New base 480 special 17 november 2014

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NewBase 17 November 2014 - Issue No. 480 Khaled Al Awadi

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

Kuwait To Sell Dow Chemical’s Petchem Venture Shares To Public -Exec By Reuters + KUNA + NewBase

Kuwait plans to offer to the public the shares in Kuwaiti joint ventures which U.S. petrochemicals giant Dow Chemical Co plans to sell off, state news agency KUNA quoted a senior Kuwaiti executive as saying.

Dow Chemical announced last week that as part of a $7-$8.5 billion divestiture plan, it wouldreduce its equity positions in all of its Kuwaiti ventures, in order to release capital for other strategic purposes. It did not give details. The U.S. company’s investments in Kuwait include a stake in EQUATE, a tie-up with the Kuwaiti government’s Petrochemical Industries Co (PIC) and two other local partners, Boubyan Petrochemical Co and Qurain

Petrochemical Industries Company. EQUATE produces over five million tonnes of petrochemical products annually.

KUNA quoted PIC’s chief executive Asaad al-Saad as telling a news conference that the shares which Dow Chemical divested would be offered to Kuwaiti citizens in initial public offers.

He did not elaborate on how these offers would work or when they would occur. Consultants will be hired to assess the size of Dow Chemical’s assets in Kuwait, and the U.S. firm will remain a strategic partner of PIC, he said.

Dow Chemical’s other joint ventures in the country include Kuwait Olefins Co, which owns an ethane cracker and an ethylene glycol production unit, and Kuwait Styrene Co, which makes styrene monomer.

In the last several months, Kuwait’s government has shown renewed interest in offering shares in state-controlled assets to the public, as a way to share the country’s oil wealth with its citizens and impose market more discipline on companies.

Last month sovereign wealth fund Kuwait Investment Authority said it had decided to resume selling stakes in big local firms to the public, aiming to offer its stake in Kuwait Investment Co in the first half of 2015.

Dow Chemical has had a sometimes rocky relationship with PIC; last year it received $2.2 billion in damages from PIC after an international arbitrator ruled against the Kuwaiti firm for pulling out of a planned plastics joint venture in 2008. However, Saad denied the dispute had anything to do with Dow Chemical’s divestment decision, KUNA reported.




GCC chemicals Feed China’s appetite for Chemicals: GPCA Gulf News + NewBase

China accounted for 39.5mn tonnes of chemicals from the GCC countries last year, data provided by the Gulf Petrochemicals and Chemicals Association (GPCA) show.

The development of China’s manufacturing sector has enhanced demand for raw materials, including chemicals. As a result, GCC chemicals exports to China grew by an estimated 13% a year over the last ten years, with nearly 60% of GCC chemicals and plastics export going to Asia, GPCA said.

“Given their significant feedstock advantage, petrochemical and chemical producers from the GCC countries have established strong foothold in China as their exports to this market have increased consistently over the past decade,” said Dr Abdulwahab al-Sadoun, GPCA secretary-general.

“With US shale gas changing the global energy and petrochemical landscape, the relationship between the GCC and China is ever more important.”

China is the world’s biggest chemical market, and is still growing at double digit rates, faster than the country’s GDP. Last year, China’s chemical industry was valued at $1.31tn. China imported 5.52mn tonnes of polyethylene (PE) resins in the first seven months of this year, up by 14.6%.

Its polypropylene (PP) resins important totalled 2.98mn tonnes during the same period, up by 7.68%.

“This is a clear signal that China has an unquenchable thirst for consumer grade plastic — a demand that can be ably filled by GCC producers over the next few years,” continued al-Sadoun said.




According to China’s national customs agencies, the country imported 3.01mn tonnes of polyethylene from the GCC countries in 2013, which accounted for 34% of the country’s total PE imports that year. China imported 1.18mn tonnes of PP in 2013, with GCC material accounting for 24%.

According to the GPCA, more PE and PP volumes are expected to flow from the GCC to China going forward in view of new plants scheduled to come on stream in the Gulf region over the next few years. “The chemical industries in the GCC and China have boomed in parallel over the last 30 years,” al-Sadoun said.

“GCC producers are seeking a role as enabler of the economy of the future and are indispensable players in China’s economic development. At the same time, GCC petrochemical producers are seeking to develop the downstream hydrocarbon industry as part of their Gulf-based sustainability efforts.”

