Exxon CEO says Argentina shale investment may exceed $10 billion

BUENOS AIRES (Bloomberg) -- Exxon Mobil Corp. may invest more than $10 billion in Argentina’s Vaca Muerta shale formation in the next decades, Chairman and CEO Rex Tillerson said Thursday.

The oil giant has so far invested $200 million in the world’s second largest shale gas deposit, Tillerson said after meeting with Argentine President Mauricio Macri in Buenos Aires. Exxon has received approval to invest $250 million more for a pilot project in the coming months.

If the pilot project is successful, the company will start full development during a period of 20 to 30 years that could involve additional investment “that would be well in excess of $10 billion,” he said.

For Tillerson, Argentina’s vast Vaca Muerta shale region represents an opportunity to reverse production losses and add reserves after a $35 billion wrong-way bet on U.S. natural gas and a Russian exploration venture that was derailed by international sanctions. Exxon, the world’s largest oil explorer by market value, has designated Vaca Muerta as one of nine “key activity” areas in the Western Hemisphere and one of just four in South America, according to company data.

New Government

Macri has been courting international corporations from Total SA to Dow Chemical Co. to Coca-Cola Co. to invest in Argentina since taking office in December. Exxon, whose annual sales dwarf the economic output of all but about 45 of the world’s nations, is building a plant to strip impurities out of natural gas as well as a pipeline network to handle the output from its Vaca Muerta wells.

“I am very encouraged by the changes that have occurred here in Argentina, with the change in government,” Tillerson said, according to a statement from the Argentine government.

Exxon’s worldwide oil and gas output is lower than it was when Tillerson began his tenure as CEO a decade ago.

Last year, the company that traces its roots to the 1880s and John D. Rockefeller’s Standard Oil Trust failed to replace all the crude and gas it pumped with new discoveries for the first time in 22 years. In April, S&P Global Ratings stripped Exxon of the gold-plated credit rating it had held since the Great Depression.

Tillerson will reach Exxon’s mandatory retirement age of 65 in March. In a May 25 meeting with reporters after the company’s annual meeting in Dallas, he declined to say whether he would seek an extension of his tenure from the board.

Vaca Muerta, Spanish for Dead Cow, is one of the world’s top shale plays, covering an area the size of Belgium and considered key to restoring energy self-sufficiency in Argentina.

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Schlumberger acquires Omron Oilfield and Marine, Inc.

HOUSTON --Schlumberger has acquired Omron Oilfield and Marine, Inc., a U.S.-based OMRON Corporation group company, which is a global leader in automation technology and solutions.
“The addition of Omron Oilfield and Marine will enable us to strengthen our industrial automation control systems capabilities as part of our long-term strategy to develop an integrated well construction system,” said Ashok Belani, executive V.P., Technology, Schlumberger. “The control system plays a pivotal part in developing the software capabilities required to realize our vision to provide our customers with a step change in drilling performance.”

“This transaction enables us to leverage our U.S.-installed base with Schlumberger’s global reach to create new market opportunities internationally,” said Robert Bost, CEO, Omron Oilfield and Marine. “We will continue to build on our existing technology collaboration to expand control system capabilities in oilfield applications.”
Omron Oilfield and Marine is based in Houston, Texas and consists of 139 employees. The company designs, manufactures, sells, and provides aftermarket services for automated drive and control systems, power houses, and drillers’ cabins. The company also offers software-based drilling technologies on a rental or subscription basis. Omron Oilfield and Marine was founded in Houston as Industrial Drive Maintenance, Inc. (IDM) in 1973. It was acquired in 1999 by the OMRON Corporation, a Kyoto-based global leader in the field of automation, and is currently organized within the company’s Industrial Automation division.

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Increased field decline on mature fields is becoming visible: Rystad

HOUSTON -- For the first time since the 1980s, the industry will experience two consecutive years of decreased global E&P investment, according to the latest analysis by Rystad Energy.
A lot of the investment cuts have been related to new projects and shale drilling, but the company has also observed lower activity on mature producing fields.

This decreased activity is starting to show on the production side, with the decline rates starting to increase.
Higher declines were observed for several of the major non-OPEC countries, such as Russia, U.S., Canada and Norway in 2014 and 2015.
For 2016, the decline is expected to continue increasing and in terms of barrels, this represents a 700,000 bpd increase in the yearly decline from the mature oil fields.

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Weatherford Canada drilling services facility gains API Q2 certification


HOUSTON, Texas -- Weatherford International plc announced that the Weatherford drilling services facility in Nisku, Alberta, Canada, received API specification Q2 certification. To gain certification, a facility must demonstrate a robust quality management system that assures personnel competency, risk assessment, contingency planning and other key elements.
The Nisku facility is the second Weatherford facility in Canada to achieve this certification. A Weatherford-Canada partnership facility in Paradise, Newfoundland, was certified last year.

“This certification validates the success of our service-quality and risk-mitigation programs, which are driven internally by our operational excellence and performance system (OEPS),” said John Raine, vice president of quality, health, safety, security and environment at Weatherford.
“API Q2 certification is a high bar of achievement,” said David Reed, region vice president, Canada, at Weatherford. “We were able to meet this challenge because of our strong culture of safety, quality and teamwork, as well as the implementation of OEPS.”

