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OCTOBER 2018EXPLORATION | DRILLING | PRODUCTION
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ISSN 1757-2134
CCoontentsntentsOctober 2018 Volume 11 Issue 10
2214
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Front cover
Pressure control with an edge.
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applications add up to equal
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03 Comment
05 World news
10 Making headway in the Middle EastMohammed Chunara, KPMG, UK, explores how the Middle East is looking
beyond the conventional to maximise its resources.
13 Breaking new ground in SurinameSudesh Wiet Ramkhelawan, Kuldipsingh, and Craig Mayman, Schramm,
report on a recent drilling project in the under-explored region of
Suriname.
17 An unconventional approachGilberto Gallo, Drillmec, USA, discusses a recent technology designed to
tackle unconventional drilling operations.
21 Building the digital oilfi eldAri Huttunen, ABB, Finland, explains how oil producers are using modern
motor control technology to achieve major profitability gains, in terms of
higher oil flows and reduced pumping energy consumption.
25 Accuracy through algorithmsDustin Sandidge, Apergy, describes a new algorithm designed to allow
operators to target optimal gas injection rates.
27 Tackling tubular traumaKris Earl and Juan Carlos Cunalata, Gyrodata, show how to maximise
production through tubular integrity management.
31 Optimising fracturing operationsMatthew Treida, Weir Oil & Gas, USA, explores the benefits of simplifying
hydraulic fracturing sites.
35 This feature showcases technologies designed to handle the harshest
conditions faced by the global oil and gas industry. Contributions come from:
Rockatek – Testing the limits – James Crowley, UK, explores the importance
of mechanical testing, its benefits and how high level testing can be
integrated into existing and new downhole technology.
Newtek Sensor Solutions – Facing the heat – Michael Marciante explains
how robust LVDT-based non-contacting position sensors offer reliable and
accurate measurements.
43 Keeping track of kicksAlberto Martocchia, GEOLOG, shows how operators can reduce kick
detection uncertainty on floating rigs.
47 The rhythm of the seaMichael Covello, InterMoor, USA, discusses the benefits of reinventing
acoustic release mooring connectors.
51 Materials matterRobert Airey, Parker Hannifin, UK, examines the factors to be considered
when specifying anti-corrosion materials in oilfield engineering projects.
55 Building better barriersTore Fjågesund, Wellbarrier, a Schlumberger company, Norway, discusses
the importance of well barrier management, incorporating well barrier
illustrations, as the logical starting point for establishing and maintaining
well integrity.
58 Data driven decisionsE. Di Martino, A. Lo Nigro, RINA, and A. Kolios, Cranfield University,
discuss a new decision making tool for pipeline integrity and risk
management.
61 The next generationJohn McDonald, OPITO, UK, explains the importance of training a safe and
skilled workforce for the future.
Comment October 2018
David Bizley, Editordavid.bizley@oilfi eldtechnology.com
October 2018 Oilfield Technology | 3
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Thus far, 2018 has been a year of marked recovery for oil
prices. Brent Crude, for example, has spent the entire
year above US$60 with several months above US$70, and
in recent weeks it has risen even higher. At the time of writing,
Brent had reached US$86/bbl – one of the highest levels seen in
roughly four years.
This period of sustained, comparatively high prices now seems to be pushing up
output from major producers around the world.
