By Ian Simm
The events of the last few months will have oil and gas firms reaching for their purse strings. With the price of crude dropping from in excess of US$110 per barrel in the summer, to below US$70, investors are certainly feeling the winter chill. However, in the long-run, their fears should not be overblown. We are all aware of the peaks and troughs that delight and blight our industry, and just as the good times come to an end, so do the bad.
With that, and the year-end in mind, it is perhaps a good time to take a look at a few of the areas and themes I expect to rise to prominence in the Middle East during 2015.
1. Kurdish delight
Home to around 45 billion barrels of proven oil reserves, and a comparatively stable and investor-friendly political environment, the Kurdistan Region of northern Iraq should really not be on this list. It has world-class assets, which, in different circumstances, would have already been producing far greater volumes years ago.
As things stand however, output from the region is estimated to be chugging along at between 300,000 and 400,000 barrels per day, with much of it coming from the Taq Taq and Tawke fields, run by a consortium that includes Genel Energy and Norway’s DNO International. News last week that the Kurdistan Regional Government (KRG) had, after what has seemed like an eternity, come to an agreement with Baghdad that will allow both authorities to use the northern arm of the Iraq-Turkey Pipeline (ITP) to transport oil to the Turkish port of Ceyhan. Kurdish operators had been doing this for some time now, but Baghdad took exception, leading to a legal to and fro, which benefited nobody, save for the lawyers of course.
Providing the deal sticks, look for Kurdish output to ramp up in 2015 – good news for Genel and DNO. It will also buoy MOL, Gulf Keystone Petroleum, which operates the Shaikan field, the region’s largest, holding around 9.4 billion barrels of stock tank oil initially in place (STOIIP), and others.
2. Russian involvement
While much of western Iraq has been a no-go zone since the summer incursion by militants from the so-called Islamic State group, projects to the north (see Kurdistan Region above), and the south have remained largely untouched.
Progress in Iraq has been stop-start in 2014, but strides have been made by Russian firms Gazprom Neft and LUKoil at their concessions in the south of the country.
The former has achieved rates of around 15,000 bpd from the Badra oilfield since it was connected to Iraq’s main pipeline system in early September, and the consortium developing the field will begin being reimbursed for the costs incurred.
LUKoil reported in late November that its concession on the second stage of the giant West Qurna field (West Qurna-2) added US$1.25 billion to its third quarter earnings, having shipped the first cargo from the field – of 1 million barrels – in late August. Production from the field, which has estimated recoverable reserves of 13 billion barrels, is estimated to have risen to 280,000 bpd.
Meanwhile, the firm’s CEO, Vagit Alekperov was last week quoted as saying that LUKoil has been “studying” returning to Iran’s Azar and Changuleh onshore oilfields. In addition, the reappearance of barter discussions between Moscow and Tehran points to growing co-operation, which will likely centre on oil.
On the other side of the Gulf, through an 80:20 joint venture with Saudi Aramco – LUKoil Saudi Arabia Energy (LUKSAR) – the Russian firm operates Block A in Rub’ al-Khali (the Empty Quarter).
In mid-2013, vice president Leonid Fedun announced the discovery of 400 billion cubic metres of gas in the desert, and that output would begin the following year.
However, in August, the Saudi Gazette quoted Aramco CEO Khalid al-Falih as saying: “One challenge we have is the pricing of gas is very low in Saudi Arabia and does not make unconventional gas or tight gas in the Rub’ Al Khali economic.” He told the daily that said he hoped the gas price issue would “be addressed by the government in due course,” without providing a timeline.
Setbacks including water scarcity have pushed back the development of these remote projects, but there is an outside chance that a breakthrough will come in 2015.
Russia’s cosying up with Iran has much to do with the sanctions both have had imposed upon them by the US and EU, and if Moscow’s energy investments are spurned by Brussels, then it is unlikely to lack alternatives in the Gulf with deep pockets and deeper reservoirs.
3. Oman’s frontier
To the East, Muscat closed bidding on its 2014 bid round on November 30, with three offshore and two onshore blocks on offer, covering a total of 76,416 square km. Information on these blocks can be found here.
The sultanate has been one of the trailblazers of enhanced oil recovery (EOR) technology, owing to Oman’s notoriously difficult geology and tight formations. French super-major Total is thought to be one of those involved in the bid round, however, as we have previously discussed, despite the expertise and technology available making it possible to increase recovery by more than 10%, Oman’s tight carbonate reservoirs add around US$10-20 per barrel to drilling costs. The country’s offshore offers exciting new potential, which may be less hampered by geological constraints. Companies including Circle Oil and Masirah Oil are involved in the Oman offshore, with the latter announcing last week that it had commissioned a 3-D seismic survey of its Block 50. Circle carried out a survey of Block 52 earlier in the year, and having identified prospects with “upside potential of billions of barrels of oil in place”, the firm is now looking to “farm-out and share the risk on the licence”.
With political uncertainty continuing to shroud much of the Gulf region, Oman is seen as a beacon of stability and attractive investor environs. We expect a new wave of exploratory drilling to begin in the Oman offshore during 2015, while super-majors BP and Total will continue their unconventional onshore programmes.