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OPEC ministers say oil market moving in right direction


VIENNA, Austria (Bloomberg) -- OPEC ministers gathering in Vienna for the group’s biannual meeting said the oil market is moving in the right direction as a supply glut dissipates.
While Saudi Arabia—the architect of the Organization of Petroleum Exporting Countries’ current policy—remained silent, ministers from the United Arab Emirates and Nigeria signaled that the strategy of letting low prices eradicate surplus production is working. Some of the world’s biggest oil traders said accelerating demand is also helping to rebalance the market.
“From the beginning of the year until now, the market has been correcting itself upward,” U.A.E. Oil Minister Suhail Al Mazrouei told reporters in Vienna on Tuesday. “The market will fix itself to a price that is fair to the consumers and to the producers.”
Those comments, echoed by his Nigerian counterpart, suggest renewed optimism among producers after oil prices rose more than 85% in New York since touching a 12-year low in February. There were still signs of division in the group, with Venezuelan Energy Minister Eulogio Del Pino saying Wednesday the price recovery had more to do with unexpected supply disruptions than a successful OPEC strategy.
Market Strategy
Forecasters including the International Energy Agency and Goldman Sachs Group Inc. say the crude glut is finally dwindling as the Saudi approach of squeezing high-cost suppliers—opposed by most OPEC members when it was unveiled in late 2014—finally pays off. The group is unlikely to change direction this week, according to analysts surveyed by Bloomberg.
"I think the market trends are better now” and the sense of urgency that spurred producers to mull an agreement to freeze production in April has dissipated, Emmanuel Ibe Kachikwu, Nigeria’s minister of state for petroleum resources, told reporters in Vienna. While prices are moving “in the right direction, I think it needs more acceleration of the pace,” he said.
While Venezuela’s Del Pino lamented the failure of the freeze agreement, which Saudi Arabia blocked because Iran wouldn’t participate, he said unplanned disruptions in Canada, Nigeria and Kuwait had effectively capped crude production.
“If you take into account what happened in the last three or four months,” there has been a “de facto” freeze, Del Pino told reporters in Vienna Wednesday. More than 3 MMbbl of daily production are out of the market, he said.
Traders’ View
After two and a half years of oversupply, oil traders also see signs supply and demand are getting close to being in balance.
"The rebalancing is happening a bit faster than anticipated because of the disruptions," Marco Dunand, the head of Geneva-based trading house Mercuria Energy Group Ltd., said in an interview. "Demand is also stronger than expected” in countries from India and the U.S., he said.
The IEA forecasts oil demand will increase this year by 1.2 MMbpd, while Dunand said growth is likely to top 1.5 MMbpd, perhaps rising as high as 1.8 MMbpd.
Brent and West Texas Intermediate crudes, respectively the international and U.S. oil benchmarks, rose last week above $50/bbl for the first time in six months. Wall Street banks have lifted their oil price forecasts, with Goldman Sachs now saying oil prices could hover between $50 and $60 in the second half of the year.
“We have around 360 MMbbl of surplus inventories in industrialized countries that need to be diminished before prices head markedly above $50/bbl,” said David Fyfe, head of research at oil trading house Gunvor Group Ltd in Geneva.

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Statoil drills minor discovery, dry appraisal well in North Sea

STAVANGER, Norway -- Statoil Petroleum, operator of production license 035, is in the process of concluding the drilling of wildcat well 30/11-12 S and appraisal well 30/11-12 A. The wells were drilled 2 km south of the 30/11-9 A (Askja Øst) discovery, and about 35 km southwest of the Oseberg Sør facility in the North Sea.
The objective of well 30/11-12 S was to prove petroleum in three sandstone layers in Middle Jurassic reservoir rocks (Tarbert formation). The objective of well 30/11-12 A was to delineate in the event a discovery was made in well 30/11-12 S. The 30/11-12 S well encountered a 37-m oil column in the upper part of the Tarbert formation, of which about 30 m had good to moderate reservoir properties. Well 30/11-12 A, which was drilled further down on the structure, encountered similar reservoir rocks, but is dry.

Preliminary estimates place the size of the discovery at between 0.7 and 2.5 million standard cubic metres of recoverable oil equivalents. The discovery will be included in the evaluation of a new field development, along with other earlier discoveries in the area. Data has been collected and samples have been taken in both wells.
Both wells were drilled to vertical and TDs of 3,669 m and 3,671 m, respectively, and 3,609 m and 4,144 m below the sea surface. Well 30/11-12 S was terminated in the Ness formation and 30/11-12 A bottomed in the Tarbert formation. The wells are the 12th and 13th exploration wells in production license 035, which was awarded in 1969.
Water depth is 110 m. The wells have been permanently plugged and abandoned. Both wells were drilled by the Songa Delta drilling facility, which will continue its drilling campaign with the drilling of another wildcat well (30/11-13 S) in the same production license, where Statoil is the operator.

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Iran plans oilfield tenders in June for international companies

TEHRAN, Iran (Bloomberg) -- Iran plans to invite international companies to bid for oilfield development rights in June, a government official said, as the Persian Gulf country seeks to revive its energy industry after years of crippling sanctions.
The Oil Ministry will solicit bids in a tender round starting June 21 and running for a month, state-run Islamic Republic News Agency reported Tuesday, citing Mehdi Hosseini, chairman of the ministry’s oil contracts revision committee. National Iranian Oil Co. is working on a model investment contract for any development agreements, he said.

