New base 775 special 28 january 2016

Copyright © 2015 NewBase www.hawkenergy.net Edited by Khaled Al Awadi – Energy Consultant All rights reserved. No part of this publication may be reproduced, redistributed,

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NewBase 28 January 2016 - Issue No. 775 Edited & Produced by: Khaled Al Awadi

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Kuwait plans to expand crude production to

Bloomberg Gulf News + NewBase

Kuwait Petroleum Corp. is considering selling bonds to help pay for a planned investment of $100 billion over the next five years to boost oil output, echoing plans by Saudi Arabia to maintain spending on energy projects as global producers compete for market share.

State-run KPC is looking at issuing bonds and Islamic securities known as sukuk, the company’s chief executive officer Nizar Al Adsani said at a conference in Kuwait City. KPC had announced plans earlier this month to arrange a $10 billion loan to expand refineries to make cleaner-burning fuels. Kuwait, OPEC’s fourth-biggest producer, plans to expand its crude- production capacity to 4 million barrels a day by 2020, he said Tuesday.

A -Adsani’s remarks came a day after Khalid Al Falih, chairman of state-owned Saudi Arabian Oil Co., said his company, the world’s biggest producer, has formulated a new strategy in response to cheaper crude and is keeping up its investments. Together, the comments of both officials suggest that at least two of OPEC’s core Arab producers are doubling down in long-term bets on their energy assets.

“The world market will need around 5 to 6 million barrels a day of new crude annually,” Al Adsani said. “This shows the importance of continuity in investments in upstream globally for the sake of stable market supply and to avoid volatility and spikes in oil prices.”




Opec Production Kuwait, with fellow Arab producers in the Arabian Gulf including Saudi Arabia, led the Organisation of Petroleum Exporting Countries to abandon output limits on Dec. 4 amid efforts to squeeze higher-cost producers such as Russia and US shale drillers from the market. The small nation of 3.7 million people holds 101.5 billion barrels in crude reserves. Its production rose by 50,000 barrels a day to 2.9 million barrels a day in December, according to data compiled by Bloomberg.

Kuwait will study other means of financing its oil-investment push, including bonds, sukuk, and project bonds, KPC’s Al Adsani said. “This will open up the possibility for KPC to be rated by international credit agencies,” he said.

“KPC will continue in its role in the market as set in its strategy to 2030 which requires launching many mega-projects and investments in refining and petrochemicals outside of Kuwait, beside raising the daily crude production capacity,” Al Adsani said. Saudi Aramco Oil producers in the Gulf region shouldn’t reduce output and risk losing buyers, Ali al-Jarwan, chief executive officer of state-run Abu Dhabi Marine Operating Co., said at the same conference. Crude prices will remain low for a long period, he said, without specifying prices or the length of time.

“We should not be surprised that Opec countries are defending their market share because oil is a main source of revenues for their economies,” Kuwait’s Opec Governor Nawal Al Fezaia told reporters in Kuwait on Tuesday.

Benchmark Brent crude tumbled 35 per cent last year and an additional 16 per cent this month as volatility in global markets compounds concern

over brimming US

stockpiles, unfettered production from Saudi Arabia and Russia and an expected revival in Iranian shipments after

the end of sanctions. Brent was trading at $31.27 a barrel Wednesday at 9.24pm in London.

Saudi Arabian Oil, known also as Aramco, pumped more than 10 million barrels a day in each of the last 10 months as it sought to assert its role as the world’s lowest-cost producer. The company’s output was 10.25 million barrels a day in December, adding to a global supply glut. Aramco is studying options to sell shares in its parent company and downstream refining and chemical operations, Al Falih said.




Saudi Aramco dials back IPO talk The National - Anthony McAuley

Now that Saudi Arabia’s state oil company Aramco has taken its main asset – its oil reserves – off the table, what part of the company might it actually offer for sale to the public? Ever since the idea of an initial public offering of shares in Aramco was floated by Mohammed bin Salman, deputy crown prince and 30-year-old son of Saudi Arabia’s King Salman, in an interview with The Economist this month, Aramco officials have been busy dialling back expectations.

The latest comments came from Aramco’s chairman, Khalid Al Falih, who took the air out of all the excited talk of a “multitrillion-dollar” flotation, although still leaving it vague what assets might actually be up for sale.

