ogr_jul_aug-12

CEO SPEAK Khalid A. Al-Falih President & CEO, Saudi Aramco

AIR CONDITIONING FEATURE A Gobal Surge

VIEWPOINT Simon Henry CFO, Royal Dutch Shell plc

July - August 2012

Fired-UP NABIL AL-RIYAMI AND MOHAMED S. AL-MARJABI, the dynamic Omani duo behind $UDELDQ 'ULOOLQJ 6HUYLFHV DUH QRW VDWLVĂ€HG being just the youngest and fastest growing drilling services company in Oman

PɑɤўȐȇ ɬɄɑȵȇɬȨȇȐѱѱѱ ȐȃǸɤɕȐ ɄȘ ɬȣǸɜ ɬȐ ȇɄ ǸȽȇ ȣɄɬ ɬȐ ȇɄ Ȩɜ

0% +ROGLQJ LV D PXOWLQDWLRQDO FRPSDQ\ ZLWK RSHUDWLRQV LQ PRUH WKDQ FRXQWULHV DFURVV WKH JOREH 7KH JURXS VWDQGV DV RQH RI WKH IDVWHVW JURZLQJ DQG ODUJHVW VHUYLFHV FRPSDQLHV LQ LWV ILHOG ZLWKLQ WKH 0LGGOH (DVW 0% +ROGLQJ //& UHOLDEO\ PHHWV LWV FRPPLWPHQWV DQG VHWV EHQFKPDUNV LQ WKH SURFHVV ZLWK HPSKDVLV RQ PDLQWDLQLQJ WKH KLJKHVW VWDQGDUGV RI EXVLQHVV HWKLFV DQG LQWHJULW\

