Feature Stories Asia-Pacific Europe/FSU Americas General Tables

Print Tuesday, May 31, 2016

In This Issue: Feature Stories Feature Stories Saudis in Spotlight Ahead of Opec Summit Saudis in Spotlight In the run-up to Thursday's Opec meeting, all eyes are on Saudi Arabia, the Ahead of Opec Summit group's most influential member, in an attempt to gauge how the kingdom's Clock Ticks on Gulf potentially seismic internal transformation will impact decision making in Keystone Rescue Deal Vienna. Five Things to Watch for At the Jun. 2 gathering, there is a good case for renewing the current policy, at Opec which is effectively a decision to take no action for another six months, multiple Indian Refiners Move to Opec delegates tell International Oil Daily. Ramp Up Iran Imports Saudi Opec policy is intertwined with Saudi Arabia's Vision 2030, an overhaul of Brent at $50 Proves the Saudi economy launched by Deputy Crown Prince Mohammed bin Salman Polarizing this year to make it less reliant on oil by the end of next decade. China Gives Shale Unexpected twists have already happened: the Saudis torpedoed a high-profile Novices Another Year deal between Opec and non-Opec to freeze production in April, allegedly due to Deliver to a last-minute intervention by Prince Mohammed (IOD Apr.19'16). Interview: Bowleven Considers Kenyan The latest forecasts from the secretariat shows oil markets, which have been Future chronically oversupplied for almost two years, finally moving into balance by the second half of 2016, according to the outcome of Opec's Economic BP Keeps Faith in Commission Board meeting, also held in Vienna, last week. Azerbaijan Oman Takes Shine to "No action needs to be taken," said one delegate, cautioning that this view had Solar EOR been formed just from interpreting the data. The real decision will be taken on Thursday, and there has been an unusual lack of comment from any of the 13 Oil Closes Week Short Opec ministers so far. of Psychological Milestone The most closely watched words will come from the mouth of Saudi Energy Asia-Pacific Minister Khalid al-Falih, who will lead the Saudi delegation to an Opec meeting for the first time after replacing 20-year veteran Ali Naimi earlier this month Northeast Asian LNG (IOD May10'16). Al-Falih is a technocrat, who served, like Naimi, as Aramco Imports Decline Again chairman, but his Opec mandate as minister is yet unclear. Europe/FSU "It is not easy to predict the Saudis," said a Gulf Opec delegate. Russian Sanctions Standoff Heats Up There is a good case for al-Falih to take a low profile at the meeting, said the Gazprom Neft Eyes New Gulf delegate, and reach a decision without rocking oil markets, which saw Foreign Projects prices briefly crest $50 per barrel last week, up from lows of below $30/bbl earlier in the year. Maersk Buys Rig for UK Offshore When he became energy minister, al-Falih promised to maintain "stable petroleum policies," which suggested no major break from a traditional Saudi Americas pursuit of stable prices and balanced fundamentals, with limited impact from Petrobras Drives Presalt geopolitics, under Naimi. Lifting Costs Lower

IO160531.htm[30/05/2016 10:36:55 AM] But the recent Doha debacle means nothing can be taken for granted, General particularly if Saudi Opec policy turns more political (related). Editor's Note - Memorial Day, Spring Bank There is confusion about the most basic tenets of Saudi objectives: Does the Holidays kingdom want higher prices, like many Opec members, to give its treasury some relief after 22 months of pain? Tables

Or does it not mind prices being a bit lower to prevent a big return of US shale Oil and Gas Prices, May production, which flooded the market during the years of $100 crude, while at 27, 2016 the same time helping achieve Prince Mohammed's diversification away from Equity Markets, May 27, oil? 2016

There are also questions about whether Saudi Arabia plans to hike output. Al- Falih says Saudi officials are aware of the risks of peak demand, and Aramco executives say they see Saudi production ticking up next year.

The kingdom pumped at record highs in 2015, averaging 10.2 million b/d, Aramco said in its annual report released this week (IOD May27'16).

"Expanding oil and gas supplies to meet the needs of domestic and international markets is at the core of Saudi Aramco's business, and in 2015 the company delivered on its commitments," al-Falih said in the review.

The company replaced all the oil it pumped last year to keep reserves at 261.1 billion barrels, on the back of discoveries at Faskar, in the Mideast Gulf near the Berri field; Janab, east of the supergiant Ghawar field, and Maqam, in the eastern Rub al-Khali.

Alex Schindelar, London

Clock Ticks on Gulf Keystone Rescue Deal A late -- and inadequate -- payment for crude oil exports has made Kurdistan- focused explorer Gulf Keystone's fight to stave off bankruptcy that much harder. The London-listed company is holding last-ditch talks with bond creditors to agree a rescue plan by a fast-approaching May 31 deadline.

The UK independent announced Friday it had received $6 million from Iraq's Kurdistan Regional Government (KRG) for sales from its 40,000 barrel per day Shaikan field in April. But this is less than half the $15 million per month supposedly guaranteed under a Mar. 16 payment agreement with the KRG.

