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FROM THE EDITOR’S DESK No 22

May-June 2012

STARTING THE START-UPS

R

ecently, we saw how a young entrepreneur with a simple but very effective idea of social networking touched an enterprise valuation in excess of $100 billion in a span of just 8 years. Compare this to the world’s largest oilfield services company, Schlumberger with a rich history of over 85 years. Its market cap was around $86 billion at the time of going to the press. Of course, we are not saying that Schlumberger should close down their core business and start a social networking platform to become more valuable! Along with Apple and Google, Facebook has shown to the world the power of entrepreneurship.

DESIGN Senior Art Director Sandesh S. Rangnekar Senior Designer M. Balagopalan Senior Photographer Rajesh Burman Photographer Basim Al Maharbi Production Manager Ramesh Govindraj MARKETING Senior Advertising Manager Shivkumar Gaitonde Asst. Advertising Manager Girija Shankar Mohanty CORPORATE Chief Executive Sandeep Sehgal Executive Vice President Alpana Roy Senior Business Support Executive Radha Kumar Distribution United Media Services LLC Published by United Press & Publishing LLC PO Box 3305, Ruwi, Postal Code - 112 Muscat, Sultanate of Oman Tel: (968) 24700896, Fax: (968) 24707939 Email: akshay@umsoman.com All rights reserved. No part of this publication may be reproduced without the written permission of the publisher. The publisher does not accept responsibility for any loss occasioned to any person or organisation acting or refraining as a result of material in this publication. OER accepts no responsibility for advertising content. Copyright © 2012 United Press & Publishing LLC Printed by Oriental Printing Press Correspondence should be sent to: Oil & Gas Review United Media Services LLC PO Box 3305, Ruwi 112, Sultanate of Oman Fax: (968)24707939 Email: akshay@umsoman.com

The current issue of Oil & Gas Review (OGR) has lined up two companies that are powering the entrepreneurship engine in Oman in their own unique ways. First is Takamul Investment Company. It is quietly developing a sustainable downstream chain to support the burgeoning industrial sector in the country. Takamul’s strategy is to promote and invest in sustainable projects that rely on feedstock from local upstream industries in primarily three areas – metals, petrochemicals and minerals. Recently, it has expanded its scope of portfolio by including service oriented industries also. It is already committed to a total investment of $500-600 million and has set an ambitious target of adding another $1 billion of investments in the current year. It is bringing international and local partners on a common platform to create new business opportunities and jobs for the nationals. The second company is Petroleum Development Oman (PDO). Its Local Community Contractors (LCC) programme has led to the creation of over 700 companies owned by individuals or families in its concession areas. Though only 170 of them are active, they have been awarded contracts with a cumulative value of over $700 million. More than 1,000 jobs have been also created for the locals. From a micro set-up, many of them have now grown to become established competitive companies. Taking the programme forward, Super LCCs with a large shareholders’ base have been formed and after initial handholding for some time, they are expected to become medium-to-large independent competitive entities. In the next issue, we will showcase some of the success stories from PDO’s LCC programme; and a fast rising Omani oil & gas services company run by two young enterprising Omani professionals who had the guts to quit their cushy jobs and start a company at the height of global recession. Enjoy reading the issue! Akshay Bhatnagar Group Managing Editor akshay@umsoman.com

Read the emag: www.ogronline.com An

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Presentation

May-Jun, 2012


ProShots


CONTENT COVER STORY 38

PREFERRED PARTNER Takamul Investment Company is targeting to more than double its investments this year in its quest to promote the downstream industries to support entrepreneurship and generate employment opportunities

66

Automotive

REGULARS:

8 Oman News 12 In The News 43 Events Calendar 52 Opinion 55 Job Postings 58 Economy 4

May-Jun, 2012

60 Petrochemicals 63 Tender watch 64 Market Report 68 Global Round-Up 71 Regional Round-Up 76 Book Corner


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CONTENT INVESTMENT

HUMAN TALENT

26 The value buy zone for Facebook

28

and Apple, by Matein Khalid

ENTREPRENEURSHIP

34

Walking the Talk

RENEWABLE ENERGY The Change Agents

HSE Creating Entrepreneurs to Bene t Local Communities PDO has given contracts of more than $700 million till date to Local Community Contractors (LCCs) and is all set to power Super LCCs

48

74

Fracking causes earthquakes, but it’s worth the risk

EVENT REPORTS 20 OGWA Exhibition & Conference 2012 24 IDOC 2012 25 Oman Green Awards 2012

MARKETING FEATURES: 42 Berger Paints 46 Teejan Engineering 51 Haifa Industrial Services 6

May-Jun, 2012

FEATURE Changing Patterns

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OMAN NEWS

Depletion Compression Project to prolong Saih Rawl Gas Field

Topaz Energy and Marine adds 2 more vessels

Talking at the inauguration of Saih Rawl Depletion Compression project, Petroleum Development Oman’s (PDO) managing director Raoul Restucci said: “The Sultanate’s largest gas project has been the creation of a liquefied natural gas industry which has produced significant revenues for the country since the first of two plants was commissioned in 2000. Today, gas utilization across the country has grown significantly and PDO and other operators are actively exploring for and developing new gas opportunities. “The easy gas has already been

Topaz Energy and Marine, a subsidiary of Renaissance Services and a regional leader in providing offshore support vessels and engineering services, has added yet another milestone to its 35-year history by building two anchor handling/offshore support/ towing vessels.

The chairman of Renaissance Services, Samir Fancy, stated: “We believe that the production and delivery of the two vessels to an oil and gas giant such as BP will enhance and establish Topaz’s strengths and credibility as a leader in providing offshore support vessel and engineering solutions.”

The two sister vessels – Topaz Dignity and Topaz Triumph – will be operated by Topaz Marine on behalf of BP, the oil and gas major, on a long term contract basis in the Caspian Sea. The ships will be fulfilling BPs’ demands for anchor handling/ tug/support and transport of dry and liquid cargo to and from pipe-laying barges, drilling platforms and production platforms for its offshore operations. The state-of-the-art vessels equipped with the latest cutting edge technical prowess are custom-built for Fi-Fi Class I and DP2 operations at a cost of approximately $50 million.

Thomas Bower, managing director of Topaz Engineering, added: “The offshore support vessel market is an important and stable market sector that has a positive growth potential over the next few years, due to the aging fleets that presently operate in this segment. The building of the two sister vessels – Topaz Dignity and Topaz Triumph – demonstrates that our shipyard is capable of designing, building, and delivering complex vessels to support this market. This is a step toward achieving the growth strategy for our company over the next few years.”

found and is being developed, but we are now pursuing new and more complex exploration and development opportunities

including

tight

and

unconventional resources. And PDO continue to be at the forefront in the exploration and testing of new deeper, hotter, tighter and more complex hydrocarbon accumulations. “Saih Rawl is the largest gas field in the country. It was discovered in 1999, with first production in 1999. As the field reaches maturity and reservoir

8

pressure has declined, a process

and boosting the inlet pressure from 35 bar

capacity in 2011. “Gas and condensates

known

compression

to 96 bar for exports. The new plant has

from the Saih Rawl field are collected and

has been introduced as indeed in a

a capacity to handle 48 million standard

processed at Saih Rawl Central Processing

number of other PDO fields. Depletion

cubic metres of gas per day and a new

Plant. The treated gas is then sent to key

compression

as

depletion

sustained

power station with a total capacity of 120

customers such as Oman LNG, Qalhat LNG,

production and increases ultimate

mega watts has been installed to cater for

power stations and desalination units, Oman

recovery from the field, by reducing

increased power demand. After completion

India Fertilizer Company (OMIFCO), Sur Light

the back-pressure at the wellhead

and commissioning, the plant reached full

Industrial Area and South Oman Gas Line via

enables

May-Jun, 2012


PDO hosted 33rd GCC Drilling Technical Exchange Meeting

Petroleum Development Oman (PDO) hosted a drilling technical exchange meeting in April attended by representatives of national oil companies in the GCC countries. The gulf national oil and gas companies have joint steering committees that convene twice a year to discuss and exchange information on Production and Maintenance, HSE, Supply Chain Management, Exploration and Development and Drilling. PDO’s delegation was led by engineer Khamis al Saadi, Well Delivery Manager for Exploration & Gas and Well Engineering Deputy Director. “The six-monthly event covers variety of topics in both technical and non-technical arenas as well as topics on the Health, Safety & Environment (HSE),” commented Khamis. “It is very crucial how effectively we utilize these events in creating excellent networking for knowledge sharing and learning exchange. Best practices in well construction and maintenance

are also shared providing an environment with wealthy information,” said Abdulla al Ismaili, Well Engineering team leader. PDO Well Engineering presented three topics: HSE Campaign, HSE Performance by AbdulHameed AL-Jaamei, Senior HSE Advisor in Well Engineering; PDO Casing while Drilling (CwD) Technology by Nasser AL-Kindi; Performance Improvement by Mohammed AL-Aghbari, Senior Activity Planner in Well Engineering. During this event, Abdullah AL-Ismaili was appointed as the GCC Drilling Committee secretary. “I am privileged with the new challenging assignment as not only do I need to keep coordinating between different participating companies but also ensuring benefits are maximized to PDO by conveying learning, latest technologies and best practices,” commented Abdullah. The next GCC Drilling Technical Exchange Meeting will be held in November 2012 in Qatar.

a pipeline known as the Interconnector. This

Engineering, Procurement and Construction

project is key enabler for boosting the supply

(EPC) contractor for the project and their

to the flourishing gas business.”

construction partner BEC, have achieved a major milestone which demonstrates their

In another but related statement, TR Oman

strength in successfully completing large-

said: “With the inauguration of the Saih Rawl

scale upstream oil and gas projects and their

Depletion Compression facilities, Técnicas

commitment to the development of oil and

Reunidas Oman (TR Oman) as prime

gas industry in the Sultanate of Oman.”

India accepts hike in gas prices by Oman The Indian government has accepted the proposal seeking hike in prices of gas supplied by Oman to Oman India Fertilizer Company (OMIFCO) to $ 1.5 per mmBtu for this year, a move that will ensure uninterrupted supply of urea to the Indian market, according to a news agency report. The report further said that government’s approval of the hike in gas prices means that it has dropped the earlier proposal of challenging the move by Oman at the International Tribunal in London. “The Cabinet cleared the proposal to accept the hike in gas price supplied by Oman to the OMIFCO plant in Sur to $ 1.5 per mmBtu with an annual increase of $0.5 mmBtu,” sources said. The Indian Cabinet has accepted Oman government’s condition that it would increase gas prices by $0.5 per mmBtu every year up to $ 3 per mmBtu, sources added. Oman had contracted to sell gas to the plant at $0.77 per million British thermal unit for 15 years beginning 2005 but mid-way decided to hike rates to $3 per mmBtu (million British thermal units) from January 1, 2012 citing firming up of prices in global market. Oman India Fertiliser Company (OMIFCO), a joint venture firm between Oman’s stateowned Oman Oil Co (OCC) and Indian co-operative firms KRIBHCO and IFFCO, produces about 2 million tonne urea a year at Sur for exports to India. The Indian ministry was in favour of accepting the hike because even at $3 per mmBtu, the gas supplied by Oman is cheaper than alternative fuel sources. Long term gas supplies in the international market are no less than $18 per mmBtu. OMIFCO ships around two million tonne urea, which is its entire production, to India under an agreement the country has with the Oman government.

May-Jun, 2012

9


OMAN NEWS

Oman LNG, the Sultanate’s main liquefied natural gas (LNG) company, achieved five million man-hours without Lost Time Injury (LTI). The remarkable achievement followed staff commitment and dedication towards HSE practices along with the refocus and re-launch of the 12 Life Saving Rules in 2011— a simple and clear list of “do’s and don’ts” that helps to make sure that the rules are followed and people are protected. In addition, the increasing engagement and intervention by employees to prevent unsafe working practices, which is reflected, during the year-long of 2011, by a total of 4,862 unsafe act and condition observations and reported safety walks, had a significant impact on achieving this record. Oman LNG annually holds HSE Week which offers an opportunity for staff, contractors and their families to reflect on good Process and Personal Safety practices at work and home, healthcare enlightenment on health mishaps and provides free screening exercise. All these activities are aimed at building a commitment to compliance with safety rules and promote healthy living among the OLNG family. The HSE Week also sharpens staff and contractors’ scope of understanding of best HSE practices through interactive sessions. “This achievement follows strict adherence from company’s staff and contractors, and confirms Oman LNG’s substantial efforts at maintaining the superior quality of our operations, our careful and consistent attention to health and safety, and that we undertake our activities with a deliberate concern for the environment,” said Jan Brouwer, company’s Quality, Health, Safety and Environment Manager.

GUTech students present reports in Vienna The students of the Department of Applied Geosciences, GUTech presented their research findings at the European Geosciences Union EGU 2012 in Vienna. About 11,000 international researchers participated in the conference. Kawthar Al Quraishi, 4th year BSc Applied Geosciences at GUtech, gave a presentation about her research for the bachelor thesis titled: ‘Late Quaternary delta evolution on an uplifted coastal area -- Wadi Haida Sultanate of Oman, Arabian Peninsula’.

GUtech and supervisor of Kawther’s BSc thesis. Kawther’s study is integrated in the research project “Short- and long-term environmental changes along the coastline of Oman (Arabian Peninsula)” which is financially supported by The Research Council (TRC). Kawther’s research area is located close to Sur and she carried out geological fieldwork, especially mapping of an ancient river-delta on the coast. In the Vienna conference, she discussed the results of her work with international experts in the field of coastal zone geomorphologic interactions. A special focus there was on natural versus human-induced driving factors.

“The conference is one of the largest Geoconferences worldwide. The students were highly motivated to attend this conference, where they were able to discuss the results of their research with an international audience. I think they got a huge motivation out of that,” said Professor Dr. Goesta Hoffmann, Associate Professor at the Department of Applied Geosciences at

OIL PRODUCTION VOLATILE BUT OVERALL TREND POSITIVE ‘000 BBL

Oman LNG achieves an HSE milestone

140

29,000 28,000 27,000 26,000 25,000 24,000 23,000 22,000 21,000 20,000 2008

120 100 80 60 40 20 0 2009

2010

Oil Production Source: Ministry of National Economy Bulletin

10

May-Jun, 2012

2011 Average Price

2012 (US$/BBL)


IN THE NEWS

Ghantoot Group to invest $500mn Ghantoot Group plans to establish two power plants, three hotels and investment in other facilities in water desalination, transmission & distribution and oil & gas projects aimed to benefit the Sultanate

In a move that could benefit consumers in Oman and the region, UTICO, a leading private utility developer in the Middle East, unveiled a utility development project that would lead to lower consumer tariffs and zero subsidies at the Oman Water and Power Summit 2012 that recently concluded. UTICO is part of the US$3 billion Ghantoot Group, which in February this year had announced a US$500 million investment in Oman’s hospitality, water and energy sectors. As part of that process, UTICO is in active talks with Omani authorities to implement utility and water desalination projects that could lead to lower water and power bills for Oman’s consumers. The proposal is being currently reviewed by Oman’s Ministry of Finance, the Public Authority of Electricity and Water and also Oman Oil Company. When implemented, UTICO’s overall projects will also generate more than 2,000 jobs for Omanis, besides translating to significant savings for the government. Addressing the Oman Water and

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May-Jun, 2012

Power Summit, Richard Menezes, Executive Vice Chairman and Managing Director of UTICO, one of the Middle East’s largest Private Utility and Developer, emphasised the role of the utility developer in creating value for both the government and consumers. “Consumers are not the end but the beginning of an economic regeneration,” Menezes told the gathering. “Therefore, they should decide what they want to pay and how they want to be served. Value creation and excelling in consumer satisfaction along with job creation should be the role of the developer of utilities, not building subsidies.”

UTICO has offered a net revenue generating model with zero subsidy model to the Public Authority of Electricity and Water for several projects including Musandam Water and Power Supply. It also requires no off-take guarantee, thus saving hundreds of millions of Rials for the government. UTICO owns more than 32 million gallons of desalination plants and is developing another 15 million gallon desalination facility currently. It also develops and operates them. The total power plant ownership is 120MW. Another 300MW is currently being built. The company has over 300 km of T&D network and over 100,000 consumers.

He added that Oman gave over RO200 million in subsidies in water and power sector last year alone, which could have been made to zero for water or halved, if not fully removed. It could also have generated net profits for the government. Oman’s budget deficit is projected this year at RO1 billion, which means 20 per cent of this deficit is allotted to the water and power sector.

Focussing on renewable energy as the future, this year, UTICO has also set aside a US$20 million investment fund for viable renewable projects. Earlier this year, the Ghantoot Group announced that it would establish two power plants, three hotels and invest in other facilities in water desalination, transmission and distribution and oil and gas projects aimed to benefit the Sultanate.


IN THE NEWS

NIMR REED BEDS TO SAVE 12BSCF GAS treated water provides re-use opportunities and reduces deep water disposal costs and associated gas consumption,” said Restucci and added that the project would produce an average of 9,600 tons a year of dry biomass which could be used for small-scale (bio-fuel) power generation. According to the project’s engineers, the venture provides a much lower cost and sustainable solution to a major produced water challenge, and will save an estimated 12 billion cubic feet of gas over the next decade. Additionally, the project results in increased recovery of oil, skimmed from large separation pools.

Petroleum Development Oman (PDO) recently inaugurated an innovative project at Nimr oilfield. The majority of oil producers all over the world are challenged by the great volumes of water they produce along with the oil – PDO is no exception. “This associated water poses several challenges to all oil producers, and especially when fields reach maturity,” PDO’s managing director Raoul Restucci said. “The produced water is contaminated with oil and other pollutants and much of it has salinity higher than seawater, making it unusable for domestic or agricultural purposes” he added. At the Nimr oilfield in the southern part of its

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May-Jun, 2012

concession area, PDO and its partner Bauer and Sarooj implemented an innovative solution to the area’s significant water production. After several years of pilot trials, the largescale Reed Beds project came on stream at the end of 2010, with a second phase now in final completion. Reed plants naturally absorb oil and other contaminants and a giant water treatment farm measuring 2.4 million square metres of reed beds was constructed. The farm is capable of treating 45,000 cubic metres per day of produced water and phase two will soon increase this to 95,000 m3/day. “The

“Over the last nine months of operation, the project has collected and returned to the company over $4 million worth of skimmed oil. Previously, produced water, with oil concentrations of up to 150 parts per million, was injected in deep water disposal wells. After the oil is skimmed, the water is routed by simple gravity through some 2.5 million square metres of reed bed plantations which further remove oil and other contaminants, before reaching the final evaporation ponds, where PDO can extract salt for use in our drilling operations,” Restucci said. The project’s innovative method of preserving the environment was recently recognized when PDO received the Regional Clean Sea Organization’s Environmental Excellence Award. “This was preceded by another global award the project achieved earlier in the year. The US-based Global Water Intelligence’s Award classified the project as the best produced water utilization project in the world for 2010-2011,” said PDO’s External Affairs & Communication Manager, Suleiman bin Mohammed al Mantheri.