$ PXOWLQDWLRQDO FRPSDQ\ UHFRJQL]HG LQ WKH

3URYLGH 2PDQL RLO JDV H[SORUDWLRQ DQG

JOREDO PDUNHW

SURGXFWLRQ FRPSDQ\

3URYLGHV FRVW HIIHFWLYH ZRUOG FODVV ZHOO

(QJDJHG LQ H[SORUDWLRQ DQG SURGXFWLRQ RI

FRQVWUXFWLRQ ZRUN RYHU SURGXFWLRQ VHUYLFHV

RLO DQG JDV LQ 2PDQ DQG LQWHUQDWLRQDOO\

DQG LQWHJUDWHG ZHOO VHUYLFHV ZRUOGZLGH

$ FRPSHWHQW PXOWLGLVFLSOLQDU\ WHDP

3URYLGHV UHOLDEOH DQG YDOXH DGGHG VHUYLFHV

UHVSRQVLEOH IRU GLOLJHQWO\ PDQDJLQJ

WR DOO FOLHQWV

H[LVWLQJ EXVLQHVV DQG QHZ EXVLQHVV

+DV UHFHLYHG UHFRJQLWLRQ IRU SURYLGLQJ

GHYHORSPHQW

LQVLJKWIXO VROXWLRQV DQG GHOLYHULQJ UHVXOWV

$ FRPSDQ\ FRPPLWWHG WR JURZ RUJDQLFDOO\

RQ WLPH ZRUOGZLGH

DQG WKURXJK DFTXLVLWLRQV

7KH ODUJHVW SULYDWH PLQLQJ FRPSDQ\ LQ 2PDQ

2QH RI WKH OHDGLQJ DQG PRVW H[SHULHQFHG

(QJDJHG LQ WKH H[SORUDWLRQ DQG GHYHORSPHQW

RLOILHOG PDULQH GHIHQFH HQJLQHHULQJ

RI FRSSHU DQG RWKHU PLQHUDOV LQ 2PDQ

VHUYLFHV FRPSDQ\ LQ 2PDQ

7DQ]DQLD %RNH 6DXGL $UDELD

3URYLGHV VWDWH RI WKH DUW PDULQH

0RUH WKDQ \HDUV RI FRPELQHG WHFKQLFDO

HQJLQHHULQJ WHFKQRORJ\

H[SHUWLVH ZLWKLQ WKH H[SORUDWLRQ DQG

$OVR RIIHUV SUHFLVLRQ HQJLQHHULQJ VROXWLRQV

%XVLQHVV 'HYHORSPHQW WHDP

3URYLGHV PXOWL GLVFLSOLQHG SHUVRQQHO DQG

H[SORUDWLRQ JHRORJLVWV -25& FRPSOLDQW PDLQWHQDQFH WHDPV

UHVRXUFH JHRORJLVWV

([SHULHQFHG LQ PHFKDQLFDO GHVLJQ IDEULFDWLRQ

H[SHULHQFHG HQJLQHHUV WR FRQGXFW IHDVLELOLWLHV

ZHOGLQJ DQG VLWH VHUYLFHV UHILQHU\ VKXWGRZQ

5HFRJQL]HV WKH LPSRUWDQFH RI SUHVHUYLQJ WKH HQYLURQPHQW IRU FXUUHQW DQG IXWXUH JHQHUDWLRQV

VXSSRUW VHUYLFHV VFDIIROGLQJ EODVWLQJ

DQG SODQV WR SURWHFW WKH VXUURXQGLQJV ORQJ

DQG SDLQWLQJ FRQWUDFWLQJ VHUYLFHV HWF

EHIRUH LQLWLDWLQJ RSHUDWLRQV RQ DQ\ SURMHFW

www.mbholdingco.com

FROM THE EDITOR’S DESK No 23

July - August 2012

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 Business Manager Vinod Thangoor Senior Business Support Executive Radha Kumar CORPORATE Chief Executive Sandeep Sehgal Executive Vice President Alpana Roy 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

PRODUCTION DECLINE IN WEST EUROPE AND AFRICA

T

he finding of OPEC’s recently released 2012 Annual Statistical Bulletin reflects the cautious mood of the global oil & gas industry. According to the topline released online, ‘the world crude oil production increased in 2011 by 0.9 per cent, with different regions showing heterogeneous results. While Canadian, US and Middle East crude production increased, Western European and African production showed declines. In OPEC member countries, crude oil production was up 3 per cent in 2011 year-on-year. World oil consumption last year also increased by 0.9 per cent, but this growth was seen solely in emerging economies, primarily in Asia - and in particular, China - but also in Latin America and the Middle East. In OPEC member countries, oil consumption increased by 0.2 mb/d or 2 per cent year-on-year. Proven crude oil reserves in OPEC member countries increased slightly in 2011, almost reaching 1.2 billion barrels. OPEC’s percentage share of reserves stood at 81 per cent at year-end, largely unchanged from 2010. OPEC member countries continued to play an important role in the natural gas market last year, with proven natural gas reserves of 95,020 billion standard cubic metres, an increase of 0.8 per cent over 2010, making a total world share of 48.4 per cent.’

Moving on, our cover story features Nabil Al-Riyami and Mohamed S. Al-Marjabi, the dynamic Omani duo behind Arabian Drilling Services. They are not satisfied being just the youngest and fastest growing drilling services company in Oman.

OGR had an extensive conversation with the entrepreneurs who made it to the finals of Ernst & Young Emerging Entrepreneurs Awards in 2012.

Hope you will enjoy reading the issue.

Akshay Bhatnagar Group Managing Editor akshay@umsoman.com

Read the emag: www.ogronline.com An

2

Presentation

Jul-Aug , 2012

CONTENT COVER STORY 28

Fired-Up Nabil Al-Riyami and Mohamed S. Al-Marjabi, the dynamic Omani duo behind Arabian Drilling Services, are not satisfied being just the youngest and fastest growing drilling services company in Oman

48

4

Market Report

Jul-Aug , 2012

REGULARS:

6 Oman News

63 Events Calendar

12 In The News

64

Industrial Scan

34

Opinion

68

Global Round-Up

48

Market Report

72

Regional Round-Up

ANALYSIS

ALTERNATIVE ENERGY

18 MENA’s energy industry to ride

52

Just how green is Google

on $1.1 trillion boom

CEO SPEAK

58

VIEWPOINT

54

South-East Asia: The Journey to a more secure and sustainable energy future

ENERGY SECURITY

22

Drilling Deeper

AIR CONDITIONING FEATURE A GLOBAL SURGE

40

Increasing Threats to global energy supplies

CORPORATE PROFILE

46

CHEVRON, the CHEVRON Hallmark and HUMAN ENERGY are registered trademarks of Chevron Intellectual Property LLC. ©2010 Chevron U.S.A. Inc. All rights reserved.

MARKETING FEATURE 43 Gearing for change 44 The right choice

Healthy businesses need healthy communities.

Jobs, education, and healthcare are essential.

We’ve provided microloans to thousands of entrepreneurs in Angola, funded polytechnic universities in Indonesia, and committed $55 million to The Global Fund to Fight AIDS, Tuberculosis and Malaria.

We’re making a difference where it matters.