"The balance is expected to be paid shortly," Gulf Keystone said.

Gulf Keystone's debts stand at around $600 million. The KRG has its own immense finance challenges, with government salaries months in arrears. But the underpayment for April sales sends a strongly negative message to potential Gulf Keystone rescuers at the worst possible time.

The company's shares closed down 4.6% at under five pence (7¢) Friday, valuing it at around £47 million ($69 million). The stock was trading as high as 415 pence in February 2012.

Two rescue options are on the table -- a rescheduling of the debt payments, or bond creditors accepting the conversion of debt into equity.

The KRG's Ministry of Natural Resources, which has consistently pushed to limit upstream equity investment to oil companies, could well resist the second option, notes one source.

Under founder Todd Kozel, who stepped down in 2014, Gulf Keystone earned a reputation for corporate excess, even as complex Kurdish geology meant Shaikan was never going to yield ultra-cheap oil.

Furthermore, the company made a wrong move in taking 20% alongside Mol in the ill-fated Akri-Bijeel development. The partners poured $1 billion into the

IO160531.htm[30/05/2016 10:36:55 AM] block before the Hungarian firm decided to cut its losses and pull out earlier this year (IOD Jan.12'16).

However, testimony from several sources points to a major improvement in corporate governance at Gulf Keystone following the management changes implemented over the last 18 months.

And Shaikan does have significant upside. An estimated $88 million is needed to expand production to 55,000 b/d, while the field boasts estimated proved plus probable reserves of over 600 million bbl (IOD Oct.2'15). After relinquishing its interests in Akri-Bijeel and the Ber Bahar Block, Gulf Keystone's assets are limited to Shaikan and an 80% operated stake in the Sheikh Adi Block.

Meanwhile, the KRG's two other main operators -- Norway's DNO and Anglo- Turkish Genel Energy -- also announced April payments had been received. But here, too, the funds arrived late and were less than half what was invoiced for.

The KRG paid the pair, which are partners at the Tawke Block, a combined $16 million following April output of 119,000 b/d, of which 117,815 b/d was exported. This compares to the $32.3 million billed.

Taq Taq partners Genel and Addax received $11 million for April sales of 67,000 b/d, compared with $22.45 million invoiced. Taq Taq production has been trending lower at around 60,000 b/d this month, sources say (IOD May27'16).

Rafiq Latta, London

Five Things to Watch for at Opec Even if it is not immediately apparent at Opec's Jun. 2 meeting, Khalid al-Falih, Saudi Arabia's new energy minister, will bring change to both the kingdom's oil and Opec policies. Here are some potential shifts to watch out for at the Vienna gathering:

• Despite the presentation of business as usual, Saudi Arabia's new oil leadership brings a different perspective of Opec's role and Saudi Arabia's relationship with the producer group. Al-Falih's portfolio, overseeing the wider Saudi economy, as opposed to his predecessor, Ali Naimi, who had direct responsibility just for oil, will inevitably reorder policy priorities, including attitudes to Opec.

This is not to say that Opec doesn't matter to the Saudis -- it still plays a role in defining and magnifying their place in the world. But there has been a shift in generation, to one that is less defined by the political and resource nationalism of the 1970s. In parallel, the focus of Saudi economic policy has shifted tectonically, with the reform of Saudi Arabia's own economy clearly at the top of the agenda. Will the Saudis consolidate the shift in Opec away from market management, toward a more functional "coordinating agency" -- to use al- Falih's words from earlier this year? This may be a slow trend that is only visible in the rearview mirror.

• The emergence of a more assertive market policy by Saudi Arabia. This is already evident in places like northern Europe and China, but will it accelerate? This could see more focus on gradually building crude and product sales, and less on the protection of global market balance and maintenance of spare capacity.

• A shift away from Naimi's depoliticization of Opec. Al-Falih's key political sponsor, the young Deputy Crown Prince Mohammed bin Salman, who also heads the defense ministry, appears to be more comfortable mixing oil and politics. The rivalry with Iran, which increasingly defines the Saudi perspective on regional politics, could start to become more evident in Opec dynamics.

IO160531.htm[30/05/2016 10:36:55 AM] • On the other hand, with Prince Mohammed now clearly in charge, Saudi Arabia may simply see no point in making waves, and instead focus on domestic policy. In this scenario, it won't show great leadership at Opec, but equally won't stir things up.

• A reorganization of the oil ministry reflecting al-Falih's broader mandate. Naimi was content having Saudi Aramco run many ministry functions -- research and planning, for instance. While the timing of any such changes is unknown, and it is unclear whether the ministry's Opec team will be affected, al-Falih could well launch a major restructuring.

And here are four "wild card" scenarios for the meeting -- which may not be likely, but are no longer beyond the realms of possibility, especially after the Doha debacle:

• Saudi Arabia openly declares a new policy, focused on the more aggressive pursuit of market share, or a new vision of Opec's role.