IN THE NEWS

‘VISION TO REALITY, A YEAR OF SUCCESS’

Oman Drydock Company marks first anniversary of soft operation

Oman Drydock Company (ODC) has completed successful one year of the soft operation of its world-class ship repair yard in Duqm which heralded a new era in Oman’s maritime industry. A gala event was organized to mark this auspicious occasion and to launch the new website of ODC, recently at Ritz-Carlton -- Al Bustan Palace, under the auspices of His Excellency Yahya bin Said Al Jabri, Chairman of Special Economic Zone Authority, Duqm. Titled ‘Vision to Reality, A Year of Success’, the event was aimed at celebrating the success of one of Sultanate’s most 16

May-Jun, 2012

prestigious projects, poised to make Duqm a thriving economic and social development hub. It was in April, 2011 that, after years of meticulous planning and construction works, ODC launched the soft operations of its state-of-theart dry dock facility in Duqm, in an ambitious step towards contributing Oman’s march towards economic diversification. HE Said bin Hamdoon Al Harthy, Chairman of Oman Drydock Company and Undersecretary of Ports and Maritime Affairs in the Ministry

of Transport and Communications, welcomed the gathering. Commenting on ODC’s one year of successful soft operation, Al Harthy said, “Today marks the celebration of one of the most successful economic achievements in the Sultanate. “Vision to Reality reflects ODC’s march towards strengthening His Majesty Sultan Qaboos bin Said’s vision of diversified development and inclusive growth. Within a short span of time, ODC could build its unique brand in a highly competitive dry dock market


by utilizing local and international marketing and media channels.” He informed that since it started operation in April 2011, the company had repaired more than 80 vessels of various types and sizes. “And in 2012 we are looking to receive more than 100 ships and tankers,” he added. “For this we are cashing in on our human expertise and material resources and the unique operation and management of Daewoo Shipbuilding & Marine Engineering Co (DSME). At the time of this celebration, we are proud that we could employ more than 1000 Omanis and prepared a comprehensive plan to train them in some of the biggest dry docks in Korea and Romania.” The event also celebrated ODC’s bestin-the-class health and safety standards and quality management system which enabled the company to obtain the Occupational Health and Safety Advisory Services (OHSAS) 18001/2007 certification and the ISO 9001:2008 certifications, by US-based ABS Quality Evaluations. Joe Brincat, the ABS Regional VP for Middle East and Eric Kleess, President & COO of ABS Pacific presented the certifications to the company on the occasion. Elaborating on this, Deputy CEO, Sheikh Khalil bin Ahmed al Salmi said, “The ODC has achieved one million safe man-hours which enabled it to win the OHSAS certification. These certifications testify to the fact that ODC has taken adequate steps to avoid accident and hazardous situation using a comprehensive and efficiently implemented system for the benefit of its employees, clients and relevant stakeholders.” A corporate film showcasing the unique features of Oman Drydock Company and its remarkable contribution towards May-Jun, 2012

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developing national talent, environment conservation and better health & safety standards was shown on the occasion. On the occasion, Chief Guest His Excellency Yahya Al Jabri felicitated the chairman, vice chairman, board members, secretary to the board and the CEO of the company. In addition, key department teams were felicitated with the ‘Appreciation Award’. WEBSITE LAUNCH This was followed by the launch of the new website of the company ww.omandrydock.com. The new website with its brand new design reflects ODC’s unique mission offering a complete spectrum of information related to key aspects of the company. Equipped with a lot of distinctive features including matchless navigation facilities and exceptional user-friendly interface, the website gives a comprehensive picture of the company’s operation, management, vision achievements, social initiatives etc. “The website has a fresh vibrant contemporary design and has employed the latest technology to serve our customers, suppliers, employees and different stakeholders,” said Al Harthy. “It will help the various departments in the company to communicate with their customers who can download and attach relevant documents and details. It is frequently updated with the latest information and marketing developments and exclusive video and audio documents, and is linked to social media websites such as Facebook, twitter and YouTube etc. The website will also enable us to interact with the international market and promote our values and strategic objectives among our customers world over 24 hours.” Apart from the website, ODC also publishes a magazine called ‘Abhar’ (Voyage) on the latest developments in international dry dock industry. 18

May-Jun, 2012


EVENT

A SCINTILLATING SUCCESS

The eighth edition of OGWA (Oil & Gas West Asia) Exhibition & Conference 2012, one of the largest energy shows in the Middle East region, was held from April 16 to 18, 2012 at the Oman International Exhibition Centre with a record number of almost 10,000 visitors

O

GWA, has turned into an event of global significance, capitalising on the ever-growing demand for oil that has stimulated the need for large-scale exploration and expansion projects and investments all over the Sultanate and in the region. This year’s edition drew together the largest group of oil and gas companies from the GCC region, international oil and gas majors, technology and service providers, and other local and international companies 20

May-Jun, 2012


that play a major role in the development of the oil and gas sector. The inauguration ceremony of OGWA 2012 was graced by His Highness Sayyid Asaad bin Tariq al Said, representative of His Majesty Sultan Qaboos. The ceremony opened with keynote speeches from Dr Zaid bin Khamis al Siyabi, Director-General of Oil and Gas, Exploration and Production, Ministry of Oil and Gas, Sultanate of Oman (Executive Committee Chairman); Raoul Restucci, Managing Director of Petroleum Development Oman; and Alain Lebastie, Engineering Advisor, EOR Technologies and Total (2011 SPE President).

With a record number of almost 10,000 participants and visitors (OGWA 2010 had about 8000 visitors), the event also introduced the CEO forum – a first in the region – which saw participation by key business executives, policy makers, and technical experts from leading oil and gas companies who shared their views in line with the government’s thrust to tap more renewable energy sources and develop more economic oil recovery projects. Visitors saw the latest products, equipment and technologies in the market presented by almost 200 local and international oil and gas companies from more than 20 countries, including Bahrain, Belgium, China, France,

Germany, Italy, Saudi Arabia, Singapore, Russia, Turkey, United Kingdom and the USA. Key players in the industry present at the exhibition included Petroleum Development Oman (PDO), Qatar Petroleum, the Bahrain Petroleum Company (BAPCO), Oman Gas Company, Oman LNG, Occidental Petroleum Corporation, MB Holding Company, Technical Supplies International, Al Sulaimi Group, Partex Oil and Gas, Pipeline Supply Company, Khimji Ramdas, Petrofac Industrial Limited, Towell Engineering, Vanguard Engineering and Oilfield Services,

May-Jun, 2012

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EVENT

Falcon Oilfield Services, International Business Development Co, Oman Oilfield Supplies Company, Gulf Energy, Baker Hughes, Hamriyah Free Zone Authority, Mott MacDonald and Al Hassan Group. Another hallmark was the Enhanced Oil Recovery (EOR) Technical Conference, which was held alongside the exhibition, in partnership with the Society of Petroleum Engineers (SPE). The SPE Conference, held in concurrence with the exhibition, also received an enthusiastic response by way of a higher delegate turnout and better visitor feedback than the previous OGWA event. The first Panel Session entitled ‘EOR: Building Towards Sustainable Growth’ was moderated by Dr Ali Al Gheithy, Petroleum Engineering Director, PDO. Invited panellists included Amran Marhubi, Technical Director, PDO; Hosnia Hashim, Deputy Managing Director (North Kuwait), Kuwait Oil Company; SP Singh, Regional Director – Subsurface Engineering, Occidental Oil and Gas International in Abu Dhabi; and Stuart Clayton, Vice President, Hydrocarbon Recovery Technologies, Shell. The discussion tackled the ever increasing importance of using EOR technologies to exploit reservoirs to their full capacities, how to develop people and skills to manage and operate EOR developments and effectively the industry can prepare and build towards sustainable growth. There is an acute shortness of EOR professionals in the Middle East and the world over and this topic was one of the areas of focus on the second day of the conference. Moderated by Andrew Cockin, Technology Leader for EOR, BP, ‘Human Capability Requirements for EOR’ deliberated on what it will take to expand and reenergise the human resource available in the sphere 22

May-Jun, 2012


today. The session included analysis of the present situation of human resources for EOR, both global and local; innovative methods to develop human resource capability for EOR projects; role of industry, government, and academia in nurturing EOR professionals as well as best practices and case studies for recruiting and retaining EOR manpower. Invited panellists were: John McCreery, Partner, Bain and Company; Omer Gurpinar, Technical Director, Schlumberger; and Dr Zara Khatib, Chief Technical Officer, Smart Water Engineering. Other sessions, included paper presentations of topical subjects like Polymer Flooding in a Large Field in South Oman: Initial Results and Future Plans; Stretching the EOR Boundaries: Thermal Trial in one of Petroleum Development Oman’s Deep Reservoirs Containing Heavy Oil; Flow Characteristics of Viscoelastic Polymer Solution in Micro Pores; Low Salinity EOR in Carbonates; as well as poster presentations on Novel Methods for Characterising Single Phase Polymer Flooding; A Cyclic Steam Injection in Fuyv Reservoir, Daqing; Process Design Aspects for Taking CO2 EOR Offshore; and much more. A paper was also presented on Microbial Enhanced Oil Recovery (MEOR), co-authored by Laura Soares, from Partex and researchers from the Portuguese Universities of Minho and Aveiro, summarizing the results of a joint R&D project. Participants at OGWA 2012 agreed that this year’s exhibition and conference was not only bigger and better, but also had a fresher approach to the conference aspect of the show and provided ample opportunities for networking. All in all, the event ended on a high-note with participants eagerly looking forward to the next edition. Pictures’ courtesy: OmanExpo May-Jun, 2012

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EVENT

TO BE IN MUSCAT

Great strides in DOF usage are taking place in Muscat and beyond, and PDO would host the IDOC 2012

N

owadays IOCs and NOCs are employing Digital Oil Field (DOF) policies in their green and brown field business planning. DOF has been defined as a vision where operators, partners and service companies seek to take advantage of improved data and knowledge management, enhanced analytical real time systems and more efficient business models. DOF exploitation is significantly gaining interest in the Middle East. Saudi Aramco has implemented this approach in integrating real time data in their upstream business processes. They have successfully demonstrated the enhanced value in these experiences from the methodology of integrating relevant technologies, people and processes. Within the UAE, there are significant ongoing DOF programmes. Plans within ADCO, ADMA-OPCO are in place to operate Smart Field technology within a number of fields over the next three years. KOC’s plan to identify, select and implement new technologies thus creating a total technology integration cycle with the main focus of this cycle to develop intelligent oilfields. Intelligent Reservoir Completion Technology has recently been successfully employed in Qatar’s Al Shaheen Oilfield as they begin to herald in their DOF intentions. In Oman, PDO has recently made considerable headway in the ongoing

24

May-Jun, 2012

development of their Smart Field Programme which is key to the optimal management of their growing number of wells and equipment. By 2013, 21 of PDO’s biggest fields which contribute 80 per cent of their output will operate on Smart Field Technology principles. Thus it can be seen that great strides in DOF usage are taking place in Muscat and beyond and PDO has very kindly offered to host IDOC 2012 and the Advisory Committee are planning a conference programme that will focus on:

current challenges, and educate and inform the attendees on solutions to the problems, both from a technology, and a human factors / culture perspective. COMMUNICATIONS & COLLABORATION - This session addresses the challenges of ensuring that information is communicated to the relevant staff so they can work together to reach the optimal decision.

WHY DO DOF - This session requires an in-depth look at what the end-users feel the value creation is for DOF.

SMART TECHNOLOGY – This session will focus on Smart Technologies that are a key enabler to improve health and safety of our operations, and help to minimise the environmental impact of oil and gas production.

INSTRUMENTATION & AUTOMATION - Topics within this session include Unmanned Operations, Closed Loops and Networks & Architecture.

CHANGE MANAGEMENT - Effective Change Management is at the very core of any successful implementation of DOF projects or programmes and presentations will highlight this.

DATA MANAGEMENT & WORKFLOW AUTOMATION - The intent of this session is to explore the

Official Media Partner of the event


CHAMPIONING A GREEN CAUSE

Oman Green Awards (OGA) has rolled out the ‘green’ carpet for its third annual prestigious awards ceremony to be held on June 5 at Al Bustan Palace Hotel, Muscat

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man Green Awards (OGA), Sultanate’s first environmental award to honour outstanding environmental vision, endeavours and achievements of corporates and individuals, will hold the third edition of its prestigious award ceremony on June 5 at Al Bustan Palace, A Ritz-Carlton Hotel. HE Mohammed Salim Said al Toobi, Minister of Environment and Climate Affairs, will preside over the function as the chief guest and felicitate winners of the nine different categories of the awards. Oman Green Awards is the ultimate recognition for companies, institutions and individuals in Oman, who demonstrate a commitment towards responsible consumption and sustainable growth. The OGA honours and celebrates their vision in leading the way to a cleaner, greener tomorrow; and offers a unique opportunity to be part of a national platform for this cause. The OGA is being held in association with the Ministry of Environment and Climate Affairs, Ministry of Health and Muscat Municipality; and representatives from these august organisations will attend the green celebrations, which coincide with the World Environment Day. The event has received massive support from corporate houses and individuals who have made green mission a priority. Oman Oil Marketing

Company and OCTAL have joined OGA as strategic partners and Sadolin as the support partner to keep the green torch burning bright in the country. The media partners include Times of Oman and Al Shabiba while Infoline is the call centre of the event. Conceived from a perceived need to motivate behavioural change and increase awareness in relation to the protection and preservation of our environment, the OGA has been able to make the corporates, individuals and organisations in the country more serious about building environmental sustainability into their business practices. Conceptualised and initiated by Sultanate’s premier business magazine Oman Economic Review in 2010, OGA has evolved as an umbrella organisation bringing together corporate houses, institutions, individuals and schools etc. who are involved in relentless efforts to protect and preserve the environment; and facilitating better coordination and exchange of ideas. Its three-fold objectives focus on boosting local environmental efforts and achievements; providing green groups a platform for concerted action; and raising awareness and generating greater action. The last two editions of the OGA were a resounding success in meeting its stated objectives. May-Jun, 2012

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INVESTMENT

THE VALUE BUY ZONE

FOR FACEBOOK AND APPLE

While online ad sales is a high growth global business, Facebook will never dislodge Google from the gold medal winner’s box, despite Mark Zuckerberg’s hoodie on Wall Street roadshows, writes Matein Khalid

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Matein Khalid

acebook may command a 100 billion dollars plus valuations at its birth as a public company but this will not last. The Instagram deal is a strategic blunder. Facebook paid $1 billion for a zero revenue business that is not worth more than $300 million, if that. This deal can only have been done with Zuckerberg’s approval and a 27 year old software developer is obviously no strategy genius by right. A $100 billion public company will be run by Zuckerberg as his private fiefdom even after the IPO since he controls the voting rights share. This is a corporate governance nightmare that could have devastating consequences for Facebook shareholders in the years ahead. What if Zuckerberg decides to write a $10 billion cheque to the next Stanford dropout with a hot social media website? I cannot compare Google with Facebook. Google went public in 2004 at a $23 billion valuation, the reason it was a genuine growth stock with a killer app on the Internet (search). This meant there was ample potential for investors to buy Google in 2004 as a long term growth stock and those who did so saw their shares rise seven fold as Google rose from 85 to $650. The mathematic of the Facebook IPO is entirely different. The big parabolic increase in valuation happened during the eight years it was not a public company. So the Facebook IPO breaks syndicate at almost a $100

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billion valuation. This does not mean the shares cannot double in the next five years. Yet as revenue slows, I believe Facebook valuation metrics could get slammed. In any case, Facebook will trade at 100-120 times earnings at a time when Europe face financial and political meltdown. This means the risk of a 30-50% crash in Facebook shares all too possible. Every earnings number will be an appointment with a NASDAQ guillotine scaffold. Apple stunned the world, delivered 50% growth rates yet only commands a 20 times valuation. Facebook is a speculative colossus that could well fall victim to Greece’s exit from the EMU later this summer. Facebook’s revenue model, while powerful and unique is ultimately global online advertising sales. But Facebook is Pepsi to Google’s Coke, the obvious dominant global champion. While online ad sales is a high growth global business, Facebook will never dislodge Google from the gold medal winner’s box, despite Mark Zuckerberg’s hoodie on Wall Street roadshows. This makes the 2011 revenue growth and EPS miss ominous. Facebook earnings were near $1 billion in 2011, it has built a global brand with 900 million users and can easily deliver 25% EPS secular growth. This means the downside risk in Facebook is $50 billion, not coincidentally the level it raised financing from Goldman Sachs and


Russian oligarch Yuri Miller. In essence, this suggests a 15-18 range for Facebook makes a great long term buy for value investors. It makes no sense to chase nosebleed valuations after the IPO. Apple has fallen almost $90 from its $644 all time high. This provides investors with a strategic opportunity to acquire history’s greatest Big Tech ecosystem after Microsoft MS-DOS cash machine. Apple is a growth share that dominates its industry and the market penetration metrics in tablets, Macbooks. China and corporate is low enough that its revenue, EPS and operating margins can continue to grow. This is particularly true since social media goes global and Apple TV is launched. Apple blew away the 1Q revenue and EPS estimates thanks to the explosive launch of the iPhone and iPad in China. Annual EPS growth was a phenomenal 92%. China iPhone sales soared fivefold and Apple is just beginning its footprint in the Middle Kingdom, the world’s leading Internet market. The August 2012 put option on Apple with a strike of 530 can be sold to generate a premium of $30. This means as investor can create a risk/ reward calculus in which the worst case scenario is being forced to take delivery

of Apple at 500 cost. This strategic idea is only possible since Apple shares have corrected from their highs while Chicago Volatility Index (VIX) has spiked higher by 25% since March. This means investors buy Silicon Valley’s iconic tech share at a mere 10 times forward earnings. This makes buying Apple at 480 – 500 for a $650 target a credible value proposition for the next six months. Big picture, I believe the S&P 500 index can fall to 1280 – 1300 before a sustainable value zone emerges. There is no prospect of a Fed QE on the eve of a Presidential election. A Greek exit from EMU is probable. If the French-German alliance break down now that President Hollande is in the Elysee Palace, a global risk aversion spike is inevitable. This means valuation contraction and earning downgrades will highly likely. Energy could be a value buy when oil supermajor production and reserves on Wall Street are valued at $74 – 80 Brent, at least 12% below current levels. Banks and miners have also lost their momentum. Technology has the growth but it is not immune to risk aversion. Value investors must, above all, be patient.