Saudi Arabia’s Energy Minister Khalid al Falih, has announced that the Kingdom’s
oil production is on track to reach 10.7 million bpd once again – the first time since
2016. Some of the increased production growth comes as a result of the Kingdom’s
attempts to eat into regional rival Iran’s market share in the build-up to returning US
sanctions. However, an equally significant reason for the Kingdom’s rising oil output
appears to be pressure from the US government to actually cool rising oil prices. OPEC
and Saudi Arabia have both come under fire from President Trump in recent weeks and
have been accused of working to raise prices ever higher. The President took to Twitter
to voice his displeasure, “The OPEC monopoly must get prices down now!”1
In response to this criticism, Saudi Arabia is reported to have struck a private deal
with Russia to raise output and apply some downwards pressure on prices.2 According
to sources interviewed by Reuters, “The Russians and the Saudis agreed to add barrels
to the market quietly with a view not to look like they are acting on Trump’s order
to pump more,” and “The Saudi minister told (US Energy Secretary Rick) Perry that
Saudi Arabia will raise output if its customers asked for more oil.”3
Meanwhile, Iran has vowed to continue producing crude at current levels, citing
doubts that Saudi Arabia and Russia actually have the spare capacity available to make
up the shortfall caused by imminent US sanctions on 1.2 million bpd of exports. Minister
of Petroleum Bijan Zangeneh, quoted by Iran’s PressTV, was blunt as he reiterated the
country’s determination to defend its market share, “The United States is doing all it
can to prevent us from producing and supplying oil to the market, but Iran is producing
its crude oil with force.”4
Even Libya, which has struggled to boost oil production in the wake of ongoing
disruption, is reporting that it has increased output levels to 1.25 million bpd and has
plans to push as high as 2 million bpd by 2022.5
And, of course, US production continues unabated; powered by the shale sector, the
US has maintained a record high of 11.1 million bpd. Exactly how much of an impact
ongoing production growth is going to have on prices is unknown, but it looks like
politics is going to play just as great a role as economics.
References1. Twitter - https://twitter.com/realDonaldTrump/status/10427335444669890572. ‘Exclusive: Saudi Arabia, Russia agreed in September to lift oil output, told U.S.’ – https://
www.reuters.com/article/us-russia-saudi-oil-exclusive/exclusive-saudi-arabia-russia-agreed-in-sept-to-lift-oil-output-told-us-idUSKCN1MD0Y8
3. Ibid.4. ‘Iran vows full-throttle oil production despite US’ – https://www.presstv.com/
Detail/2018/10/03/575930/Iran-oil-production-US-sanctions-OPEC-prices 5. ‘Libya has brought oil production to 1.25 mln barrels per day’ – http://tass.com/
economy/1024263
World news October 2018
In brief In brief
October 2018 Oilfield Technology | 5
GlobalData: Iran will contribute more than 50% of the Middle East’s oil and gas pipeline additions to 2022
Iran is forecast to add the highest trunk pipeline length in the Middle East oil and gas pipelines
industry between 2018 and 2022, contributing a total length of 12 698 km, which will account
for more than 50% of the region’s planned and announced oil and gas pipeline length additions,
according to GlobalData. The company’s report, ‘Oil and Gas Pipelines Industry Outlook in Middle
East to 2022’ forecasts that around 24 066 km of planned oil and gas pipeline length will be added
in the Middle East by 2022, which will take the region’s total oil and gas pipeline length to around
106 325 km by 2022.
Iran has new build capital expenditure (Capex) of around US$22.3 billion for the forecast
period. Iranian Gas Trunk line–IGAT IX is the longest planned pipeline in the region and is expected
to start its operations in 2020, with a planned length of 1900 km and diameter of 56 in.
Soorya Tejomoortula, Oil & Gas Analyst at GlobalData, commented: “Iran is planning to
ramp-up its oil and gas production, which in turn is necessitating the new pipeline network. The
country is also planning a couple of long natural gas pipelines for exports to Greece and Oman.”
GlobalData identifies Iraq as the second highest in terms of oil and gas pipeline length
additions and the highest for spending on planned pipelines in the Middle East oil and gas
pipelines industry. The country has planned investment of around US$29.6 billion by 2022 and
plans to add a total length of 5105 km of oil and gas pipelines by 2022. Major pipelines in the
country are Basra–Aqaba Oil and Basra–Aqaba Gas pipelines, each with lengths of 1700 km.
Tejomoortula added: “Iraq is planning two multibillion dollar pipelines to Jordan for export of
oil and gas. The country is also planning a pipeline to Turkey for oil exports from the mature Kirkuk
field.”