Iran is rebuilding its oil and natural gas industries and restoring sales of crude after international sanctions were lifted in January. The country, which will meet other OPEC members this week in Vienna, is targeting an increase in production and exports to pre-sanctions levels. It refused to join other producers in a push to freeze output at a meeting in Doha in April.
Seventy Fields
Foreign companies have been awaiting details of the investment contracts and bidding rules since Iran in November identified about 70 oil and gas fields that it would offer. International conferences planned as early as 2014 never took place due to sanctions. Would-be investors may now hesitate to commit to Iran out of concern that the U.S. may toughen its policy toward the country after choosing a new president in November, according to Edward Bell, a commodities analyst at Emirates NBD PJSC in Dubai.
“There’s plenty of opportunity in Iran,” Bell said Tuesday by phone. “It’s been two years now that we’ve been waiting for these contracts. But regardless of how ready or not Iran is to accept investment, nobody is going to be dying to move into Iran until after the U.S. election.”
Iran needs about $185 billion in investment to upgrade its oil, gas and petrochemicals industries by 2020, the Oil Ministry’s news service Shana reported, citing Amir-Hossein Zamaninia, deputy oil minister in charge of commerce and international affairs.
Iran’s crude production rose to 3.38 MMbpd in May, from 3.35 MMbpd in April, JBC Energy GmbH said Tuesday in an emailed report. The nation pumped 3.6 MMbopd at the end of 2011, before the U.S. and European Union intensified their sanctions, according to data compiled by Bloomberg. Iran is currently the third-biggest producer in the Organization of Petroleum Exporting Countries, after Saudi Arabia and Iraq.

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Oil pessimists exit market as supplies seen closer to balance

NEW YORK (Bloomberg) -- The oil market doomsayers are beginning to capitulate.
Speculators reduced bets on falling prices to the lowest level in 11 months as oil briefly breached $50/bbl on signs supplies are coming into balance.
Crude climbed 7.4% this month in New York amid lower U.S. production and unplanned disruptions in Canada and Nigeria. Prices are up almost 90% since February. Money managers’ short position in U.S. benchmark crude reached the least since June, according to data from the Commodity Futures Trading Commission.
"If you’ve been short since February this has been a very painful ride," said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston. "There are always a few die-hards but otherwise you’d want to get out. This is indicative of the improving fundamentals."
West Texas Intermediate rose 0.6% on the New York Mercantile Exchange during the CFTC report week. Futures rose 0.3% to $49.50/bbl at 11:43 a.m. on Monday.
Oil has surged amid a spate of disruptions. Nigerian crude output has dropped to the lowest level in 27 years as militants increased attacks on pipelines in the Niger River delta. Fires that began early May in Fort McMurray shut about 1.2 MMbpd of production in Canada’s oil-sands region.
Market Balance
Analysts from the International Energy Agency to Goldman Sachs Group Inc. say the crude glut is dissipating as supply and demand move back into balance. Goldman increased its 2016 forecast for WTI to $44.60/bbl, from $38.40 in a report dated May 15.
"The confidence of the shorts has been shattered," said Phil Flynn, senior market analyst at Price Futures Group in Chicago. "A lot of bears continued to bet that prices would fall well into the rally. When relatively bearish banks like Goldman Sachs changed to a more bullish outlook, bears noticed."
U.S. crude output fell to 8.77 MMbpd in the week ended May 20, the least since September 2014, an Energy Information Administration report showed. The number of active oil rigs in the U.S. slipped by 2 to 316 last week, the lowest number since October 2009, according to data from Baker Hughes Inc.
Rig Count
"The rigs number underlines the bullish case," Flynn said. "They are still cutting the rig count and it’s going to take months before any price increase can result in increased oil production."
The short position in WTI fell by 3,047 futures and options combined to 60,932, CFTC data show. Longs slipped 2.6%, while net-long positions dropped 2.1%.
The Organization of Petroleum Exporting Countries is unlikely to reach any agreement to limit output when it meets June 2 in Vienna, as the group sticks with Saudi Arabia’s strategy of squeezing out rivals, according all but one of 27 analysts surveyed by Bloomberg.
"There wasn’t much of a move either way; the drop in both shorts and longs was small," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "The market didn’t do much after hitting $50. They seem to be betting that the OPEC meeting will end with a whimper not a bang."

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Oil states expected to stick with Saudis: OPEC reality check.