Facebook may command a 100 billion dollars plus valuations at its birth as a public company but this will not last

(The author is a renowned investment banker based in Dubai) May-Jun, 2012

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HUMAN TALENT

WALKING THE TALK The domain of Enhanced Oil Recovery (EOR) has seen a decline in the number of specialists who have the knowledge and capability to work on projects. Sushmita Sarkhel reports

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he petroleum industry is currently facing an uncertain future in terms of human resources. According to Schrader et al. (2007), a large number of experienced professionals will be retiring

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in the near and immediate future without qualified workers to replace them and a lack of experienced personnel could cost the industry as much as USD 35 billion per year (Brett 2007). This predicament is further exacerbated for Enhanced Oil

Recovery (EOR) projects which are inherently more complex to conventional recovery methods. Not only are EOR projects manpower-intensive, requiring highly skilled professionals to run them, but many a times the geographical


location of the projects and resources pose as deterrents. There is an acute shortness of EOR professionals in the Middle East as well and this topic was one of the areas of focus at OGWA 2012. Moderated by Andrew Cockin, Technology Leader for EOR, BP, the session deliberated on what it will take to expand and reenergise the human resource available in the sphere today. One of the panellists, John McCreery, a Partner with Bain and Company, believes that one of the mains reasons that the industry is facing a challenge today is because of the short gap solutions that companies employ. This includes the age-old problem of headcount, particularly when there is a dip in oil prices. “We have heard a lot about the capability issue in oil & gas. How did we get here? Lots of commentators believe that we are at a crisis point within the industry. As much as 25 per cent of the existing workforce will retire in another five to 10 years. On the other hand, activity levels are increasing and more complex projects in EOR are coming up. There is an increasingly high expectation in terms of standards.” But without the right people there is no use of technology available to us. It is vital to develop a clear outlook for future capability needs. “We need to balance our focus on recruitment, development and retention,” says McCreery. The typical elements of a successful implementation strategy has all the elements of recruitment, development and retention which includes short term manpower development, capability building, long term recruitment solutions as well as capability retention. The importance of retention was also a key area of focus in a Deloitte report entitled the Talent Edge 2020. It was

We have heard a lot about the capability issue in oil & gas. How did we get here? Lots of commentators believe that we are at a crisis point within the industry. As much as 25 per cent of the existing workforce will retire in another five to 10 years. On the other hand, activity levels are increasing and more complex projects in EOR are coming up

reported that four in ten (40 per cent) executives surveyed confirmed that their organization has an updated retention plan in place, and another 36 per cent reported that an updated retention plan is in the works.

and technologies. There is no magic bullet and a successful strategy requires coordination of the technical functions along with Human Resources. The agenda must be owned by every part of the business.”

However, only 30 per cent of executives surveyed were “very confident” in the overall effectiveness of their company’s retention strategies and programs. It went on to state that ‘different generations have different goals, expectations, and desires—and organizations should tailor and target their talent strategies to satisfy each employee group from Baby Boomers to Gen Xers to Millennials.’

Designing effective retention strategies starts with a clear understanding of employee goals and desires. However, there appears to be a disconnect between employers and employees in three areas (Deloitte, Talent Edge 2020):

It is imperative now that companies differentiate themselves in the talent marketplace by going beyond financial incentives and creating customised retention strategies that address issues such as career advancement and greater recognition. Looking at advanced training programmes and scholarships to tap into the talent is vital. And having a sound mentoring system in place can also help organisations to a certain extent to meet these requirements. McCreery also stressed on identifying and implementing new ways of working. “This can mean anything, from new business models and new organisation models to new partnerships

Intensity Gap: Although employers now recognise that promotion and job advancement is a powerful retention tool, they still have to realise how important it is for the different generation of employees. Employer-Boomer Mismatch: Employers believe Baby Boomers are interested in additional benefits, additional bonuses, and flexible work arrangements. However, this generation is seeking more than just additional compensation and flexible schedules. Money Matters: Every generation of employees surveyed ranked additional compensation among the top three incentives for keeping them with their current employers. Some organisations are already doing a May-Jun, 2012

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HUMAN TALENT

The importance of better EOR education was also echoed in the presentation by Dr Zara Khatib, Chief Technical Officer, Smart Water Engineering who discussed the role of the Government and academia in developing the talent pool in EOR technologies. Khatib also went on to state that dispersion was knowledge was also vital. “One can possess all the technical know-how but if there’s no exchange of information and/or expanding this knowledge among those who require it, then it serves no real purpose.” Khatib also stressed on the importance of academia and the industry working together to develop the talent available in handling EOR projects in the future.

Reservoirs are going in to a more challenging state. But the good news is that since the year 2000, academia is getting much better with EOR teaching. So the future generation that will be joining the field, will not only have a better knowledge of EOR processes but also a deeper understanding and the skillsets to handle future EOR needs

lot in this regard. In the US, Shell has applied Six Sigma techniques, where they can increase efficiency and reduce the cycle times of the processes of standard operations. Some of this has been introduced because of the huge increase in activity in North America which puts pressure on the supply chain. These do not necessarily help throughout the operations but illustrate how learnings from elsewhere can help develop processes and bring in more focus on the tricky subject of ‘standardisation’ within the industry. Ome Gupinar, Technical Director, 30

May-Jun, 2012

Schlumberger, believes that the industry now needs strong single domain experts. And this can be achieved primarily via better EOR education. “EOR is still considered as ‘late-life activity’,” says Gupinar. “Reservoirs are going in to a more challenging state. But the good news is that since the year 2000, academia is getting much better with EOR teaching. So the future generation that will be joining the field, will not only have a better knowledge of EOR processes but also a deeper understanding and the skillsets to handle future EOR needs.”

However, education is not only limited to the existing programmes available in most universities across the globe today. According to Deloitte, one training tool that is not broadly used by the industry is continuing education in dedicated executive programs for oil and gas professionals. MBA degree programs tailored to oil and gas professionals are offered by only a few schools. Such programs can offer industry the possibility of fast-tracking development of high-potential staff. It has been established that building world-class talent programmes and retention initiatives require investment. Managers and executives need to start taking responsibility for organisations’ futures and focusing investments and capabilities on their top priorities. There needs to be rebuilding and development of new talent programs for leaders and as well as new recruits. There are no easy answers to building capability. The answer is to improve the younger generation’s professional experience while simultaneously capturing the knowledge base of retiring technical professionals.


FEATURE

CHANGING PATTERNS

Ground-breaking research work undertaken by a team of professors and students at GUtech aim to understand the past and future of coastal evolution in Oman. Sushmita Sarkhel reports

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he coastline is a changing interface between the land and the sea, influenced by natural and anthropogenic impacts, such as climate or sea-level change. Oman has a long, diverse coast line extending approximately 2,092 kilometres and has undergone many changes over the last thousands of years. The German University of Technology in Oman (GUtech) in cooperation with their partner university (University of Stockholm) have been studying the coastal evolution of Oman – a research project which is being funded by the Research Council of Oman. The study primarily aims to understand the natural processes of change which occur or have occurred on the Omani shorelines in the past and the ways it might change in the future. The three year project started off in June 2011 and is currently in the first phase; the final results of which are expected to be out in two years’ time. Discussing the preliminary results, Professor Dr. Goesta Hoffmann, Associate Professor at the Department of Applied Geosciences at GUtech and the Principal Investigator of the research project says, “The processes which change the coastline may be broadly classified into two different timescales – there are long term changes and short term changes. Long term change relates to global changes in sea levels, a phenomenon linked to global climate change. Short term changes

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are more noticeable and direct, like tsunamis. We analyse the coastline to see whether there has been tsunamis in the coastline of Oman and according to the preliminary results, we see that yes, there have been several tsunamis here in the past. The last one was in 1945 but it wasn’t a major one. There have been larger ones before but right

now it is difficult to put a time frame to it. On the other hand there have been changes which are related to weather conditions like tropical cyclones and Oman experienced two, one in 2010 and the other 2007.” Using statistics like these the team tries to predict how many such events have occurred in the past and whether they are increasing or not. The


team has also been looking at climate change over the last few thousand years and in doing so discovered that approximately 6000 years ago, there were lakes in the Wahiba Sands. “Wahiba Sands, which we now know to be extremely dry, had perennial fresh water bodies. The reason why we no longer have them is because of a shift in global atmospheric patterns. The climate was different back then and monsoons were prevalent – now only restricted to Salalah and the Dhofar region.” It is known that the Wahiba Sands started to form already 180000 years ago. “Beside the more arid phases reflected by the sand dunes, there is also increased past humidity in the form of ancient lake deposits in Wahiba Sands. The last of the wet phases dates back about 10000 to 5000 years ago,” says Goesta. The geoscientist and his team discovered that the environmental conditions changed dramatically since then, with mainly dryer conditions as today, but partially also notably wetter periods occurred such as around 6000 years ago, when permanent lakes existed in Wahiba Sands (Sharquiyah Sands). “The main question was what is the general understanding of the origin of the sand deserts and how

did the sand come to the Wahiba sands. We drilled 200 meter deep through the sand dunes and discovered that the origins of Wahiba Sands are related to the past periods of lower sea-levels. The dunes developed in different phases and are connected.” The obvious question that now arises is, what happens in the future? Will we see further dramatic shifts in climatic patterns? According to Goesta, it isn’t possible to predict the future. “We can perhaps concoct scenarios of future development. They depend on several factors which we cannot inference and which we have no influence on. For example, if the world economy is going to grow in the same pace using the same techniques, then it’ll probably put more CO2 admissions in the atmosphere. It’ll get warmer and therefore the sea levels will rise more in the future. And I could give you the scenario of how the coastline would look like if the sea level is one metre higher. But if whether or not this will happen I cannot predict.” One also has to take into consideration not only the global scenario but also what is going on in our immediate

surroundings. Human influence on the coastal area is increasing because most of the population lives in the Al Batinah coastal region and that is going to increase in the future. So there’s human pressure on that natural environment, in terms of utilisation of resources, infrastructure development and the likes. It is hoped that studies like this will assist in raising awareness of key geomorphological issues that are relevant beyond the time horizon of existing plans and the design life of present coastal defence structures. Appreciation of these issues should help avoid tying future generations into inflexible and inappropriate coastal management decisions. Although the study does not provide a definitive prediction of future coastal evolution, because this is dependent upon a number of factors, not least of which is the implementation and sustainability of existing coastal management policies. It does, however, provide a knowledge base that can be used by all coastal managers to help define sustainable policies therefore enabling strategic coastal management decisions to be made in a longer-term and wider-scale context. May-Jun, 2012

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ENTREPRENEURSHIP

CREATING ENTREPRENEURS TO BENEFIT LOCAL COMMUNITIES TO START WITH, WHAT IS A LCC? LCC is defined as local community contractors. LCCs are companies owned by the tribal communities or individuals that live in PDO’s concession area. The LCC programme was started in 1998 with the objective of sharing the benefits of PDO operations with the local communities by engaging the community companies in our business activities through contract work. Currently, we have more than 700 companies owned by individuals or families as the registered LCCs. Not all of them are active though. The active number is around 170. Overall, till date we have given them contracts with a cumulative value of over $700 million. In 2011 alone, we had provided contracts worth $105 million. As a result of our LCC programme, more than 1,000 jobs have been created for the locals. 34

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DID YOU FACE MAJOR CHALLENGES IN THE BEGINNING AS THE PEOPLE IN THE INTERIORS MUST HAVE LACKED THE NECESSARY SKILLS OR EXPERIENCE? It has been a challenging journey all through for us though the nature and degree of challenges have changed over the years. In the initial phase, it was extremely tough. Majority of the people didn’t have business background and we started by teaching them how they could help us in our operations. We provided training to them in doing non-technical work related to logistics, environment or sand mining. The initiative was welcomed by the local communities. It was quite challenging to make them understand the nature of our business, contractual agreement and its terms, expectations from them and how their non/under performance could affect our work. To ensure that our operations

‘PDO has given contracts of more than $700 million till date to Local Community Contractors (LCCs) and is all set to power Super LCCs to develop a new set of enterprises in Oman,’ says Khalfan Salim Al Busaidy, LCC manager, Petroleum Development Oman (PDO), in an interview with Akshay Bhatnagar. Excerpts of the conversation:

were not affected, we always had a back-up arrangement to maintain the continuity in case of any default from the LCCs. As we progressed over the years and learnt from each other, we found that some of the LCCs developed a good sense of the business. We provided consultants to them to enable them to learn more about the business management, HSE practices and importance of financial prudence. In the last 14 years, we have ended up with over 700 LCCs but we don’t have work for all of them. So we are encouraging them to expand their shareholders’ base by merging with other LCCs to form a larger LCC and expand their scope of services or operations. Though there have been some takers for our suggestion but not all of them have welcomed it.


HOW DO YOU CLASSIFY THE LCCS? We have encouraged them (LCCs) to join hands with each other to form larger shareholding companies. As on date, 21 LCCs have opened their companies for others to join in as shareholders. We have classified them as ‘Al Ahliya’ or class A LCCs. Each Ahliya LCC must have many shareholders. On the other hand, majority of the LCCs have opted to refrain from joining any shareholding. They have preferred to retain their own (self or family) ownership. They are known as class B LCCs. We do not allocate work to them. Instead, we provide them with opportunities to inter bid among themselves for a specified scope of work from main contracts as sub-contractors. WHO COULD FORM A LCC? LCC can be formed by people living in the concession area only. Any resident willing to start or join as a shareholder in a LCC must prove that he/she is a resident of the concession area. IF YOU LOOK BACK, WHAT HAVE BEEN THE OTHER MAJOR ACHIEVEMENTS OF THE LCCS? Apart from significant value and job creation, many LCCs have graduated to become a confident and respected member of the corporate community. They are now competing with other well-established companies and winning contracts on a merit basis. They have built the confidence to participate in big value contracts. The success of the programme has raised the living standards of the locals in the concession area. The new generation is welleducated and taking up the business in a professional manner. CAN YOU SHARE SOME OF THE SUCCESS STORIES WITH US? May-Jun, 2012

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There are many of them which started as LCCs and are now established competitive companies. For example, Shaleem Petroleum Services is providing well pulling hoist services. They got the contract through an online competitive bidding. HADCO which started as a minor services’ provider is now offering well engineering services. Al Ghalbi Company is a pipeline integrity services company now. Saih Al Sariya is another good example. The company recently won a multimillion contract in a joint venture with an international firm. Douhat Al Khaleej also started as a LCC and has now established the first gasket manufacturing at Nizwa Industrial Area. Look at Saih Nahaida. It has expanded its business to purified drinking water bottling in Adam. Maqshan, another LCC, is now investing in different areas including desert agriculture. We can add many more names to it. The interesting aspect is that most of them have identified their niche and working in different industry segments to create a distinct business proposition. MOVING ON, WHAT HAS BEEN PDO’S STRATEGY TO TAKE THE LCC PROGRAMME FORWARD? We have already started the implementation of a new strategy for the LCC programme. To give you 36

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the background of the new strategy, a Ministerial action team was formed in 2006 to look into the scope of the LCC scheme and find ways to improve it for making it more beneficial to the communities in the concession areas. The team comprises four members – three senior officials from the Ministry of Oil & Gas, Ministry of Commerce & Industry and Ministry of Interior along with one person from PDO. I represent PDO in this team. We initiated an extensive study ‘LCC Scheme Improvement’ in 2006. It involved rounds of meetings with members of the communities in the concession areas to understand the demographics of those areas and gauge the needs/strengths of the people. We went beyond the PDO concession area to do the study. Thereafter we submitted our findings and recommendations to the Government to give shape to the new strategy for improving the LCC programme. As part of the new strategy, it was decided to form five Super LCCs. These includes Al Shawamikh and Al Haditha (both in North concession area), Al Baraka and Al Sahari (both in South concession area) and Al Khazain (Central concession area). The first four SLCCs have already been established and allocated the contracts by PDO and each of them is initially expected to

achieve an annual turnover of $7 to $10 million. The fifth one is expected to be established at a later stage. WHAT IS THE DIFFERENCE BETWEEN THE THREE TIER STRUCTURE – LCC (CLASS B), AL AHLIYA LCC (CLASS A) AND SLCC? The LCC (class B) is the small company owned by an individual or a family or partnership. Al Ahliya (class A) must have many shareholders. The SLCC, on the other hand, is a different ball game altogether. Each SLCC has a large capital base and is registered as a closed shareholding company on the Muscat Securities Market (MSM). Any interested person from the respective concession area could subscribe to the shares of the SLCC. We have set some restrictions on the ownership say an individual cannot buy more than 2 per cent shares whereas in the case of a family, the limit is extended upto 5 per cent. To promote and protect ownership among the people living near to the area of operation in the concession area, we have allocated 50 per cent shares to those who are living in a radius of 20 kms, 35 per cent shares are for those who live in the next 20 kms radius and similarly another 15 per cent are reserved for those who reside in the subsequent 20 kms radius and cities of Adam and Thumrait. We encourage the