Turkey is the third highest among the countries in the Middle East, in terms of oil and gas
pipeline length additions as well as new build Capex spending with around US$5.8 billion planned
investment during the forecast period. Turkey is expected to add around 2030 km of planned and
announced oil and gas pipelines by 2022.
Equinor acquires a 40% stake in the Rosebank project in the UK
Once concluded, the transaction will strengthen Equinor’s UK portfolio, which includes the Mariner
development, attractive exploration opportunities and three producing offshore wind farms.
“The acquisition of Rosebank complements our portfolio of oil, gas and wind assets in this
country, in line with our strategy as a broad energy company. This new investment underlines
Equinor’s commitment to be a reliable, secure energy partner for the UK,” said Al Cook, Equinor’s
executive vice president for global strategy & business development and UK country manager.
The Rosebank field was discovered in 2004 and lies about 130 km northwest of the
Shetland Islands in water depths of approximately 1110 m. The other partners in the field are
Suncor Energy (40%) and Siccar Point Energy (20%).
“With Rosebank, a standalone development in the underexplored West of Shetland region, we
strengthen our upstream portfolio, which also includes Mariner, one of the largest investments on
the UKCS in over a decade. As we have done with other projects in our portfolio, such as Johan
Castberg and Bay du Nord, we intend to leverage our experience and competence to create further
value in Rosebank, in alignment with the UK Government’s priority of maximising the economic
recovery of the UKCS,” said Hedda Felin, Equinor’s senior vice president for UK & Ireland offshore.
The transaction is subject to customary conditions, including partner and authority approval,
with completion targeted as soon as possible. The parties have agreed not to disclose the
commercial terms of the agreement.
Thailand Mammoet has announced two new
contracts with Samsung Engineering
(Thailand) Co Ltd to provide transport
and heavy lift works as part of two
petrochemical projects in Map Ta Phut,
Rayong Province. The region is home to
a major infrastructure development plan
aimed at generating an industrial base for
Thailand’s modernisation.
The first of these, the Propylene Oxide
(PO) Project, will centre on the transport
of heavy and oversized columns from
Map Ta Phut deep sea port to Hemaraj
Industrial Estate, using Mammoet
Hydraulic trailers. The second, the Olefins
Reconfiguration Project (ORP), will
also incorporate heavy goods transport
from Map Ta Phut port; in this case to
Map Ta Phut Industrial Estate in a different
location. Both sites are approximately
8 km from the port.
Romania Prospex Oil and Gas Plc has announced
that it has been advised by the operator,
Raffles Energy S.R.L., that first gas
production has commenced from the
Bainet gas field in the Exploration
Area of the EIV-1 Suceava Concession,
North East Romania.
Gas from the field is sold into
the national grid run by Transgaz
at the Romanian market prices of
apprx. €6/thousand m3. The buyer of
gas is a well-established Romanian
gas trading business. Gas delivered
in one month is paid for in the
following month. The operator has
elected to target an initial flow rate
of c.0.7 million sft3/d (approximately
equivalent to 20 000 sm3/d). Production
rates may be adjusted up or down
according to well performance and market
demand.
World newsOctober 2018
Diary dates Diary Diary dates
To read more about these articles and for more event listings go to:
Web news Web news highlightshighlights
www.oilfieldtechnology.com
6 | Oilfield Technology October 2018
Honeywell launches cybersecurity services to address customer skills gap
Wild Well announces new onsite rig crew training service
OMV transforms plastic waste into crude oil
Renowned multiphase oil & gas expert joins TUV SUD NEL
Cuadrilla granted consent for second shale gas well
Cuadrilla has received hydraulic fracturing
consent from the Department for
Business, Energy & Industrial Strategy
(BEIS) for its second horizontal shale
exploration well at its Preston New Road
site in Lancashire. Consent was granted
for the first horizontal well in July this
year. Planning and permits required for
both wells are already secured.
Francis Egan, CEO of Cuadrilla, said:
“We are delighted to receive this consent.