• Iran voices acceptance of an output freeze, albeit not at January's low levels. This could seize the initiative from Riyadh, potentially presenting the new minister with a very awkward decision.

• Other members, seeking to exploit perceived Saudi weakness created by Naimi's departure, mount a concerted push to overrule Riyadh's reluctance to participate in any coordinated Opec production action.

• The meeting collapses in complete disarray, without agreement on a rollover, a new secretary-general or anything else.

Staff reports

Indian Refiners Move to Ramp Up Iran Imports State refiners Indian Oil Corp. (IOC) and Hindustan Petroleum said Friday they are working to raise crude oil imports from Iran to a possible 140,000 barrels per day between them in the current financial year, as the challenges in arranging insurance have eased and a previous Turkish payment channel has been revived (IOD May5'16).

IOC, which along with its subsidiary Chennai Petroleum Corp. owns 1.61 million b/d of crude-processing capacity, or 35% of India's total installed refining base, will buy at least 80,000-100,000 b/d from Iran this year, the company's finance director, A. K. Sharma, told reporters. That compares with the 24,000 b/d it imported in the last financial year ended Mar. 31.

Smaller peer Hindustan Petroleum, which has refining capacity of 296,000 b/d, will import up to 40,000 b/d from Iran this year, versus zero last year, its refineries director, B. K. Namdeo, told journalists. He said that the imported crude would be shared with its subsidiary HPCL-Mittal Energy, which operates a 180,000 b/d refinery in Bathinda in the northern Indian state of Punjab.

Both firms said they are yet to finalize term oil deals with Iran for the current financial year.

Iran is looking to Asian refiners to absorb its barrels as it ramps up crude oil exports to pre-sanctions levels. India imported 232,000 b/d of crude from Iran from April 2015 to February 2016, Indian Oil Minister Dharmendra Pradhan told Parliament last month. The biggest buyer of Iranian crude in India is Mangalore Refinery and Petrochemicals, followed by Essar Oil.

A National Iranian Oil Co. official believes the volumes are much higher now, telling International Oil Daily in April that the Islamic republic had ramped exports to India up to 400,000 b/d but wanted shipments reach a monthly average of 500,000 b/d (IOD Apr.13'16).

Namdeo said Hindustan Petroleum had stopped oil imports from Iran in 2012 as

IO160531.htm[30/05/2016 10:36:55 AM] it faced difficulties in getting insurance for its refineries. But with the lifting of sanctions on Tehran in January, European insurers are now more willing to cover cargoes.

Furthermore, Turkey's Halkbank is again processing payments in euros after stopping in 2013 (IOD Nov.15'13). IOC Chairman B. Ashok told reporters the New Delhi-based firm had dues worth $500 million on crude oil purchase from Iran, which couldn't be paid due to sanctions. The refiner has already paid $250 million in euros via Halkbank and will clear the rest shortly.

Hindustan Petroleum Chairman M. K. Surana said his company had dues to Iran worth $23 million on oil payments and it has now started clearing those, also via Halkbank.

Rakesh Sharma, New Delhi

Brent at $50 Proves Polarizing Brent futures topped an important psychological mark May 26, reaching $50 for the first time in seven months, only to quickly back down to more comfortable levels in ensuing trade (IOD May27'16).

That marks a 78% rebound from lows touched in February, but market consensus is increasingly split over price direction during the second-half of 2016.

As one trader put it, "the market is signaling that the rebalancing process is under way and yet trades as if it doesn't want the oil on offer."

Speculation over future shortages, fueled in the beginning by talks of an Opec/non-Opec output "freeze" and then given credence by a spate of outages from Kuwait to West Africa to Canada, played a large part in lifting Brent out of its $30 trough.

Along the way, financial traders, or "managed money" as defined by ICE and Nymex, helped the price increase by covering short positions that bet on lower prices through buying futures.

An increasing proportion of the trading community thinks prices will continue to go higher, reaching toward $60 in the second half of the year as the surplus and non-Opec production continues throttling back.

On the other hand, that forecast raises a key question of whether higher prices will revitalize non-Opec production -- mainly US shale producers -- and in turn threaten to undo Opec's efforts since November 2014 to squeeze marginal barrels out of the market.

"With producers able to lock in even higher prices by hedging further out on the forward curve, the risk is that US shale producers start to bring back spending and drilling more quickly than otherwise expected," Societe Generale analyst Mike Wittner said in a research note.

Those predicting more downward pressure on oil prices -- perhaps back down to $40 -- also point to the apparent Saudi commitment to put more oil on the market (IOD Apr.19'16). That would preserve market share amongst fellow Opec competitors, as well as caps gains on prices to prevent reinvestment from non-Opec producers.

"While prices that rise 'too high, too quickly' would be good for Opec producers in the short term -- especially the ones that are most financially stressed -- it would not be good in the long term. Saudi Arabia is aware of this risk," Wittner added.