LCCs (class A & B) to merge with the SLCCs. WHAT KIND OF SUPPORT WILL BE PROVIDED TO THE SLCCS BY PDO? Unlike LCCs, we are awarding direct contracts to them in core areas such as drilling, mechanical, engineering, electrical, etc. So they don’t need to look for business from day one. They will be paid as per the market norms. Extensive coaching and training will be done by us. We will extensively train their staff (Omanis living in the concession areas) and thereafter transfer them to the respective SLCCs. We have provided them our senior engineers as technical advisors to guide them in technical aspects. In addition, we have roped in leading international firm Black Gold Consulting to dedicatedly help SLCCs for two years to develop business plans and set-up HSE and management systems as per industry standards. We are also allocating industrial plots and workshops at PDO owned locations for SLCCs. Our vision is that in two years, these companies must become ISO certified. We are also investing $35 million in buying equipment for SLCCs. The investment will be treated as an interest free loan for 10 years. Each company will be governed by a board with guidance

from us and Black Gold Consultants. WHAT IS THE VISION FOR SLCCS? Our aim is to ensure that these SLCCs acquire skills in oil & gas fields’ core business and mature into fully competent contractors able to compete in the open market within 10 years. In the first five years, our focus will be on developing these companies by giving them all the support and direct contracts as per the market prices. In the subsequent five years, we expect them to become competitive under our supervision. We will allow them to submit their bids for works that have been previously assigned to them. If the offer is not found suitable compared to the market prices, then the company will negotiate with them to be in parity with the market trend. They will also be allowed and encouraged to participate in other open competitive tenders like other contractors. After the incubation period of 10 years, they have to be completely independent and stand on their own feet. WHAT ARE THE KEY CHALLENGES DO YOU FORESEE IN THE ROAD MAP AHEAD FOR THE LCCS? It is definitely not an easy task. It is difficult to manage, develop and allocate work to many LCCs. We

have tried to address this issue by encouraging them to become Al Ahliya LCC or even merge with SLCC. Another problem is that the expectations of the LCCs and SLCCs are on the higher side. They also need to appreciate and understand the significant efforts made in mobilizing, training the SLCCs’ workforce and developing the required competencies & HSE management system to be able to deliver as per PDO’s core activities and standards. We have to create opportunities for the SLCCs from the very beginning to focus their efforts towards developing their business in core activities. We need to ensure that there is enough scope for core and support work for the newly formed SLCCs and Al Ahliya LCCs. Another challenge is to ensure that they meet the expected Omanisation targets. In the case of SLCCs, we are looking at them to achieve atleast 50 per cent Omanisation in the beginning and gradually increase it to 90 per cent by the time they enter their sixth year of operations. Despite encouragement from the Ministry of Oil & Gas and PDO, the LCCs are reluctant to merge with SLCCs. However, we are confident that in the coming years, we are going to see a new bunch of aggressive enterprises with strong business acumen as a result of the efforts made by us in this direction. May-Jun, 2012

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COVER STORY

PREFERRED

Nabil A. Al-Ghassani Chief Executive Officer Takamul Investment Company 38

May-Jun, 2012


PARTNER

Takamul Investment Company is targeting to more than double its investments this year in its quest to promote the downstream industries to support entrepreneurship and generate employment opportunities, Akshay Bhatnagar reports In order to diversify its oil-based economy, Oman has set-up a number of large industries such as Sohar Aluminium, Oman Oil Refineries and Petroleum Industries Company (ORPIC), Vale Oman and JindalShadeed Iron & Steel, etc. Has it been the right strategy for Oman? Or the Sultanate should have opted for a more inclusive growth by creating a larger pool of small-to-medium industries instead of setting up such industrial behemoths? If we review the developments in the last couple of years, we will find that these industrial giants have been the fulcrum around which number of new business and employment opportunities are emerging in the form of downstream projects of small to medium scale. Most of these new enterprises are engineered by Takamul Investment Company. The Oman Oil Company’s subsidiary initiated operations in 2008 with the mandate to develop a sustainable downstream chain to support the burgeoning industrial sector in the country. It will be wrong to call the company just a downstream investment arm of Oman Oil Company. Takamul is more than an investment firm. Its role is manifold. It scouts for new business opportunities, invites local enterprises to suggest business ideas and encourages international firms to enter Oman. It brings the local enterprises and

specialized international firms together and provides the solid support for the development of projects. Takamul leads market feasibility and technical studies to ensure a long-term viability of proposed projects. Takamul then invests in the ventures where it will hold a long-term position; provides assistance, best management practices and HR training to create sustainable and competitive business entities that thrive on the opportunities offered by the country’s heavy industries. Its initial focus was on creating downstream industries for Sohar Aluminium. “We are currently utilizing 100 per cent of the project’s aluminium allocation for Oman. That was our initial target. Now, we are looking at enhancing the allocation for Oman as we are considering more downstream industries in the near future,” stated Nabil A. Al-Ghassani, Chief Executive

Officer, Takamul Investment Company. On the overall investment front, he said, “Our current investment approvals are in the range of $500-600 million. We haven’t released part of our committed investments as some of the projects are in different stages of development. This year we are expected to commit another $1 billion worth of investments. We are in an advanced stage to approve an investment of $700-800 million in a single project. This will be our highest investment in a single project. Our highest investment till date has been $400 million in Oman Aluminium Rolling Company in Sohar. The project is currently under development. In addition, we have created a number of new companies with investments ranging between $5-50 million in different types of projects.” Takamul’s strategy is to promote and invest in sustainable projects that rely

Takamul leads market feasibility and technical studies to ensure a long-term viability of proposed projects. Takamul then invests in the ventures where it will hold a longterm position; provides assistance, best management practices and HR training

May-Jun, 2012

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COVER STORY

on feedstock from local upstream industries in primarily three areas – metals, petrochemicals and minerals. Recently, it has expanded its scope of portfolio by including service oriented industries also. For example, it has recently formed a company that will provide facility management services such as catering, maintenance, cleaning and other support services. This blends seamlessly in Takamul’s focus on creating and supporting the local enterprises and creating sustainable job opportunities for Omanis. The company recently signed an agreement with the Special Economic Zone At Duqm (SEZAD) for the construction, management and operation of centralized services to meet the industrial needs related to the supply of 40

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utilities including indusial gases, water, steam, central cooling and management of industrial liquid wastes.

Takamul is working towards the developing an integrated plan to recruit and develop Omani nationals for the current and future manpower requirements

Takamul will prepare the technical and financial studies for the construction and operation of the related assets on a commercial and sustainable basis that will enhance the industrial investment value provided by SEZAD in Duqm. Based on current studies, Takamul is expected to develop the utility projects and operate the services to host the planned industrial projects in SEZAD. As mentioned earlier, metals have been one of the interest areas for Takamul. Oman Aluminium Rolling Company has been its flagship project in this sector till date. The production capacity of the Aluminium Rolling


Mill will be 140,000 tons of multipurpose rolled aluminium sheets. “We are looking at setting-up number of tertiary downstream projects for Oman Aluminium Rolling Company,” the CEO informed. The tertiary investments could be made by small and medium enterprises (SMEs) focusing on manufacturing products such as office curtains and utensils, etc. In a separate project, Takamul has established a joint venture ‘Oman Aluminium Processing Industries Ltd.’ with Oman Cables Industry in Sohar. It commenced production in 2010. Equipped with state-of-the-art equipment and technology from the US firm, Southwire Company, the plant is capable of manufacturing EC rods, overhead line conductors, EC and aluminium alloy wires and strand.

We are also targeting creation of new entrepreneurs, allowing young talent to fulfill their desire to contribute to the success of the Omani economy; to develop their entrepreneurial spirit and to promote their career opportunities

deficient soils. Apart from Takamul, Awtad Projects and Development (Al Nahdha Group) and the US firm CoreSulphur, the world’s leading provider of sulphur bentonite fertilizer technology, are the founding partners of the project. ORPIC will provide 30,000 tonnes per annum of sulphur as feedstock.

In addition, the company is currently building a galvanized steel wire plant ‘Gulf Specialty Steel Industries LLC (GSSI)’ in partnership with Global Steel Industries Pte Ltd, a wholly owned subsidiary of the Singaporebased BH Global Marine Limited, a leading supplier of marine and off-shore electrical products. The high-tech plant at Sohar Industrial Estate has an outlay of $30 million investment. The facility is expected to produce around 60,000 tonnes per annum of galvanized steel wire products for use in armoring of electrical cables.

Al-Ghassani added, “We are also looking at the downstream for aromatics. We are eying at a PET oriented project as well. Sohar, Duqm and Salalah are the key areas which are on our radar. These are just some of the many projects that are under active consideration by Takamul. We don’t think local. We have to think global. We are not competing in Oman, we are competing in the global market and we have to ensure that we identify relevant business opportunities that are in sync with the raw material available in Oman and the feedstock that could be generated by our major industries.”

Moving on to other segments, Takamul has a majority stake in Sohar Sulphur Fertilizers LLC. The company’s sulphur bentonite fertilizer plant at Sohar Industrial Estate recently started production. The 30,000 tonnes per annum facility processes sulphur, a byproduct of the crude refining process, into sulphur bentonite fertilizer, a micronutrient used extensively around the world to help fortify sulphur-

On being asked about the corporate social responsibility (CSR) activities of the Takamul, he responded: “We are the CSR of Oman Oil Company. That’s how we look at it. We are developing small to medium sized projects that are sustainable in long term; we are creating new industries and associated new job opportunities. We are focusing quite heavily on the employment of Omanis in the projects and ensuring they are

provided adequate growth-oriented training. We are also targeting creation of new entrepreneurs, allowing young talent to fulfill their desire to contribute to the success of the Omani economy; to develop their entrepreneurial spirit and to promote their career opportunities. Takamul focuses on developing Omani nationals to lead and operate through development of sustainable recruitment and training plan involving expatriates and Omani nationals. “We may need to keep in mind that Takamul is a start-up investment company in green-field projects; profitability is a key factor that needs to be considered when developing funds to support CSR. Supporting the local industries through integration and establishing raw material through import replacement is a key CSR issue Takamul has adopted.” He added, “It is worth mentioning that human capital development has been the most challenging aspect. Under the umbrella of Oman Oil Company, Takamul is working towards the developing an integrated plan to recruit and develop Omani nationals for the current and future manpower requirements. Oman Oil Co. has created a specialized unit ‘Takatuf’, staffed with dedicated, experienced and committed team responsible for developing the human capital required for the Group.” May-Jun, 2012

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INDUSTRIAL PAINTS

THE LEADING EDGE

Berger Paints has a long standing reputation for providing the finest quality coatings; Together with their exceptional technical prowess and service programmes, over a course of 253 years, the company has managed to build a name that’s respected across industries

B

erger Paints offers clients in the Oil & Gas sector, technologically driven products – be it for use at drilling rigs at exploration, oil production platforms, or pipelines for upstream/downstream processing. Internationally, the company has a strong presence in key markets like Singapore, where they are approved suppliers to Shell Brunei, Exxonmobil Singapore, Brunei LNG and Petronas Oil & Gas. According to Rajarshi Banerjee, Senior Manager – Marketing, “We have launched many new, customised products for our clients in Asia. A prime example would be a coating especially developed for off shore platforms. The paint is applied on oil rigs and pipelines underwater in an environment classified as C5-M – the toughest and most extreme environmental classification.”(C5-M falls under the ‘very high’ corrosivity category, based on standard ISO 9223:1992 Corrosion of metals and alloys -- Corrosivity of atmospheres - Classification. It categorises environments on the basis of wet time, as well as sulphur dioxide and chloride contents.) For Shell Brunei, Berger Paints has successfully repainted over 250 offshore platforms. “The Oil &Gas industry has some of the most extreme exposure conditions and asset protection is a critical issue for our customers. Making the right choices can often impact long-term returns and Berger Paints stays true to this dictum. All our coatings maybe used across the oil and gas, refining and chemical processing industries and have been specially devised to reduce

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the risk of damage and/or corrosion under these extreme conditions.” “In the Middle East,” says Banerjee, “our focus on oil & gas has been primarily in the UAE and Bahrain.” Although, the company does have a substantial presence in Egypt, Qatar, Saudi Arabia and Oman. Berger Paints are approved suppliers for Saudi Arabian Oil Company (ARAMCO) and Bahrain Petroleum Company (BAPCO). “In Bahrain, we are the second largest providers for protective coatings for oil tanks and associated facilities.” In the United Arab Emirates, the company has been working closely with Abu Dhabi National Oil Company (ADNOC) and has recently completed big jobs in the Inter Refinery Pipeline Project (IRPP), Ruwais Sulphur Recovery and several gas tanking facilities for them. Berger Paints has closely works with ADNOC’s subsidiariesTakreer, ADGAS, ADMA-OPCO, GASCO, National Drilling Company. “We are now increasingly focusing on expanding our client base in Qatar and Oman,” affirms Banerjee. “In Qatar, we have just finished the process of

enlistment with RasGas, QatarGas & Qatar Petroleum. In Oman, we’re an approved supplier for PDO and cover the entire range of PDO products.” Technological expertise is at the heart of their business and their setup in Oman comprises a full-fledged manufacturing facility and laboratories run by wellqualified, NACE-certified technicians. Extensive testing is carried out byExova and Charter – both, trusted names in laboratory inspection and testing. Their products range from epoxies to polyurethane paintsthat prevent corrosion as well aszinc-rich paints that can withstand temperatures up to 600 degrees C. To meet the highly specific needs of the Oil & Gas industry, Berger Paints will also be introducing a special fire-proof paint which has the ability to resist the extreme high temperatures of hydrocarbon fires. Staying true to their on-going commitment to understanding the needs of customers, and in turn, providing quality products and solutions that consistently perform,Berger Paints have become the first choice for the industry’s most discerningbusinesses.


EVENTS CALENDAR

EVENTS CALENDAR

TITLE

DATES

LOCATION

74th EAGE Conference & Exhibition incorporating SPE EUROPEC 2012

4-7 June 2012

Copenhagen, Denmark

The 25th World Gas Conference

4-8 June 2012

Kuala Lumpur, Malaysia

SPE Americas Unconventional Resources Conference

5-7 June 2012

Pittsburgh, Pennsylvania, USA

2012 Energy Conference Developing Resources for Sustainability

11-13 June 2012

Port of Spain, Trinidad and Tobago

The Challenges of Sub-Salt Exploration and Development in Deep Sea Middle East and North Africa

11-13 June 2012

Beirut, Lebanon

SPE Heavy Oil Conference -- Canada

12-14 June 2012

Calgary, Alberta, Canada

SPE International Oilfield Nanotechnology Conference

12-14 June 2012

Noordwijk, The Netherlands

World National Oil Companies Congress

18-22 June 2012

London , UK

Intelligent Fields: Making Them Happen

19 - 22 Jun 2012

Bengaluru , India

SPE Deepwater Drilling & Completions Conference

20 - 21 Jun 2012

Galveston, Texas, USA

Inventing the Future of Mature Fields

23 - 25 Jun 2012

Tunis, Tunisia

Horizontal and Complex Wells: Reach Further, Recover More

25 - 27 Jun 2012

Istanbul, Turkey

IADC/SPE Asia Pacific Drilling Technology Conference

9 - 11 Jul 2012

Tianjin, China

Water Flooding

11 - 12 Jul 2012

Luanda, Angola

SPE Summit: The Human Factor, Process Safety and Culture

18 - 19 Jul 2012

Houston, Texas, USA

Distributed Fiber-Optic Monitoring for Well, Reservoir and Field Management

1 - 3 Aug 2012

Palos Verdes, California, USA

Nigeria Annual International Conference and Exhibition

6 - 8 Aug 2012

Lagos, Nigeria

Improving the Healthcare of Oil and Gas Fields -- Sense, Compute, and Act

2 - 6 Sep 2012

Dubai, UAE

Mathematical Methods in Fluid Dynamics and Simulation of Giant Oil and Gas Reservoirs

3 - 5 Sep 2012

Istanbul, Turkey

SPE/SEG Joint Applied Technology Workshop: Giant Fields Monitoring–Are 4 - 5 Sep 2012 We Doing It Right?

Dubai , UAE

Well and Reservoir Management: Oil and Gas Field Monitoring

10 - 12 Sep 2012

Doha, Qatar

SPE/SEG Injection Induced Seismicity

12 - 14 Sep 2012

Broomfield, Colorado, USA

The Implications of a $200/bbl World

23 - 28 Sep 2012

Algarve, Portugal

Source: Industry websites

May-Jun, May M Ma aayy-Ju -JJu Jun, n, 201 20 2012 00112

43 43


Let’s change the world one green idea at a time. Get ready for Oman Green Awards on June 5.

In association with

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Under the auspices of

H E Mohammed Al Toobi Minister of Environment and Climate Affairs

5 June

2012

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Oman Green Awards 2012 - Oman’s much awaited awards forum is back, bringing with it this year’s campaigns and initiatives that have increased awareness and motivated behavioural change for the protection and preservation of our environment. This is Oman’s biggest platform that will recognise and reward outstanding environmental vision and achievements by corporates, NGOs and individuals active in promoting and implementing ideas in the Sultanate.

Get ready to get involved…

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The Green Innovation Award

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CORPORATE PROFILE

ON THE LAUNCHING PAD

Teejan Engineering, part of Teejan Trading & Contracting brings their extensive project knowledge and industry experience to the Oil & Gas industry

T

eejan Trading & Contracting Company has had an illustrious history, spanning well over three decades. Today, the company has evolved to become one of Oman’s most respected organisations with expertise in civil infrastructure, fire engineering, electromechanical, laboratory engineering, environmental engineering and waste water engineering sectors. Teejan has been involved in major infrastructure and industrial construction projects throughout the country and over 46

May-Jun, 2012


the years, has expanded and diversified into different strategic divisions each specialising in their field of expertise. Civil, electromechanical and fire engineering projects for the Oil & Gas sector has always formed an integral part of their projects. According to Wafa Al Harrassy of Teejan, “As subcontractors, Teejan has always undertaken projects for the Oil & Gas sector. For example, we’ve done the civil bases for Oman Refinery in conjunction with the contractor who was awarded the project.” The company also executed fire safety engineering projects for oil tanking at Port Sohar as well as handled civil works for the Independent Water and Power Plant (IWPP) in Salalah. Currently, Teejan is working on another EPC project in conjunction with FATA (part of the Italian conglomerate Finmeccanica) for the construction of an aluminium rolling mill in Sohar. The client is Aluminium Rolling Mill Co (ARMCO), a subsidiary of Takamul.

“In this way,” explains Al Harrassy, “we’ve been closely involved in working with and solving complex engineering challenges and delivering successful EPC, projects for many of Oman’s oil and gas majors, independents and industry contractors. As a direct result, today, we have established a well-experienced, multidiscipline team of project specialists, delivering tailored expertise covering the full scope of the project life cycle.” Last year, the company established a subsidiary – Teejan Engineering – to exclusively handle EPC projects (in its entirety) for the oil & gas sector in Oman backed by a team with multiple experiences in the field. Furthermore, the company is also looking at establishing Joint Ventures with multinationals to bring in the best expertise to clients in Oman. Keeping in this vein, Teejan also participated in OGWA 2012 Exhibition and Conference for the very first time. “We found it (OGWA) an incredible platform to network and establish contacts within the

industry. A lot of participation happened from outside the Sultanate. We are very positive about our interactions and have established some promising leads.” Despite having considerable experience in the sector, it raises the question why Teejan is only now entering the sector. Al Harrassy explains, “We did not want to immediately get into handling EPC contracts because we wanted to enter the industry with a sound track record and the right experience. Over the years, we have established a good working relationship with some of the best organisations in the business. This is one of our strong suits and we certainly foresee it playing a role in bagging some major contracts. The competition in the market is quite healthy. And we believe that as long as you know what you want to do and know what your plans are, you can move in the right direction irrespective. We find ourselves very competent in what we’re doing and that keeps us motivated and geared for any challenge in the future.” May-Jun, 2012

47


RENEWABLE ENERGY

THE CHANGE AGENTS Jen Alic of Oilprice.com looks at the key figures shaping and influencing US renewable energy efforts. In considering from the numerous choices for these top five slots, we take into account a number of variables, including investment in renewable energy, the ability to influence policy and shape public opinion, and advocacy efforts. This goes well beyond simply counting coin - it is about innovation, imagination, vision, risk and patience. Arguably, these people will play an important role in your life and leisure, for better or worse. These are our picks:

to China. Chu is a foreign member of the Chinese Academy of Sciences, has trained prominent scientists in China and helped to establish the Bio-X Center at Jiaotong University in Shanghai - all of this gives him valuable access to Chinese politicians.