VIENNA, Austria (Bloomberg) -- OPEC members gathering in Vienna June 2 are expected to go along with a Saudi Arabia-led policy focused on squeezing out rivals amid signs the strategy is working. That means the meeting may be less fraught than the previous summit in December, which ended with public criticism of the Saudi position from Venezuela and Iran.
By allowing prices to fall, high-cost producers are being forced out, easing the supply glut and spurring a rally of 80% since January to about $50/bbl. All but one of 27 analysts surveyed by Bloomberg said the Organization of Petroleum Exporting Countries will stick with the strategy. An alternative proposal—to freeze output—was finally rejected in Doha last month.
The group may also choose a secretary-general to replace Abdalla El-Badri, whose term has been extended after members failed to agree on a successor. In recent months, three new hopefuls have emerged to try and break the impasse: Nigeria’s Mohammed Barkindo, Indonesia’s Mahendra Siregar and Venezuela’s Ali Rodriguez.
Following are the latest comments from OPEC members and analysts. The respective shares of supply are based on April levels. The estimates for the price each member needs to balance its budget are from the International Monetary Fund unless stated otherwise.
ALGERIA
Price needed: $87.6 Share of OPEC production: 3.3%.
Algeria tried, and failed, last year to organize a meeting of non-OPEC/OPEC members to push for output cuts, as years of declining crude production and low prices weighed on its fiscal deficit. A freeze by producers is needed immediately to stabilize prices, Salah Khebri, minister of energy and mines, said in an interview mid-May. “Our main message to the next OPEC meeting is that it needs to restore unity and work for the benefit of all members collectively,” he said.
ANGOLA
Price needed: $93.14 (RBC Capital Markets) Share of OPEC production: 5.4%
Angola is seeking an IMF loan as state revenue plunges. Its over-reliance on strong oil prices leaves savings and levels of inward investment ‘‘highly vulnerable’’ to swings in the global economy, Fitch unit BMI Research said in emailed report.
ECUADOR
Price needed: $75.16 (RBC Capital Markets) Share of OPEC production: 1.7%
Ecuador supported an oil-output freeze at the Doha meeting. Minister Jose Icaza met with his Venezuelan counterpart before the summit to discuss prices and seek to agree on a unified position. Icaza became Ecuador’s new oil minister in early May following the resignation of Carlos Pareja.
INDONESIA
Unlike other OPEC members, Indonesia is still a net oil importer so the fiscal break-even concept is not applicable. Share of OPEC production: 2.2%
Indonesia rejoined OPEC at the Dec. 4 meeting, seven years after suspending its membership. It will stick to its plan to increase oil output this year even if some of the world’s biggest producers move to cap production, Energy and Mineral Resources Minister Sudirman Said said in February.
IRAN
Price needed: $61.5 Share of OPEC production: 11%
The Persian Gulf nation is rebuilding its energy industry and restoring crude sales after the lifting of international restrictions in January. Exports are already at 2 MMbpd, just short of pre-sanctions levels, the IEA said in a recent monthly oil market report. The head of the state oil company said the country—a key advocate of output restraint in previous years—has no plans to join any output freeze as it remains focused on restoring exports.
IRAQ
Price needed: $59.7 Share of OPEC production: 13%
Production has jumped more than 40% since mid-2014 and exports are at near-record levels. But plunging government revenue is hampering the state’s ability to invest, and OPEC’s second-biggest crude producer is reaching the limits of its capacity to store and export oil, according to analysts at Energy Aspects Ltd. and FGE. Oil Minister Adel Abdul Mahdi resigned in February amid ongoing political turmoil, his duties are being carried out by Fayyad Al-Nima.
KUWAIT
Price needed: $52.1 Share of OPEC production: 8.7%
Kuwait plans to boost oil production to more than 3 MMbpd within months, doubling output from where it stood during April’s oil-worker strike. Kuwait’s acting Oil Minister Anas Al-Saleh, said on May 18 that OPEC’s policy “has been working well.”
LIBYA
Price needed: $195.2 Share of OPEC production: 0.9%
OPEC’s smallest producer. Competing administrations of Libya’s state-run National Oil Corp. in the east and west of the divided country agreed May 17 to resume exports from Hariga port to help revive production, which has dropped 80% since the 2011 uprising that ousted Muammar Qaddafi. It isn’t clear if it will send anyone to the meeting; it didn’t attend the Doha freeze talks in April.
NIGERIA
Price needed: $104.49 (RBC Capital Markets) Share of OPEC production: 5.1%
A resurgence in militant attacks in Nigeria’s oil-producing region has cut output to the lowest in 27 years, helping buoy global prices. An armed group calling itself the Niger Delta Avengers has warned of more attacks to come.
QATAR
Price needed: $52.4 Share of OPEC production: 2%
Mohammed Al Sada, Qatar’s minister of energy and industry who is also president of OPEC, said global demand is catching up with supply and the market should see a “rebalancing” in the second half of the year as cheaper crude has forced some production to close. Qatar is expected to swing into a budget deficit this year, according to the IMF.
SAUDI ARABIA
Price needed: $66.7 Share of OPEC production: 31%
Saudi Arabia will probably keep producing crude at near-record levels under new Energy Minister Khalid Al-Falih, an ally of Deputy Crown Prince Mohammed bin Salman. Prince Mohammed scuppered the oil-freeze plan, and Al-Falih’s appointment points to an “exceedingly high probability that there will be no Saudi agreement to freeze let alone cut production,” analysts including Ed Morse said in an emailed note dated May 9.
UNITED ARAB EMIRATES
Price needed: $71.8 Share of OPEC production: 8.9%
U.A.E. still supports stability in the oil market, said Matar al Neyadi, the undersecretary of the energy ministry.
VENEZUELA
Price needed: $121.06 (RBC Capital Markets) Share of OPEC production: 7.4%
Venezuela is one of the so-called Fragile Five OPEC members most at risk from significant instability amid the turmoil in prices, according to RBC Capital Markets LLC. Energy Minister Eulogio Del Pino was one of the most ardent advocates of the failed production-freeze agreement. While the country’s economy remains in critical condition, Caracas is probably resigned to the course set by Riyadh, said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University in New York.
Source: worldoil.com

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New Brunswick's decision to extend fracing moratorium is a step in wrong direction, CAPP says
CALGARY, Alberta -- The Canadian Association of Petroleum Producers (CAPP) has expressed disappointment with the New Brunswick government’s decision to extend the moratorium on hydraulic fracturing.
“Industry has been working with the government to ensure world-class regulations and environmental protection is in place,” said Paul Barnes, manager of Atlantic Canada and Arctic.

In March 2015, the New Brunswick Commission on Hydraulic Fracturing was created with a mandate to determine whether it would be possible to meet the five conditions set out by the New Brunswick government in order to lift the December 2014 moratorium.
CAPP provided the commission with a written submission to address the five conditions, focusing on social, economic and environmental impacts of hydraulic fracturing in New Brunswick. The commission’s report was released in February 2016.
The report indicates that increased natural gas development is an economic opportunity for New Brunswick. Natural gas will be consumed in large quantities by institutional, industrial and commercial users well into the future.
With a moratorium in place, natural gas will likely come from another North American source that uses hydraulic fracturing and New Brunswick will lose the opportunity.
“Producing natural gas at home can help the province create economic benefits, such as jobs, tax revenue, royalties and the ability to attract other business. The decision to extend the moratorium is a step in the wrong direction and sends a negative message about attracting investment to help grow the economy.”
Hydraulic fracturing has been done safely for more than 60 years in Canada. Comprehensive government regulations and industry practices are in place in jurisdictions where natural gas is produced, to ensure public safety and protection of the environment.
These best practices are the result of collaborative efforts from industry, regulators and governments working together to ensure safe, reliable operations are in place.
“We encourage the government of New Brunswick to reconsider the moratorium on hydraulic fracturing and to continue to work with industry to meet the five conditions. We have seen progress on this issue in other parts of Canada, and we don’t want New Brunswick to miss the opportunity.”