Because the truth is, our business depends

Professor Michel Kazatchkine tchkin tchki c chkin

Rhonda Zygocki

Chevron – Battling with one crisis after another

OMAN NEWS

Renaissance approves bond issue The Extraordinary General Meeting of Renaissance Services SAOG was held on 18 June 2012 at the Meeting Hall of the Capital Market Authority (CMA). The meeting was attended by the CMA delegate, in addition to the representative of the Legal Advisors & representatives the Statutory Auditors of the Company. The percentage of shares represented in the meetings amounted to 78.47 per cent. The Shareholders approved the issue of up to 1,000,000,000 bonds

Orpic makes its Visitors Centre open for public Oman Oil Refineries and Petroleum Industries Company (Orpic) recently inaugurated its visitors centre for the public visitors under the patronage of Sheikh Hamad bin Salim al Aghbari, Wali of Liwa.

This inauguration came as a culmination for the efforts exerted by the company to establish a real partnership with the surrounding local community through opening multiple new communication channels. The centre aims to providing an integrated image about Orpic and its four plants to complement the efforts exerted by the company in the field of environment conservation and supporting the local community. To achieve the purpose of establishing this centre, it has been equipped with presentation and explanation means to closely acquaint the visitors of “Orpic” and its operations, in addition to providing an interesting educational experience. This centre also includes footage materials in Arabic and English that explains in a simple way the refining operations in all manufacturing units at the company.

6

Jul-Aug , 2012

at an Issue Price of RO 0.100 each. The Bonds shall be issued through either rights issue or public issue during a period of 5 years from the EGM date, which may be issued in more than one issue.

The prospectus of each issue will specify the terms and conditions of the issue in terms of whether the Bonds are convertible to shares or unconvertible, whether the Bonds are secured or unsecured and whether the Bondholders are eligible to claim interests or not.

Oman Oil & IPIC join hands for Duqm Refinery development Oman has taken a step closer to the refinery at Duqm. Oman Oil Company (OOC) and Abu Dhabi’s International Petroleum Investment Company (IPIC) are moving ahead with formalising their partnership in the joint development of the Sultanate’s third refinery at Duqm. The agreement will lead to the establishment of a joint venture company to invest in, develop and implement the greenfield refinery project within the Special Economic Zone at Duqm. It will also allow the promoters to secure debt finance for the project, which is estimated to cost $6 billion.“In this upcoming agreement, both sides will commit themselves to the joint implementation of the Duqm Refinery project. This would represent a significant ramp-up of their initial partnership arrangement to jointly evaluate the feasibility of the refinery venture, to a firm pledge to see the project through to fruition,” a government official stated.

The joint promoters are also expected to make public their choice of a Project Management Consultant to oversee the construction of the huge venture. Oman Oil Company has also appointed a Project Director to liaise with the Project Management Consultancy firm during

the implementation phase of the project.

The project entails development of the 11.5 million tonnes per annum (230,000 barrels per day) capacity grass roots refinery. The project will also drive an ambitious petrochemicals cluster envisaged in later phases of Duqm’s development as an industrial hub. Recently, Oman Oil Company and the Port of Duqm Company, which operates a giant multipurpose port adjoining the Duqm SEZ, announced plans for the formation of a joint venture named Duqm Petroleum Terminal Company (DPTC) to operate and manage a new Liquid Jetty at Duqm. While Oman Oil will hold a 90 per cent stake in the JV, the balance will be offered to Port of Duqm Company.

The jetty will handle the massive liquid volumes in crude feedstock and refined products that will flow through the port when the refinery is operational tentatively in 2017. Designed to accommodate ships of around 150,000 deadweight tonne (DWT) capacity. Also, Oman Oil subsidiary Oman Gas Company (OGC), which operates a 2,500-kilometre gas transportation grid, firmed up plans for the construction of a pipeline to supply Duqm with its requirements of natural gas as energy and feedstock.

PDO announces new job training schemes

Petroleum Development Oman (PDO) underlined its role as a national champion of socio-economic development at a joint signing ceremony for two work training schemes for 100 women living in the south of its concession area. The event in Salalah – held under the auspices of Sheikh Abdullah bin Saif al Mahrooqi, Deputy Governor of Dhofar – formally marked the Company’s commitment to support the training of 70 females in leather craft in Rabkut (Wilayat of Thumrait) and 30 females in tailoring and embroidery in Wilayat Taqa. The Walis of Thumrait Sheikh Amour bin Salim Kishob and of Taqa Sheikh Bakeet bin Said Mohammed Muhsin were joined by Suleiman al Mantheri, PDO’s External Affairs and Communications Manager, to sign the agreements for the courses which will teach the women the necessary craft skills to make quality goods from which they can earn a living. Recently, PDO also celebrated the official opening of a Thursday market in Shaleem under the auspices of Sheikh Bakheet bin Salim al Maashani, Wali of Shaleem and Juzur Al Halaniyyat. PDO funded the construction of the market, with recently completed facility upgrades, as part of its Social Investment Programme to boost the commercial opportunities for local Omanis living in its concession area.