4. Ghawar and the rest
In addition to what it spends on maintaining production from Ghawar – the world’s largest oilfield – Saudi Arabia has been investing heavily in other oil developments, notably Manifa, Khurais, and Shaybah, to increase output, and this will help offset any production declines at the ageing supergiant.
The Saudis are serious about it too. Khalid al-Falih, CEO of Saudi Aramco has announced plans to spend more than US$40 billion per year on exploration and development from 2014 to 2024, while production from the offshore Manifa field has increased from 500,000 bpd in July 2013 to roughly 900,000 bpd now, Khurais will increase from 1.2 million bpd to 1.5 million bpd by 2017, and output from Shaybah is slated to swell to 1 million bpd from 750,000 bpd by 2017.
There are though to be around 60-70 billion barrels of oil remain at Ghawar, but amid rumours that the water cut is increasing, Aramco is obviously keen to ramp up output from less depleted reservoirs and ease the strain on its largest asset.
As it pursues this strategy, I expect the number of opportunities for engineering firms to grow through 2015. Meanwhile, security firms may also see an increase in demand in the kingdom as a result of the recent spike in unrest.
5. Tehran on the horizon
Still the industry waits, as if King Solomon’s mines had been found, but entrance was prohibited. Iran’s vast hydrocarbon wealth continues to tease foreign firms, but for now the fruit remains forbidden.
The floodgates will not open until the United Nations’ P5+1 and Tehran have come to an agreement regarding the Islamic republic’s contentious nuclear programme. Iranian officials and Iran ‘peddlers’ have iterated and reiterated that this is ‘just around the corner’, but the ‘no decision’ at the last round of talks put another bend in the road.
Iran’s Shana news agency this week announced that US$40 billion worth of oil and gas contracts would be offered along with the announcement of the country’s new contract model in London in February 2015 -tantalising.
There has been a major shift in the way Iran is represented in the western world of late, and at times it has felt like the press has been preparing the groundwork for the image of the Islamic republic to shift from ‘bad guys’ to ‘our old mate in the Middle East’.
Whether or not that is the case, EU firms are champing at the bit to be the first (back) into Iran; apparently none more so (unofficially) than Repsol and Total. Unfortunately for Iran, the timing of the oil price crash could hardly be worse, lessening investor appetite for risk amid a perceived over supply of oil. But as we mentioned earlier, this is likely to be relatively short-lived, and when the market rebounds, Iran will again jump to the fore.
The events of the last few months will have oil and gas firms reaching for their purse strings. With the price of crude dropping from in excess of US$110 per barrel in the summer, to below US$70, investors are certainly feeling the winter chill. However, in the long-run, their fears should not be overblown. We are all aware of the peaks and troughs that delight and blight our industry, and just as the good times come to an end, so do the bad.
With that, and the year-end in mind, it is perhaps a good time to take a look at a few of the areas and themes I expect to rise to prominence in the Middle East during 2015.
1. Kurdish delight
Home to around 45 billion barrels of proven oil reserves, and a comparatively stable and investor-friendly political environment, the Kurdistan Region of northern Iraq should really not be on this list. It has world-class assets, which, in different circumstances, would have already been producing far greater volumes years ago.
As things stand however, output from the region is estimated to be chugging along at between 300,000 and 400,000 barrels per day, with much of it coming from the Taq Taq and Tawke fields, run by a consortium that includes Genel Energy and Norway’s DNO International. News last week that the Kurdistan Regional Government (KRG) had, after what has seemed like an eternity, come to an agreement with Baghdad that will allow both authorities to use the northern arm of the Iraq-Turkey Pipeline (ITP) to transport oil to the Turkish port of Ceyhan. Kurdish operators had been doing this for some time now, but Baghdad took exception, leading to a legal to and fro, which benefited nobody, save for the lawyers of course.
Providing the deal sticks, look for Kurdish output to ramp up in 2015 – good news for Genel and DNO. It will also buoy MOL, Gulf Keystone Petroleum, which operates the Shaikan field, the region’s largest, holding around 9.4 billion barrels of stock tank oil initially in place (STOIIP), and others.
2. Russian involvement
While much of western Iraq has been a no-go zone since the summer incursion by militants from the so-called Islamic State group, projects to the north (see Kurdistan Region above), and the south have remained largely untouched.
Progress in Iraq has been stop-start in 2014, but strides have been made by Russian firms Gazprom Neft and LUKoil at their concessions in the south of the country.
The former has achieved rates of around 15,000 bpd from the Badra oilfield since it was connected to Iraq’s main pipeline system in early September, and the consortium developing the field will begin being reimbursed for the costs incurred.
LUKoil reported in late November that its concession on the second stage of the giant West Qurna field (West Qurna-2) added US$1.25 billion to its third quarter earnings, having shipped the first cargo from the field – of 1 million barrels – in late August. Production from the field, which has estimated recoverable reserves of 13 billion barrels, is estimated to have risen to 280,000 bpd.