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Saudi Aramco boosts oil output to record in fight for market


RIYADH, Saudi Arabia (Bloomberg) -- Saudi Arabian Oil Co., the world’s largest crude exporter, increased production to an all-time high last year while keeping its reserves unchanged as the kingdom battles for market share.
Saudi Aramco, as the state-owned company is known, produced 10.2 MMbopd in 2015, up from 9.5 MMbopd in 2014, according to an annual review posted on its website Thursday. Natural gas output rose to 11.6 Bscfd from 11.3 Bscfd. The company discovered two gas fields and three oil deposits last year, compared with five gas fields and three oil deposits in 2014.
“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, reaching record levels of oil production and gas processing,” Chairman Khalid Al-Falih said in the review.
Saudi Arabia’s rising production, along with increased output from shale plays in the U.S. last year, exacerbated a global supply glut that drove down benchmark prices by more than 30% in 2015.
Market Share
OPEC, led by Saudi Arabia, chose in November 2014 to keep pumping crude to protect its share of the market rather than cutting output to boost prices. Last month, the Organization of Petroleum Exporting Countries and other major producers including Russia failed to reach an agreement over a proposal to freeze output to shore up prices after Saudi Arabia insisted that it couldn’t sign up to a deal without the participation of Iran, which has pledged to boost its own oil output to pre-sanctions levels before considering a cap.
The Saudi company’s oil reserves were unchanged at 261.1 Bbbl, while reserves of gas increased to 297.6 Tscf from 294 Tscf. The company said it maintains an oil-production capacity of 12 MMbpd.
Saudi Aramco is undergoing a major transformation that will include selling less than 5% of its shares to the public by the end of 2018. The company’s restructuring plan will be announced within six months, Deputy Crown Prince Mohammed bin Salman said in an interview in Riyadh on April 15. After the IPO, Saudi Aramco will become a holding company that is not involved in the daily management of its subsidiaries, he said.
More Exports
The company exported 2.6 Bbbl of crude in 2015, or 7.1 MMbpd, up from 2.54 Bbbl in 2014.
Saudi Aramco’s exports to major Asian markets increased "substantially" last year from a year earlier, with shipments to India jumping 18%. Exports to China grew 4.5%. The company said it was able to maintain the same level of exports to U.S. market at 1 MMbpd "despite competition from shale oil."
The operation of new local refineries helped Saudi Aramco’s exports of petroleum products to increase by 38%.
Refining Capacity
Saudi Aramco’s fully-owned oil-refining capacity was 3.1 MMbpd at the end of last year, the same as in 2014, according to the report. The company’s total refining capacity was at 5.4 MMbpd in 2015. Saudi Aramco is seeking to double its refining capacity to between 8 MMbpd and 10 MMbpd, CEO Amin Nasser said in a March 9 interview.
Saudi Aramco said in the review that it’s expanding its Rabigh Refining & Petrochemical venture with Sumitomo Chemical Co. The second phase of the project will increase the production capacity of the ethane cracker, add a new world-scale aromatics complex and create 22 process plants. The project will start commissioning in mid-2016.
Last year, Saudi Aramco began exploring the development of a chemicals complex to be integrated with its SATORP joint venture with Total SA, it said in the review.

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Pre-OPEC meeting said to have no discussion of oil-output limits

VIENNA, Austria (Bloomberg) -- The final preparatory gathering of officials from the Organization of Petroleum Exporting Countries before the ministerial meeting on June 2 didn’t discuss any limits on crude output, the latest signal that the group will stick to its current strategy of letting low prices eradicate a supply glut.

Discussions at the Economic Commission Board in Vienna, at which representatives of OPEC members review the market, focused on technical matters, said two people familiar with the matter, who asked not to be identified because the talks were private. Officials at the meeting concurred with OPEC’s most recent research report that supply and demand will start rebalancing in the second half of the year.

Oil prices have rebounded more than 75% from the 12-year low reached in January as U.S. shale production falters, signaling that Saudi Arabia’s strategy to re-balance oversupplied world markets by squeezing high cost production is taking effect. After the group abandoned its production target in December, and failed to reach an accord with non-members to freeze oil supply last month, all but one of 27 analysts surveyed by Bloomberg said OPEC won’t set an output target at its next meeting.

The meeting in Vienna also didn’t discuss potential candidates to replace Secretary-General Abdalla El-Badri, whose term expires in July, said two people familiar with the matter.

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BP boosts Thunder Horse production with water injection project

HOUSTON -- BP has started up a major water injection project at its Thunder Horse platform, extending the production life of one of the biggest deepwater fields in the U.S. Gulf of Mexico.

The project, which reflects BP’s strategy of continued investment in its existing deepwater Gulf of Mexico production hubs, will boost recovery of oil and natural gas from one of Thunder Horse field’s three main reservoirs.

Over the past three years, BP refurbished the platform’s existing topsides and subsea equipment while also drilling two water-injection wells at the site. From those wells, water will be injected into the reservoir to increase pressure and enhance production. The improvements are expected to allow the Thunder Horse facility to recover an additional 65 MMboe over time.

