Saudi Looking Beyond Oil Price Slump as Rig Count Spikes

As the global energy industry stares transfixed at a spectacular drop in U.S. rigs, Saudi Arabia is ramping up the number of machines drilling for oil and gas despite a sharp fall in the price of crude.

Industry sources and analysts say the OPEC kingpin is looking beyond the halving of global oil prices since June 2014 to a time when crude could again be in short supply.

Riyadh is therefore keen to preserve what is known as its spare capacity - the kingdom's unique ability to raise oil output quickly at any given moment.

But to achieve that, Saudi Arabia has to drill much more than in the past, after boosting output to record levels to compensate for global supply outages in the past four years.

"The Saudis are probably worried about everyone else reducing capex as a result of low oil prices and about non-OPEC output falling off a cliff at some point. We all know that supply disruptions are unpredictable but they are certain," said Gary Ross, executive chairman of New York oil consultancy PIRA.

"The increase in Saudi rig numbers is like a signal to the industry – let's be rational. We will need supply growth in the future."

Cheap Oil Threatens Debt Squeeze for Smaller UK North Sea Producers

Small and mid-sized independent oil producers in the British North Sea could face a financing squeeze this year as banks cut lending linked to the value of oil reserves, following last year's oil price sell off.

Unlike the oil majors, which can slash headcount and delay projects, smaller firms tend to be reliant on few fields, and those that are mid-project have little choice but to continue with their capital expenditure.

"Where companies have committed to projects when the oil price was $100-plus and their capital budget was set in advance, there's not much they can do to defer expenditure," James Hosie, director, energy research at Barclays Capital, said. 

"Retaining access to debt headroom is critical to ensure they have the flexibility to weather the downturn."

But with oil prices tumbling from over $100 in June 2014 to around $60 today, banks are likely to reduce the amount of lending they are willing to make based on the valuation of reserves at the next round of assessments.
"There is a squeeze happening or going to happen," Brian Campbell, oil and gas capital projects director at PWC, said.
"If you've got a lot of reserve-based lending and a lot of debt, and you're already quite drawn on that, you're going to be in a world of pain," said Christopher Wheaton, manager of the Allianz Energy fund.

Oil Drops Under $62 due to Strong Dollar and Libyan Output

Oil dropped more than 1 percent on Monday, with Brent slipping under $62 a barrel, depressed by a stronger dollar and a rise in Libyan crude output.

The dollar hit an 11-year high against a basket of currencies after a rate cut in China dented the Chinese yuan and also hit emerging Asian currencies.

Brent crude hit a low of $61.70 a barrel and was at $61.90 by 6 a.m. ET, down 68 cents. Front-month Brent jumped 18 percent in February, the largest monthly rise since May 2009.

U.S. crude was down 55 cents to $49.21 a barrel.

Disruption to oil supplies from members of the Organization of the Petroleum Exporting Countries (OPEC) has helped support crude with lower output from Libya and Iraq in the first couple of months of this year.

But output from several OPEC countries may be recovering.

Libya's oil production has now recovered to more than 400,000 barrels per day (bpd), officials said.

"Libyan production is up and Iraqi exports are on the rise," said Tamas Varga, oil analyst at London brokerage PVM Oil Associates, saying crude markets were likely to fall further.

Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt, agreed, saying much of the recent strength in oil had been due to speculative buying.

"All in all the market is still over-supplied by a wide margin," Fritsch told Reuters Global Oil Forum. "We expect Brent to come under pressure again in Q2."

U.S. oil markets are particularly weak with a U.S. refinery strike denting demand for crude and domestic production still increasing, despite reports that the number of exploration rigs operating in North America is falling due to lower oil prices.

The number of oil rigs fell by 33 last week to 986, the smallest drop this year, a survey showed.

These diverging trends helped stretch the premium for Brent over U.S. crude to its widest since January 2014 on Friday at $13 a barrel.

Technical charts point to a further widening of the spread to $16.98 in the next three months, Reuters market analyst Wang Tao said.

Top 5 FPSO Systems in Operation within Nigeria

Written by Oby Amaliri and Ikechukwu Onyegiri; Edited by Ikechukwu Onyegiri

Subsea field layout schematic: FPSO system

FPSO (Floating, Production, Storage and Offloading) system is a converted or custom-built ship-shaped floater, used to process oil and gas and for temporary storage of the oil prior to transshipment. The FPSO is a floating vessel used by the offshore industry for the processing of hydrocarbons as well as the storage of oil. A FPSO vessel is designed to receive hydrocarbons produced from nearby platforms or subsea template, process them, and store oil until it can be offloaded onto a tanker or transported through a pipeline

It is one of the best devised systems to have developed in the oil exploration industry for the marine areas. They will sometimes have production facilities onboard, and are normally used in areas where a pipeline to transport oil to shore isn’t available. Typically a shuttle tanker will moor alongside the FPSO and offload the stored oil periodically.

Innovative technologies, coupled with developments of existing ones, have played a big part in maintaining this standing for so long. The system is foolproof, enables cost efficiency and thus becomes a very major asset when it comes to excavating for oil in the marine areas and provides vast benefits in the production of marginal fields.

Benefits

Technology advancements since the inception of FPSOs have seen the arrival of a host of features, from geostationary turrets to allow the vessel to turn and ride prevailing weather, to the wider inclusion of water or gas injection and gas-lifts.

Also, its simplicity as an offshore production facility, capable of accumulating and storing oil before periodically offloading it to tankers for transport to the mainland – gives it an obvious logistic and economic appeal. Not only does this directly permit the rationalization of shuttle tanker movements but, more fundamentally, it can also allow marginal oil fields, or those in deepwater areas at some physical distance from existing pipelines, to be developed.

The system enables cost efficiency and thus becomes a very major asset when it comes to excavating for oil in the marine areas: it does not require the laying of pipelines and can be moved to new locations.

Finally, FPSOs eliminate the need for costly and expensive underwater infrastructure, they are more environmentally friendly than rigs, and their abandonment costs are less than for fixed platforms.


Top 5 FPSO Systems operating within Nigeria

In Nigeria today, we have about sixteen FPSO systems operating in different fields. Some of these FPSO sytems are used to operate in the top five deep water fields. These five are selected as the deepest base on their recoverable reserves and storage capacity.

OPEC's February Oil Supply Hits Lowest Since June on Iraq-survey

(source: Reuters)

OPEC's oil supply has fallen this month as bad weather delayed exports from Iraq's southern ports, a Reuters survey found on Friday, slowing an expansion of supplies in the group's second-largest producer.

The survey also found slightly higher output in Saudi Arabia, a sign that the largest producer in the Organization of the Petroleum Exporting Countries is sticking to its strategy of focusing on market share rather than cutting output.