Meanwhile, the firm’s CEO, Vagit Alekperov was last week quoted as saying that LUKoil has been “studying” returning to Iran’s Azar and Changuleh onshore oilfields. In addition, the reappearance of barter discussions between Moscow and Tehran points to growing co-operation, which will likely centre on oil.
On the other side of the Gulf, through an 80:20 joint venture with Saudi Aramco – LUKoil Saudi Arabia Energy (LUKSAR) – the Russian firm operates Block A in Rub’ al-Khali (the Empty Quarter).
In mid-2013, vice president Leonid Fedun announced the discovery of 400 billion cubic metres of gas in the desert, and that output would begin the following year.
However, in August, the Saudi Gazette quoted Aramco CEO Khalid al-Falih as saying: “One challenge we have is the pricing of gas is very low in Saudi Arabia and does not make unconventional gas or tight gas in the Rub’ Al Khali economic.” He told the daily that said he hoped the gas price issue would “be addressed by the government in due course,” without providing a timeline.
Setbacks including water scarcity have pushed back the development of these remote projects, but there is an outside chance that a breakthrough will come in 2015.
Russia’s cosying up with Iran has much to do with the sanctions both have had imposed upon them by the US and EU, and if Moscow’s energy investments are spurned by Brussels, then it is unlikely to lack alternatives in the Gulf with deep pockets and deeper reservoirs.
3. Oman’s frontier
To the East, Muscat closed bidding on its 2014 bid round on November 30, with three offshore and two onshore blocks on offer, covering a total of 76,416 square km. Information on these blocks can be found here.
The sultanate has been one of the trailblazers of enhanced oil recovery (EOR) technology, owing to Oman’s notoriously difficult geology and tight formations. French super-major Total is thought to be one of those involved in the bid round, however, as we have previously discussed, despite the expertise and technology available making it possible to increase recovery by more than 10%, Oman’s tight carbonate reservoirs add around US$10-20 per barrel to drilling costs. The country’s offshore offers exciting new potential, which may be less hampered by geological constraints. Companies including Circle Oil and Masirah Oil are involved in the Oman offshore, with the latter announcing last week that it had commissioned a 3-D seismic survey of its Block 50. Circle carried out a survey of Block 52 earlier in the year, and having identified prospects with “upside potential of billions of barrels of oil in place”, the firm is now looking to “farm-out and share the risk on the licence”.
With political uncertainty continuing to shroud much of the Gulf region, Oman is seen as a beacon of stability and attractive investor environs. We expect a new wave of exploratory drilling to begin in the Oman offshore during 2015, while super-majors BP and Total will continue their unconventional onshore programmes.
4. Ghawar and the rest
In addition to what it spends on maintaining production from Ghawar – the world’s largest oilfield – Saudi Arabia has been investing heavily in other oil developments, notably Manifa, Khurais, and Shaybah, to increase output, and this will help offset any production declines at the ageing supergiant.
The Saudis are serious about it too. Khalid al-Falih, CEO of Saudi Aramco has announced plans to spend more than US$40 billion per year on exploration and development from 2014 to 2024, while production from the offshore Manifa field has increased from 500,000 bpd in July 2013 to roughly 900,000 bpd now, Khurais will increase from 1.2 million bpd to 1.5 million bpd by 2017, and output from Shaybah is slated to swell to 1 million bpd from 750,000 bpd by 2017.
There are though to be around 60-70 billion barrels of oil remain at Ghawar, but amid rumours that the water cut is increasing, Aramco is obviously keen to ramp up output from less depleted reservoirs and ease the strain on its largest asset.
As it pursues this strategy, I expect the number of opportunities for engineering firms to grow through 2015. Meanwhile, security firms may also see an increase in demand in the kingdom as a result of the recent spike in unrest.
5. Tehran on the horizon
Still the industry waits, as if King Solomon’s mines had been found, but entrance was prohibited. Iran’s vast hydrocarbon wealth continues to tease foreign firms, but for now the fruit remains forbidden.
The floodgates will not open until the United Nations’ P5+1 and Tehran have come to an agreement regarding the Islamic republic’s contentious nuclear programme. Iranian officials and Iran ‘peddlers’ have iterated and reiterated that this is ‘just around the corner’, but the ‘no decision’ at the last round of talks put another bend in the road.
Iran’s Shana news agency this week announced that US$40 billion worth of oil and gas contracts would be offered along with the announcement of the country’s new contract model in London in February 2015 -tantalising.
There has been a major shift in the way Iran is represented in the western world of late, and at times it has felt like the press has been preparing the groundwork for the image of the Islamic republic to shift from ‘bad guys’ to ‘our old mate in the Middle East’.
Whether or not that is the case, EU firms are champing at the bit to be the first (back) into Iran; apparently none more so (unofficially) than Repsol and Total. Unfortunately for Iran, the timing of the oil price crash could hardly be worse, lessening investor appetite for risk amid a perceived over supply of oil. But as we mentioned earlier, this is likely to be relatively short-lived, and when the market rebounds, Iran will again jump to the fore.