“Both markets have to move to higher value products, accelerated by increased competition from the US. Partnerships are therefore an important way forward and during our the annual flagship conference for the GCC petrochemical and chemical industry in the region, the 9th Annual GPCA Forum, we have dedicated a special seminar to how China’s economic outlook with impact the GCC and what factors are essential to a successful China-GCC partnership — from the perspective of both parties,” al-Sadoun added.

The annual ‘Facts & Figures’ report of the Gulf Petrochemicals and Chemicals Association will be released during the 9th Annual GPCA Forum taking place in Dubai from November 23 to 25.




Saudis discuss Indian oil storage at G20 talks The National + NewBase

Saudi Arabian and Indian officials met at the G20 meeting in Brisbane on Sunday to discuss, among other matters, investment by the kingdom in strategic oil storage in India.

The talks come as Saudi policymakers weigh moves to help deal with a slide in oil prices that has resulted in world oil benchmarks falling by more than 30 per cent since midsummer highs, and which shows no sign of abating any time soon.

Indeed, the International Energy Agency said on Friday that oil prices were likely to weaken further in coming months because of seasonally weak demand. Even when a pickup in the world

economy helps to soak up the excess supply, which is forecast for next year, the world oil markets look to be heading into a period of structural oversupply, the IEA said.

“It is increasingly clear that we have begun a new chapter in the history of the oil markets,” the IEA, the Paris-based rich countries’ energy think tank, concluded in its latest world oil market report.

Meanwhile, Saudi Arabia’s deputy premier, Crown Prince Salman bin Abdulaziz Al Saud, met the Indian prime minister Narendra Modi on the sidelines of the G20 meeting to discuss energy and other matters, according to Saudi Press Agency.

This follows a meeting two weeks ago when India’s petroleum minister, Dharmendra Pradhan, met his Saudi counterpart, Ali Al Naimi, and invited Saudi investment in strategic oil storage capacity in India, which imports 70 per cent of its crude and relies on the kingdom for about a fifth of those imports.

Saudi Aramco owns or leases oil storage facilities around the world to help manage the supply of its oil to the market, including Rotterdam (3.9 million barrels), Sidi Kerir (the Sumed pipeline terminal on Egypt’s Mediterranean coast) and Japan (6.3m barrels). At the end of last year, the Saudis extended their strategic storage deal with Japan, which was initiated in 2007, for another three-year period and increased its capacity.

Storage has proved to be an important way to relieve at least some pressure on world markets, with governments and commercial interests putting oil in storage when there are temporary declines in price.

The Chinese, for example, were building their strategic petroleum reserve this year as prices declined, according to the IEA. But as oil supply has consistently outstripped demand for months now, the world’s storage

levels have gone above their average for this time of year and seem to be headed higher, especially as the Chinese strategic storage space seems to be full.




Pakistan: Mari Petroleum increases gas production at Zarghun South Source: Jura Energy

JV partner Jura Energy announced November 12 the successful full commissioning of the surface processing facilities at the Mari Petroleum-operated Zarghun South gas field and a consequent significant increase in sale gas volumes from the field.

As disclosed in Jura’s press release dated August 13, 2014, 'off specification' gas was being sold from the field under an interim gas sale arrangement (the 'Interim Arrangement') due to a delay in the commissioning of an Amine Sweetening Unit. The “off specification' gas was being sold at a 30% price discount.

Following full commissioning of the processing facilities, gas supplied to Sui Southern Gas Company Limited ('SSGCL') now meets the specification requirements provided under the Gas Sale and Purchase Agreement with SSGCL and is no longer being sold at a 30% price discount for 'off specification' gas. The field is now producing approx. 17 MMcfd (6.8 MMcfd net to Jura) of sales gas, a significant increase from sales gas volumes during the Interim Arrangement of approx. 4 MMcfd (1.6 MMcfd net to Jura). The condensate to gas ratio is in the range of 1.2 to 1.9 bbl per MMcf.

Approx. 80% of Zarghun South’s reserves are certified as 'tight gas' under Pakistan’s Tight Gas (Exploration and Production) Policy, 2011. Tight gas is expected to be entitled to a price of US$ 6.74 per MMBtu. Conventional gas will be to be sold at US$ 2.73 per MMBtu. Accordingly, the expected monthly revenue to Jura from the Zarghun South gas field is estimated to be US$ 715,000 (net of 12.5% royalty).