We are currently completing works on
site in readiness to start hydraulically
fracturing both wells in the next few
weeks. The UK’s need for a new and
reliable source of natural gas, the cleanest
fossil fuel, is underlined by a new report
suggesting the UK is going to have to
rely on more coal to generate electricity.
That would be a massive backwards
step in reducing carbon emissions, as
would continuing to import gas over long
distances by pipe and ship. We are very
proud to be the first operator in the UK
to make significant headway in shale gas
exploration.”
Petrofac secures well engineering contracts
Petrofac has secured an exclusive
five-year well operator services contract
from independent exploration &
production company, Tailwind Energy Ltd
(Tailwind), following Tailwind’s recent
purchase of the Triton Cluster. Under the
terms of this arrangement, Petrofac will
act as well operator for the Gannet E,
Belinda and Evelyn licence areas in the
Central North Sea.
The company has also been awarded
discreet well engineering scopes by
two major International Oil Companies
(IOCs) and three National Oil Companies
(NOCs) for projects in Iraq, Turkey and
New Zealand. These additional scopes
reflect the continued global growth of
Petrofac’s well engineering capabilities.
Alex Macdonald, Managing Director
of Well Engineering, Petrofac Engineering
and Production Services, said: “We’re
delighted to be expanding our global
service delivery as we continue to support
IOCs, NOCs and new entrant operators
with outsourced well engineering
services.”
16 - 18 October, 2018 SPE International Hydraulic Fracturing
Technology Conference and ExhibitionMuscat, OmanE: [email protected]/events/calendar
04 - 05 November, 2018 AAPG International Conference &
Exhibition 2018Cape Town, South AfricaE: [email protected]://capetown2018.iceevent.org
06 - 07 November, 2018
API Cybersecurity ConferenceThe Woodlands, Texas, USAE: [email protected]
12 - 15 November, 2018
ADIPECAbu Dhabi, UAEE: [email protected]
27 -29 November, 2018
OSEAMarina Bay Sands, SingaporeE: [email protected]
New vibration and corrosion guidance on industry agendas in Aberdeen and Dubai
A raft of new technical good practice guidelines for the offshore oil and gas sector have been
published, coinciding with two Energy Institute (EI) flagship events - the Middle East HSE &
Sustainability Forum in Dubai and the Asset Integrity and Operational Management conference
in Aberdeen.
As part of the Energy Institute’s core commitment to provide industry with cost-effective,
value-adding good practice, delegates will hear first-hand how the guidelines are helping to
underpin the health and safety processes of global oil and gas operations.
The three guidelines published, on the avoidance of vibration induced fatigue failure in
subsea systems, integrity management of corrosion under pipe supports (CUPS) and injection
of corrosion inhibitors in production systems, were produced by the Energy Institute in
collaboration with industry expert steering panels.
Martin Maeso MEI, Technical Director of the Energy Institute commented: “This new
guidance on managing vibration and corrosion is of global relevance to the oil and gas industry,
which is why the EI is showcasing it at events in both Aberdeen and Dubai. Good practice
guidance on maintaining ageing infrastructure is not only vital to avoid major accidents
hazards but helps improve safety whilst reducing unplanned maintenance and repair costs.
The Energy Institute continues to engage our membership and the sector to produce guidance
that make a real difference to industry’s collective efforts to ensure safe and efficient offshore
operations.”
The HEAL System™: The Foundation for Efficient Artificial Lift in Horizontal WellsHorizontal wells are known to have production challenges
as a result of inconsistent flow, damaging solids, and gas
interference. Maximizing drawdown through the lifecycle
of these wells often requires complex and expensive
artificial lift strategies.
The HEAL System™ is a patent-pending downhole solution
that easily joins to the horizontal as part of a standard well
completion. It smooths flow from the horizontal, giving you
the freedom to optimize your artificial lift strategy.