The project is the second of five major upstream projects BP expects to bring online in 2016. It is part of BP’s plan to add approximately 800,000 boed of new production globally from projects starting up between 2015 and 2020.

“This project will help BP sustain high levels of oil production in the deepwater Gulf of Mexico for years to come,” said Richard Morrison, regional president of BP’s Gulf of Mexico business. “And it’s another example of BP taking advantage of targeted and cost-effective opportunities within our existing portfolio.”

The Thunder Horse platform, which sits in more than 6,000 ft of water and began production in June 2008, has the capacity to handle 250,000 bopd and 200 MMcfd of natural gas. The facility continued to operate while work on the water injection project was underway.

In the deepwater Gulf of Mexico, BP operates four large production platforms—Thunder Horse, Atlantis, Mad Dog and Na Kika—and holds interests in four non-operated hubs—Mars, Mars B, Ursa and Great White.

BP has two other major projects underway in the deepwater Gulf of Mexico. The Thunder Horse South Expansion project will add a new subsea drill center roughly two miles from the Thunder Horse platform. In addition, BP continues to design the Mad Dog Phase 2 project, which will develop resources in the central area of the Mad Dog field through a subsea development tied back to a new floating production hub consisting of up to 24 wells from four drill centers.

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Shale oil seen stifling OPEC's historic market-balancing role

KUWAIT (Bloomberg) -- The surge in the global supply of shale oil has curbed OPEC’s ability to balance crude markets, a former Qatari energy minister said.

The Organization of Petroleum Exporting Countries was able to balance the market in the past because output from shale oil deposits in the U.S. and other non-OPEC nations was insignificant, Abdullah bin Hamad al-Attiyah told reporters at an industry event in Doha.

“OPEC can’t act as swing producer because it will lose market share,” he said Wednesday, referring to the group’s traditional practice of varying output to manage crude prices. Al-Attiyah was energy minister of Qatar, an OPEC member, from 1992 to 2011.

Crude prices tumbled more than 75% from their 2014 peak due to a global glut fed partly by production at shale deposits in the U.S. OPEC, which pumps about 40% of the world’s oil, meets in Vienna on June 2 to assess its output policy. The group is unlikely to set a production target as it sticks with Saudi Arabia’s strategy of squeezing out rivals such as higher-cost shale drillers, according to all but one of 27 analysts surveyed by Bloomberg.

Market forces

“Frankly, I don’t expect anything from the next OPEC meeting because, rightly, OPEC decided not to play against the market,” Claude Mandil, a former executive director of the International Energy Agency, said at the same event. “Market forces are too strong now, and you can’t play against those forces when they are strong.”

Crude has surged more than 80% from a 12-year low earlier this year on signs the global oversupply will ease amid declining output in Nigeria and non-OPEC countries, including the U.S. Brent for July settlement increased 95 cents, or 2%, to $49.56/bbl on the London-based ICE Futures Europe exchange.

“The issue now for OPEC members is how to diversify your economy from oil and gas,” Mandil told reporters in the Qatari capital. Mandil headed the IEA, a watchdog agency for the world’s most industrialized countries, from 2003 to 2007.

Al-Attiyah estimated current global inventories at about 5 Bbbl of oil, including crude in floating storage, and said the market is oversupplied by about 1.5 MMbpd.

‘No benefit’

“Just to cut production by 1.5 MMbpd and the next day the price goes up and the other producers will take the whole share--there is no benefit for OPEC in that,” he said. High oil prices in recent years were an incentive for many high-cost fields to be tapped, Al-Atiyyah said. If shale oil companies were to collapse due to financial strain imposed by low prices, this might cause another crisis like the one in 2007 and 2008, as many of them owe large debts to banks, he said. “OPEC can’t go out and fight on behalf of others,” he said.

“You have one market. You don’t have an OPEC market and a non-OPEC market.”

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Shell cuts 2,200 more jobs to withstand lower-for-longer oil

THE HAGUE (Bloomberg) -- Royal Dutch Shell will cut 2,200 more jobs, taking the total tally of losses to 12,500 from 2015 to 2016 as the world’s second-biggest oil company continues to adjust to the slump in prices.

At least 5,000 jobs will be cut this year, the company said in an emailed statement. These reductions are in response to oil prices staying “lower for longer,” and as a result of the acquisition of BG Group earlier this year, said Paul Goodfellow, Shell’s V.P. for the UK and Ireland.

“These are tough times for our industry,” Goodfellow said in a statement. “We have to take further difficult decisions to ensure Shell remains competitive through the current, prolonged downturn.”

The industry is cutting deeper despite oil’s 80% recovery since January. Prices remain about half the level of two years ago and companies’ earnings have been pummeled, debt has increased and credit ratings have been cut. To help protect their balance sheets they have deferred or canceled billions of dollars of projects, renegotiated contracts with suppliers and eliminated thousands of jobs.

Shell’s adjusted net income fell 58% to $1.6 billion in the first quarter following the collapse in prices. The company bought BG Group for $54 billion this year to get access to oil and natural gas reserves from Australia to Brazil. The purchase has increased its debt to $70 billion and driven up its ratio of net debt to capital to above 26%.

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Oman Block 36 wildcat disappoints for DNO

OSLO, Norway -- DNO’s Hayah-1 exploration well, in Oman's Block 36, failed to encounter hydrocarbons other than minor gas shows and will be plugged and abandoned, the company said in a statement.

The well, drilled in the Rub al-Khali basin in the southwestern part of the country, reached a total depth of 3,010 m and penetrated the three target reservoirs, of which two had good reservoir quality.

DNO will incorporate the Hayah-1 well information into further evaluation of the block.