“The oil reserves belong to the state,” he said in an interview with Al Arabiya, a Saudi-owned broadcaster, while attending the Davos summit. “What will be offered is the economic value of Saudi Aramco, and not its oil reserves … [that is to say] the ability of

the company to produce from those reserves.” In typically Delphic fashion, he expanded slightly on those comments this week at a conference in Riyadh, saying options being considered include a percentage of “everything we do” and some form of bundling “together a significant downstream portfolio”.

Seasoned industry observers say that at least it is clear what is off the table. “I never thought they would put Aramco as a whole up for IPO,” said Louis Besland, the Abu Dhabi-based head of Middle East oil and gas at AlixPartners, a firm of consultants. Even if Aramco were to consider selling a percentage of “everything we do” minus the oil reserves, it would be an extremely hard entity for investors to value.

The share price of international oil companies – BP, ExxonMobil, Royal Dutch Shell, etc – are based to a large extent on the value investors put on their oil and gas reserves. For Aramco to legally remove title to its reserves and then try to sell shares on a claim to some measure of oil production seems to many like a pointless exercise.

“As things stand, private investment in Saudi Aramco [as a whole] looks very unattractive,” said Paul Stevens, an energy expert at the Royal Institute for International Affairs in London. “You won’t know what you are buying because of a total absence of transparency, and the company is not at all profitable after tax.”




Saudi Arabia would never relinquish control over its oil output, which is its principal tool for domestic and foreign policy control, leaving analysts to parse the deputy crown prince’s move and Aramco officials’ reaction for their true meaning.

“I think that the motivation was to do with flagging the fact that serious economic reforms and changes are under way,” said Mr Stevens. “What better than to appear to attack the sacred cow?”

Even much-scaled-down ambitions, where Aramco might look for outside equity participation in corners of its operations, could have that desired effect.

“It has always been extremely unlikely they would IPO the exploration and production part of the business. But even when you start to think about listing the smaller parts of Aramco, it could bring a lot of transparency and I think that was [the deputy crown prince’s] key message,” said Sachin Mohindra, a portfolio manager at Invest AD, an Abu Dhabi investment fund.

There is a precedent for that kind of offering. Petro Rabigh, for example, is a petrochemical refining complex that is part-owned by Aramco and Japan’s Sumitomo Chemical – each has a 37.5 per cent stake – with the remaining shares having been offered via the Saudi stock exchange in 2008, when 4.5 million Saudi individuals oversubscribed five-fold for a stake.

Petro Rabigh shares have had a pretty torrid time, having been launched in the midst of a world financial crisis, which involved them dropping from a high after launch of 64 Saudi riyals to below 20 riyals. After a period of relative stability they have dropped to a recent low of 7 riyals as the oil price crash took its toll.

Still, says Mr Mohindra, Aramco officials have learnt from the experience and have made management changes at Rabigh last year that should help to fix some of the issues it has faced, such as supply chain disruptions.

He says the most likely assets for Aramco to sell first would be similar joint ventures where there is already a degree of transparency via a publicly-listed partner and an operating history – Mr Mohindra points to Sadara Chemical Company, the US$20 billion Aramco joint venture with Dow Chemical, which recently began to ramp up.

“I don’t see any reason why that, or something like that, can’t be brought in part to the market,” he says. Mr Besland agrees that the more mundane option of offering pieces of Aramco’s vast downstream operations is the strategy that best meets its goals.

“Really, the most sensible option and most probable option, in the short term at least, would be to float participation in the downstream businesses,” he said. “That makes sense and it is where they really need to invest in the future to create more economic development.”

In any case, “whatever they would like to IPO it will be too big to be ignored,” said Sebastien Henin, head of asset management at The National Investor in Abu Dhabi. “Even the downstream part of the business might be interesting – margins have improved recently in that subsector, which can bring more attention from investors.”

That certainly wouldn’t be the radical free market jolt that the crown prince was musing over, but it would be a more realistic objective.




Senegal: Kosmos Energy Makes 'Significant' Gas Find Offshore by Andreas Exarheas|Rigzone Staff

Kosmos Energy announced Wednesday that the Guembeul-1 exploration well, located in the northern part of the St. Louis offshore profond license area in Senegal, has made a “significant” gas discovery. Located approximately three miles south of the basin-opening Tortue-1 gas discovery (renamed Ahmeyim) in approximately 8,858 feet of water, Guembeul-1 was drilled to a total depth of 17,208 feet. The well encountered 331 feet of net gas pay in two “excellent quality” reservoirs, according to a company statement, comprising 184 feet in the Lower Cenomanian and 148 feet in the underlying Albian. No water was found with the discoveries.