Dan Reicher - Energy Guru

Steven Chu

Steven Chu - The China Link Co-winner of the Nobel Prize for Physics in 1997, US Secretary of Energy Steven Chu is one of the most distinguished faces of renewable energy in the world, tasked with helping the Obama Administration invest in clean energy, reduce dependence on foreign oil, address climate change concerns and create millions of jobs while doing it. Chu has devoted a large part of his scientific career to alternative energy solutions and climate change research, in part as former director of the DoE’s Lawrence Berkeley National Lab. While the last century saw him win 48

May-Jun, 2012

the Nobel Prize, this century earned him R&D Magazine’s Scientist of the Year award for 2011. In announcing his appointment as Secretary of Energy, President Obama said that the “future of our economy and national security is inextricably linked to one challenge: energy (and) Steven has blazed new trails ...”. Chu’s most tangible successes have been the government’s investment in geothermal and offshore wind projects. Indeed, Chu is one of the world’s leading authorities on renewable energy; and on a geopolitical level, his influence reaches

Until November 2011, Dan Reicher served as Google’s director of climate change and green energy initiatives, during which time he convinced the company to invest in a number of energy projects, some of them rather eccentric and risky, others more pragmatic. He was also behind Google’s policy proposals for Washington. Prior to 2007, Reicher served in the Clinton Administration as the assistant secretary of energy for energy efficiency and renewable energy. He was also considered for the post of energy secretary in the Obama Administration, but lost out to our first pick, Steven Chu. Today, he’s practicing his innovation at Stanford University, which chose him to lead its new $7 million center to study and advance the development and deployment of clean energy technologies through innovative policy and finance. Stanford alumni Thomas Steyer and Kat Thomas donated the


$7 million and trust in Reicher to lead the university’s efforts, which they said “is uniquely positioned to change our nation’s attitudes and capabilities regarding how we make and use energy. What our university did for the information revolution, it must now do for the energy revolution.” Broadly, the Stanford center will conduct research on energy policy and finance, with a particular focus on legislative, regulatory and business tools - all intended to boost public support for funding clean energy technologies. It also hopes to produce world-class research for policymakers, the business community, and technology leaders. Reicher is influential in the renewable energy world on a number of levels, from finance to policy to advocacy. Not only does he have the ear of the government on policy, he also has the $7 million Stanford research effort at his disposal.

Dan Reicher

Elon Musk - Iron Man Elon Musk is probably the most colourful of the figures on our Top 5 list. He has Hollywood’s eyes and ears, as well, which only adds to his public influence. Musk is the co-founder of and head of product design at Tesla Motors, the producer of electric cars, which is almost a singular focus of Musk’s current green energy efforts. Musk entrepreneurial innovation had already been demonstrated pre-Tesla, when he co-founded PayPal and SpaceX. He also chairs the board of SolarCity, a start-up focused on photovoltaics products and services aimed at climate change solutions. Most recently, Musk created the first viable electric car of the modern era, the high-end Tesla Roadster sports. The Tesla Roadster will be followed by the four-door Model S sedan, scheduled to release in July, and the ModelX (a sort of SUV/minivan hybrid), slated for production in 2013. Musk’s vision:

Elon Musk

making electric cars affordable to massmarket consumers thereby making a huge footprint in American and global energy efficiency and security. The Roadster is a high-end vehicle that will only attract the wealthy, but that is the point: Roadster revenues can fund research and development for lowerpriced electric cars.

the first privately developed rocket to reach orbit and served as the inspiration for the genius billionaire Tony Stark in the Iron Man movie series. He also made it onto TIME Magazine’s list of 100 most influential people in 2010.

Eddie O’Connor - Supergrid Superhero

Countless awards and honours have come Musk’s way, from the Heinlein Price for Advances in Space Commercialization in 2011 to inclusion on Forbes’ list of “America’s 20 Most Powerful CEOs 40 and Under” that same year. Incidentally, Mush designed

Eddie O’Connor, the CEO and cofounder of Mainstream Renewable Energy and the original founder of Airtrcity, is one of the world’s most interesting, energetic and innovative clean energy figures. O’Connor sold Airtricity to E.on and Scottish and Southern Energy for €2.2 billion in 2008, May-Jun, 2012

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RENEWABLE ENERGY

Eddie O’Connor

when he launched Mainstream along with Airtricity’s former finance chief, Fintan Whelan, investing €32 million in the start-up. O’Conner, who got his start in Ireland’s electricity company, has earned energy leadership awards across Europe, and in 2003 was named World Energy Policy Leader by Scientific American Magazine. O’Connor is behind the creation of some amazing onshore and offshore wind farm projects in Europe, North America, South America and South Africa, and is perhaps best known for his promotion of the European Offshore Supergrid, which envisions electricity interconnectivity on a scale that would entirely transform the European energy scene. O’Connor’s work has been extremely influential on global policy and he has certainly earned his place among the world’s most innovative public figures. He combines ideas with advocacy and action.

Paul Woods - The Algae King Paul Woods would like no less than to revolutionize the energy sector, and his charisma is hard to match. Woods is the co-founder and chief executive officer of Algenol, the Bonita Springs-based alternative energy company, and his trademark is turning algae into ethanol (with the help of salt, carbon dioxide and sunlight). Algenol has not yet made its definitive mark on the energy industry, but Woods is certain it will. It has not been easy but Woods has proven a very patient warrior. There have been stops and starts. Most recently Algenol was forced to shelve expansion plans after concerns were raised about potential environmental consequences, but in April expansion plans were back on track and in full force. We like Woods because he’s a risk-taker and not one who will give up easily. We’re hedging our bets that algae will play a major role in America’s future energy security. Paul Woods

50

May-Jun, 2012

Source: oilprice.com


INDUSTRIAL SCAN

NEW DIRECTIONS

Haifa Industrial Services Co LLC, a member of the Al Hosni Group International, recently relocated to a new plant with increased production services at the Rusayl Industrial Estate

H

aifa Industrial Services Co LLC is a manufacturer of all types of LPG Steel Cylinders as per Omani and GCC Standards and has supplied to all LPG Filling Plants in Oman and other export markets. The company is ISO Certified and follows assured Quality Management Systems for Production and Testing. Haifa, located in Rusayl Industrial Estate, has a built up area of approximately 8,000 sq mt. The present capacity of the plant is 250,000 cylinders per annum and the company is gearing up to further increase the capacity by introducing one more shift if the demand for the products increases. At the moment the company is meeting local market’s demands and assigning more attention to develop export markets like UAE, Bahrain, Middle East and Africa. In the year 2009, the company was awarded a tender issued by the Sharjah Government for the supply of LPG Cylinders to replace old, expired cylinders which was executed successfully and Haifa is now registered with them as an approved supplier for any future requirement. Recently Haifa Industrial Services were allotted land in Sumail Industrial Estate by PEIE and the Ministry of Commerce and Industry. The new plot is approximately 40,000 sq mt and will play an instrumental role in meeting the growing demands of high volume customers in the regional markets like UAE and Kuwait which will enable the

company to compete with international companies and quote for their tenders. As per the Directives of the Government, the company has given due importance on the implementation of Omanization policies thereby recruiting skilled and unskilled Omanis and training them on various critical skills required in the process of LPG cylinders manufacturing.

The company specially extends their thanks to all the bottling plants in Oman for their continued support over the years in purchasing their LPG Cylinders requirement from Haifa Industrial Services company as well as PEIE – Rusayl Industrial Estate for all the support they receive from time to time in the development of the factory infrastructure. May-Jun, 2012

51


OPINION

SEISMIC SHIFT

Speaking at the International Oil Summit in Paris, Mark Williams, Downstream Director, Royal Dutch Shell plc outlined how the industry can address the challenges of shortages of refining and distribution capacity by increasing and diversifying energy supplies and by building a more flexible and efficient downstream sector. In his own words:

S

ince last year’s summit, it’s been another turbulent 12 months for the industry, with ongoing tensions in the Middle East and economic uncertainty. However, there are tentative signs that the outlook may be improving. Although there are still some serious risks, especially in Europe, it seems global economic activity rebounded somewhat in the first quarter of 2012.

And over the longer term, energy demand is resuming its strong upward trajectory. Worldwide energy demand could double in the first half of this century, driven by a rising population and economic growth. With millions of drivers taking to the road, demand for liquid transport fuels will grow particularly strongly, even as vehicle efficiency improves. According to the IEA, global liquid fuels demand could rise by 26 per cent in the next 25 years, to over 110 million barrels a day. Growth will be particularly strong in Asia’s emerging economies. In China, for example, the vehicle fleet could more than triple in the next 20 years to around 600 million vehicles. As a result, China´s oil demand could more than double by 2030, reaching nearly 1.5 times the current US level. Globally, oil supply will struggle to keep pace with demand. This is partly due to declining 52

May-Jun, 2012

output from mature fields - perhaps by 80 per cent by 2035. Just to replace this lost output, the world needs new production capacity equivalent to one Saudi Arabia every three years. In many regions, much of the easily accessible oil has been tapped, and supply increasingly comes from challenging and remote locations with high oil prices necessary to incentivise the required investments.

According to the International Energy Agency (IEA), output from resources like oil sands and other heavy oils has increased tenfold since 1980, and is set to quadruple again by 2035. The rapid development of liquid-rich shales – using the same hydraulic fracturing technologies as shale gas – holds significant promise, if it can be extended globally.


From an upstream perspective, these trends are a testament to rapid innovation unlocking new resources. But in the downstream, shifting demand and increasing reliance on complex oils create challenges around refining and distribution. China, for example, has roughly half the refining capacity of the United States, but its oil demand will exceed that of the US by 2035. To adapt to these changes, the IEA estimates the world needs $10 trillion of new oil infrastructure by 2035, as part of $38 trillion in energy infrastructure worldwide. Across the world’s energy system, that’s around $3 million of investment every single minute for almost 25 years. And for the industry, that adds up to a major challenge. I believe the industry needs to do several things: increase liquid fuel supplies, diversify the transport fuel mix, and build greater flexibility into the downstream infrastructure. First, increasing production of liquid fuels. Thanks to rapid innovation, potentially huge new energy resources are coming online. But the industry needs to continue finding more resources: and developing the infrastructure to process and distribute them will be an enormous challenge. Output from Canada’s oil sands, for example, could triple by 2035, to 4.5 million barrels per day. Making that happen requires not only the capacity to extract oil, but also to bring it to market. According to the American Petroleum Institute, oil sands output could be constrained by 2014, due to limited pipeline capacity to US refineries and markets. To unlock the true potential of Canada’s oil sands, the industry and governments must ensure the right pipelines, upgraders and refineries are in place.

At Shell, we’ve increased capacity at our Athabasca Oil Sands Project in Alberta by 100,000 barrels per day, opening a second mine and expanding the upgrader converting bitumen into crude. But industry wide, oil sands output risks outgrowing capacity to process and export it. Similarly, the rapid rise of onshore oil production in the US – typified by the Bakken development – are testing the limits of the infrastructure and refining system.

of Pearl GTL, the huge gas-to-liquids plant developed by Shell and Qatar Petroleum, was a significant landmark for the industry. With a total investment of some $18-$19 billion, it illustrates the scale of infrastructure needed to meet rising demand. Pearl will produce enough GTL gasoil to fill the equivalent of over 160,000 cars a day, as well as products like chemical feedstocks and lubricants, helping generate new revenue from Qatar’s abundant gas resources.

Another way to meet rising demand is by diversifying the transport fuel mix. This includes increasing the contribution of biofuels. A key benefit of biofuels like sugar-cane ethanol is that they are compatible with existing infrastructure, and can be distributed at ordinary filling stations. The IEA says global demand for biofuels could triple by 2035 as public acceptance grows.

LNG also holds great potential as a transport fuel, thanks partly to its ability to reduce CO2 emissions and local air pollution. In Canada, Shell is building LNG refuelling stations along the Alberta to Vancouver trucking route, enabling truck fleets to run on natural gas instead of diesel. As technology improves, LNG could play a growing role in the transport fuel mix.

At Shell, we recently launched the Raízen joint venture with Cosan in Brazil, which will produce and distribute over 2 billion litres of sugar-cane ethanol each year. Because sugar-cane ethanol emits up to 70 per cent less CO2 than standard petrol over the lifecycle, it can help make liquid fuels more environmentally acceptable in an era of tighter regulation.

So gas is likely to gain market share in transportation fuel, but refiners and marketers may gain as well: historically low prices for natural gas offer manufacturers a powerful competitive advantage, potentially stimulating economic growth and ensuring more robust oil demand in the future.

Another promising area is natural gas. The development of potentially huge new resources like shale gas continues to revolutionise the supply outlook in many regions. North America, for example, now has a century of gas supplies at current consumption rates, just a few years after it was feared production decline had set in. Many other regions offer similar prospects. So natural gas as a transport fuel will also grow, both through conversion to liquid fuel and directly into transportation. Last year’s opening

The third way to meet rising fuel demand is by developing a more flexible and efficient downstream sector. Of course, the downstream has not had an easy few years. The economic downturn, higher oil prices, and improving vehicle efficiency have dampened demand in mature markets. As margins have tightened, the industry has seen a spate of refinery closures. In the UK, for example, the number of refineries has fallen from 18 in the late 1970s to 8 today. Part of the problem is that some existing refineries are unsuitable for processing more difficult crudes on which supply increasingly depends. They are in the May-Jun, 2012

53


OPINION

example of tripartite co-operation, Shell and Petrochina have also joined with Qatar Petroleum to explore for natural gas onshore and offshore Qatar. And drawing on Shell’s downstream expertise, Petrochina, QP and Shell are now developing plans for an integrated refinery and petrochemical complex in the eastern Chinese city of Taizhou. By linking diverse partners, we can match new resources with new demand.

wrong places. And they make the wrong products. In China, increasing imports of higher-sulphur crudes from the Middle East put pressure on refineries designed to process sweeter domestic crudes. And the big petrol machines in the Atlantic Basin increasingly find demand for petrol stagnant or declining, in the face of petrol capacity increases in the Middle East and Asia. To address these challenges, the industry needs more efficient, flexible, integrated refineries. That’s a big ask, given today’s tough investment climate. But one example of what we could see more of is Shell and Saudi Aramco’s Motiva joint venture expanding the Port Arthur Refinery on the Gulf of Mexico, from 275,000 to 600,000 barrels per day. The expansion will enable us to process heavy, sour, acid crudes from wherever they become available – initially Saudi Arabia, but also other areas. It will be able to shift easily between producing petrol and diesel as demand changes. And it will have a large diesel export capacity to help meet robust global demand, while also supplying US markets with an efficient inland distribution system. This kind of 54

May-Jun, 2012

flexible, integrated infrastructure is central to Shell’s plans for selective downstream expansion. Finding new resources, extracting them from challenging locations, processing and distributing them represents a truly global challenge, spanning the entire value chain. In this context, I believe integrated IOCs have a critical role to play. By combining our upstream and downstream capabilities, integrated companies can drive innovation and match resources with demand on a global basis. We will increasingly do this in close collaboration with our NOC partners. This includes building triangular relationships between IOCs like Shell, major resource holders, and major demand holders. Shell’s partnership with CNPC is a great example. Within China, we’re working with CNPC’s listed arm, Petrochina, to develop tight gas resources to help meet growing domestic demand. But we’re also looking beyond China’s borders, even joining together to buy a company in a third country: Arrow Energy, in Australia. In a great

Linking upstream and downstream activities also means integrated companies can create commercial opportunities right along the value chain. Our Pearl GTL project with Qatar Petroleum is again a good example. Shell has been perfecting the technology behind Pearl for more than 30 years. We hold about 3,500 patents in the GTL process. To deliver Pearl, we drew on advanced technical skills from right across the company. Our upstream business helps produce 1.6 billion cubic feet of natural gas a day from Qatar’s North Field. And our downstream draws on over 30 years of research and development to convert that gas into products like GTL gasoil, kerosene and base oils. The downstream also helps market and distribute these products around the world. By fusing upstream and downstream operations, we can link resource holders with demand holders, and help NOCs realise their global ambitions. In conclusion, recent years have seen seismic changes on both the demand and supply side of the energy industry. A combination of rising demand, a shifting global energy footprint and an increasing reliance on complex resources is creating significant challenges for the industry. But with the right projects and partnerships, IOCs and NOCs can leverage each other’s strengths to bring customers and resources together.