DNO operates Block 36 with a 75% operated interest; Allied Petroleum Exploration Inc. holds the remaining 25%.

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Oil’s recovery under threat as tankers run in circles off China

BEIJING (Bloomberg) -- In late February, the tanker Jag Lok loaded oil from Equatorial Guinea in western Africa and set sail for the Chinese port of Qingdao, the gateway to the world’s newest buyers of crude, a journey of more than 12,000 nautical miles.

After reaching its destination in early April, the ship churned in circles for 20 days before it got a chance to deliver its cargo. That’s because the port in Shandong province was struggling to handle a record number of vessels arriving to supply the privately held refineries called “teapots” that dot the region, ship-tracking data compiled by Bloomberg show.

The backup illustrates the challenges facing the independent refiners, which have emerged as a bright spot of rising demand amid a global glut. The processors are forecast by ICIS-China to purchase a combined 1 MMbopd from overseas this year, up from 620,000 bopd in 2015. While small individually, together they account for almost a third of China’s refining capacity. Any curb on imports would threaten oil’s rebound from a 12-year low, according to Nomura Holdings Inc. and Samsung Futures Inc.

“If teapots’ intake of crude slows down, the global oil demand and supply re-balancing might take longer,” said Gordon Kwan, head of Asia oil and gas research at Nomura in Hong Hong. “If demand from teapots is lower, then oil prices might rebound to just $55, instead of $60/bbl next year.”

From being dependent on state-owned energy giants for their feedstock needs as little as a year ago, teapots are now driving Chinese crude purchases after the government allowed them to buy overseas supplies directly. As of end-February, 27 of the companies had received or applied for annual import quotas totaling 89.5 million metric tons, or about 1.8 MMbopd, according to Zhang Liucheng, chairman of the China Petroleum Purchase Federation of Independent Refinery, a group of 16 processors.

Total purchases from overseas into the world’s second-largest oil user climbed to a near record 7.96 MMbopd in April, while shipments to Qingdao surged to unprecedented levels in April.

Still, with infrastructure not developing as fast as oil purchases, imports are at risk of slowing because of the ship traffic and lack of storage capacity, according to BMI Research. Concern about the creditworthiness of companies with no prior experience in international trade is also deterring some sellers. Slowing refining profits mean the plants may have to cut processing rates, weakening their appetite for cargoes from overseas, while the implementation of higher fuel quality standards could force some of them to shut.

Refiner Alliance

To ease purchasing from foreign suppliers, 16 of the refiners banded together in February to form an alliance. Its aim is to better negotiate bulk purchases as the newest buyers in the physical oil-trading market and improve their credibility. Zhang, the chairman, said it seeks term contracts of two to three years.

“When we are dealing with major producers, there is certainly some mistrust in terms of credit lines and unstable demand, which we are seeking to solve,” Zhang said. “Also we could get the cold shoulder because buying volumes can be small.”

The independents’ attractiveness to global producers was highlighted last month when one of the refiners purchased a spot cargo from Saudi Arabia, which broke from its usual policy of selling only under long-term contracts. Yet, they are discovering that it’s not easy to break into the oil market even amid a glut.

“Teapot buying could slow due to logistical constraints which are already stretched to their limits,” said Nevyn Nah, a Singapore-based analyst at consultant firm Energy Aspects Ltd.

Fuel Standards

Apart from the traffic at Qingdao, China’s fight against pollution poses another risk to purchases by teapots. Part of President Xi Jinping’s efforts to tackle the smog that’s shortening lives and has prompted social unrest is a drive to adopt higher fuel-quality standards from January 2017. To comply, the nation’s refineries will need to upgrade with new equipment and technology, which may be beyond the means of some private processors, according to BMI Research, a unit of Fitch Group.

A drop in refining margins amid surging fuel stockpiles and a jump in crude prices this year is another potential dampener. The profit from turning Middle East benchmark Dubai crude into oil products in Asia is at $4.92/bbl as of the end of last week, about 34% lower from late March, data compiled by Bloomberg show.

Brent crude, the benchmark for more than half the world’s oil, traded at $48.17/bbl by 11:26 a.m. in London. Prices have surged more than 70% from a 12-year low they hit in January.

Margin Drop

“Weakening margins are likely to have a stronger impact on independent refineries in China and this will lead to lower crude imports,” said Hong Sung Ki, a senior analyst at Samsung Futures Inc. in Seoul. “That will result in a downward revision for China demand and this will inevitably have a negative impact on oil prices.”

Meanwhile, ships continue to be held up at Qingdao. At least 16 oil tankers with capacity to carry 21.2 MMbbl have stayed near the port for more than 10 days over May 1-23. Half of them were there for more than a month, according to ship-tracking data compiled by Bloomberg.

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OPEC set for another meeting with no deal after Doha failure

VIENNA, Austria (Bloomberg) -- After failing to reach an accord on oil supply in Doha last month, OPEC is poised to go another meeting with no agreement on how much crude to produce.

All but one of 27 analysts surveyed by Bloomberg said the Organization of Petroleum Exporting Countries won’t set an output target on June 2, as it sticks with Saudi Arabia’s strategy of squeezing out rivals including U.S. shale drillers by pumping near-record volumes. An accord on an output cap with non-members such as Russia collapsed in Doha last month when Saudi officials insisted Iran would need to take part.

Oil has rebounded almost 80% to $48.35/bbl in London from the 12-year low reached in January as depressed prices take their toll on supplies. The International Energy Agency and Goldman Sachs Group Inc. say the crude glut is dissipating, signaling that the Saudi approach—opposed by most OPEC members when it was unveiled in late 2014—is finally paying off.