Kosmos stated that Guembeul-1 demonstrated reservoir continuity and static pressure communication with the Tortue-1 well in the Lower Cenomanian, suggesting a single, large gas accumulation. Based on Guembeul-1 well results, Kosmos estimates that mean gross resources for the Tortue West structure have increased to 11 trillion cubic feet from 8 Tcf. The company also believes that mean gross resource estimates for the Greater Tortue Complex have increased to 17 Tcf from 14 Tcf.




Commenting on the find, Andrew G. Inglis, chairman and chief executive officer of Kosmos Energy, said in a company statement: “We are pleased to have delivered another major discovery with our first exploration well offshore Senegal. Guembeul-1 confirms the presence of a world class gas resource that extends into both Senegal and Mauritania. With our successful appraisal program and support of both governments, the initial gas development is gaining momentum.

“The Guembeul-1 well continues our 100 percent success rate in the outboard Cretaceous petroleum system offshore Senegaland Mauritania, which we believe is a strategically important new oil and gas province and we are focused on unlocking the basin’s full potential.” The Atwood Achiever (UDW drillship), which was used to drill the well, will now proceed to Mauritania to drill the Ahmeyim-2 delineation well in the southern part of Mauritania’s Block C-8. Kosmos holds a 60 percent interest in the Guembeul-1 well, along with Timis Corporation Limited at 30 percent and Petrosen at 10 percent. At the end of 2014, Cairn – along with its

joint venture partners ConocoPhillips, FAR Ltd. and Petrosen – made two separate oil discoveries in Senegal at the FAN-1 exploration well in the Sangomar Deep block and the SNE-1 well in the Sangomar Offshore block. The two discoveries generated widespread excitement across the oil and gas community and ignited a string of exploration activity across the West African country. As part of an ongoing evaluation strategy to assess the SNE field, the joint venture recently commenced drilling operations at the SNE-3 well and plans are in place to spud the BEL-1 well by 2Q 2016. SNE-3 will test the southern extent of the field and BEL-1 well will initially test the Bellatrix prospect before evaluating the northern part of SNE. The JV also has a program and budget outline for three further optional wells in Senegal for 2016/2017. T5 Oil & Gas could also potentially drill a well in Senegal this year, considering the first exploration period on its 90 percent owned onshore Louga Block lapses in July 2016. This demands the acquisition of 683 miles of 2D seismic and the drilling of one exploration well to 9,842 feet. Venturing slightly further south, Oryx Petroleum is planning exploration activity in the AGC Shallow and AGC Central blocks this year, which are joint petroleum exploitation zones established by Senegal and Guinea-Bissau. Oryx, which is the operator of the blocks, has identified three structures in AGC Shallow, of which two are drill-ready prospects, and plans to drill an exploration well in 2016, according to Edison Investment Research Limited. Edison also outlined that Oryx has found shelf-edge plays similar to SNE on seismic data in the deepwater AGC Central block, and stated that Oryx expects to acquire new seismic data in the region in 2016.




UK: Mainstream announces equity consortium ready to take £2 billion Scottish Offshore wind farm to construction.. Source: Mainstream Renewable Power

Mainstream Renewable Power has announced it is in exclusive discussions with a consortium led by power company InterGen, whose European headquarters are in Edinburgh, to take its 450 megawatts offshore wind farm to financial close and into construction. The consortium also includes Siemens Project Ventures, The Marguerite Fund and Infrared Capital.

Located in the Outer Forth Estuary in the North Sea, theNeart na Gaoithe offshore wind farm secured a fifteen year Contract for Difference (CfD) from the UK’s National Grid in March 2015 which gives the wind farm an inflation-linked strike price for electricity produced. In October 2014 Scottish Ministers awarded offshore planning consent and the project is expected to be fully commissioned and generating electricity by 2020, subject to the outcome of a judicial review currently under consideration by the Scottish courts.