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[email protected] us on www.healsystems.com
8 | Oilfield Technology October 2018
October 2018World news
Trendsetter Vulcan Off shore inks agreement with SubseaDesign
Trendsetter Vulcan Offshore (TVO), a developer of innovative solutions for the offshore
industry, has signed an agreement with SubseaDesign AS in Norway, providing SubseaDesign
rights to market and commercialise TVO’s patented Tethered BOP design for use in the
Norwegian sector of the North Sea. The TVO system is a robust, cost-effective solution for two
emerging technical challenges facing the drilling industry – wellhead fatigue and wellhead
strength.
“Our goal at TVO is to consider serious offshore challenges and develop innovative
solutions,” says TVO CEO Jim Maher. “The Tethered BOP addresses serious safety issues,
enabling reliable operations on new exploration wells as well as re-entry and P&A on much
older wells. We see many opportunities for this wellhead fatigue mitigation system in the
relatively shallow water of the North Sea, and we are pleased to be working closely with
SubseaDesign in this important market.”
New well designs must ensure a high-value well is engineered to tolerate excessive fatigue
caused by newer and larger BOPs. The innovative TVO solution addresses this issue as well as
challenges presented by legacy wells, many of which were drilled with smaller BOPs and with
a wellhead and conductor design that was less robust. The Tethered BOP resolves the issues
that often arise when attempting to interface with newer generation BOPs.
The Tethered BOP system arrests the motion of the BOP stack above the wellhead,
substantially reducing wellhead cyclic stresses and enhancing fatigue life. Depending on
the specific riser and wellhead configuration, fatigue life has been improved by as much
as 1000 times the original unmitigated wellhead fatigue. An added benefit is the increased
limits to the rig watch circle, particularly in shallow water, where watch circles can be very
restrictive.
“The introduction of this technology, which complies with the demanding
NORSOK standards, into the Norwegian sector provides operators and drillers with the
cost-effective means to solve a growing issue within the industry,” says SubseaDesign
President Eivind Rasten.
West Hercules to drill more exploration wells
Seadrill Norway Operations Limited has been
awarded a contract for drilling two exploration
wells for Equinor in the Barents Sea by use of
the West Hercules rig. Drilling is scheduled to
start in the spring of 2019. The contract includes
options for drilling nine additional wells.
The rig owner is responsible for integrated
drilling services, such as casing running,
remote-operated vessel (ROV), slop treatment
and cuttings handling.
“We have already prepared a drilling
programme for West Hercules, scheduled
to start this autumn. We are now looking
forward to continuing our cooperation with
this rig. It can do regular exploration drilling,
drilling in formations with high pressure and
high temperature, it is winterised and can
drill in deep waters. The rig is well suited for
operations on the Norwegian continental
shelf. By signing a framework agreement
with Seadrill, we demonstrate that we want a
long-term cooperation with this supplier,” said
Geir Tungesvik, Equinor’s senior vice president
for Drilling & Well Services.
Savannah Petroleum spuds Zomo-1 well, Niger
Savannah Petroleum PLC has announced
that the fifth well in its current Niger
drilling campaign, Zomo-1, was spudded on
8 September, 2018.
Zomo-1 is located on the R3 portion of
the R3/R4 PSC Area in the Agadem Basin,
south east Niger. As with the other wells
in this campaign, Zomo-1 is designed to
evaluate potential oil pay in the Eocene Sokor
Alternances as the primary target.
Drilling is expected to take 30 - 35 days,
using Rig GW-215. The well is planned to
be drilled to a total depth of 2438 m. The
company plans to log all prospective sections
within the well, with further logging employed
for hydrocarbon bearing sections. In the
success case, the well will be suspended for
future re-entry and further evaluation, which
could include well testing.
The company intends to announce the
final well results after the end of drilling and
logging operations.
Haynes and Boone release borrowing base redeterminations survey and other key data in Energy Roundup
Haynes and Boone, LLP has released its Fall 2018 Energy Roundup, a comprehensive report on
the industry that reflects an improved outlook for oil and gas producers.