“The strategy is in the process of working—I don’t think they have much incentive to particularly do anything,” said Mike Wittner, head of oil-market research at Societe Generale SA. Even if they did, political tensions between Saudi Arabia and Iran thwart cooperation as seen at the Doha summit and at OPEC’s meeting last December, both of which were “pretty chaotic,” he said.

Iranian Round-Up

The head of Iran’s state oil company said at the weekend that the country has no plans to join any output freeze since it’s still ramping up exports to pre-sanctions levels.

Iranian shipments probably won’t surpass 2.2 MMbpd until midsummer, Rokneddin Javadi, managing director of National Iranian Oil Co., told Mehr news agency. Exports last reached that level before sanctions were imposed more than four years ago.

OPEC’s ministerial meeting in December ended without any agreement on an output ceiling as the group abandoned the target of 30 MMbopd that it had held—and mostly ignored—since late 2011.

The group’s current policy, which allows members to produce as much as they choose with no need for coordination, calls the organization’s basic purpose into question, said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt.

“The question is,” Weinberg said, “is OPEC dead or just in a coma?”

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Africa's busiest oil industry running hard to stand still

LONDON (Bloomberg) -- Algeria has more drilling rigs than the rest of Africa combined, yet oil production still isn’t recovering after years of decline. It’s little wonder the nation remains one of the most vocal supporters of action to increase prices by curbing output at the OPEC meeting next month.

The Organization of Petroleum Exporting Countries has been hit hard by the decline in oil prices. Algeria, like other members, is rolling out economic reforms to deal with the consequences of the slump, which include the nation’s first current-account deficit in more than a decade. Unlike Saudi Arabia and Iraq, it’s been unable to soften the blow by boosting output.

“In the short term, for sure, the only hope is for prices to rise” because Algeria has little flexibility on production, said Alexandre Kateb, chief economist at Algiers-based financial services company Tell Group. “What it can do is on the level of diplomacy. Trying to influence other members within the organization and achieve some consensus.”

Decades after the discovery of Algeria’s first major oil fields in the 1950s, the nation’s exploration success rate has fallen to less than one well in five, according to data from state oil company Sonatrach Group. Last year, it drilled 149 wells and only made 22 minor finds. Crude output for the past two years has remained at about 1.1 MMbpd, data compiled by Bloomberg show.

Algeria had 36 rigs drilling for oil last month, two thirds of the total for the African continent, according to data from Baker Hughes Inc. Nigeria, which produced 600,000 bpd more crude than Algeria in April, had just six operating rigs, the data show. While Algeria plans to buy eight more rigs this year, it isn’t making greater discoveries.

geria’s income from oil and gas exports, which account for nearly 60% of the economy and 95% of foreign receipts, has plunged by almost half since crude prices tumbled. While large currency reserves and low levels of foreign debt have helped the nation to weather the storm, a prolonged slump could threaten subsidies on housing and basic foodstuffs that curbed internal dissent since the Arab Spring.

Algeria’s economy is “facing a severe and likely long-lasting external shock,” the International Monetary Fund said May 19. The price of international benchmark Brent crude was about $48/bbl Monday. That’s an increase of 77% from a 12-year low in January, but still well below the $87.60 the IMF says Algeria needs to balance its budget.

OPEC policy

OPEC will meet in Vienna on June 2 to discuss output policy and Algeria looks set to continue its two-year push for action to boost prices.

The nation tried and failed in August to persuade fellow members to hold an emergency meeting to boost prices. Two months later, a joint effort with Venezuela to organize a summit of heads of state from OPEC and non-OPEC countries received little support. When it meets next month, the group should “focus on the interests of all countries,” by freezing production immediately to stabilize prices, Algeria’s Minister of Energy and Mines Salah Khebri said in an interview May 16.

All but 1 of 27 analysts surveyed by Bloomberg said OPEC won’t set an output target at the next meeting, as it sticks with Saudi Arabia’s strategy to squeeze out rivals including U.S. shale drillers by pumping near-record volumes.

Sonatrach’s V.P. of exploration and production, Salah Mekmouche, said in December that its drilling efforts are yielding results. The country plans to raise crude output by 5% this year as fields discovered five to six years ago come online, he said. It is also shifting the focus of its drilling closer to existing production facilities, which would be simpler and less expensive to develop than new areas.

Algeria is a country that is under explored, said Sid Ali Betata, president of the National Agency for the Development of Hydrocarbon Resources, with an average of 15 wells per 10,000 km2. However, drilling has become too expensive, he said.

Changing perceptions

The nation lacks the funds and foreign investment needed to underpin a long-term recovery in output. Of the 31 oil and gas exploration blocks offered in tender in the last auction in 2014, only four permits were awarded. Corruption probes at Sonatrach, the threat of terrorism from both the regional al-Qaeda affiliate and Islamic State, and uncertainty over the health of President Abdelaziz Bouteflika, 79, has dimmed the nation’s appeal to investors.

The government is working to change perceptions. Algiers hosted a joint conference for foreign investors with the UK on Sunday and plans another with the European Union on Tuesday. In the long term it seeks to change regulations, increase deliveries of natural gas to Europe, develop renewables and increase energy efficiency.

This is not the right time to offer oil and gas exploration rights because low prices discourage companies from bidding, Energy Minister Khebri said in Algiers Sunday. “We are now engaged in direct negotiations with foreign oil and gas companies to seek their views for the right moment to hold the bidding round,” he said.

In the meantime, the drills will keep turning, but won’t do enough to solve the nation’s problems, said Mohamed Said Beghoul, a former director of exploration at Sonatrach and industry veteran of 30 years.

“We can’t just open a tap,” he said. “We have a problem with old installations, we have to renovate them.”

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