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Print Tuesday, May 31, 2016 Copyright © 2016 Energy Intelligence Group. All rights reserved. Unauthorized access or electronic forwarding, even for internal use, is prohibited. Feature Stories Asia-Pacific Europe/FSU Americas General Tables 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.