Speaking Tuesday at the Scottish Renewables Offshore Wind Conference in Glasgow, Mainstream’s Chief Operating Officer Andy Kinsella said: 'This £2 billion pound infrastructure project has very significant benefits for Scotland. It will create over 500 jobs during construction and over 100 permanent jobs during the 25 year operational phase. More than £540 million will be directly spent in Scotland during the construction phase and a further £610m will be spent during the operational phase.'

He continued: 'Neart na Gaoithe will generate the cheapest electricity from any offshore wind farm in the UK. Several PPA offers have been received and are under negotiation for the full output of the plant and for the full duration of the CfD contract. Our CfD strike price of £114.38 is the lowest in the UK and between 18% and 26% below the FID enabling CFD contracts previously awarded. This strongly underpins government policy of driving the price of renewables down for the benefit of consumers.'

He concluded: 'All the building blocks are now in place to deliver this power plant into operation by 2020; all consents have been received; the CfD was awarded; the technology and construction contractors are in place and, very significantly, the required debt funding for the project has been sourced from commercial banks.'




UK: Hinkley Point go-ahead delayed amid EDF funding doubts The Telegraph - Emily Gosden, Energy Editor

EDF has delayed its final investment decision on the Hinkley Point new nuclear plant yet again, amid claims it is still struggling to finalise funding for the £18bn project.

The French energy giant had been scheduled to take the long-awaited decision at a board meeting on January 27, but is now thought unlikely to do so until its annual results on February 16 at the earliest.

EDF had said in October it would take the decision within "a few weeks", after unveiling a deal for Chinese nuclear group CGN to take a 33.5pc stake in the project. But it is reportedly still struggling to find the cash for its own 66.5pc stake, as its finances come under pressure from falling wholesale power prices and its acquisition of Areva’s reactor-making business.

It is now "putting pressure on the [French] state, which owns 84.5pc of EDF, to come up with fresh funds" and looking to find new investors, according to French newspaper Les Echos. The reports contrast with public statements from Jean-Bernard Lévy, EDF group chief executive, who said as recently as this weekend that Hinkley was ready for a final investment decision and that EDF would take a two-thirds stake.

A UK Government source indicated it remained confident EDF would proceed with Hinkley, which would be the country’s first new nuclear plant in a generation and is expected to deliver 7pc of UK electricity when it is scheduled to start operating in 2025.

But the continued delays to the project – once due to start generating in 2017 - are likely to raise further concerns about the UK’s energy strategy and the prospects for EDF being able to fund a second planned plant at Sizewell as well as a third, Chinese-led plant at Bradwell.

Artist's impression of the proposed plant Photo: EDF




EDF had said in October that it would look to sell down its stake in Hinkley in due course but that it had “no time pressure to do so”. Analysts at Bank of America Merrill Lynch said: "The key change with today's report appears to be that a new financial partner could be a precondition to EDF's ability to go ahead with the project.

"We estimate a 66.5pc stake in the project implies an equity investment of c€5.5bn in today's prices, suggesting c€1.3bn in external equity is needed to reduce EDF's share to just over 50pc." EDF had originally been expected to use project financing for Hinkley, backed up by up to £16bn in UK Government guarantees via Infrastructure UK.

But Mr Lévy announced in October a “radical change” to what he said was a “more efficient” option of delivering its £12bn share of the project from EDF’s own balance sheet. It has since emerged the UK had attached a sub-investment grade BB+ credit rating to the project.

Unions in France have raised a series of concerns about EDF’s investment in Hinkley, which comes at a time EDF is shedding up to 6,000 jobs worldwide. John Sauven, executive director of Greenpeace, said: "The EDF board is clearly rattled as they delay yet again this crucial investment decision. It could well signal curtains for Hinkley.

"EDF managers as well as employee representatives on the board are deeply concerned this project is too risky and too expensive.” But Peter Atherton, utilities analyst at Jefferies, said he believed Hinkley would still proceed, especially as EDF had already spent £2bn on the project and the French Government wanted to export its reactor technology.

“We are so far down the line it would be staggering if it now collapsed,” he said. “This is a colossally expensive project that is clearly and always has been a great strain on EDF’s finances - that’s why they brought the partners in and are looking to sell some more of the equity. It is pretty surprising we reach this stage with apparently some questions still unanswered."

The site where Hinkley Point will be built Photo: EDF




U.S. shale firms, struggling to profit with $30 oil, slash spending more REUTERS - ANDREW CULLEN

Three major U.S. shale oil companies have slashed their 2016 capital spending plans more than expected in a bid to survive $30 a barrel oil prices, with one of them saying prices would need to rise more than 20 percent just to turn a profit.