Those in the bearish camp also point to the record overhang of crude stocks, which apparently has been shrugged off in the march to $50.

IO160531.htm[30/05/2016 10:36:55 AM] Another bearish indicator is the persistence of discounts for delivery of prompt crude versus the following month, which have actually deepened recently in Brent to 60¢/barrel from 30¢ in mid-May, suggesting there is plenty of crude that is unspoken for despite the numerous outages.

As interruptions manage to come back on line -- especially light, sweet grades from Libya and Nigeria that price themselves off Brent -- it could weigh on prices.

One thing in common with both sides of the market is that the bets are being structured around two main pillars: the ability of financially bruised non-Opec producers to bounce back and the ability of the Saudis to ramp production even higher to hold on to market share.

Ian Stewart, New York

China Gives Shale Novices Another Year to Deliver China's upstream watchdog, the Ministry of Land and Resources (MLR), has decided to extend the licenses granted to 16 inexperienced companies in the country's second shale gas bid round by another year (IOD Dec.6'12).

The decision, which follows a review of the initial three-year exploration period after the licenses were awarded in late 2012, is ostensibly to allow the companies more time to fulfill their investment obligations in the tough operating environment.

It may be an acknowledgement that China's shale is complex but also that few other investors would have the patience to persevere with it in the current low- price environment.

China -- massively impressed by what the North American shale gas revolution did for US energy security -- retains big ambitions for shale gas despite slow progress so far. It aimed to reach shale output of 6.5 billion cubic meters last year, but only 5 Bcm was produced -- most of it from Sinopec's Fuling project.

The MLR had earlier been expected to either ask the second-round winners -- domestic firms, including utilities like China Huadian Corp., with no prior shale experience -- to give their blocks back, or even to reduce the size of their acreage due to limited prospectivity or their failure to make the required investment (IOD Jan.18'16).

The 16 winners of 19 blocks pledged to invest a total 12.8 billion yuan ($1.95 billion) in the three years ending March 2016. The MLR had earlier set a minimum investment requirement of 30,000 yuan per square kilometer annually, with two wells to be drilled every 500 sq km of land.

But an MLR official told International Oil Daily investment made by the firms so far only represents a small share of what had been committed -- just 20% of the total requirement on average. One company has invested just 9% of what it promised to, while the biggest spender has only stumped up 35%.

The ministry has decided to give the firms a one-year grace period, extending the licenses until March 2017, so they will have extra time to fulfill their exploration commitments, the MLR official said.

"Companies will face penalties and be given fines if they fail to live up to the investment commitment by the new deadline," the source warned, reiterating an earlier threat.

He explained that the bid winners had been unable to finance the exploration, leading to lower-than-expected spending. Exploration has also been slow because the companies lack skills and technology, he added.

Other industry officials said uncertainties over the geology of the blocks have forced companies to think twice about whether to continue exploration, with

IO160531.htm[30/05/2016 10:36:55 AM] some even considering farming out some of their interests in order to share the investment and risk.

But they could struggle to find other takers for the blocks after their well- publicized difficulties, as could the Chinese government.

International investors have retreated en masse from China's unconventional sector, with Royal Dutch Shell recently confirming it will not follow through with its Fushun-Yongchuan shale project, which straddles Sichuan and Chongqing, alongside PetroChina.

BP bucked the trend by signing a production sharing contract for a Chinese shale block earlier this year (IOD Apr.1'16).

Despite the disappointment of the first two bid rounds -- the first auction saw just two blocks awarded that have made little progress, for which Sinopec later received a fine -- a third shale gas licensing round is still on the agenda, the MLR official told IOD (IOD Nov.4'14).

Instead of allowing individual provinces to launch their own auctions as earlier discussed, the MLR will take the lead on the third round. Some 20-30 blocks have been earmarked to be offered to domestic firms in southwestern regions such as Sichuan, Chongqing and Guizhou, later this year (IOD Apr.27'16).

"We are still looking at the blocks and bid could come out in the last quarter," the source said.

Staff reports

Interview: Bowleven Considers Kenyan Future UK independent Bowleven is uncertain about its future in Kenya as it debates whether to relinquish its interest in an onshore exploration block in the East African country, its chief executive, Kevin Hart, told International Oil Daily in a recent interview.

Bowleven farmed into Kenya's Block 11B in late 2012 and its subsidiary Bowleven (Kenya) holds a 50% stake alongside operator Adamantine Energy. But the first license phase expires at the end of May.

"We really need to make a decision along with the government if we are going to move it to the next stage," Hart told IOD on the sidelines of the recent Africa Independents Forum in London. "We may relinquish the block. We should know more in the next month or so. We are still reviewing the data."

Bowleven said at the end of March the second phase of Block 11B would include a drilling and financial work program commitment. It said the exploration costs incurred so far were $11.8 million but reduced the recoverable amount of the asset to zero.