The Company also signed a Memorandum of Understanding with the Wali to sponsor the construction of a camel race track in Shaleem. In addition, PDO has recently agreed - in collaboration with the Ministry of Health - to support the expansion of the health centre in Shaleem into a hospital to provide essential health services to the community. Praising PDO’s support of the community, Bakheet bin Salim al Maashani said: “We are very grateful to PDO for its major contribution to our community. The livestock market will become a vital trading hub for those working in local agriculture and is further proof of the Company’s growing reputation as a good corporate citizen.”

Engineer Suleiman al Mantheri, who promotes PDO’s Corporate Social Responsibility (CSR) drive, said: “PDO has a long-standing commitment to support social investment projects that deliver lasting and sustainable benefits to local communities to help them develop and prosper.”PDO’s Social Investment Programme covers many areas and has recently shifted its focus towards training initiatives. During the course of 2011, more than 600 people participated in PDO-funded training programmes, many of them in small towns and villages. The Company’s CSR efforts have been recognised officially on many occasions. The latest was when PDO received the Alam al-Iktisaad Wal A’mal (AIWA) Award for Excellence in Corporate Leadership for its ambitious plan to secure long-term sustainable commercial benefits for Oman and to generate thousands of new employment opportunities.

OGC start operations at Nemr station Oman Gas Company (OGC) has started operations at Nemr station to pump natural gas to the Governorate of Dhofar in order to meet the demand of gas in many industrial establishments in the Sultanate. According to a company spokesperson, the operation and maintenance of the station is being implemented through a qualified team of 25 Omani employees in addition to a number of young talented trainees. The spokesperson added that the operational aspects of the Nemr station include operation and maintenance of (Compressor Station) and follow-up and coordination with the main control room in Al Khuwair.

11 Omani students attend World Gas Conference A group of 11 students from the Sultan Qaboos University (SQU), sponsored

by Oman LNG, attended the prestigious gathering of experts, operators and other professionals meeting at World Gas Conference (WGC) held in Kuala Lumpur, Malaysia from June 4 to 8. The conference offered the students a new, more handson perspective of the operations of the global gas industry, complementing the mainly theoretical insight taught at schools.

At the WGC, the students attended the conference’s Youth Programme ‘Nurturing Future Generations in the Science, Technology, Engineering and Mathematics (STEM)’.Organised by the International Gas Union (IGU), the WGC is held every three years and invites key speakers and specialists within the international energy industry to exchange ideas over the direction, development, emerging issues and challenges in the global gas industry.

Jul-Aug, 2012

7

OMAN NEWS

Topaz wins ferry contract for Sharjah Government Renaissance subsidiary, Topaz Marine Engineering (“Topaz”), a UAE-based full service ship building, ship repair and engineering services company, confirmed that it has been commissioned by the Government of Sharjah’s Royal Court (Al Diwan Al Amiri) to build and deliver one Catamaran passenger ferry boat (“Catamaran” or “ferry”). The Catamaran will be designed to accommodate 40 people, with passengers all seated on the main deck.

It will be used to transport people between mainland Sharjah and the Abu Musa Island, situated 70 kilometres offshore. The ferry will be built at Topaz’s Nicocraft Shipyard in Abu Dhabi and is scheduled for delivery in January 2013.

Thomas Bower, Managing Director, Topaz, commented: “Ferry boats are becoming increasingly common across the Gulf and Topaz is responding to this demand by working to worldwide standards and developing new designs which offer the very best in luxury, high speed, manoeuvrability and excellent sea keeping characteristics to make this kind of transportation more safe and comfortable. Securing this contract comes as testament to our competitive advantage and we look forward to winning more as we continue to expand our services in this growing niche market.”

Topaz has had an excellent start to the year. It has recently delivered two 18 metre Catamaran ferry boats to a client in the UK and completed the delivery of two wind farm support vessels (WFSV) to ASP Work Boats Ltd. Topaz is also completing the delivery of two Anchor Handling Supply (AHTS) vessels, Topaz Dignity and Topaz Triumph on behalf of BP. Furthermore, Topaz was awarded a contract from GAC Group to provide completion services for two crew/cargo vessels.