The cuts on Monday from Hess Corp (HES.N), Continental Resources (CLR.N) and Noble Energy (NBL.N) ranged from 40 percent to 66 percent. This marks the second straight year of pullbacks by a trio of companies normally seen as among the most resilient shale oil producers.

The cuts were steeper than expected. Analysts at Bernstein Energy had forecast an average 2016 spending cut for the sector of 38 percent.

The reductions show budgets may shrink more this year than they did last year, when spending fell between 20 percent and 50 percent. Output at some companies may fall for the first time ever.

"It's very rare to have spending decline two years in a row," said Mike Breard, oil company analyst with Hodges Capital Management in Dallas. "Any budget you see published now is going to be much lower than last year."

But last year many operators managed to lift output as they devised new ways to coax more oil from rock, a feat that seems unlikely to be repeated.




In a sign that a reckoning has come, Continental admitted it will pump about 10 percent less oil this year as it can no longer afford or innovate and sell more oil at depressed prices.

The U.S. government projects domestic crude output to fall by about 700,000 barrels per day (bpd) by the end of this year to around 8.5 million bpd.

Depressed spending typically means fewer drilling rigs. All three companies said they would cut the number of rigs boring new wells in U.S. shale oil fields across Texas, North Dakota and elsewhere.

"If you cut your budget 60 percent, you may drill 40 percent fewer wells and your production is going to drop a considerable amount," said Breard.

Continental, North Dakota's second-largest oil producer, said it would slash its 2016 capital budget by 66 percent. The company made the risky move of getting rid of hedges in the fall of 2014. [L2N15A2MB] Led by billionaire wildcatter Harold Hamm, Continental plans to spend $920 million this year, down from $2.7 billion in 2015.

Oklahoma City-based Continental said it will not become profitable until oil prices CLc1 return to $37 per barrel. U.S. oil prices closed Tuesday at $31.45 per barrel.

Meanwhile, New York-based Hess plans to spend $2.4 billion in 2016, down 40 percent from $4 billion last year . Noble cut its quarterly dividend 44 percent and said it will cut spending about 50 percent this year.

On the other end of the spectrum, Pioneer Natural Resources (PXD.N), known for its aggressive hedging program, said this month it would spend between $2.4 billion and $2.6 billion this year.

Though Pioneer will fund its 2016 budget in part from a $500 million asset sale, the modest increase from $2.2 billion in 2015 makes the company a relative outlier at a time when most companies are trimming capex by amounts similar to last year's drastic cutbacks.




NewBase 28 January 2016 Khaled Al Awadi

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

Oil falls back & jumpings on hopes of Russia, OPEC cooperation Reuters + NewBase

Crude oil futures fell around 1 percent in Asian trading on Thursday, eroding gains of nearly 3 percent made in the previous session after Russia held out the possibility of cooperating with OPEC to control global oversupply.

But falls were curbed by a weaker dollar following the Federal Reserve's decision to keep its overnight interest rate unchanged and the release of a statement suggesting concern about global events had diminished but not squashed chances of a rate hike in March.

Saudi Arabia's deputy minister for company affairs at the Ministry of Petroleum and Mineral Resources said on Thursday in Tokyo that OPEC estimates global oversupply to be around 2 million barrels per day (bpd).

"So it will take some time for the market to rebalance," said Aabed A. Al-Saadoun. But he added that "we feel that the market will begin to come into balance in 2016 and that demand for energy in all forms will continue to increase".

Brent crude had eased 30 cents to $32.80 a barrel by 0455 GMT, after ending up 4.1 percent at $33.10. U.S. crude declined 39 cents to $31.91 a barrel. It settled the previous session up 85 cents at $32.30, a 2.7 percent gain.

Oil price special

coverage




Russian officials have decided they should talk to Saudi Arabia and other OPEC countries about output cuts to bolster oil prices, the head of Russia's pipeline monopoly said on Wednesday.

The Energy Information Administration said on Wednesday that U.S. crude inventories climbed by 8.4 million barrels last week, higher than analyst expectations for a rise of 3.3 million barrels. That brought crude inventories to the highest level since the EIA began tracking the data.