'Bringing Zarghun South into full scale production is a highly significant event for Jura. Zarghun South is Jura’s second-largest asset, by reserves, and is now by far our largest asset in production. The cashflows projected from the field mean that 2015 is expected to be Jura’s first ever profitable year,' commented Shahid Hameed, Jura’s Chief Executive Officer.

The Zarghun South lease covers an area of approx. 124 sq km in the western part of the Sulaiman Fold and Thrust Belt of the Middle Indus Basin. It is strategically located near the gas demand centre of the city of Quetta. Jura holds a 40% working interest in Zarghun South, which is operated by Mari Petroleum Company.




Statoil risks millions of dollars in Canada Reuters + NewBaase

Norway’s Statoil risks millions of dollars in extra costs in Canada — a test case that could spell problems for other oil firms too as coastal states extend their seabed territories far into resource-rich ocean depths.

Coastal nations are using UN laws to extend and define new limits to their seabed territories, pushing beyond a previously established 200-nautical mile (370 kms) zone for drilling and mining as technology opens new frontiers in finding deepwater oil and gas.

But that extended territory comes with a bill to pay a percentage of future revenues to the UN body that monitors the international seabed – something governments are seeking to pass on to oil and mining firms.

The rules – articles of the UN Convention on the Law of the Sea – have thus far been irrelevant because the regions beyond the previous limit are so remote they would have cost too much to develop. But industry advances have lately opened up huge deepsea possibilities from the Arctic Ocean to the Pacific: specialist firm Transocean drilled a well in a record 3,174 metres (10,411 feet) of water off India last year. Dozens of states have made submissions to the UN Commission looking at seabed rights. However all eyes are on

Canada’s extended territories as the test case for oil companies because Statoil has found potential new fields there. Assuming oil production goes ahead, Canada and Statoil will be the first to become liable to Article 82 - the part of UN law that lays out the terms of the payments to the International Seabed Authority (ISA).

The payments start at one% of revenues in the sixth year of production and rise by one percentage point a year to a maximum of 7% from the 12th year. “It does seem likely that the Statoil field will be the first Article 82 area to go into production,” said Michael Lodge, legal counsel to the Jamaica-based ISA, which would collect revenues and redistribute them, mostly to developing nations.

Statoil this month started appraisal drilling, the second step after initial exploration, with its partner Husky Energy, 270 nautical miles (500km) off Newfoundland in Canada - a remote area near where the Titanic sank in 1912.




It estimates that finds off Canada in depths of about 1,200 metres at the Bay du Nord field could be 300-600mn barrels of recoverable oil, another at its Mizzen field 100-200mn. A third find, Harpoon, has yet to be fully assessed. Based on a scenario in which Statoil produced just 400mn barrels of oil from Bay du Nord and Mizzen, over a typical field lifetime of 15 years and with oil prices around the current $80 a barrel, the ISA could be owed some $1bn.

That assumes that payments are based on gross revenues — Article 82 does not specify whether gross or net.

Francois Lasalle, spokesman for Canada’s Foreign Affairs

department, said the government had yet to figure out exactly how to pay but that a decision was not needed until the sixth year of any production.

Statoil declined to comment on how Article 82 might affect its business, including whether it was making provisions for extra costs. “We are now focused on building a better understanding of the geology and resource potential,” spokesman Knut Rostad said of an 18-month appraisal drilling programme.

Under UN rules, nations own the seabed beyond 200 miles when it is an “extended continental shelf”, usually of shallow water. But rules to define the outer limits let states stake out bigger-than-expected areas, sometimes to depths of 5,000 metres.

“Interpretation can be quite open,” said Yannick Beaudoin, head of the Marine Division at GRID-Arendal, an independent foundation in Norway that works with the UN and helps developing states map rights to the shelf. That is almost the size of Africa and nearly double the size of early estimates.

The Commission cannot rule on overlapping claims – Russia, Canada and Denmark all claim the North Pole - and it has a big backlog. But it has approved about a dozen submissions. That means, says Canadian legal expert Wylie Spencer, that many oil firms could be affected in future by Article 82 if they start to operate in frontier areas such as off West Africa, Brazil or Russia.