8

Jul-Aug , 2012

McDonald’s Oman converts used cooking oil into bio-diesel

McDonald’s Oman (Al Daud Restaurants LLC) has embarked on a clean-technology venture, in which used cooking oil is converted into eco-friendly bio-diesel to fuel its fleet of delivery trucks. The initiative is a joint effort between McDonald’s Oman and Coeja Eco Solutions. Ali K. Daud, Development Licensee and President of McDonald’s Oman said: “We are proud to adopt such an environmental initiative which reduces carbon emissions of our fleet of vehicles by 75 per cent.

McDonald’s Oman and we admire their leadership. Hopefully their initiative shall encourage other businesses in Oman to take Corporate Social Responsibility seriously.

Sustainability for businesses is key, not only for keeping costs down but also for the positive impact on the environment and the consumers’ perception of the company,” Talal Al Hassan, local partner of Coeja Eco Solutions said.

McDonald’s Oman is just as committed as its counterparts in countries like the USA, the United Kingdom and the UAE to be a responsible environment-friendly citizen and this is one big step in the right direction. With this initiative, McDonald’s Oman is paving the way for other corporations in the Middle East to follow suit,” Daud said.

Karl W. Feilder, CEO of The Neutral Group, said that forming the Neutral Logistics venture furthered the aims of both McDonald’s and The Neutral Group to create an increasingly sustainable fuel future in the Gulf region.

“Converting used cooking oil into biodiesel is by far the most useful thing that can be done with it. Biodiesel is catching on in the Middle East as a positive alternative to mineral diesel.”

Coeja Eco Solutions in partnership with Neutral Logistics shall collect all the used cooking oil from all McDonald’s restaurants and convert it to 100 per cent biodiesel for use in diesel combustion engines for vehicles.

“This is a bold step in the right direction for

Biodiesel has a much lower carbon footprint than normal diesel. Studies have shown that the exhaust emissions of carbon monoxide, a poisonous gas from biodiesel are about 47 per cent lower than carbon monoxide emissions from diesel.

OMAN NEWS

Wilayat Maqshan receives Double Boost from PDO

Petroleum Development Oman (PDO) has signed two Memorandums of Understanding to fund IT and English language training for at least 20 people and the construction of a camel race track in the Wilayat of Muqshin. The agreements were officially sealed between H.E. Sheikh Abdullah bin Nasser al Hamar, Wali of Maqshan, and Suleiman al Mantheri, PDO’s External Affairs and Communications Manager, in the Directorate General of State Affairs in Dhofar.

Commending the Company’s investment in the community, H.E. Sheikh Abdullah bin Nasser al Hamar said: “PDO’s support is hugely appreciated as both schemes will make a real difference to people’s lives in Muqshin. The training will equip locals with vital skills to enable them to find meaningful employment and earn a living and the camel track will become an invaluable leisure and social focal point.

“This act of generosity and benevolence is more evidence that PDO is committed to being a genuine force for good in the Sultanate.”

The new Memorandums of Understanding came after PDO funded a camel race track in Shaleem and IT and English language training in Shaleem, Muhut, Salalah, Al Jazir and in Hamra Adduru’a in Ibri.

PDO’s support for training is a continuation of its programme which started last year when more than 600 people participated in PDO-funded training schemes, many of them in small towns and villages.

10

Jul-Aug , 2012

Topaz Energy & Marine appoints new CEO Renaissance Services has appointed René Kofod-Olsen as CEO for Topaz Energy & Marine (Topaz). Kofod-Olsen’s career spans 18 years in the marine industry with the A.P. Møller-Maersk Group (APMM), including a period as Chief People Officer of SVITZER, responsible for the global HR function. He is currently CEO of SVITZER Asia, Middle East & Africa, responsible for a fleet of 130 vessels operating in 17 countries. He is also a member of the global executive leadership team of SVITZER. He will take up his new position at Topaz in early August 2012. Topaz has one of the youngest, most modern and versatile Offshore Support Vessel (OSV) fleets in the world. The Topaz fleet, which average age is 7.2 years compared to an industry average of 13 years, operates primarily in the MENA and Caspian regions. Topaz is a wholly owned subsidiary of Renaissance Services.

Renaissance Chairman, Samir Fancy said “We are delighted to have René join our team.

He has proved his leadership credentials in a distinguished career with the A.P. MøllerMaersk Group culminating with his success as CEO of SVITZER for Asia and MENA. He shares our growth ambitions for the Topaz Marine fleet.” Kofod-Olsen commented “Topaz is a global OSV company that is well positioned in their key markets with enormous growth potential. I am joining a great team of marine professionals and I am excited about what we can achieve together.”