JOB POSTINGS JOB POSTINGS

POSITION

COMPANY

LOCATION

DETAILS

Cwi Supervisor

PDO

Oman

www.pdo.co.om

Drilling Supervisor

PDO

Oman

www.pdo.co.om

Senior Pipeline Engineer

Consolidated Contractors International Company

Oman

www.ccc.gr

Engineering Manager

Worleyparsons

Oman

www.worleyparsons.com

General Manager - Exploration & Business Development

Mawarid Mining

Oman

www.mawaridmining.com

Engineering Manager(Pmc)

Worleyparsons

Abu Dhabi (UAE)

www.worleyparsons.com

General Manager

Hewlett Civil Engineering Ltd

Oman

www.hewlett.co.uk

Senior Development Engineer

Worleyparsons

Abu Dhabi (UAE)

www.worleyparsons.com

Senior Project Control Engineer(Pmc)

Worleyparsons

Abu Dhabi (UAE)

www.worleyparsons.com

Project Engineering Manager - Offshore

Petrofac International Limited

United Arab Emirates (UAE)

www.petrofac.com

Project Director (Onshore / Offshore)

Petrofac International Limited

Sharjah (UAE)

www.petrofac.com

Environmental Consultant

SGS

Oman

www.sgs.com

Field Specialist- Artificial Lift Systems

Baker Hughes

Pescara, It-Pe (Italy)

www.bakerhughes.com

Senior Drilling Engineer

Baker Hughes

Aberdeen, United Kingdom

www.bakerhughes.com

Field Specialist- Process And Pipeline Services

Baker Hughes

Aberdeen, United Kingdom

www.bakerhughes.com

Wireline Field Engineer/ Specialist

Baker Hughes

Norway

www.bakerhughes.com

Design Engineer

Chevron

Belle Chasse, La

www.chevron.com

Application Manager, Oil & Gas Drilling Fluids

Evonik Degussa Corporation

Houston, Texas Area

www.corporate.evonik.com

Senior Drilling Engineer

Saudi Aramco

Saudi Arabia

www.saudiaramco.com

Reservoir Engineer, Chief

Oxy

Bakersfield, California

www.oxy.com

Petroleum Engineer

Saudi Aramco

Saudi Arabia

www.saudiaramco.com

Mechanical Engineer

Saudi Aramco

Saudi Arabia

www.saudiaramco.com

Reservoir Engineer - Advisor

Oxy

Greater Los Angeles Area

www.oxy.com

Well Intervention Engineer - North America Gas

BP International

Houston, Texas Area

www.bp.com

Drilling Engineer – North America Gas

BP International

Houston, Texas Area

www.bp.com

Chemical Engineer - Oil Processing

Saudi Aramco

Saudi Arabia

www.saudiaramco.com

Source: From different corporate, recruitment and social networking websites

May-Jun, 2012

55


Aiwa Award DPS


Aiwa Award DPS


ECONOMY

‘CORPORATE SECTORS WOULD SUFFER’: MOODY’S

The oil & Gas companies are going to benefit from higher oil prices resulting from sanctions on Iran but global corporate sectors would suffer, says Moody’s reports

T

he higher oil prices that could potentially result from new US and European Union (EU) economic sanctions against Iranian oil exports would be credit-positive for international oil companies (IOCs) overall, but negative for corporate sectors such as airlines, oil 58

May-Jun, 2012

refining, European autos and retail, says Moody’s Investors Service in two new reports published recently. However, Moody’s points out that the risk of a $150 bbl oil price resulting from Iran blocking the Strait of Hormuz, a key export route for oil

& gas producers, is low because the blockade would be short-lived. The two new Moody’s reports are titled -- “ Global Non-Financial Corporates: Airlines, Oil Refining, European Autos and Retail at Risk in $150bbl Oil Price Scenario” and “Global Oil &


Gas companies: Sanctions Against Iran Would Benefit Upstream Oil Ops And Hurt Downstream”.

The magnitude of oil price increases linked to the EU and US sanctions, which take effect from June, will depend in part on how strictly they are adhered to,” says David Staples, Managing Director for GCC corporates based at Moody’s Dubai office. At this stage, it is unclear to what degree Iran’s top customers will reduce their imports in order to avoid the sanctions

“As most IOCs have no or very limited exposure to Iran in terms of their overall production, higher prices triggered by a supply squeeze from the sanctions on Iran would benefit their oil exploration and production (upstream) operations considerably,” says Olivier Beroud, Moody’s London-based Managing Director for EMEA Corporates. According to Moody’s, these gains would more than offset any adverse effects on IOCs’ refining (downstream) businesses, which typically account for a much smaller portion of their total operating profits and cash flows. “However, an oil shock resulting from a US/EU economic confrontation with Iran would ripple throughout other industries around the world – and could also derail the global recovery,” cautions Steven Wood, Moody’s NY-based Managing Director for US corporates. Moody’s defines an “oil shock” as a period lasting at least several months during which oil prices rise to a sustainable $150 per barrel (bbl). The rating agency has identified the following sectors as potentially being hardest-hit in such a scenario:

European automakers would face a greater risk from an oil shock than their US or Asian counterparts, although profits and cash generation for US automakers would also come under great pressure.

Airlines would suffer operating losses from sustained higher costs for jet fuel, and the fare increases that result would hurt passenger demand worldwide. European airlines face more exposure to any political

instability in the Middle East than their US or Asian counterparts. Retailers, restaurants and other industries that depend on discretionary spending would suffer if fuel prices surged for consumers. Rising transportation and distribution costs would weaken revenues for European retailers. Makers of consumer durables would also see pressure from reduced consumer demand and higher raw-material prices. However in the US, big-box discount retailers and warehouse clubs including Wal-Mart, Target, Costco and BJ’s Wholesale could benefit as consumers economize.

“The magnitude of oil price increases linked to the EU and US sanctions, which take effect from June, will depend in part on how strictly they are adhered to,” says David Staples, Managing Director for GCC corporates based at Moody’s Dubai office. At this stage, it is unclear to what degree Iran’s top customers will reduce their imports in order to avoid the sanctions. (The US sanctions stipulate that countries only have to cut their purchases “substantially” to be exempt.) Other major oil-producing countries have capacity to cover the loss of

supply from Iran, although it will take time for this to become operational. Separately, ongoing tensions across Middle East and North Africa (MENA) continue to create uncertainty for IOCs:

In Syria, rated IOCs have already ceased production in accordance with EU sanctions. However, this is unlikely to have a significant bearing on IOCs’ output as they have very limited exposure to the country. In Yemen, the operating environment is likely to remain uncertain in the face of ongoing security threats from militant groups.

Although Egypt’s political situation remains unsettled, for now rated IOCs are not experiencing any disruption to their output.

However, Libyan oil production is coming back on stream faster than expected. Eni S.p.A. (A2/ negative), which has the largest exposure to Libya among IOCs rated by Moody’s, expects its production to return to pre-civil war levels by around the middle of this year, while OMV AG (A3/stable) and Repsol YPF S.A. (Baa2/review for downgrade) are rapidly ramping up their production in Libya. May-Jun, 2012

59


PETROCHEMICALS

BETTING ON IRAQ

Iraq would embark on a strong growth path that would result in a drop in oil price which will benefit the petrochemical companies which extract NAPTHA from oil to use as their feedstock, says Global Investment House’s report ‘GCC Petrochemical Sector Q1 2012’. Report excerpts:

T

he GCC petrochemical companies first quarter (Q1) earnings in 2012 declined by 10.2 per cent on year-on-year ( YoY) basis to $3.1bn as compared to $3.5bn in the same period last year. While on a quarter-to-quarter (QoQ) basis, the earning improved by 23.9 per cent added majorly by SABIC profit growth of 39 per cent QoQ (contributing 61.5 per cent in Q1 2012 compared to 58.4 per cent in Q1 2011 and 54.9 per cent in Q4 2011. First quarter performances of various petrochemical companies witnessed improvement on a QoQ basis mainly due to advancement in the product prices and higher volumetric sales. Iraq’s oil production has surpassed three million bpd as the country prepares to overtake Iranian production by the end of the year. The country’s crude production rose by 195,000 barrels per day in April to touch 3.03mn for the first time since 1979, while oil exports rose to 2.51mn bpd, according to the International

Energy Agency (IEA). According to the IEA, Iran’s sales have dropped by 400,000 bpd to 2.1mn during the first quarter of the year while Iraq shipped a daily average of 2.14mn bpd during the same period. With the fourth round of oil auction due at the end of May, there has been a lot of expectation that Iraq would embark on a strong growth path that would benefit global supplies and would result in a drop in oil price which will benefit the petrochemical companies which extract NAPTHA from oil to use as their feedstock. According to a study released by AlixPartners - the petrochemical companies in the Middle East have benefited significantly from the availability of, and proximity to, oil and natural gas feedstock, production of many petrochemical products in the region will exceed demand significantly over the next few years, leading to low utilization rates and poor margins for less-competitive companies. Major driver for this threat is the huge expansion of chemical production

capacity in the GCC coming on stream in the next three to five years. Overall, the performance of regional petrochemical companies was mixed on a QoQ basis with SABIC (Saudi Basic Industries Corp.), IQ (Industries Qatar), YANSAB (Yanbu National Petrochemical Company), Sahara Petrochemical, Shell Oman, Petro Rabigh and Dana Gas reporting better than expected earnings while other stocks such as Saudi Kayan Petrochemical Co., SAFCO (Saudi Arabia Fertilizers Co.), TASNEE (National Industrialization Co.), Sipchem (Saudi International Petrochemical Co.) and Nama Chemicals Co. reported drop in earnings or extended their losses. Within the GCC petrochemical companies, Global Research Petrochemical Universe witnessed a decline in profitability during Q1 2012 on a YoY basis. Drop in profitability was majorly due to increase in cost of sales which dropped the gross margins of the

Global Research Petrochemical Coverage Ticker

Mkt Cap (USDmn)

SABIC, KSA SIPCHEM, KSA SAFCO, KSA YANSAB, KSA DANA, UAE IQ, KSA

7 6 ,5 9 3 .9 1,970.1 1 1 ,8 9 9 .0 7,244.4 700.8 2 0 ,8 1 4 .0

Source: Bloomberg & Global Research * Market prices as of 16 May 2012

60

May-Jun, 2012

Price* In (LC) 95.75 20.15 178.50 48.30 0.39 137.80

Stock Performance 1m 3m 12m -6.4% 1.3% -9.9% -8.4% -4.5% -3.6% -2.2% 1.4% -0.1% -6.7% 3.9% 1.3% -17.0% -11.4% -40.9% -1.4% 4.7% -5.5%

P/E 2012e 9.2 11.0 10.1 7.8 4.7 7.9

P/BV 2012e 1.7 1.3 5.0 2.0 0.3 2.5

ROE 2012e 20.6% 12.0% 51.6% 29.0% 6.0% 33.9%


GCC Petrochemical Sector Companies PrR多tability (USD mn) SABIC IQ SAFCO KAYAN YANSAB TASNEE RABIGH PETROCHEM SIPCHEM SAHARA APC CHEMANOL ALUJAIN NAMA DANA SHELL OMAN GCC

1Q11 2,050.5 575.5 222.0 (2.2) 191.4 154.7 186.3 (2.8) 32.2 26.7 35.0 2.6 3.0 (1.2) 25.1 10.4 3,509.2

4Q11 1,396.6 463.2 340.4 (50.9) 177.3 144.6 13.4 (7.6) 56.3 1.3 24.2 6.2 (6.6) (61.3) 40.1 5.3 2,542.5

1Q12 1,938.9 524.0 209.8 (19.0) 192.1 139.8 30.9 (5.8) 40.4 11.2 15.2 6.7 2.6 (1.2) 56.1 8.8 3,150.7

YoY Chg (%) -5.4% -8.9% -5.5% n/m 0.3% -9.6% -83.4% n/m 25.4% -58.1% -56.5% 161.6% -15.8% n/m 123.9% -16.2% -10.2%

QoQ Chg (%) 38.8% 13.1% -38.4% n/m 8.3% -3.3% 130.2% n/m -28.2% 737.5% -37.0% 8.3% -138.7% n/m 40.1% 65.9% 23.9%

3UR多Wability Saudi Arabia Qatar Oman UAE Sector

1Q11 2,898.2 575.5 10.4 25.1 3,509.2

4Q11 2,034.0 463.2 5.3 40.1 2,542.5

1Q12 2,561.8 524.0 8.8 56.1 3,150.7

YoY Chg (%) -11.6% -8.9% -16.2% 123.9% -10.2%

QoQ Chg (%) 25.9% 13.1% 65.9% 40.1% 23.9%

Composition Saudi Arabia Qatar Oman UAE Sector

1Q11 82.6% 16.4% 0.3% 0.7% 100.0%

4Q11 80.0% 18.2% 0.2% 1.6% 100.0%

1Q12 81.3% 16.6% 0.3% 1.8% 100.0%

YoY Chg (%) -

QoQ Chg (%) -

Source: Company Reports & Zawya

sector. Cost of sales rose during the period by more than 16 per cent which dropped the gross margins of the sector to an average of 33.1 per cent in Q1 2012 compared to 37.4 per cent in the same period last year. SIPCHEM margins dropped the most by 6.9pps followed by 5.7pps drop reported by Industries Qatar. Only company registering growth in gross margins was Dana gas by 9.7pps. Internationally, gas prices continued to drop. Price of natural gas feedstock used in the petrochemical industry, fell by 26.2 per cent QoQ and down 41.3 per cent YoY. Drop in average prices of benchmark was mainly because of discovery of considerable amount of natural gas reserves in western countries coupled with high storage levels and

fragile demand. On an average, price of petrochemical products rose by 2.2 per cent QoQ during Q1 2012. Price of Ethylene witnessed an increase of 17.8 per cent QoQ during Q1 2012. While price of LDPE and LLDPE dropped on a QoQ basis by 6.9 per cent and 0.1 per cent respectively. The sector top-line witnessed a YoY increase of 8.8 per cent in Q1 2012, which was due to the combined effect of increase in price of petrochemical products along with commencement of commercial production from the newly expanded facilities. Most topline growth was registered by SIPCHEM at 52.7 per cent followed by 17.7 per cent increase in the topline of YANSAB. Lowest growth was registered by SAFCO on the backdrop of fall in the prices of Ammonia and Urea by 32.3 per cent and 11.4 per

cent QoQ during Q1 2012. Overall net income registered by the companies under the coverage was $2.96bn in Q1 2012 as compared to $3.09bn in the comparable period last year. SABIC continued to remain the lead contributor to the sector profitability at 65.5 per cent followed by Industries Qatar and SAFCO at 17.7 per cent and 7.1 per cent respectively. During Q1 2012, the companies were able to reduce the cost of funding which dropped the interest expense by 13.5 per cent YoY. Overall interest expense during Q1 2012 dropped to $249mn as compared to $288mn in Q1 2011. Drop in the interest expense was on the back of cheaper refinancing rates available worldwide and easier fund raising for May-Jun, 2012

61


PETROCHEMICALS

these companies because of backing of their oil rich governments. Cash and bank balances of the sector continued to rise, reaching $19.6bn in Q1 2012 compared to $14.6bn in Q1 2011, growth of 34.7 per cent. NEW DEVELOPMENTS Sinopec SABIC Tianjin Petrochemical Company (SSTPC) laid the foundation for a polycarbonate production complex with 260,000tpa. With a total investment of RMB11bn ($ 1.7bn) and covering a ground area of 67 hectares, this polycarbonate production complex is the Phase Two project and was approved by China’s National Development and Reform Commission in January 2012. With two sets of phosgene free production systems, with an annual capacity of 130 kilo tons each, to be built, the new polycarbonate production complex will start construction in Q2 2012 and is expected to be operational in 2015. Saudi’s Advanced Petrochemical Company and Turkish petrochemical trading firm Bayegan Group have agreed to jointly invest in building a Propane Dehydrogenation (PDH) and Polypropylene (PP) plant in southern Turkey. The firm would establish the plant jointly with Advanced Petrochemical with a $1bn investment. The project will not only include the construction of a state-of-the-art PDH-PP plant, but 62

May-Jun, 2012

will also include the building of port facilities. Construction is expected to start in the second quarter of 2013 and is scheduled to be completed by the fourth quarter of 2015. The plant will have an annual capacity of 500,000 tons and will supply up to one third of the annual polypropylene needs of Turkey. The plant will produce polypropylene from propane gas, which will be bought from producers in the Middle East and transported to Turkey by tanker. Advanced Petrochemical will hold 70 per cent of the equity in the new venture with Bayegan holding the remaining 30 per cent. Saudi Arabia’s Sipchem Chemical Co, a fully-owned unit of Saudi International Petrochemical Co, has signed a $43.9mn loan facility agreement with the Saudi Industrial Development Fund (SIDF) to help finance the construction of an ethyl acetate and butyl plant in Jubail. The plant will have a production capacity of 100,000 tons per year. The total cost of the project is around $93.3mn, and is expected to start during the second quarter of 2013. It will supply both the local and international markets with ethyl acetate and butyl acetate. The feedstock for the production of ethyl acetate is acetic acid, which will be obtained from the International Acetyl Company, an affiliate of Sipchem, and ethanol will be imported from aboard. The National Industrialization Co. (Tasnee)

and Sahara Petrochemical Co. agreed a $1.4bn financing deal with Saudi banks to support three joint ventures: Saudi Acrylic Acid Co., Saudi Acrylic Monomers Co. and Saudi Polyolefins Co. The agreement is signed for 16 years as the two will pay back the amount in half-yearly installments for providing finance required for their acrylic acid project in the petrochemical complex of the Jubail Industrial City. Tasnee and Sahara have already signed agreements to start engineering, procurement, and early construction works at their $1.07bn acrylic acid project. The project has a designed annual capacity of 145,000 tons of crude acrylic acid, 145,000 tons of butyl acrylate, and 85,000 tons of pure acrylic acid. Tasnee has a 52.3 per cent stake in Saudi Acrylic Acid Co. while Sahara holds 43.16 per cent. $1bn sukuk, secured against certain Egyptian assets as well as SajGas and UGTC, are due to mature on 31 October, 2012. Although the economic realities outlined above affected Dana’s ability to raise new funding, the company is committed to finding a consensual solution that is equitable to all stakeholders. For these purposes, the company has appointed Deutsche Bank, Blackstone Group and Latham & Watkins as its financial and legal advisors to advise on various options for discussions with the sukukholders and their advisors.


TENDERS

Tender Watch WORK

COMPANY

DETAILS

FEED for replacement of NFIS I/A package at Dukhan

Qatar Petroleum

www.qp.com.qa

FEED for new gas Kod at HP/LP outlet & FNGLC spillback line

Qatar Petroleum

www.qp.com.qa

Provision of heavy lifting services at MM and BH fields during

Qatar Petroleum

www.qp.com.qa

Qatar Petroleum

www.qp.com.qa

FEED - Centralised wastewater and sewage treatment plant

Qatar Petroleum

www.qp.com.qa

Pipeline maintenance contract (North)

Petroleum Development Oman

www.pdo.co.om

Pipeline maintenance contract (South)

Petroleum Development Oman

www.pdo.co.om

Pipeline maintenance contract (Central Oman)

Petroleum Development Oman

www.pdo.co.om

Topographical survey and mapping services

Petroleum Development Oman

www.pdo.co.om

Yibal rejuvenation project

Petroleum Development Oman

www.pdo.co.om

Provision of digital rock analysis services

Kuwait Oil Company

www.kockw.com

Consultancy services to debottleneck GC-17 at West Kuwait

Kuwait Oil Company

www.kockw.com

Provision of gas lift services

Kuwait Oil Company

www.kockw.com

Inspection of mobile equipment & plant

Kuwait Oil Company

www.kockw.com

Supply, installation, commissioning, training and preventive

Kuwait Oil Company

www.kockw.com

shutdown Prov. of accommodation barge to support PS2/3 shutdown in QP’s offshore fields

maintenance of intensive care ventilators for adult, pediatric and neonatal patients complete with all standard accessories & consumables at Ahmadi Hospital

May-Jun, 2012

63


MARKET REPORT

DECLINING MODE

Rising global supply has contributed to an increase in inventories, preventing prices from moving higher

A

fter three consecutive monthly gains, the OPEC Reference Basket declined in April to settle at $118.18/b, representing a drop of $4.79 or 3.9 per cent. Prices remain elevated by the risk premium associated with ongoing geopolitical factors. The decline in the value of the Basket came with the start of the first month of the typically low demand season in the second quarter. Crude prices shifted into contango for the first time in over a year amid higher supplies and weak consumption. The decline in crude oil prices occurred as refined product prices came down from the peak levels seen in previous months. Moreover, rising global supply contributed to an increase in inventories, preventing prices from moving higher. On 9 May, the OPEC Reference Basket stood at $109.85/b.