“They have to beware,” said Spicer, who has briefed the UN about the risks. “Everybody used to say that Article 82 was dormant but now it’s waking up.” Canada, Norway and the US, which has not signed up to the law of the sea, have already started warning potential bidders for leases far offshore of the risks of Article 82, he said.




US:Natural gas is the dominant heating fuel in colder parts of the country Source: U.S. Energy Information Administration, Short-Term Energy Outlook

Natural gas consumption varies widely by region of the country. The majority of households that

heat with natural gas are located in the Midwest and Northeast. In the upcoming winter months,

homes in the East North Central Census division are expected to consume the most natural gas,

but not as much as last winter.

Extreme cold weather in natural gas-intensive regions caused unexpectedly high consumption

during the winter of 2013-14.

Residential and commercial consumers use natural gas primarily for space heating. The East

North Central Census division (Wisconsin, Michigan, Illinois, Indiana, and Ohio) is the largest

residential and commercial natural gas-consuming division in the country, making up 28% of all

residential consumption and 24% of commercial consumption in 2013.

Because the East North Central Census division has the largest number of households heating

with natural gas, its collective response to changes in weather (as measured by heating degree

days) is greater than in any other region (see maps below).

The response to changes in heating degree days in the South Atlantic Census division (which has

about 6 million homes that heat primarily with natural gas) is similar to that of the Pacific and Mid-

Atlantic Census divisions (where 10.2 and 9.4 million households, respectively, heat with natural

gas).

This response may be attributable to natural gas used as a secondary heat source, like in natural

gas fireplaces or as the supplemental heat source to air-source heat pumps. When temperatures

drop below a certain threshold (usually around freezing temperatures), heat pumps rely on a

supplemental heat source.




The National Oceanic and Atmospheric Administration projects that temperatures this coming

winter will be closer to normal. The most recent Short-Term Energy and Winter Fuels

Outlook projects that residential and commercial prices will be higher than they were last year,

largely because through 2014 (when utilities began buying natural gas for the upcoming winter)

prices have averaged higher than year-ago levels, and are currently higher than a year ago.

However, EIA projects lower residential heating bills for consumers because of lower

consumption.




Oil Price Drop Special Coverage

Oil must be left to supply and demand, says Saudi F.M Saudi Gazette + NewBase The G20 summit in Brisbane did not focus on the instability of oil prices as there is general agreement that the issue must be left to supply and demand, Saudi Arabian Finance Minister Ibrahim Al-Assaf said on Sunday. “...In the past the Kingdom’s role in oil market stability has been praised, so the issue has been discussed before and therefore didn’t get the same attention like the previous meetings,” Al-Assaf, who attended the meeting, told Al Arabiya television. “Everybody agrees that the issue is subject to supply and demand and has to be left to supply and demand. Al-Assaf was replying to a question on whether the recent plunge in oil prices was on the G20 agenda. The oil prices fell to a four-year low level across all baskets as sluggish demand, ample supply and a strong US dollar continued to be the key points pressuring the oil market, said a report released by KAMCO Investment Research Department Sunday “The OPEC Reference Basket slumped to a four-year low this month to average around $85.1/b in October, the lowest level since Dec-2010, down substantially by $10.9/b or around 11.4 percent below last month’s price level when it reached an average of $95.98/b, and closed the month at a low of $81.97/b,” the report said “Moreover, the basket saw a further drop during the early part of November by around 7.5 percent, to reach a low of $77.27/b as of Nov. 11, 2014 and average around $78.66/b, a level last seen since Sept. 2010. The basket’s accumulated loss since it peaked in June up till Nov. 11, 2014 reached around $29.2/b, reflecting the ongoing pressure on all crude oil prices. “Likewise, on a Year-to-date (YTD) basis, OPEC Reference Basket’s value was 3.8 percent lower compared with the same period one year earlier, standing at an average of $101.79/b compare to an average of $105.79/b a year ago,” KAMCO added. The report stated that the oil prices losing streak continued for the fourth consecutive month in Oct. 14 across all baskets on concern that supply from US unconventional fields is rising faster than global demand as well as about the pace of global economic growth “Likewise, oil futures tumbled further during October as weak oil market fundamentals, a stronger dollar and financial-related sell-offs continued to pressure crude oil markets,” noted the report. “On the other hand, Kuwait Blend Spot Price FOB averaged $84.6/b, down from an average of $96.2/b in Sep. 2014 or by around 12.1 percent, and closed the month at a low of $81.12/b; moreover, prices continued the downward movement to drop by around 8.5 percent during the first week of November to reach $72.96/b as of Nov. 13, 2014.” Meanwhile, the data also showed




that European Brent Spot Price FOB averaged around $87.4/b, down from an average of $97.3/b recorded during Sept. 2014. The basket closed the month at $84.17/b. With regard to the world oil demand, the KAMCO estimated that the total world oil demand growth for 2014 at 1.05 mb/d, or an increase of 1.17 percent, to stand at 91.19 mb/d compared to 90.14 mb/d for the year 2013.