The oil price downturn has made it challenging for African independents to source financing from capital markets, which has slowed down exploration and hindered project development. Farm-out deals are one way for them to source capital but deals have been slow since potential buyers are also trying to preserve cash.

Bowleven itself pulled out of a $24 million farm-in to UK-based junior Aminex's gas interests in Tanzania earlier this year (IOD Feb.2'16).

"Normally, when you're looking at a farm-in deal you don't announce it until it's done," Hart said. "For reasons of their own making, Aminex wanted to make the announcement at the point that we said we wanted to look at it."

After completing its due diligence, Bowleven decided the deal with Aminex "wasn't for them" and did not pursue it. "It's a bit like saying 'I'd like to buy your house,' you do the survey and you decide, 'No, it's not for me' -- it's as simple

IO160531.htm[30/05/2016 10:36:55 AM] as that," Hart explained.

Elsewhere in Africa, Bowleven is involved in the shallow-water Etinde permit offshore Cameroon, its main focus country, that reportedly has gas and condensate reserves of 345 million barrels of oil equivalent.

Last year, it reduced its stake in the permit from 75% to 25%, selling down to Russia's Lukoil and New Age Energy. The partners plan to drill two appraisal wells there in the first quarter of 2017.

Bowleven also has 100% equity in the Bomono permit onshore Cameroon and is currently looking for farm-out partners to fund further development.

Stacy Irish, London

BP Keeps Faith in Azerbaijan As it continues to rebuild its upstream portfolio in the aftermath of the 2010 Macondo disaster, BP is focusing as keenly as ever on Azerbaijan, a country which accounts for as much as 10% of the UK major's global capital expenditure and 5% of its crude oil output.

During a visit to Baku last week by a heavyweight delegation, led by BP Chief Executive Bob Dudley and Chairman Carl-Henric Svanberg, the company signed a memorandum of understanding with Azeri state oil firm Socar to explore for oil and gas at the D230 Block in the Caspian Sea. The deal gives BP exclusive rights to negotiate a production sharing contract (PSC) for the area, which -- if signed -- would be its sixth in Azerbaijan in over 22 years.

BP's priority in the country, however, is not to carry out more exploration work but to deliver the full potential of its two flagship projects in the Caspian -- the sprawling Azeri-Chirag-Guneshli (ACG) oil complex and Shah Deniz, the key gas supply base for Europe's Southern Corridor. BP operates both on behalf of international consortia.

ACG, the first Azeri PSC signed by BP in 1994, which was dubbed the "Contract of the Century," is now producing around 650,000 barrels per day of crude from the three fields -- almost all of which is pumped to the Turkish Mediterranean port of Ceyhan via the Baku-Tbilisi-Ceyhan pipeline, and then sent to markets.

With just eight years left of the lucrative contract, production, which was over 800,000 b/d in 2010, is starting to decline. BP has tried to persuade Azeri President Ilham Aliyev -- the former No. 2 at Socar -- to extend the PSA by up to 20 years, arguing that it could recover at least 3 billion extra barrels of oil from the 9 billion bbl reservoir.

Its appeals have so far been to no avail, even with Azerbaijan's hydrocarbon- dependent economy left reeling by the oil-price collapse and calling in the World Bank and the International Monetary Fund for support (IOD Sep.23'15; IOD Feb.1'16).

Bucking the worldwide trend of shrinking capital expenditure in the low-price environment, Shah Deniz is seeing massive investment in a Phase 2 expansion. If all goes to plan, this will see the field producing an extra 16 billion cubic meters per year of gas by the end of the decade on top of the current 9 Bcm/yr. All the gas will be exported to Europe and Turkey via the Southern Corridor (IOD May18'16).

Shah Deniz-2 is making steady progress and -- in terms of engineering, procurement and construction -- is more than 70% complete, according to BP.

Last year, the Shah Deniz partners, which also include Socar and Malaysia's Petronas, spent $4.37 billion on the project, and forked out another $928 million during the first quarter of this year.

IO160531.htm[30/05/2016 10:36:55 AM] Including investment in construction and upgrades of export pipelines, the entire cost of the Southern Corridor scheme is put at some $45 billion, making it of one the world's largest ongoing megaprojects.

Paul Sampson, London

Oman Takes Shine to Solar EOR Tightening natural gas supplies, partly driven by the utilization of gas-intensive enhanced oil recovery (EOR) operations, are pushing Oman to target solar- powered steam generation as a key alternative to forcing more crude out of the ground, key industry officials said.

Oman, which is already reliant on imports to meet gas demand growing at over 5% per year, can't afford to keep allocating so much gas to power EOR. Around 22% of its gas -- 25.6 billion cubic feet (725 million cubic meters) in March -- is used in oil fields, according to data from Oman's National Centre for Statistics and Information.

The sultanate must also consider soaring demand from its domestic power and industrial sectors -- 95% of Oman's electricity is generated from gas.

