergiant oilfields such as Samotlor, which powered the Soviet Union’s transformation into a leading oil exporter in the 1970s.

As in other shale fields, oil companies were deterred by the Bazhenov’s low porosity and permeability, meaning fluids do not flow freely through the rock. “Think of a cement block – that’s what shale is,” says Richard Anderson, chief financial officer of oilfield services company Eurasia Drilling Co. “You need to crack that open to get the oil out.”

Some oil has been produced from the Bazhenov, but it is a paltry amount – just 40m barrels of oil, according to Michael Moynihan, a Russia analyst at energy consultancy Wood Mackenzie. That compares with the 75bn barrels that have been extracted from west Siberia’s conventional reservoirs. “It’s a drop in the ocean,” he says.

But Russian experts eventually realised the area had a lot more potential than previously thought. What convinced them were events across the Atlantic.

By the end of the last decade, it was clear that the North American energy industry was undergoing a revolution. Techniques such as horizontal drilling and fracking – the practice of blasting water, sand and chemicals deep underground to create fractures in the shale rock – opened up vast reserves of natural gas and, later, oil that were previously considered uncommercial.

Production boomed and US gas prices fell to 10-year lows. Oil output also soared, with production from the Bakken alone rising from 100,000 barrels a day five years ago to more than 1m b/d in 2012. That same year, US oil output rose by the largest annual amount since crude oil began to be pumped commercially there in 1859.

Russian oil companies looked at developments in the US with a mixture of fear, awe and envy. As US output grew, Russia’s was stagnating: production growth slowed sharply, despite a rapid rise in company spending. According to Mr Gustafson, Russian output rose 35 per cent between 2001 and 2005, and by only 5 per cent between 2006 and 2010 – despite a fourfold increase in investment over the same period.

Russian engineers began to see that they could stop the rot by applying the same pioneering techniques used in the US to produce oil from Russia’s own tight oil formations. These hard-to-




extract unconventional reserves are found in areas such as the Achimov in the far north of Siberia, the Domanik in the Volga-Urals region – and the Bazhenov.

Russian politicians have drawn the same conclusions: President Vladimir Putin has said tight oil could add 0.8m-2m b/d to Russian oil production after 2020. Drilling in these fields has one big advantage: Russians have been pumping oil from conventional wells in the same areas for decades, so much of the infrastructure is already in place.

“In Russia, the geological reserves are located in fully equipped oilfields, where there are oil-processing facilities, pipelines, cities, roads and drilling crews,” says Lukoil’s Mr Fedun. “These are areas where oil has been produced for the last 50 years.”

Also, unlike many European countries with shale resources, Russia has little environmental opposition to fracking – especially in Siberia, a thinly populated region where many rely for their livelihood on the oil industry.

Indeed, some have argued that producing from Russia’s large onshore unconventional fields makes far more sense than venturing into the offshore Arctic, the country’s other great oil frontier, which presents myriad technical and logistical challenges. Mr Fedun has said he would not invest a “kopeck” in such a risky environment.

Still, many factors will need to fall into place for large-scale production to take off. Although western Siberia is one of the cradles of Russian oil, some experts believe that the industry infrastructure used for conventional reserves will need to be expanded considerably for the requirements of the shale business.

“Russia wants 440,000 b/d of production from tight oil formations by 2020, which implies 200 rigs,” says Mr Anderson of Eurasia Drilling. “But they’ve only got two there now.” He says building the roads, railways and rolling stock to deliver fracking equipment and chemicals to the wellhead could take years. “The resources aren’t there yet to blanket drill,” he says.

Mr Anderson says any meaningful production from the Bazhenov and the country’s other great unconventional fields is “many years away”. But there is still a high degree of confidence that, with the right imported technology, Russia will soon have its own homegrown shale sector.

Mr Gustafson says Russia has a long history of following the US lead, particularly in technical innovation. “When the US first used a nuclear bomb, the Russians realised it could be done and they did it too,” he says. “It will happen the same way here.”

Fracking in Russia – a matter of pride

Russian oil men are proud of their technological achievements. In fact, many claim that fracking was actually invented in the Soviet Union by the geologist Yurii Zheltov, who carried out experiments with the technique in the 1950s and 1960s. Most in the west believe that the first commercial fracking work was performed in Kansas in 1946.

But the use of it only really took off in Russia in the late 1980s when Ron Bullen, an oilman from Alberta and head of Canadian Fracmasters, convinced the Soviet oil ministry to allow him to frack some oil wells in west Siberia. According to Thane Gustafson, an expert on Russia’s oil industry at Georgetown University in the US, the results were so impressive that they led to one of the first joint ventures of the Gorbachev era.




Today, Dmitry Belenikin, a Lukoil engineer, has to devise a way to coax oil out of the notoriously unyielding Bazhenov shale in Siberia. “Shale oil is the hardest oil to extract,” he says. “It’s in a bound state, the fractures are small and the oil doesn’t move. But we’ve come up with a technology to get it out.”

At two sites on Lukoil’s Sredne-Nazymskoye field, a mixture of air and water is pumped down a well at high pressure, setting off a chemical reaction that heats the shale formation to 400C. This expands the rock’s fractures and reduces the oil’s viscosity, allowing it to flow to nearby production wells.

Mr Belenikin’s previous job was on the mature, conventional oilfields of the Volga region, one of the old heartlands of the Russian oil industry. Despite the hardships of life in Siberia, he still prefers working on the Bazhenov. “We’re using real cutting-edge technology here,” he says.

Russia’s companies hope the latest fracking technology imported from the west can unlock the country’s vast tight oil reserves, particularly in the Bazhenov. They are looking to service companies such as Baker Hughes, Schlumberger, and Halliburton for help. “The real expertise has to come from those guys,” says Richard Anderson, chief financial officer of Eurasia Drilling Co, a big Russian oil services group. “It takes phenomenal resources to frack a well.”




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Khaled Malallah Al Awadi, MSc. & BSc. Mechanical Engineering (HON), USA ASME member since 1995 Emarat member since 1990

Energy Services & Consultants Mobile : +97150-4822502

[email protected] [email protected]

Khaled Al Awadi is a UAE National with a total of 24 yearsKhaled Al Awadi is a UAE National with a total of 24 yearsKhaled Al Awadi is a UAE National with a total of 24 yearsKhaled Al Awadi is a UAE National with a total of 24 years of experience in theof experience in theof experience in theof experience in the Oil & Gas sector. Oil & Gas sector. Oil & Gas sector. Oil & Gas sector.

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routes. Maroutes. Maroutes. Maroutes. Many years were spent drafting, & compiling gas transportation , operation & maintenance agreements ny years were spent drafting, & compiling gas transportation , operation & maintenance agreements ny years were spent drafting, & compiling gas transportation , operation & maintenance agreements ny 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 along with many MOUs for the local authorities. He has become a reference for many of the Oil & Gas Conferences along with many MOUs for the local authorities. He has become a reference for many of the Oil & Gas Conferences along with many MOUs for the local authorities. He has become a reference for many of the Oil & Gas Conferences

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NewBase 05 January 2014 K. Al Awadi

new base special 05 january 2014

Economy & Finance