The Energy Roundup includes the firm’s latest ‘Borrowing Base Redeterminations Survey,’
which captures September polling of oil and gas producers, oilfield services companies, energy
lenders, private equity firms, and other industry participants to get their predictions about
producers’ future borrowing capacity or ‘borrowing bases.’ Producers’ loans are assessed
by their lenders twice a year to determine how much credit will be available based upon
the collateral value of the producers’ property, referred to as their borrowing bases. The
borrowing bases turn on banks’ projections about future prices for the producers’ oil and gas
reserves. The survey, which the firm has conducted twice a year since April 2015, offers a clear,
forward-looking view about the projected financial state of the domestic energy market.
The latest borrowing base survey offers a bright outlook for oil and gas producers, with
more than 78% of respondents expecting borrowing bases to increase. Further, 36% of
respondents expect borrowing bases to increase by 20% or greater, a rate of optimism that is on
par with the firm’s spring 2018 borrowing base survey.
“The survey shows that optimism for the upstream oil and gas industry is really gaining
momentum,” said Kraig Grahmann, head of Haynes and Boone’s Energy Finance Practice
Group. “We have now had several recent surveys, including the fall 2018 survey, predicting that
producers will see borrowing base increases of 10 to 20%.”
© 2018 – American Petroleum Institute, all rights reserved. API, the API logo, and the “Start from a place of safety” slogan are either trademarks or registered trademarks of API in the United States and/or other countries.
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Making Headway in the middle east
10 |
Despite boasting some of the lowest lift ing costs in the world,
oil and gas companies operating in the Middle East were not
spared from the turmoil of the rapid and sustained oil price
decline of recent years. Whilst there remains an abundance of
low-cost conventional oil still to produce, countries in the region and
further afield are looking beyond traditional reservoir developments
to strategies that maximise their full resource base, including
unconventional and non-associated gas resources.
Gas powering growthThe largest Middle Eastern producers face the challenge of growing
domestic energy consumption, a development which we observe has
led to countries in the region turning to previously overlooked gas
assets to support fast growing regional economies.
Saudi Arabia is looking to displace crude oil with gas in power
generation, which will give the country the ability to increase oil
export capacity and so generate additional value. The country has
traditionally only produced gas associated with oil production,
however the Kingdom is now producing non-associated natural gas
from unconventional reservoirs in its North Arabia Basin, with further
potential in the South Ghawer and Jafurah basins.1
Whilst previous exploration eff orts by Saudi Aramco and IOC
partners Shell and Total were unsuccessful in finding suff icient
volumes of gas in the Empty Quarter, Saudi Aramco is now looking to
use new seismic technology which moves beyond 3D visualisation,
with additional information derived from physical characteristics of
the rock, such as saturations and density, to re-assess the area for
gas. This highlights the company’s growing ambition to diversify its
energy sources.2
Neighbouring Kuwait is also looking to maximise recovery from
its abundant gas resources to support domestic energy needs.
With most of the country’s power generation achieved using oil
as a feedstock, a switch to using gas resources will free up oil
for export. Kuwait’s growing demand for gas is evidenced by a
recent 15-year liquefied natural gas import deal agreed with Shell,
which will take eff ect from 2020.3 Kuwait has a range of resources
including heavy oil and tight gas, and is estimated to hold over
60 trillion ft 3 in non-associated gas, with a portion of this in complex,
tight formations.4
Exploration activity targeting giant carbonate reservoirs in north
Kuwait has already resulted in six major tight gas field discoveries to
date, with sour gas being produced from deep, Jurassic-aged high
pressure and high temperature carbonate reservoirs since 2008. The
development of these low permeability, low pororsity reservoirs
has been a signficant achievement for the country in supporting its
domestic energy needs, and is an example of the type of progress
which will need to be replicated throughout the region in order to
fully exploit available resources.