Moreover, the report expected that the total world oil demand for 2015 would expand at a higher rate than the previous year, growing by 1.19 mb/d from the 2014 level to average around 92.38 mb/d. “The expected growth level in 2015 of around 1.31 percent implies an increase of 0.14 mb/d from the growth forecasted for this year. According to OPEC

Monthly Oil Report, the data shows that non-OECD countries are expected to lead oil demand growth with 1.20 mb/d in total demand while OECD nations are predicted to show a marginal drop of 20 tb/d,” reads the report. “The key factor affecting the world oil demand projections in 2015 remains the progress of economic development in major economies around the globe,” it noted. Oil prices are expected to drop into 2015, the International Energy Agency said in its Oil Market Report Friday morning. Downward price pressure is expected to continue into the first half of next year, with oil demand falling to five-year lows while oil production shows no sign of decreasing. Crude oil prices have dropped around 30 percent since June to a four-year low, with a strong US dollar and rising US light oil output outweighing any disruptions in the global oil distribution. Brent and WTI crude were both below $80 per barrel as of Thursday morning.

Kuwait Cabinet Calls For Steps To Address Oil Price Slide KUNA + NewBase

Kuwait’s cabinet called for practical steps to address the slide in oil prices on Sunday at a special session convened to examine weakening energy markets, official media in the petroleum-dependent OPEC member country reported.

“They stressed the necessity of initiating practical measures to face the impact of potential further decline in prices and remedying the existing economic imbalances,” the official KUNA news agency reported, referring to officials.

Participants reviewed a report on prices submitted by Minister of Oil Ali al-Omair and senior officials at the Kuwait Petroleum Corporation, and discussed “the potential risks and implications of the drop in state revenue, the budget and on the national economy and economic plan in general”, KUNA said.




Kuwait has one of the strongest fiscal positions among the Gulf oil exporters; it needs a crude oil price of just $54 per barrel for its state budget to break even, according to the International Monetary Fund.

But its heavy dependence on oil income makes its economy more vulnerable to lower crude oil prices and output. Benchmark brent crude LCOc1 dipped under $80 per barrel last week, a four-year low, compared with a June high above $115.

Iran Oil Minister Slams Producers For Not Cutting Output By Reuters

Iran’s oil minister accused some countries on Sunday of making up excuses to justify their refusal to stabilise prices by cutting output, a possible reference to Saudi Arabia as a Saudi official insisted the issue should be left to market forces.

“Certain countries had raised their production after the exit of several countries from the cycle of oil production,” Iran’s Bijan Zanganeh said, referring to international sanctions that have forced his country to cut its exports sharply.

“Now it is difficult for them to reduce their production for market stability and they fabricate different pretexts for their action,” Zanganeh said, quoted by his ministry’s news agency Shana.

Zanganeh did not name the countries but he may have been referring to Saudi Arabia, the world’s top oil exporter and dominant force within the Organization of the Petroleum Exporting Countries.

Saudi Finance Minister Ibrahim Alassaf said on Sunday that while his country had been praised in the past for preserving oil market stability, “Everybody agrees that the issue is subject to supply and demand and has to be left to supply and demand.”

Brent crude oil last week hit four-year lows below $80 a barrel on concerns about oversupply. Oil has fallen from a June high above $115 . Few analysts think OPEC will do much to prop up prices when it meets on Nov. 27.

Zanganeh visited Qatar and Kuwait last week, ahead of the meeting, in a bid to win support for action to stabilise oil markets, though there was no sign that those countries would cooperate with Iran. He plans to visit the United Arab Emirates on Tuesday.

On the Qatari and Kuwaiti positions, “We cannot tell one hundred percent how close our views are…” Zanganeh said.