Raoul Restucci, the managing director of state-controlled Petroleum Development Oman (PDO), summed up the upstream challenge. "Half the portfolio of PDO is heavy oil," he said. "Most of that will require thermal activity, thermal processes. If you want to deliver that oil there is no alternative."

But today, solar is "quite competitive,” he added.

PDO -- in which the government holds 60%, Royal Dutch Shell 34%, Total 4% and Partex 2% -- has brought in US firm GlassPoint to build a giant solar-steam generator to help with EOR. A successful pilot scheme led to the sanctioning of the commercial-scale Miraah solar plant in remote southern Oman.

The $600 million, 1 gigawatt solar plant, the largest of its kind, will produce 6,000 tons of steam per day from 36 glasshouses to recover heavy and viscous crude from the Amal oil field and is expected on stream before the end of 2017 (NE Apr.14'16).

"A steam generator will give you 75%-80% uptime, if it runs well," Restucci continued. "We ran a GlassPoint pilot project for the last two years at close to 99% uptime, no matter what Shamals [sandstorms] hit the station day in, day out. It works, it's competitive. There's no alternative."

GlassPoint's chief executive, Rod MacGregor, says Oman has one of the world's best solar resources, with summer to winter intensity variations of only around 20% compared with 300% in the company's home state of California.

PDO sees its production mix in 2025 broken down into 28% tertiary, or EOR, 39% secondary and 34% primary, Restucci said in March (IOD Mar.22'16).

The main hurdles for increasing adoption of solar EOR are the relatively high costs and the fact that it is a nascent technology. Nevertheless, those challenges are being surmounted, according to MacGregor.

"The cost ... really depends on scale," he said. "That's one of the reasons working with PDO we did such a giant project, is to drive that cost down.”

It is hoped GlassPoint initial success can be expanded and replicated elsewhere in the sultanate.

"Generating steam from solar is proven and it needs to be pushed harder," said Salim al-Aufi, undersecretary at Oman's ministry of oil and gas. "PDO has taken a stab at it and they are pioneering."

Occidental Petroleum, which along with PDO accounts for over 70% of Oman's near 1 million barrels per day of oil production, is also "looking at it very

IO160531.htm[30/05/2016 10:36:55 AM] seriously," al-Aufi said. "Other projects as well that will need steam, I'm sure they will be looking at solar as an alternative for steam generation."

Oxy's operations are currently focused on the 120,000 b/d Mukhaizna heavy oil project on block 53 in south-central Oman as well as the Safah and Wadi Latham fields and Block 62 in northern Oman (IOD Jan.26'16). The company wasn't immediately available to comment.

Iain Packham, Muscat

Oil Closes Week Short of Psychological Milestone Oil futures backed further away from the $50 mark on Friday, slipping ahead of a long weekend in the US in what some traders described a temporary setback on a journey to higher prices.

"You get up to this level and people just jump in and sell," said Mark Waggoner of Excel Futures. "They are long and they're going to take profits."

The fact that the world's largest economy is headed into a holiday weekend has thinned volumes and made traders even more cautious, he added.

But, ultimately, crude must rise past $50 to keep several producing companies - - not to mention countries -- solvent.

"The price has got to be high enough for these guys to get back in the field, and that's well past $50," Waggoner said.

Crude had flirted with a settlement above $50 earlier this week, but ended up drifting lower (IOD May27'16).

In London on Friday, Brent crude for July delivery settled down 27¢ at $49.32 per barrel.

In New York, July Nymex West Texas Intermediate (WTI) was down 15¢ at $49.33/bbl.

Front month Brent was up 60¢ for the week, while US benchmark WTI posting a weekly gain of $1.58.

While some traders and analysts seem assured that broader risk sentiment and a series of outages in Nigeria and Canada will propel crude higher, others warn that the fundamental picture has not changed enough to warrant a run past $50.

"Speculators are clearly very cautious at these price levels. Canadian production is coming back but Nigerian militancy is a worry," PVM Brokerage's David Hufton and Tamas Varga said.

They also noted that Saudi Arabia might actually decide to dump more crude into an already oversupplied market at the upcoming Opec meeting in Vienna (related).

Meanwhile, the US dollar has been rising as an interest rate hike from the US Federal Reserve becomes increasingly likely.

A strong dollar tends to undermine oil prices by making the commodity more expensive, many analysts say.

Frans Koster, New York

IO160531.htm[30/05/2016 10:36:55 AM] Asia-Pacific Northeast Asian LNG Imports Decline Again Northeast Asian LNG imports in April failed to sustain a rebound seen in the previous month, sinking 4.7% year-on-year to a total 10.4 million tons, according to government data.

Heavyweight buyers Japan and South Korea both posted declines that outweighed a sustained upswing in Chinese imports. The world's second- largest LNG importer took 642,000 tons less for a 22.8% on-year decline to 2.2 million tons in April. Top importer Japan saw April imports fall 3.3% on-year to reach 6.4 million tons.