OOC launches summer programme in partnership with Ministry of Education Oman Oil Company (OOC) has signed an agreement with the Ministry of Education, represented by the National Career Guidance Centre (NCGC) in partnership with Prosper Consultancy to run the summer training programme, Ghaytuh. Mustafa Abullatif, Undersecretary of the Ministry of Education for Administrative and Financial Affairs, signed the agreement on behalf of the Ministry of Education, and Deputy Chief Executive Officer, Mulham Al-Jarf represented Oman Oil Company.

Gaytuh is one of the recent CSR programmes initiated and conducted by OOC and aims at helping students to make constructive use of their summer vacation. The company is keen to generate programmes through which students can acquire various skills by participating in practical activities. Participants will go through several training courses, which will enable them to acquire of basic skills in trades such as plumbing maintenance, electrical devices and vehicle maintenance, event management, hospitality, technical support, graphic design and photography.

The course also aims to make students aware of basic business principles and business opportunities that are available in the market by starting home businesses or in their communities.

The course activities are characterised by fun and entertainment to encourage students to participate fully and get the most out of their training. Of the 200 students who submitted applications for the programme, 80 have been selected through a process to evaluate their presentations that showcased their personal abilities and skills as well as their potentials to be real entrepreneurs.

IN THE NEWS

PDO WINS AIWA AWARD

12

Jul-Aug , 2012

Petroleum Development Oman (PDO) was felicitated with AIWA Award for Excellence in Corporate Leadership

I

n a red carpet gala function at Shangri La Barr Al Jissah on 10 June, AIWA Awards For Best Performing Companies recognized and celebrated the success of top achievers of Corporate Oman in 2011. His Excellency Dr.Rasheed Bin Al Safi Al Huraibi, Chairman of the Tender Board, was the chief guest for the award function. The event was held under the auspices of His Highness Sayyid Tarik bin Shabib.

AIWA Awards for Best Performing Companies are instituted by Alam alIktisaad Wal A’mal (AIWA), Oman’s leading Arabic monthly business magazine, published by United Media Services (UMS). This year marked the second edition of the AIWA Awards after the highly successful launch in 2011.

“A networker’s dream, the most sought after premium event was attended by the who’s who of Muscat corporate high life as it attracted more than 250 top business leaders, CEOs and senior government officials from a cross-section of industries, ministries and government bodies. A roaring success, AIWA Awards for Best Performing Companies has

WINNERS’ LIST: AIWA AWARDS FOR BEST PERFORMING COMPANIES

emerged as a benchmark for measuring excellence in corporate performance in Oman,” commented Alpana Roy, Executive Vice President, United Media Services (UMS).

The banks and non-banking finance companies (NBFCs) swept the AIWA Awards For Best Performing Companies.

In the large cap segment, AhliBank topped the list of winners for the second successive year in a row. It was followed by four other winners including National Bank of Oman, BankSohar, BankMuscat and Omantel. In the mid cap segment, Oman Refreshment emerged on top.

The other winners in the segment included United Finance, Taageer Finance, Oman Chlorine and Al Omaniya Financial Services. In the small cap category, Oman Fiber Optics was ranked number one. It was followed by other winners including Muscat National Holding, Sahara Hospitality, Oman Orix Leasing and National Gas. His Excellency Mohammad al Zubair, the founder of Zubair Group and Advisor to His Majesty was honoured with the AIWA Lifetime Achievement

• • • • •

Oman Refreshment Company

AWARD

United Finance Company

HE Mohammad Al Zubair

Taageer Finance Company Oman Chlorine Al Omaniya Financial Services

SMALL CAP SEGMENT

National Bank of Oman

• • • • •

BankMuscat Oman Telecommunications Company (Omantel)

Mouawad, Muscat Pharmacy and The Wave, Muscat were the support partners.

Gulf Baader Capital Markets SAOC (GBCM) was the knowledge partner whereas KPMG was the validation partner for the ranking process used for the awards. Times of Oman and Al Shabiba were the media partners.

AIWA LIFETIME ACHIEVEMENT

AhliBank Bank Sohar

Leading brands in the Sultanate had joined hands with Alam al-Iktisaad Wal A’mal, the leading business publication from United Media Services, in bringing the AIWA Awards for Best Performing Companies to life. Bank Sohar and Genesis Prada (the luxury car series from Hyundai) were the Strategic Partners.

MID CAP SEGMENT

LARGE CAP SEGMENT

• • • • •

Award. His son Husam Al Zubair, who is the Vice Chairman of Zubair Automotive Group, received the trophy on behalf of HE Mohammad al Zubair. Petroleum Development Oman (PDO) won the AIWA Award for Excellence in Corporate Leadership.