Collaboration between oId and new energiesFor countries where conventional oil production is in steady decline,
enhanced oil recovery (EOR) of marginal resources is becoming an
increasingly important part of the overall production mix. A case
in point is the Sultanate of Oman, which produces an average of
1 million bpd, with an increasing focus on maximising value from
its substantial, non-conventional resources to sustain production.
Mohammed Chunara, KPMG, UK, explores how the Middle East is looking beyond the conventional to maximise its resources.
| 11
12 | Oilfield Technology October 2018
This is being achieved by utilising world-leading EOR techniques to
increase production from heavy oil, which is expected to contribute a
third of the country’s crude oil production by 2020.5 As a result, steam
injection is a technology which is being increasingly utilised in the
Middle East region.
Steam injection is a key recovery mechanism to maximise
production from heavy oil, with steam reducing viscosity subsurface
in order to increase the ability of oil to flow. Gas is a vital feedstock
in the steam generation process, and so an increasing focus on
heavy oil recovery naturally creates competitive tension with local
industries which require gas for activities such as power generation
and desalination. It is this competition that has led the country to an
innovative solution, combining new and old technologies to generate
substantial value: using large-scale solar steam generation linked
to heavy oil production to preserve scarce gas resources required to
support economic growth, with excess gas exported as LNG.
GlassPoint, a leading solar energy supplier to the oil and gas
industry, has been working with Petroleum Development Oman (PDO)
on the Middle East’s inaugural pilot solar steam project since 2011.
The project had the objective to investigate the potential to use solar
energy to displace gas in steam generation in suff icient quantities to
extract heavy oil from the Amal Field, a project that delivered 50 tpd of
steam. The success of the trial resulted in the ‘Miraah’ project coming
on-stream late 2017, generating 6000 tpd of steam, reducing the
amount of gas used for heavy oil production by a substantial 80%.
Building on the success of solar EOR implementation and
with a longer term perspective, Oman’s largest Sovereign Wealth
Fund, The State General Reserve Fund, and Royal Dutch Shell
(a major shareholder in PDO) made a multi-million dollar investment
into GlassPoint in 2014 with an ambition of making Oman a centre of
excellence for solar EOR, with the development of local supply chains
and in-country expertise that could be deployed globally.6
Deals abroad driving value at home Oman is looking beyond discovered resource opportunities to
maximise the value of its resource base by attracting IOC investment.
ENI recently signed an agreement alongside Qatar Petroleum to
explore deep off shore Oman following phenomenal exploration
success deep off shore Egypt, Mozambique and Mexico. This was
followed by the sale of a 17% stake by Royal Dutch Shell in the
Occidental Petroleum-operated Mukhaizna heavy oil field for
US$329 million to the Indian Oil Corporation, one of India’s largest oil,
gas and petrochemical companies.7
This was the first investment into Oman by Indian Oil, and follows
its investment into Abu Dhabi earlier in the year. This reflects the desire
of countries in the region to build closer ties with rapidly growing
consuming nations in Asia, with India set to overtake China as the
leading driver of oil demand growth by 2024.8
The challenge facing all exploration and production companies
looking to move beyond conventional production is to build
proficiency in areas of strategic interest. Entering into a strategic Joint
Venture (JV) is one way to build expertise in a new geography or asset
type. As an example, Kuwait is looking to build expertise through
international JVs as a way of securing long term value at home.
KUFPEC, the foreign arm of the NOC Kuwait Petroleum Company, has
announced its intention to borrow US$1.1 billon to expand its shale
operations. It has invested in Chevron’s Duvernay Canadian shale
assets reportedly to gain access to shale technology, with the potential
aim of utilising technology and learnings from their JV with Chevron on
its own tight oil formations.9
Saudi Arabia is thought to be following suit, with reports that
state-run Saudi Aramco is looking to buy into US natural gas assets,
which if acted upon, would be the first time the company has produced
hydrocarbons outside the Kingdom.10 Gaining access to US gas
‘know-how’ would further support their eff orts to commercialise local
gas reserves and resources.