But crude stocks at the Cushing, Oklahoma, delivery hub fell by 771,000 barrels, which supported oil prices. "Overall inventories rose by 8.38 million barrels. This helped to narrow the spread between Brent and WTI overnight," ANZ said in a note on Thursday.

Daniel Ang at Phillip Futures said: "We remain slightly skeptical of further increases with the current weak fundamentals. We believe that the slight weakening of the U.S. dollar could be giving the extra push to break the current resistance for WTI and Brent, however, that should not last for long."

On the outlook for the global upstream sector this year, Wood Mackenzie said in a report: "As companies re-shape their portfolios for the lower oil price environment, exploration spend will be hit hard, to less than half of the 2014 peak."




NewBase Special Coverage

News Agencies News Release 28 January 2016

Cheap Oil Bails Out Free-Spending U.K. Consumers Bloomberg - Tomas Hirst

The new year was supposed to be a celebratory moment for the U.K. After growing 2.9 percent in 2014, the fastest pace among G7 economies, and 2.2 percent last year, 2016 was to see that recovery become established, particularly for workers.

Instead, the consumer engine that's powering the economy is running on the fumes of low oil prices.

Following the Great Recession, the U.K. consumer has helped pull the country from its slump. Between 2009 and 2014 household consumption contributed 4.3 percentage points to GDP growth, far more than consumers in countries such as Germany, where growth was balanced between trade, investment and household spending.

Indeed, net trade restrained the U.K. recovery, taking 0.9 percentage points off growth over that period.




Expenditure contributions to total GDP growth for selected major economies from 2009 to 2014

A combination of inflation persistently above the Bank of England's 2 percent target and weak wage growth meant that real incomes of the median worker fell by 8 percent to 10 percent between 2008 and 2014. So instead of earning and spending more, households dipped into savings to buy more stuff.

The household saving ratio - a measure of spending on goods and services, housing and financial services subtracted from income - has fallen its lowest point in over 50 years.

From the start of 2014, the fall in real wages went into reverse. While this was good news, what has surprised (and worried) economists is that the majority of these gains have been driven not by increases in the U.K. employment to record levels - and related wage gains - but due to falling consumer price inflation caused by oil's collapse.




What all this means: If household consumption depends on cheap oil, what happens should the crude market rebound?

Warning Signs

The question remains key to Britain's economic prospects. Despite rising household disposable income and buoyant sales, there are concerns that the boom will ultimately stall without a faster pace of earnings growth.

As the Office for National Statistics puts it in its latest data release on U.K. retail sales:

"Although the annual change in the quantity bought was strong (4.5%) between 2014 and 2015, the amount spent increased by only 1.1%. This could be explained by falling prices in stores, which decreased by 3.2%, as shown in Figure 2. Essentially, as a consequence of falling prices, consumers were buying more items which were costing less."

At the heart of the problem is the surprising lack of nominal wage gains, even with record employment.

It may be that the recession left workers timid in wage negotiations. Or low inflation may itself anchor wage demands. Whatever the case, with aggregate household savings already at record lows it will be harder to continue to fund the recent levels of consumer spending into 2016 absent a significant easing in credit conditions or a pick-up in earnings.

Even then, if consumers suspect current income gains are temporary - because of cheap oil - they may decide to rein in spending and build a rainy-day fund.




Another possibility is that low interest rates have opened up a savings deficit that households wish to plug before increasing spending on discretionary goods and services, such as jeans and dining out.

All of which bring us back to the looming prospect of higher interest rates.

After Governor Mark Carney's attempts to guide expectations of the timing of rate hikes first to the unemployment rate and latterly to a loose calendar commitment, the Bank of England has all-too-frequently had to reverse course and reassure the public and financial institutions that they are minded to hold off until wages and inflation pick up. As Kristin Forbes, a member of the bank's rate-setting Monetary Policy Committee, noted in a speech on Tuesday:

In the U.K., however, wages and labor costs have not yet gained enough momentum to be consistent with inflation reaching our 2% target. Tightening monetary policy today would require faith that our forecasting models will work and the tightness in labor market quantities and measures of labor market churn will soon translate into stronger wages and then higher inflation. But, unfortunately, these models have not been working very well recently.

In short, a significant chunk of the U.K. recovery still rests on the dual pillars of credulous households and collapsing commodity prices.