Noted businessman Hussain Salman Al Lawati, Vice Chairman & MD of Oman Cables Industry and Chairman of Oman Aluminium Processing Industries, walked away with the AIWA Global Omani of the Year Award.

Oman Fiber Optic Company

AIWA AWARD FOR EXCELLENCE IN CORPORATE LEADERSHIP Petroleum Development Oman (PDO)

Muscat National Holding Company Sahara Hospitality Co.

AIWA GLOBAL OMANI OF THE

Oman Orix Leasing Company

YEAR AWARD

National Gas Company

Hussain Bin Salman Al-Lawati

Jul-Aug, 2012

13

IN THE NEWS

OPAL LED DELEGATION

PARTICIPATES IN A BUSINESS SUMMIT AT

MANCHESTER

14

Jul-Aug , 2012

Following the In-Country Value proposition introduced earlier this year, a delegation led

by Oman Society for Petroleum Services (OPAL), went to Manchester to participate in a business summit hosted by Energy Industries Council (EIC) and UKTI on 28-29h May. The delegation comprised 48 executives of 33 Omani companies operating in oil and gas sector in Oman. The delegation organized

by OPAL in co-operation with Petroleum Development Oman (PDO) included local companies mainly SMEs providing supplies, drilling and engineering services to the oil and gas producers.

The objective of the summit entitled “Opportunities in Oman and Iraq with Shell” was to facilitate discussion and promote partnership

between Omani, British and Iraqi companies doing business in and around MENA region. It also highlighted the opportunities available for companies in the UK, Iraq and Oman in projects currently being developed by Shell Int’l within the MENA region.

Mohamed Al Harthy, CEO of OPAL CEO, “OPAL is honoured to lead the delegation of the esteemed oil and gas companies from Oman, I am also delighted to acknowledge the excellent working relationship we have developed with the organizers of the summit, the Energy Industries Council (EIC), UKTI, and Shell Int’l who has developed long term relationship and participated in the development of oil and gas in Oman. This is a historical moment where OPAL is participating in creating opportunities

of dialogue for business relation to support job creation, building capabilities and development of products and manufacturing.”

OPAL has taken a significant role during this period of development and change, providing a bridge between the country’s oil and gas stakeholders. “Although operators and developers in Oman have committed to promoting In-Country Value (ICV), current oil and gas projects in the region still require involvement from the international supply chain. The EIC-UKTI Business Summit focusing on business opportunities in the region detailed these requirements and OPAL has received many enquiries from UK companies who are interested in forging closer trading links with Oman,” Al Harthy added.

Jul-Aug, 2012

15

IN THE NEWS

CREATING A GREEN

UMBRELLA

The third edition of Oman Green Awards honoured outstanding environmental vision, endeavours and achievements of corporates and individuals

O

man Green Awards (OGA) 2012 has once again proved that creating a green economy is the need of the hour as environmental issues and economic development increasingly intersect and complement each other.

Nineteen finalists, including two joint winners, won awards in nine different

16

Jul-Aug , 2012

categories of OGA at a function held at Al Bustan Palace Ritz Carlton Hotel, under the auspices of His Excellency Mohammed Said Al Toobi, Minister of Environment and Climate Affairs.

In a specially created perfect green ambience at the Majan Ballroom, a discerning audience of more than 200 guests, comprising of top representatives

of Oman’s corporate houses, schools and other non-governmental institutions, applauded in acknowledgement of the fact that OGA is a ideal green platform to stir up people’s interest and awaken positive activism for environmental goals and greater action in the long term, both at a community and decision-making levels.

Coinciding with the World Environment Day on June 5, OGA has been conceptualised by Oman Economic Review and United Media Services (UMS) and is being held in association with the Ministry of Environment and Climate Affairs, Muscat Municipality and the Ministry of Health.

In her welcome address, Alpana Roy, Executive Vice President, UMS said that Oman Green Awards, over the past three years, has recognised exemplary efforts made by companies and individuals in promoting environment preservation and sustainable development in the Sultanate. “OGA has raised awareness about going green and the necessity of saving the natural beauty of this pristine country,� she added.

The event has received massive support from corporate houses and individuals who have made green mission a priority.

Oman Oil Marketing Company, Octal and Muriya Tourism have joined as Green Oman partners to keep the green torch burning bright in the country.

The media partners of the event are Times of Oman and Al Shabiba while the support partners are Sadolin, Green Cover, Infoline and Oman Printers and

Stationers.