In addition to looking to exploit unconventional resources,
companies in the region are moving further downstream to squeeze
more value out of every barrel produced along the value chain.
Abu Dhabi is investing US$45 billion to create the largest integrated
refining and petrochemicals plant in the world at Ruwais, positioning
ADNOC as a global leading downstream player.11 Saudi Aramco is
also focussed on building a substantial petrochemicals business with
expansion of activity in the US and possible acquisition of Saudi Basic
Industries Corporation (SABIC) being widely discussed in the press.
Whilst some investors were keen for oil companies to
separate out E&P operations from their downstream businesses
(e.g. Conoco Philips and Philips 66), the downturn in oil prices
proved the resilience of major, integrated oil companies with results
from refining and marketing operations buff ering poorer results in
exploration and production. Middle Eastern NOCs are taking steps
to make their business model more resilient to a future swoon in oil
prices. For them to be successful they will need to ensure they develop
strategic relationships, diverse capabilities and expertise, and a
complete understanding of value drivers in the integrated model.
Summary and outlookBeyond traditional development projects, countries in the Middle East
are beginning to develop unconventional and non-associated gas
resources as a way of diversifying and fuelling local economic growth.
Strategic transactions, driven by the desire to build capability in areas
beyond the traditional comfort zones of conventional oil and gas field
development, are an eff ective way to build expertise in exploiting
complex subsurface environments.
Whether the goal is bringing domestic gas to domestic consumers
at lower prices, or saving oil volumes for export, there is a positive
role for unconventional resources in improving the economic
position of many countries in the region, and so the trend towards
development of non-conventional sources of oil and gas in the
Middle East is expected to continue for the foreseeable future.
References1. ‘The Next Entrant in the Shale Revolution? OPEC’s Saudi Arabia’ – https://
www.bloomberg.com/news/articles/2018-03-07/saudis-seek-to-tap-shale-gas-basin-rivaling-texas-eagle-ford
2. ‘Saudi Aramco uses new technology to re-explore vast Empty Quarter’ – https://www.reuters.com/article/us-aramco-technology-seismic/saudi-aramco-uses-new-technology-to-re-explore-vast-empty-quarter-idUSKCN1BB1L5
3. ‘Kuwait Signs LNG Import Deal With Shell, Has Gas Need’ – https://www.bloomberg.com/news/articles/2017-12-24/kuwait-petroleum-in-pact-to-import-lng-from-shell-for-15-years
4. ‘Kuwait Taps Jurassic Reservoirs To Meet Soaring Gas Consumption’ – https://www.epmag.com/kuwait-taps-jurassic-reservoirs-meet-soaring-gas-consumption-1651811
5. ‘Oman has pioneered Enhanced Oil Recovery in the Middle East’ – https://www.glasspoint.com/markets/oman/
6. https://www.muscatdaily.com/Archive/Business/Oman-wealth-fund-Shell-lead-53mn-funding-to-GlassPoint-3fpm
7. ‘Shell sells Oman unit to Indian oil firm for $329m’ – https://www.arabianbusiness.com/energy/393547-shell-sells-oman-unit-to-indian-oil-firm-for-329m
8. ‘India is set to overtake China as the top driver of global oil demand growth’ – https://www.cnbc.com/2018/08/29/india-set-to-overtake-china-as-top-driver-of-global-oil-demand-growth.html
9. ‘Kuwait firm borrows $1.1bn to expand fracking operations’ – https://www.energyvoice.com/oilandgas/178090/opec-producer-borrows-1-1bn-to-expand-fracking-operations/
10. ‘Why Saudi Arabia Is Now Shopping Around For U.S. Shale Assets’ – https://www.investors.com/news/why-saudi-arabia-is-now-shopping-around-for-u-s-shale-assets/
11. ‘Adnoc eyes Asia Pacific markets with downstream expansion’ – https://gulfnews.com/business/sectors/energy/adnoc-eyes-asia-pacific-markets-with-downstream-expansion-1.2223704
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