Iran needs a much higher oil price to balance its state budget than Saudi Arabia, so oil’s tumble in recent months has put it under severe financial pressure. Zanganeh said on Saturday that Tehran would dip into its sovereign wealth fund to cope with the economic impact.




He also said on Sunday that low oil prices were disrupting the stability and growth of shale oil production, and that the OPEC meeting was expected to discuss the effects of shale oil on the market.

Oil price fall fuel energy sector deal speculation BY REUTERS

Talks that could lead to oilfield services provider Halliburton buying rival Baker Hughes may heraldincreased deal-making in the energy business as companies bet on a protracted drop in oil prices,industry bankers said

Competing service companies including National Oilwell Varco and Weatherford International mayalso be targets, bankers and lawyers said. In any deal, the incentives will be the same:consolidation would allow them to better weather the downturn and resist pressure from oilproducers to slash prices.

The Baker Hughes/Halliburton talks have stalled after the companies weren't able to agree onissues including price, people familiar with the matter said

As oil prices fall, oil field service companies get squeezed, one industry lawyer said. That'sbecause when prices fall far enough, it's no longer economical to get oil out of the ground. If it'stoo expensive to drill, there's no need to pay an oilfield service company. "The services guys arethe last marginal dollar," the lawyer said

While services companies are likely to feel the effect of lower oil prices sooner, overleveragedexploration and production companies may also be pushed to do deals over the medium term,bankers said. Such companies could include Apache, Hess, Marathon Oil or Devon Energy,bankers said

Those four exploration companies along with the oil services companies including Baker Hughes,

In any deal, the incentives will be the same: consolidation would allow them to better weather the

downturn and resist pressure from oil producers to slash prices. Photo - File




all have market values that range between about $20 billion and $31 billion. In the end, priceexpectations will decide whether upstream exploration and production companies turn into sellers.If sellers' management believe the oil price will rebound fairly soon, sellers would wait until then,hurtin g chances for large deals. Brent crude traded at $79.60 a barrel on Friday, down from$115.06 on June 19

Until prices stabilise, exploration and production company deals will likely remain asset-level dealsin distressed situations such as Samson Resources' sale of its Bakken assets. "Certainly there willbe instances where you will find more compromised balance sheet operators possibly being moreinclined to sell their entire position," said Ted Harper, a fund manager at Frost InvestmentAdvisors in Houston

Not all will be targets, he said. Some exploration and production companies will seek to buy at adiscount additional potential reserves near where they are already drilling "to enhance returnsfrom existing production," he said

Because exploration and production companies will slow or stop drilling if they are not makingmoney, there is enormous pricing pressure on oil field services providers as oil prices fall. Indeed,the tumbling price may have pushed the companies into a dialog, especially if Halliburton'smanagement believes that oil prices could remain low for some time

While Halliburton 'has first mover advantage' in its bid to acquire Baker Hughes, "it's commonknowledge that Schlumberger made a run at Baker Hughes years ago to plug a major hole in(well) completions. That hole remains unfilled," Bill Herbert, oilfield analyst at energy-focusedinvestment bank Simmons told clients on Friday

"Further, General Electric (GE) is lurking in the shadows as well, manufacturing cultures arecomparable," said Herbert. General Electric has a large oil and gas business. While anotherbidder for Baker Hughes may not emerge, oilfield services companies and private equity firms willbe looking to buy up any Baker Hughes business units shed to meet antitrust requirements if theHalliburton deal goes through, bankers said

"There is going to be reasonably competitive bidding on the part of the General Electrics, theNational Oilwell Varcos and some of the midcap players," said Frost's Harper.

Hallibaker’ merger bid shows consolidation as early symptom of oil price slide

The National + NewBase

The year’s most striking oil merger bid turned hostile on Friday when Baker Hughes said that Halliburton was seeking to replace its entire board.

World No 2 oil services company Halliburton and No 3 Baker Hughes confirmed on Thursday that they were in talks to combine, but discussions soon stalled over the price and planned asset sales.

The merger would create a company with a market capitalisation of more than US$71 billion, second only to

sector leader Schlumberger’s $122bn. Baker Hughes is the descendant of Hughes Tool Company, the most profitable but least flashy part of the business empire of Howard Hughes.