Shell Wins Investor Approval to Buy BG, Sealing Deal BloomBerg - Rakteem Katakey

Royal Dutch Shell Plc won shareholder approval to buy BG Group Plc, sealing its biggest acquisition amid the worst oil-industry slump since the global financial crisis.

More than 83 percent of Shell shareholders voted in favor of the transaction, the company said in a statement. Most votes were cast by proxy while other investors met in The Hague on Wednesday.

The approval vindicates Shell’s belief that it can better ride out the market rout by combining with U.K. oil and gas producer BG. Crude’s tumble since the deal was announced in April prompted some shareholders to question whether it’s paying too much, yet Chief Executive Officer Ben Van Beurden has said the acquisition will boost cash flow and enhance Shell’s ability to pay dividends, while BG’s growing production will help bolster its declining output.

Shareholders have shown confidence in the “strategic logic of the combination,” Van Beurden said in the statement. He now faces a vote by BG investors on Thursday and final court approval before the transaction can close in mid-February.

The planned acquisition, which will also make Shell the biggest liquefied natural gas trader and increase its access to Brazil’s deepwater oil reserves, is valued at about $52 billion, compared with $70 billion when Shell agreed to the cash-and-shares purchase. Boosting Resilience

“The enlarged group has stronger growth potential, will benefit from further synergies and cost reductions, is more resilient in a lower price environment and can maintain the dividend,” Tudor, Pickering, Holt & Co., the Houston-based oil investment bank, said in a note following the vote.




Benchmark Brent crude has lost almost half its value since the purchase was announced and now trades near $32 a barrel. That slump, which Shell has said may be prolonged, means the company may need longer to make a profit on the acquisition. It said last month it will break even when Brent reaches the low $60s, and add to operating cash flow per share at $50 this year.

Shell is doing “exactly what you would want a good management team and board to be doing” in an oil-market

downturn, Chris Cernich, head of special situations research at

Institutional Shareholder Services, said before the vote. ISS advises many of Shell’s largest holders and told them to back the deal earlier this month.

Solving Problems

By acquiring BG, Shell is “substantially lowering” oil production costs, replenishing reserves and gaining “very good natural-gas assets” in Australia, Cernich said. “You solve an awful lot of problems at a point in time where it’s actually relatively cheap to do it,” he said.

Shell Chief Financial Officer Simon Henry said the purchase would boost cash flow at any oil price, although the slump to $30 a barrel from $50 will reduce flows from the combined company by $8 billion a year. Some of the economics of the deal "may indeed be stretched" should low prices persist over the next two years, he told shareholders in The Hague.

Shell bid 0.4454 of its B shares and 383 pence for each BG share in April, offering a 50 percent premium. As Shell’s stock dropped with the oil price, the deal’s value has shrunk. Share Reaction

BG shares erased declines when the result was announced and ended the day up 3.5 percent at 1,029.5 pence in London. Shell’s B shares advanced 2.9 percent to 1,462 pence. Almost 17 percent of shareholders voted against the deal, with some citing concerns that cash flow will suffer if crude’s crash persists.

“We feel that the downside risks have not been fully reflected,” Paul Koster, chairman of Dutch investor group VEB, said at the meeting. “We are concerned, we can’t find enough data on what will happen if oil prices stay low for five years, as low as they are now.”

In the run-up to the vote, Standard Life Investments was the only Shell shareholder that publicly said it would vote against the combination, believing the acquisition to be “value destructive.”

Since April, Van Beurden has insisted that the deal is an acquisition for the long term and that rising oil and gas demand will eventually drive a rebound in energy prices. The company confirmed on Wednesday that it will maintain its dividend this year.




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Khaled Al Awadi is a UAE National with a total of 25 years of experience in the Oil & Gas sector. Currently working as Technical Affairs Specialist for Emirates General Petroleum Corp. “Emarat“ with external voluntary Energy consultation for the GCC area via Hawk Energy Service as a UAE operations base , Most of the experience were spent as the Gas Operations Manager in Emarat , responsible for Emarat Gas Pipeline Network Facility & gas compressor stations . Through the years, he has developed great experiences in the designing & constructing of gas pipelines, gas metering &

regulating stations 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 & Gas Conferences held in the UAE and Energy program broadcasted internationally, via GCC leading satellite Channels.

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NewBase 28 January 2016 K. Al Awadi




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New base 775 special 28 january 2016