World economic growth expectations for 2012 remain unchanged at 3.3 per cent. The US continues to enjoy solid momentum, with the growth forecast revised up by 0.1 pp to 2.3 per cent. In contrast, the Eurozone continues to weaken and is now expected to contract by 0.4 per cent, compared to the minus 0.3 per cent forecast in the previous month. The growth forecast for Japan remains unchanged at 1.8 per cent. With these offsetting revisions in the OECD, growth in the export-led emerging economies is also unchanged. India is expected to expand by 6.9 per cent in 2012, while China is projected to grow at a solid 8.2 per cent. Overall, the global economic outlook remains fragile, with heightened uncertainties in the Euro-zone 64

May-Jun, 2012

and potential spill-over effects in the emerging markets. World oil demand growth in 2012 now stands at 0.9 mb/d, broadly unchanged from the previous report. Given the stabilization of the US economy and the shutdown of Japanese nuclear power plants, world oil demand growth has – at least for the short-term – stopped its declining trend and is showing some growth. Oil demand in nonOECD countries is also indicating a slight improvement. The upcoming driving season in the US might be affected by higher retail gasoline prices and uncertainty regarding economic developments. Japan’s oil usage also could slow if the country were to restart its nuclear plants. Non-OPEC supply is forecast to grow by 0.6 mb/d in 2012, following an increase of 0.1 mb/d in 2011. This represents an upward revision of 50 tb/d over the previous report. The adjustment to this

year’s growth was mainly due to the release of preliminary 1Q12 data for actual production, particularly for the US. OPEC NGLs and non-conventional oils in 2012 are expected to increase by 0.4 mb/d over the previous year. In April, total OPEC crude oil production, according to secondary sources, was estimated to average 31.62 mb/d, an increase of 0.32 mb/d over the previous month. Product markets showed an uptick in April with gasoline taking advantage of the improved product sentiment in the Atlantic Basin, ahead of the driving season. This, along with the additional support from tight product supplies in the Asian region amid heavy refinery maintenance allowed refinery margins to increase across the globe. The decline in crude oil prices also supported product markets. The tanker market saw mixed movement in April, with VLCC spot freight rates increasing and Suezmax and Aframax spot rates encountering declines. Lower


tonnage demand and refinery maintenance drove the decline in Suezmax and Aframax rates. The rise in VLCC spot freight rates was supported by higher demand and floating storage requirements. In April, OPEC spot fixtures decreased by 20 per cent. Sailings from OPEC were higher and arrivals in North America increased.

Non-OPEC supply growth by regions, mb/d Russia FSU - ex Russia Total DCs OECD N. America OECD W. Europe OECD Pacific

CASPIAN OUTLOOK Oil production from Kazakhstan is forecast to average 1.62 mb/d in 2012, an increase of 20 tb/d over the previous year and showing a minor downward revision of 10 tb/d from the previous report. This revision has come across the entire year, as updated production data in the first quarter led to the undertaken adjustment, which has been partly carried over to the rest of the year. Updated data for the first quarter indicated slightly lower output than had been expected. Output was shut down at different fields, due to severe

Total Non-OPEC -0.40

-0.20

-0.00

-0.20

-0.40

-0.60

-0.80

OPEC crude oil production, mb/d 32.0 31.5 31.0 30.5 30.0 29.5 29.0 28.5 28.0 27.5 27.0

3.0 2.5 2.0 1.5 1.0 0.5

Jan 11 Feb11 Mar11 Apr11 May11 Jun 11 Jul 11 Aug11 Sep11 Oct11 Nov11 Dec11 Jan 12 Feb12 Mar12 Apr12

Demand for OPEC crude for 2011 remained unchanged from the previous assessment to stand at 30.1 mb/d, indicating growth of 0.4 mb/d compared to the previous year. Demand for OPEC crude for 2012 is projected to average 30.0 mb/d, the same level as in the previous report and representing a decline of 0.1 mb/d from last year.

2011/10 2012/11

China

2010 2011

US commercial oil stocks in April reversed the build of the previous month, declining by 4.3 mb. US stocks remain 20.1 mb above the year-ago level and 30.8 mb over the five-year average. Products, which fell by 17.5 mb, were responsible for the decline, as crude stocks rose by 13.5 mb. In Japan, the most recent monthly data shows that commercial oil stocks increased by 6.6 mb in March to stand 1.4 mb above a year ago, which was still 5.2 mb below the five-year average. The total stock-build was concentrated in crude, which rose by 8.5 mb, while product inventories fell 1.9 mb.

OPEC crude production (LHS) weather conditions. A state producer warned of output targets not being met in 2012, citing bad weather conditions that reduced production. On a quarterly basis, Kazakhstan’s supply is expected to stand at 1.62 mb/d, 1.60 mb/d, 1.61 mb/d and 1.65 mb/d respectively. According to the preliminary data, during the first quarter of 2012, Kazakh oil production decreased by 40 tb/d, compared with the same period in 2011. Azerbaijan’s oil supply is forecast to average 0.97 mb/d in 2012, a minor increase of 10 tb/d over 2011 and unchanged from the previous month. According to preliminary data, Azeri oil supply declined by 50 tb/d in the first quarter, compared with the same period a year ago. This decline has been driven by technical issues that had an

0

Cumulative change (RHS)

impact on the Azeri-Chirag-Guneshli (ACG) field’s output, which had affected production in previous years. Limited new developments have also influenced the forecast for 2012. On a quarterly basis, Azerbaijan’s output is estimated to average 0.97 mb/d, 0.95 mb/d, 0.96 mb/d and 0.98 mb/d respectively. Turkmenistan’s oil supply is expected to increase in 2012 and help offset the decline from mature production in the Other FSU (not including Russia, Azerbaijan and Kazakhstan). Growth is supported by increased output from the Dzheitune field. Other FSU production is expected to average 0.45 mb/d in 2012, an increase of 10 tb/d from the previous year. (Excerpts from the OPEC Market Report May 2012) May-Jun, 2012

65


AUTOMOTIVE

NEW RENAULT DUSTER COMES TO OMAN

The New Renault Duster, a strong and reliable SUV with genuine off-road ability, was launched recently by Suhail Bahwan Auto Group. The new Renault Duster promises to be a versatile 4x2 and 4x4 vehicle, which combines a spacious interior with saloon-car comfort, while its compact footprint and high ground clearance ensure that it is at home in and about town as it is on country roads or off the beaten track. The vehicle is available in 4x2 4-speed AT and 4x4 6-speed MT versions powered by a 2.0 16V (135 hp) engine, especially tested in the GCC. To confirm the New Renault Duster’s strength and reliability, the new vehicle covered the equivalent of four million kilometers in a wide range of climates and in particularly punishing conditions. One month of rigorous testing in GCC conditions prior to launch was carried out few months ago to make sure all standards of Renault quality will be met and the vehicle conforms to GCC 66

May-Jun, 2012

specifications and requirements. Today’s all-terrain vehicles are often synonymous with bulk, but the new Renault Duster is an antidote to that idea. With a length of 4.31 metres and a width of 1.82 metres, the Renault Duster is very compact but roomy. The New Renault Duster offers an unmistakably 4x4 plus a 4x2 version.

From the front, it exudes an impression of toughness: the wide wheel-arches, the imposing lines of the chrome grille and the sump guard clearly emphasize the 4x4 DNA of the new Renault Duster. Seen from the side, the high ground clearance, clearly defined wheel-arches and protective mouldings encourage the driver to tackle even the toughest roads and tracks.


RELIABLE MAN

The waste container is bigger than that of a conventional three-axle truck - 30 instead of 25 cubic metre - enabling more work to be done in the collection area before this truck has to be driven to the waste disposal site. This enables the working day to be optimally utilised according to the relative lengths of the routes in the district for which the disposal service is responsible.

MAN offers a comprehensive portfolio of products from 7.49 to 41 tonnes gross vehicle weight and thus a guarantee to municipality and entrepreneur alike that their tasks will be performed reliably and economically. The MAN series - TGL, TGM and TGS - offer a wide range of vehicles suited to the most varied of tasks. Then there is also the TGS WW series, which is orientated particularly

towards the operational conditions of global markets like the Middle East. The MAN CLA, which is produced in India, is sold on the Middle Eastern, African and Asian markets. An interesting concept designed to bring transport efficiency to waste disposal is the basis of the four-axle MAN TGS 35.360 8x2-6 BL on show.

The rise of the megacities with their heavy traffic and diversely allocated traffic spaces explains the demand for compact, manoeuvrable refuse-collection vehicles. MAN has just the right vehicles in its light- and medium-duty TGL and TGM series. With its manoeuvrability and a body of up to nine cubic metres, the MAN TGL was built for narrow streets and old cities. The MAN TGM series has a selection of two- and three-axle vehicles capable of taking containers up to 22 cubic metres in size. The TGM 26-tonner can be configured with steered, liftable leading and trailing axles. May-Jun, 2012

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GLOBAL ROUND-UP

Shell, Chevron join hands in Ukraine Royal Dutch Shell plc and Chevron Corporation have bagged the exploration rights for two shale gas fields – Yuzivske and Oleske – in Ukraine. The total investment for the project is expected to be around $170 million for the Oleske field and $200 million for Yuzivske, totaling $370 million. According to Ukrainian state geological service, the Oleske field that covers over 2,316.6 square miles is estimated to hold about 3 trillion cubic meters of conventional and unconventional, as well as

condensed gas deposits. The other field Yuzivske is likely to have a reserve of 4 trillion cubic meters of gas. Together the fields, where industrial extraction of gas is expected to begin in 2018-2019, will contribute up to Ukraine’s 10 per cent domestically consumed natural gas by 2020. This move highlights Ukraine’s attempt to capitalize on the booming shale gas scenario and develop its large untapped resource of shale gas. The establishment of a strong domestic gas industry will also minimize the country’s dependence on Russia.

$25bn Shah Deniz Stage 2 to commence FEED work The Shah Deniz consortium has approved the decision to commence Front End Engineering and Design (FEED) on the estimated $25 billion Shah Deniz Stage 2 project. This was officially announced in Baku during the meeting between the President of the Republic of Azerbaijan Ilham Aliyev and Bob Dudley, Group Chief Executive of BP, the Operator of Shah Deniz. The Shah Deniz Stage 2 project will bring gas from the Caspian Sea to markets in Turkey and Europe, opening up the ‘Southern Gas Corridor’. Achieving this important milestone allows the consortium to maintain its target for first gas exports around the end of 2017.

project, the Shah Deniz consortium will finalise its selection of export routes across Turkey and into Europe. Rashid Javanshir, President of the Azerbaijan, Georgia and Turkey Region of BP, said: “We are pleased to announce this major step forward. Over the past two years we have made substantial progress on all the individual components of this mega-project. Engineering studies, commercial agreements and the support of the State of Azerbaijan and other governments give the Shah Deniz consortium the confidence to embark upon this FEED phase.” “With over 30 trillion cubic feet of gas resources, Shah Deniz is truly a giant field. And with more than 26 wells, two new platforms, a terminal expansion and up to 4000km of new pipelines to Europe, this chain of major projects represent one of the largest oil and gas developments in the world,’ he added. Shah Deniz Stage 2 is expected to add a further 16 billion cubic meters per year (bcma) of gas production to the approximately 9 bcma from Shah Deniz Stage 1.

The Shah Deniz 2 project is set to produce 16 billion cubic metres of gas per year. The entry into FEED represents the start of a key phase in the project during which engineering studies will be refined, further wells will be drilled, commercial agreements will be finalised and key construction contracts will commence. During the FEED phase of the

Speculation is pushing prices higher “In terms of prices, this year we have generally seen moving in an upwards direction. However, current prices are not due to market fundamentals. Speculation is pushing prices higher. Trading is being made on the perception of a supply shortage, rather than evidence of any actual or impending shortfall. It is related to geopolitics. In many respects it can be described as a fear factor,” stated OPEC Secretary General, HE Abdalla S. El-Badri, at the 13th International Oil Summit, Paris, France.

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He added, “Oil is increasingly being treated as an individual asset class by financial investors. Since 2005, the total open interest of the NYMEX and ICE Brent crude oil futures and options has increased sharply. Today, the level of open interest on the NYMEX is close to 3 million contracts. And combined with Brent it is 3.85 million. It means that the level of open interest on these two exchanges is equivalent to more than 44 times the size of physical demand.”


Halliburton and Gazprom International makes a fresh pact Halliburton has signed a strategic cooperation agreement with Gazprom International for the development and implementation of new oil and gas technologies in global exploration and production projects. The agreement sets the framework for the ongoing exchange of information related to oil and gas technologies, for technical training to be provided to Gazprom International by Halliburton, and for the deployment of Halliburton technology on Gazprom International projects. The technologies will address areas including tight gas, deepwater, advanced software applications and integrated workflows. “Halliburton has invested considerable resources in research and development for new technologies, which support our customers’ activities,” said Brady Murphy, Halliburton’s senior vice president of Business Development for the Eastern Hemisphere. “This agreement

BG to sell Comgás stake for $1.8bn BG Group has signed a memorandum of understanding (MoU) with Cosan S.A. Indústria e Comércio (Cosan) for the sale of its 60.1 per cent holding in Comgás, Brazil’s largest gas distribution company, for approximately $1.8 billion (R$3.4 billion). Subject to partner consent, BG Group and Cosan expect to execute a definitive sale agreement in the near term. The transaction, which will be subject to regulatory approval, is likely to complete by the end of 2012. BG Group Chief Executive Sir Frank Chapman said: “This memorandum of understanding is another important step in our ongoing portfolio rationalisation and funding diversification programmes, underpinning delivery of the wealth of opportunities we have across our global portfolio. We look forward to concluding this deal as part of our plans to release some $5 billion of capital in the next two years through strategic divestments. Shareholders in Comgás are BG Group (60.1 per cent) and Shell (18.1 per cent) with the remainder held via the public through a listing on the São Paulo stock exchange.

provides an opportunity for Gazprom International and Halliburton to mutually benefit from the implementation of these technologies and to build a closer strategic working relationship.” Valeriy Gulev, Gazprom International’s managing director, said, “We expect that cooperation with Halliburton will extend our engineering capability, improve Gazprom International’s competitive performance, and broaden the range of our possibilities in the areas of exploration and development of hydrocarbons.”

Schlumberger to acquire Tesco’s CASING DRILLING Division Tesco Corporation and Schlumberger have signed a definitive agreement for Schlumberger to acquire Tesco’s CASING DRILLING division for $45 million in cash. “Our CASING DRILLING division comprises some of our leading technologies, which Tesco has incubated for several years,” said Julio M. Quintana, chief executive officer and president of Tesco Corporation. “The time is right to expand the market for this technology through this sale to Schlumberger. Tesco has been an innovator throughout its history and we look forward to introducing further new technologies to the industry.”Jean-Francois Poupeau, president, Schlumberger Drilling Group, added, “CASING DRILLING technology enables construction of wells where the use of conventional technology has proven difficult. The addition of these technologies to our drilling portfolio will help our customers reduce finding and development costs through drilling efficiency gains and wellbore integrity improvements.” In addition to this definitive agreement, Schlumberger and Tesco have entered a long-term supplier agreement in which Tesco will sell and lease its Casing Drive System equipment to Schlumberger to support CASING DRILLING projects.

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GLOBAL ROUND-UP

Australia offers 27 new areas for exploration The Australian Government has opened up 27 new offshore petroleum exploration areas in 9 basins for bidding on the back of strong demand for new acreage. Minister for Resources and Energy Martin Ferguson told the APPEA 2012 Conference in Adelaide that industry nominations underpinned all but one of areas. “The 2012 Acreage Release encompasses large frontier basins suited to exploration programs with numerous targets as well as smaller blocks of relinquished and highly prospective acreage in more mature areas,” he said. “The high level of early stakeholder participation led to multiple nominations for many of these areas, which are located in a range of water depths and vary in size and exploration history.” The release of the new blocks is a clear sign that the oil and gas industry is still hungry for new exploration acreage in which to seek out discoveries “Today’s acreage release will allow offshore petroleum explorers to seek a larger role in an energy revolution, with a high probability of ongoing major petroleum discoveries in Australia, and more than 40 sedimentary basins yet to be fully explored.” Ferguson noted that Australia had undergone an unprecedented expansion in the

New class of MaxForce FRAC Charges Halliburton has developed a new class of perforating shaped charges designed for perforating oil and gas wells prior to hydraulic fracturing. The MaxForceFRAC charge is designed to optimize fracturing efficiency and placement by providing consistency of the perforation entry hole in the casing, regardless of the gun’s azimuthal orientation and clearance, which can vary greatly in horizontal wells. Consistent hole size is an important parameter to ensure that each perforation tunnel contributes equally during the fracture treatment. Injection rates during any stimulation are directly proportional to the perforation hole size; therefore, gun systems with irregular casing hole diameters result in higher-than-necessary injection pressures, and potentially early screen-outs. Large variation in perforation entrance hole diameters can increase the effects of near-wellbore tortuosity and can leave many of the perforation holes not contributing to the stimulation, causing sub-optimal fluid distribution and higher injection pressures. The MaxForce-FRAC charge provides the tightest variance of the entrance hole diameters currently available, thus improving pressure distribution and stimulation efficiency. Currently undergoing field trials in the Permian Basin, MaxForce-FRAC charges have demonstrated up to 20 percent improvement in flow efficiencies, which can reduce the cost and improve the overall success of the fracturing treatment. The MaxForceFRAC charge is currently available for 3-1/8-in. and 3-3/8-in. gun assemblies commonly used in 4-1/2-in. and 5-1/2-in. casing. 70

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discovery and development of national energy resources in recent years, with natural gas leading the way. It was also home to 70 per cent of global liquefied natural gas capacity under construction and is currently the world’s fourth largest LNG exporter with output of 20 million tonnes of LNG per annum in 2010-11. This is expected to grow by 19 per cent in 2012-13 as production from Woodside Petroleum’s Pluto LNG facility in Karratha, Western Australia, ramps up.