Chinese LNG imports in April jumped for the seventh consecutive month, up 22.4% on-year to reach 1.9 million tons. Piped gas imports also jumped, by 30.9% on-year to 2.8 million tons of LNG equivalent, or around 3.8 Bcm (IOD Apr.28'16). Europe/FSU Russian Sanctions Standoff Heats Up The sanctions standoff between the West and Russia intensified on Friday, with G7 nations insisting on an extension of measures aimed at Russia for its role in the Ukrainian conflict and Moscow announcing hours later it was prepared to prolong its embargo on Western foodstuffs until the end of 2017.

The hard-line stances suggest that any hope for sanctions relief, which Moscow and some of its European allies are hoping for two years after the first punitive measures were introduced, would seem to be elusive at this stage.

This, in turn, signifies that sanctioned Russian energy companies will continue to encounter difficulties raising capital in Western markets and procuring key technologies for deepwater and unconventional fields at a time when crude oil prices have managed to creep back up to the $50/bbl level.

In their declaration at the conclusion of the summit in Ise-Shima in Japan, leaders of the seven industrialized nations and the EU expressed "condemnation of the illegal annexation of the Crimean peninsula by Russia" and reaffirmed their "policy of its non-recognition and sanctions against those involved" (IOD May25'16).

The leaders added, "We recall that the duration of sanctions is clearly linked to Russia's complete implementation of the Minsk agreements and respect for Ukraine's sovereignty. Sanctions can be rolled back when Russia meets these commitments."

In Moscow, Prime Minister Dmitry Medvedev said he had ordered a decree prolonging the Western food embargo be prepared for President Vladimir

IO160531.htm[30/05/2016 10:36:55 AM] Putin's approval. Medvedev did not mention an extension of the measures in context of the G7 -- which Russia had been a member of until the Ukrainian crisis -- but rather as an opportunity for the country's agricultural sector to boost output.

Gazprom Neft Eyes New Foreign Projects Russia's Gazprom Neft says it is committed to plans to expand abroad despite the low price environment and sanctions.

Gazprom Neft said it has over 20 overseas projects in its portfolio, including upstream projects in Iraq and the semiautonomous region of Kurdistan as well as Venezuela, Serbia, Hungary, Romania, Bosnia and Herzegovina, and Angola. Downstream, the company is active in Serbia, while its retail network works in the Balkans and CIS countries.

Gazprom Neft needs foreign expansion to meet its upstream and downstream long-term targets. The company's strategy until 2020 envisages boosting output to 100 million tons of oil equivalent (2 million boe/d) by 2020 from last year's 1.62 million boe/d. Refining should grow from 865,000 b/d in 2015 to 1.4 million b/d in 2020.

In order to meet the targets, Gazprom Neft said it aims to boost efficiency of its existing projects and is looking at new upstream and downstream projects abroad. The company also said it is considering partnerships with foreign companies abroad. Gazprom Neft and Russia's foreign affairs ministry recently agreed on cooperation that should help the producer expand its ties with foreign players.

However, it is not clear who the potential partners might be, while a source in the company said no deals are close to signing. Gazprom Neft is under Western sanctions, while the Chinese have recently abandoned a joint exploration project with the Russian firm in East Siberia, previously dropped by the Japanese.

Gazprom Neft also failed to agree with Vietnam's Petrovietnam on the joint development of the Dolginskoye field offshore the Pechora Sea and on acquiring a stake in Vietnam's sole Dung Quat refinery (IOD Apr.12'16).

Maersk Buys Rig for UK Offshore Maersk has agreed to buy a new jackup rig destined for work on the $4.5 billion Culzean development offshore UK, after Hercules Offshore, contracted to do the drilling, was unable to make payment to Sembcorp Marine, a Singapore rig builder.

Maersk Drilling said Friday that it has entered into an agreement with Hercules that gives it the right to take immediate delivery of the rig and settle the final payment of about $190 million with the shipyard.

Hercules had only made a 20% down payment on the rig, but the US firm has been having financial difficulties and has been unable to take delivery of the rig (EIF May11'16). Hercules said earlier in the month that it was in discussions with Sembcorp about payment and was looking at potentially selling the rig, the Hercules Highlander.

This latest development highlights the impact of the fall in oil prices on the different players in the sector. Hercules Offshore was awarded a five-year drilling contract with Maersk Oil, worth an estimated $420 million, for work on the Culzean gas development (IOD Oct.16'14).

The design is a 400-ft rig capable of 30,000-ft drilling depths and the ability to operate in high pressures and temperatures.

Sembcorp, which had issued Hercules a notice of default, was unable to comment by the time International Oil Daily went to press.

IO160531.htm[30/05/2016 10:36:55 AM] The company said earlier in the year that several of its customers have requested for delivery deferments in light of delays in chartering out their rigs as a result of the challenging macroeconomic environment.