Wildcatters in the chilly waters of the Arctic or the Kurdish mountains, or the giants of the oil business such as Shell and Total, tend to get the headlines. But oil services are essential to the industry’s smooth functioning. The firms conduct seismic surveys to locate possible oil and gasfields; drill wells; log them to determine what rocks they are passing through; and equip them for maximum and safe production.

BP’s disastrous Macondo well, where the well was not properly cemented to block the flow of unwanted fluids, is a reminder of how crucial these tasks are. These days, the service firms – not the oil companies – develop most of the industry’s new technology.

The timing of the deal may be opportunistic. Baker Hughes shares were down 30 per cent since their high in July, as the fall in oil prices encouraged their customers to cut spending. But consolidation in the service industry has been looming. Many new entrants in recent years, attracted by demand from shale operators, do not have the economies of scale of the bigger service companies, nor the strength to resist being squeezed on price by their customers.

Profits margins at Baker Hughes in hydraulic fracturing are only about half of those at Halliburton. However, the combined company would have had higher revenues than Schlumberger for last year, although its net profit margin of 6 per cent was well below Schlumberger’s 15 per cent.

About half of the merged business may raise “antitrust” or competitive concerns, with the authorities likely to require sales of assets totalling about $10bn. “Hallibaker” would have more than half of the market for cementing wells and completing them for production, and about 40 per cent of drill bits (the ceramic or diamond teeth that actually cut through the rock) and hydraulic fracturing – the technology behind the shale boom.

These service companies are particularly important in the Middle East. International oil companies are hardly present in Saudi Arabia and Kuwait, but Halliburton, Schlumberger and their peers are essential to the operations of Saudi Aramco, Kuwait Oil Company, and the giant fields of southern Iraq. In turn, Halliburton and Baker Hughes both make about half of their revenues from North America, but the next 17 to 18 per cent comes from the Middle East and Asia, and one of Halliburton’s two global headquarters is in Dubai’s Emirates Towers.

So the merger may concern the region’s national oil companies – which always negotiate resolutely on price, sometimes to the exclusion of quality. A more consolidated oil services sector with pricing power would hamper efforts to reduce costs, at a time that Oman and Saudi Arabia are contemplating massive hydraulic fracturing programmes. On the other hand, “Hallibaker” would compete more directly with Schlumberger for the very biggest projects.

We can expect more such deals as companies struggle to survive, cut costs and shed unwanted assets. And it may be a chance for Chinese, or even Middle Eastern, service companies to pick up new technologies and grow overseas. Whether completed or not, this merger bid shows how the

effects of the lower oil price are already being felt throughout the industry.




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

Your partner in Energy Services

Khaled Malallah Al Awadi, Energy Consultant

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

Mobile : +97150-4822502 [email protected] [email protected]

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has developed great experiences in the designing & has developed great experiences in the designing & has developed great experiences in the designing & has developed great experiences in the designing &

constructingconstructingconstructingconstructing of gas pipelines, gas metering & regulating of gas pipelines, gas metering & regulating of gas pipelines, gas metering & regulating of gas pipelines, gas metering & regulating

stastastastations and in the engineering of supply routes. Many years were spent drafting, & compiling gas transportation , operation & tions and in the engineering of supply routes. Many years were spent drafting, & compiling gas transportation , operation & tions and in the engineering of supply routes. Many years were spent drafting, & compiling gas transportation , operation & tions and in the engineering of supply routes. Many years were spent drafting, & compiling gas transportation , operation &

maintenance agreements along with many MOUs for the local authorities. He has become a reference for many of the Oil & maintenance agreements along with many MOUs for the local authorities. He has become a reference for many of the Oil & maintenance agreements along with many MOUs for the local authorities. He has become a reference for many of the Oil & maintenance agreements along with many MOUs for the local authorities. He has become a reference for many of the Oil &

Gas ConferenGas ConferenGas ConferenGas Conferences held in the UAE andces held in the UAE andces held in the UAE andces held in the UAE and Energy program broadcasted internationally , via GCC leading satellite Channels . Energy program broadcasted internationally , via GCC leading satellite Channels . Energy program broadcasted internationally , via GCC leading satellite Channels . Energy program broadcasted internationally , via GCC leading satellite Channels .

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

NewBase 17 November 2014 K. Al Awadi

New base 480 special 17 november 2014

Economy & Finance

Transcript of New base 480 special 17 november 2014