Fracing causing stir in US A top White House adviser has said the Obama administration made a concerted effort to reach out to the oil and gas industry while crafting regulations governing natural gas drilling but insists the effort isn’t an election-year ploy, reported timesunion.com. After all, said White House energy and climate change adviser Heather Zichal, there still are tensions. “The notion that we’ve rolled out the welcome mat and have this hunky dory relationship and we’re all holding hands and signing kumbaya is not exactly where we are today,” Zichal said after a presentation to an American Petroleum Institute forum. Zichal’s comments come a month after President Barack Obama established an interagency task force to streamline the work of more than a dozen federal agencies that are studying or regulating the hydraulic fracturing technique used to harvest natural gas from dense rock nationwide. Administration officials characterized the move as part of a plan to foster domestic natural gas development with environmental safeguards. Some industry leaders — who generally prefer states regulate fracturing instead of the federal government — applauded the new task force as a step in the right direction. Industry representatives also cheered the Interior Department’s decision to soften a disclosure requirement in a proposed rule governing fracking on federal lands, so that companies could tell regulators about chemicals after they are used at wells, not beforehand. “This isn’t about election-year politics,” she said. “This is truly about the administration working on a number of regulations that directly impact the oil and gas industry.”


REGIONAL ROUND-UP

Programme to train 2mn young Saudis

Deloitte: Shortage of critical talent in the Middle East In a Deloitte report entitled ‘The Talent Edge 2020: Redrafting Talent Strategies for the Uneven Recovery’, experts focused on the oil and gas sector, to gauge the talent trends in the growing industry. Of the key findings, the majority of the surveyed oil and gas executives anticipate a looming talent shortage in all skill categories, the most pressing of which is in operations (81 per cent).

Highlighting a need for change in the way the Kingdom of Saudi Arabia approaches education, Khalid A. Al-Falih, president and CEO of Saudi Aramco, has announced the company’s launch of a youth enrichment programme that will see 2 million young Saudis receive critical training by 2020 and encouraged young people to create a bright future. The CEO noted past and current achievements regarding education in the Kingdom, including a significant improvement in literacy over the past four decades and the investment of billions of riyals in scholarships and infrastructure. That, however, is not enough to secure success in the future. With more than 35 percent of the Kingdom’s population 15 years and younger, the challenge today is greater than it has ever been, and the need for a different kind of education is just as great. “In recent decades, the world has undergone structural changes that in the past took centuries to achieve,” Al-Falih said.

“The currency of this new realm is knowledge. He added that the dynamics of this changing world will “require us to radically rethink what we know about education, how we manage it and with whom we partner.” Al-Falih said the company is launching Ithra Youth, a new programme targeting Saudi youths throughout the Kingdom. The company sponsored national initiative will help teach young people the principles of science, math, engineering and technology skills, as well as special skills to build personal, lifelong learning skills. Beginning in June, the programme will provide 500,000 hours of training in 2012 alone. “And that’s just the beginning,” he said. The programme will see 2 million Saudis trained by 2020. The company will also be helping teachers transition from “teaching to the test” to a more holistic approach, using summer workshops to give teachers an opportunity to explore new ways to connect science and math to real life.

The Deloitte report is based on the responses of 376 executives, 34 per cent of which from Europe, Middle East and Africa, outlining key talent-related challenges across industries. Findings indicate that critical talent shortages, retention programs, and the growing reliance on discovering global talent are top concerns for oil and gas executives. “We are witnessing a growing trend of oil and gas companies expanding into global and new markets as a top strategic priority. Moreover, talent management is no longer confined to the company’s country of operation; rather the search has gone global, to find skilled and critical talent,” commented Ghassan Turqieh, Human Capital consulting partner at Deloitte in the Middle East. The report came up with number of other significant findings. Surveyed oil and gas executives ranked finding the right people globally as their top talent priority, citing managing human capital (38 per cent) and expanding into global and new markets (38 per cent) as their companies’ most important strategic concerns. Executives find that a looming talent shortage in all skill categories exists in many fields, which include operations (81 per cent), information technology (61 per cent), risk and regulatory (62 per cent), and research and development (60 per cent).

May-Jun, 2012

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REGIONAL ROUND-UP

NPCC eying $7bn oil projects

Inatech appoints Jean-Hervé Jenn as CEO

National Petroleum Construction Co., an Abu Dhabi government-controlled oilservices company, is looking at bidding for the $7 billion in energy projects being tendered in the emirate this year, according to the company’s chief executive officer. “We are looking at Abu Dhabi for sure,” Chief Executive Officer Aqeel Madhi said. “It’s our biggest market.” The company is bidding for two of the construction packages being tendered by Zakum Development Co., which plans to raise output from Upper Zakum, the world’s fourth-largest oil field, Madhi said. It’s also bidding for projects offered by Abu Dhabi Marine Operating Co., which plans to develop the offshore Umm Lulu and Nasr fields. The company is targeting revenue of 5 billion dirhams ($1.36 billion) this year, compared with 4.2 billion dirhams in 2011, Madhi said. It is also looking for opportunities in Iraq, Oman and South East Asia, he said. The company is spending more than $500 million to upgrade its offshore marine fleet, increase the capacity of its yards and improve equipment, Madhi added.

Inatech, the global software and IT services company, has appointed Jean-Hervé Jenn as CEO. Based at the company’s UK headquarters, Jenn will be responsible for global operations in the UK and Europe, the USA, the Middle East and India. Inatech is controlled by Chemoil, the world’s leading supplier of marine fuel, and a subsidiary of Glencore, a global producer and marketer of commodities. Inatech focuses on the implementation of Oracle and Microsoft solutions and bespoke software development. Leveraging the expertise of its parent companies, Inatech has also developed a suite of software programmes for the shipping industry, including bunkering operations management and fuel procurement management platforms. Jenn’s focus will be on driving the global growth of Inatech by enhancing existing client relationships and improving the overall product and services portfolio.

Middle East Energy Security Forum in Abu Dhabi The 7th Middle East Energy Security Forum (MEESEC 2012) to be held on 28-30 May in Abu Dhabi, UAE aims to evaluate new security technologies, discuss strategies, solutions, products and services that could help safeguard energy infrastructure. The forum will provide a platform for global security professionals in energy sector, highlighting latest strategies and technologies which can be implemented to effectively mitigate security threats. MEESEC 2012 will convene leading key speakers from renowned organizations including World Institute for Nuclear Energy (WINS), NATO, AngloGold Ashanti, PetroPars, Department of Energy, GAIL and American University of Sharjah to name a few. The event will see all security leaders in the oil & gas, petrochemicals, power & water, nuclear and mining industry come together on a unique platform to strategically overcome

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the challenges posed by economic disruption, political crisis and terrorist threats. The forum is a platform of knowledge on technological requirements and deployment where attendees will get an insight on international best practices to protect assets. The two day annual conference and workshop program promises to be bigger this year from previous years with finely crafted sessions in support of distinguished panel of advisors who are expert leaders in regional and international security sector. The delegates can look forward to interactive panel discussions, insightful case studies, pre-conference workshops together focusing on critical security issues like: effective security operations through integrated business processes, examine emerging industry standards and best practices to maximise the performance of your security programme, security threats to critical energy infrastructure and mitigations and many more.


Saudi Aramco to open new satellite R&D centers

Qatar buying stakes in Shell and ENI?

Saudi Aramco had launched its Accelerated Transformation Program or ATP some time back. In less than a decade, The company is hoping to transform from an oil and gas company to a fully integrated global energy and chemicals enterprise. The aim is to transform from a consumer of the best technology into an innovator and a provider of leading technologies. A key component of delivering the ATP is its upstream R&D arm – EXPEC ARC – which is actively pursuing the transformation vision through its R&D roadmaps in several areas. With expansion plans overseas to establish the Saudi Aramco upstream Satellite Research Centers, it will be closer to its vision of becoming a global technology provider. The satellite centers will complement the ongoing R&D activities in Dhahran in various key areas such as: nanotechnologies for reservoir sensing and illumination; electromagnetic and gravity tools for reservoir monitoring; smart-water flood research for improved recovery; intelligent chemicals for our drilling and production operations; and parallel computation and massive visualization for onthe-fly reservoir modeling and simulation. The company is targeting at least five locations around the world: from North America to Europe to China. These centers will enable Saudi Aramco to strengthen existing partnerships with academia and industry. They will also build new partnerships and tap into talent and other resources available in those regions.

Qatar is purchasing significant stakes in Royal Dutch Shell and Italian oil major ENI, according to reports published in the international media. A news agency has reported that a Shell spokeswoman has confirmed the purchase while declining to detail its size. According to the Middle East Economic Survey (MEES), Qatar’s sovereign wealth fund (QIA) was looking at a 3-5 percent stake. If Qatar did buy 5 percent, it would be just ahead of Blackrock, which is currently Shell’s biggest investor with 4.97 percent, according to reports. But British stock market rules require any party to disclose a holding of over 3 percent in a listed company so the absence of a statement from Qatar suggests its interest is below this level. Shell operates multi-billion dollar natural gas projects in Qatar.

Siemens to supply pump sets to Iraq’s strategic oil infrastructure The oil & gas division of Siemens won a multi-million Euro contract for the supply of fuel efficient turbo pump equipment to be installed at a crude oil pumping station in Iraq. The contract, which is due to be completed in June 2013, was signed between Siemens and engineering, procurement and construction (EPC) contractor Progetti Europa & Global SpA (PEG), and is for the supply and installation of two fuel-efficient turbo pump trains driven by Siemens SGT-400 Gas Turbines. The trains will be installed at the new Habaneya PS4 crude oil pumping station located along the northsouth Iraq Strategic Pipeline, enhancing the transfer of crude to a major depot, while reducing the station’s fuel consumption. Ali Vezvaei, Siemens Executive Vice President for Oil & Gas operations in Middle East and North Africa said: “Habaneya is the second pumping station in Iraq that uses Siemens equipment; we are proud to be a technology partner of choice for Iraq’s oil and gas industry and will continue to support the rebuild of Iraq with our broad range of products and solutions.”

May-Jun, 2012

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HSE

UK GOVERNMENT: FRACKING CAUSES EARTHQUAKES, BUT IT’S WORTH THE RISK

John C.K. Daly takes a look at the latest report on Fracking which offers proof it does cause earthquakes - but that there is no threat to people or property

T

he process of hydraulic fracturing is a mining technique which uses injected fluid to propagate fractures in a rock layer to release hydrocarbon deposits that would otherwise be uncommercial. Developed in the US and first used in 1947 for stimulating of oil and natural gas wells, the use of “fracking” soared in the past decade as thousands of wells have been drilled into the Marcellus Formation, also referred to as the Marcellus Shale, a deposit of marine sedimentary rock found in eastern North America. While initial environmental protests of the technique centered around its possibility of polluting underground water aquifers as a number of known carcinogenic substances are used in the procedure, more recently research has focused on an even more ominous byproduct of the technique - the increased possibility of earthquakes. While in the US, the US Geological Survey and the state governments are investigating the link, in Britain the Department of Energy and Climate Change on 17 April published an independent expert report recommending measures to mitigate the risks of seismic tremors from hydraulic fracturing and invited public comment on its recommendations. The report reviewed

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a series of studies commissioned by Cuadrilla, whose fracking operations in Lancashire aroused public debate, and the document “confirms that minor earthquakes detected in the area of the company’s Preese Hall operations near Blackpool in April and May last year were caused by fracking.” DECC’s Chief Scientific Advisor David MacKay remarked, “If shale gas is to be part of the UK’s energy mix, we need to have a good understanding of its potential environmental impacts and what can be done to mitigate those impacts. This comprehensive independent review of Cuadrilla’s evidence suggests a set of robust measures to make sure future seismic risks are minimized - not just at this location but at any other potential sites across the UK.” The report is certain to reopen debate about the Lancashire tremors, which on 1 April and 27 May 2011 shook the Blackpool area, registering 2.3 and 1.5 on the Richter Scale. On 2 November, a report commissioned by Cuadrilla Resources, “The Geomechanical Study of Bowland Shale Seismicity,” acknowledged that hydraulic fracturing was responsible for the two tremors and possibly as many as 50 separate earth tremors overall, noting that it was “highly probable” that the hydraulic fracturing of its Preese Hall-1 well did trigger a number of “minor” seismic events. At the time of the report’s release, Cuadrilla Resources CEO Mark Miller said, “We unequivocally accept the findings of this independent report and are pleased that the report concludes that there is no threat to people or property in the local area from our operations. We are ready to put in place the early detection system that has been proposed in the report so that we can provide

DECC’s Chief Scientific Advisor David MacKay remarked, “If shale gas is to be part of the UK’s energy mix, we need to have a good understanding of its potential environmental impacts and what can be done to mitigate those impacts additional confidence and security to the local community. Cuadrilla Resources is working with the relevant local and national authorities to implement the report’s recommendations so we may safely resume our operations.” The British Geological Survey also linked smaller quakes in the Blackpool area to fracking. BGS Dr. Brian Baptie said, “It seems quite likely that they are related,” noting, “We had a couple of instruments close to the site and they show that both events occurred near the site and at a shallow depth.” While the DECC report confirms that Cuadrilla Resources ‘s test-fracking likely caused the 2011 two small tremors last year, it also said that Cuadrilla Resources could proceed with exploring the area if it follows a new set of expensive safety measures. Cuadrilla Resources clearly sees the report as vindication, with Miller proclaiming, “We are pleased that the experts have come to a clear conclusion that it is safe to allow us to resume hydraulic fracturing, following the procedures outlined in the review. Many of today’s recommendations were contained in the original expert studies we published in November last year, and our supplementary information sent to DECC in January. We have already started to implement a number of the experts’ recommendations in the pursuit of best practice and look

forward to the final decision by DECC ministers concerning the resumption of hydraulic fracturing following the six week period for public comment commencing on 17 April.” And insurers in the City of London clearly believe that the DECC report validates fracking. City insurance brokerage Willis chief operating officer of global energy Neil Smith said, “Shale gas is here to stay... The issues are of a political nature and a lot are born out of ignorance of what the operations are.” Dominick Hoare of Watkins Syndicate at the Lloyd’s of London insurance market was equally bullish, saying, “With a proper assessment it’s a good risk to assume,” as was Matt Yeldham, the head of casualty at Aegis’ marine and offshore liability division, who commented, “Provided fracking is conducted in an appropriate fashion, it would appear on the whole to present a reasonable risk profile” before adding, “Underwriters are not there to cover longterm health hazard and other latent issues.” It is precisely those “long-term health hazard and other latent issues” that should be at the top of the British government’s concerns, but Westminster has repeatedly proven that its interests more closely align with those investment bankers in the City of London than those forced to live with the consequences if the environmental nay-sayers ultimately prove correct about water pollution and “seismic events.” Source: www.oilprice.com May-Jun, 2012

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BOOK CORNER

OIL – A NOVEL Plunge into the heart of the oil conflicts that pit nation against nation in the Middle East -- and threaten to topple a fragile world economy. That’s the core theme of the novel by Jeff Nesbit who has been a national journalist, the director of public affairs at several major federal agencies in Washington, D.C., and the communications director to a former vice president at the White House. He’s written 18 successful thrillers and novels in the past. Read the excerpt from the novel – ‘With the discovery of a secret oil pipeline -- once funded by Iran to connect the Mediterranean to the Red Sea through the heart of Israel -- comes Israel’s shocking emergence as the world’s newest oil and gas superpower. Meanwhile, ancient fights that have split Islam for hundreds of years threaten to shatter an uneasy peace forged between Israel, Iran, and the United States -- until news of the emergence of the Mahdi threatens to change the balance of power forever in the Middle East.’ It is certainly is a spine-chiller!

RECOMMENDED PRACTICE FOR CORROSION MANAGEMENT OF PIPELINES IN OIL & GAS PRODUCTION AND TRANSPORTATION Pipeline integrity is key to maintaining operational success, safety and security and minimising harm to the environment. Corrosion is a dominant contributory factor to failures, leaks and integrity threat in pipelines. Therefore, its optimum control within an integrity management framework is paramount for the cost effective design of facilities and ensuring continued, uninterrupted and safe operations within the expected design life. This recommended practice (RP) is a compendium of current best practices and state of the art knowledge by major operators, engineering contractors and service companies involved in hydrocarbon production and transportation. The RP incorporates some minimum operational requirements and practices to ensure that when managing corrosion in pipelines, fundamental principles are followed. It covers management of corrosion for pipelines carrying hydrocarbons, injection water and/or produced water from design to decommissioning. It is structured to follow the logical steps of a basic corrosion management process and makes references to relevant and available International standards and/or recommended practices. It is intended for use by personnel from the petroleum industry having knowledge of corrosion and materials. It is expected to be a key reference document for engineers, suppliers and contractors working in the oil and gas industry, paving the way for corrosion free operation of pipelines with the ultimate goal of improving safety, security and minimising the impact on the environment.

PEEKING AT PEAK OIL T term “Peak Oil” was born in January 2001 when Colin Campbell formed the Association for the Study of Peak The O Oil & Gas (ASPO). Now, Peak Oil is used thousands of times a day by journalists, politicians, industry leaders, eeconomists, scientists and countless others around the globe. Peak Oil is not the end of oil but it tells us the end iis in sight. Anyone interested in food production, economic growth, climate change or global security needs to uunderstand this new reality. In Peeking at Peak Oil Professor Kjell Aleklett, President of ASPO International and hhead of the world’s leading research group on Peak Oil, describes the decade-long journey of Peak Oil from eextremist fringe theory to today’s accepted fact: Global oil production is entering terminal decline. He explains eeverything you need to know about Peak Oil and its world-changing consequences from an insider’s perspective. IIn simple steps, Kjell tells us how oil is formed, discovered and produced. He uses science to reveal the errors aand deceit of national and international oil authorities, companies and governments too terrified to admit the truth. H describes his personal involvement in the intrigues of the past decade. What happens when a handful of giant He o fields containing two thirds of our planet’s oil become depleted? Will major oil consumers such as the EU and oil U face rationing within a decade? Will oil producing nations conserve their own oil when they realize that no one US c export oil to them in the future? Does Peak Oil mean Peak Economic Growth? If you want to know the real can s story about energy today and what the future has in store, then you need to be “Peeking at Peak Oil”.

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