"Given the current depressed environment in the upstream sector, we have tried to accommodate their requests, while preserving our commercial interests," the firm said. Americas Petrobras Drives Presalt Lifting Costs Lower Petrobras has managed to keep costs down in the country's massive presalt formation, despite low prices and the complexity of the play, according to the manager who oversees development of the Libra field.

During the annual Institute of the Americas Energy Conference held in La Jolla, California, Orlando Ribeiro said lifting costs for the state-owned Brazilian company in the presalt were less than $8 per barrel.

Ribeiro said that Petrobras had carried out a $1.8 billion cost reduction campaign over the past two years, all related to subsea activity.

He also said that Petrobras had significantly reduced drilling time in the presalt since 2010, which allowed it to capture further savings.

Ribeiro said that average drilling time in the presalt was around 300 days in 2010, but added that the last two wells the firm drilled were completed in just 60 days.

"We used a lot of standardization to develop these fields at the pace that we're doing it," Ribeiro said. "If we had to customize things for each field, that would be time consuming and expensive."

Ribeiro was also optimistic about the prospects going forward for the multibillion-barrel Libra field, which is operated by a consortium that includes Petrobras, Royal Dutch Shell, Total, and Chinese state-owned oil companies CNPC and CNOOC. General Editor's Note - Memorial Day, Spring Bank Holidays International Oil Daily will not be published on May 30 because of the Memorial Day holiday in the US and the Spring Bank Holiday in the UK. Tables Oil and Gas Prices, May 27, 2016 All data are produced by Energy Intelligence in cooperation with Reuters.

CRUDE OIL FUTURES ($/bbl) Chg. 1st Mth. 2nd Mth. ICE Brent -0.27 49.32 49.95 Nymex Light Sweet -0.15 49.33 49.74

INTERNATIONAL SPOT CRUDES ($/bbl) Chg. Price Prior Close Brent (Dated) -0.43 49.09 49.52 Dubai -0.83 45.50 46.33 Forties -0.13 49.44 49.57

IO160531.htm[30/05/2016 10:36:55 AM] Bonny Light -0.48 50.14 50.62 Urals -0.03 47.44 47.47 Opec Basket* 45.43

NORTH AMERICAN SPOT CRUDES ($/bbl) Chg. Price Prior Close WTI (Cushing) +0.36 49.36 49.00 WTS (Midland) +0.26 48.71 48.45 LLS +0.38 51.06 50.68 Mars +0.23 45.61 45.38 Bakken +0.41 49.11 48.70

REFINED PRODUCT FUTURES Nymex Chg. 1st Mth. 2nd Mth. Gasoline (¢/gal) +1.24 163.19 163.78 ULSD Diesel (¢/gal) -0.73 149.40 150.15 ICE Gasoil ($/ton) +0.25 448.50 449.00 Gasoil (¢/gal.) +0.08 143.14 143.30

IO160531.htm[30/05/2016 10:36:55 AM]

US SPOT REFINED PRODUCTS New York (¢/gal) Chg. Price Prior Close Regular Gasoline +4.04 163.69 159.65 No.2 Heating Oil -0.44 142.24 142.68 No.2 ULSD Diesel -0.19 149.24 149.43 No.6 Oil 0.3% * 44.38 No.6 Oil 1% * 35.38 No.6 Oil 3% * 35.03 Gulf Coast (¢/gal) Regular Gasoline +3.29 151.19 147.90 No.2 ULSD Diesel -0.32 144.99 145.31 No.6 Oil 0.7% * 36.53 No.6 Oil 1% * 36.47 No.6 Oil 3% * 33.47 *Price in $/bbl. Percentages refer to sulfur content.

INTERNATIONAL SPOT REFINED PRODUCTS Rotterdam ($/ton) Chg. Price Prior Close Regular Gasoline -4.20 520.80 525.00 ULSD Diesel -1.00 444.00 445.00 Singapore ($/bbl) Gasoil -0.97 56.45 57.42 Jet/Kerosene -1.03 57.79 58.82 Fuel Oil 180 ($/ton) -4.97 226.72 231.69

IO160531.htm[30/05/2016 10:36:55 AM]

NATURAL GAS PRICES ($/MMBtu) Chg. Price Henry Hub, Nymex 0.21 2.17 Henry Hub, Spot +0.06 1.81 New York Citygate +0.01 1.54 Chicago Citygate +0.05 1.86 Rockies (Opal) +0.04 1.61 Southern Calif. Citygate +0.01 1.84 AECO Hub (Canada) +0.01 0.91 UK NBP Spot (p/th) +1.10 32.05 US/Canada spot prices from Natural Gas Week

Equity Markets, May 27, 2016 All data are produced by Energy Intelligence in cooperation with Reuters.

EQUITY MARKET INDEXES Chg. Index YTD %Chg. EIF Global* +0.08 272.99 +8.45 S&P 500 +8.96 2,099.06 +2.70 FTSE All-World* +0.96 471.37 +0.06 *Index for previous day

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