As part of the function, young Omani scientist Mustafa Barami gave a presentation of his path-breaking invention which can recycle a kilo of palm leaves into 80 sheets of A4sized paper. His invention showcases how innovation and environment conservation can go hand-in-hand, by making use of the cellulose found in the palm leaves which would otherwise be burned as waste by date-palm farmers.

The following are the winners in each category: Green Campaign Of The Year Winner: Caledonian College Of Engineering Special Commendation: Radisson Blu Hotel Muscat Green Champion Award Winner: Graduates from SQU Special Commendation: Architectural Wall Systems Green Education Award Winner: British School Muscat Special Commendation: Indian School Muscat

Green Footprint Award Winner: OCTAL Special Commendation: Al Hassan Group of Companies Green Guardian Award Winner: Information Technology Authority Special Commendation: Oman Drydock Company The Green Habitat Award Winner: Port Of Salalah Special Commendation: W S Atkins The Green Innovation Award Joint-winners: Petroleum Development Oman & Bauer Nimr Special Commendation: Berger Paints Green Landscape Award Winner: Green Cover Special Commendation: Muscat Hills Golf Course Green Research Award Winner: Sultan Qaboos University (Jatropha Plant) Special Commendation: Ray International

Jul-Aug, 2012

17

ANALYSIS

MENA’S ENERGY INDUSTRY TO RIDE ON $1.1 TRILLION BOOM

Management consulting experts from Booz & Company have identified the root causes of inefficient development, management, and execution of capital projects that may impede taking full advantage of the anticipated capital outlay, and examined ways in which they can be overcome. Excerpts of the report :

I

n the coming decade, the energy industry in the Middle East and North Africa (MENA) will see a wave of major capital projects— more than $1.1 trillion in projected spending, approximately one-fourth of the industry’s total global investment through 2020.

This is a significant capital outlay that needs to be carefully managed. However, the region’s track record is mixed when it comes to executing large capital projects.

Management consulting experts from Booz & Company have identified the root causes of inefficient development, management, and execution of capital projects that may impede taking full advantage of the anticipated capital outlay, and examined ways in which they can be overcome. MENA’s oil-exporting countries have made impressive strides in consolidating their position in oil markets (e.g. Saudi Arabia’s national 18

Jul-Aug , 2012

oil company (NOC), Saudi Aramco, built infrastructure facilities in 2009 to increase its oil production capacity to 12.5 million barrels per day (bpd), including the development of the massive 1.2 million bpd Khurais field, at a cost of $10 billion) and crafting a leadership position in new adjacent industries, such as bulk petrochemicals, natural gas, liquefied natural gas (LNG), steel, and aluminium. The industry has achieved this diversification by executing a number of ground-breaking new mega projects across the Middle East.

For instance, Saudi Arabia has become one of the largest players in the bulk petrochemicals market, with its flagship company, SABIC, among the top five producers worldwide. This has been achieved by establishing massive industrial sites with world-scale petrochemicals complexes in Jubail and Yanbu. Qatar has become the largest LNG exporter in the

world during the past decade, by setting up 14 LNG mega trains through its two flagship companies: Qatargas and RasGas. In addition, Qatar also built the largest gas-to-liquids project in the world (in collaboration with Shell). Also, the United Arab Emirates has been an early pioneer in developing LNG from the Middle East and is building highly complex sour-gas fields, along with a planned increase in oil production capacity.

During the coming decade, the MENA energy industry is expected to continue this massive investment program by executing projects worth approximately $1.1 trillion across the energy value chain. According to the International Energy Agency, the MENA region is expected to represent about 25 per cent of global energy investments.

Predictably, large resource holders such as Saudi Arabia, the UAE, Iraq, and Iran are expected to lead the way in spending.

“However, the next wave of capital projects will be larger and more complex, and will represent a significant capital outlay that needs to be carefully managed. History suggests that the region’s companies have a mixed record of executing large capital projects. Cost overruns, schedule slippages, and inconsistent quality have become recurring concerns for senior management. Some of these problems come from market-related issues, such as a surge in commodity prices in the middle of the last decade,” said Raed Kombargi, partner with Booz & Company. “Many of these problems, however, arise from within the industry itself. In our experience, the root causes include inadequate engineering and project management (E&PM) strategies, a lack of clear governance, inadequate checks and balances, insufficient standardization, and a shortage of local capabilities.”

THE SEVEN HABTS OF SUCCESSFUL PROJECT DELIVERY Today, MENA energy companies have a rare opportunity to fundamentally review the way they develop, manage, and execute capital projects. Specifically, the industry will need to master seven key habits to build world-class project delivery capabilities. These are: 1. Develop a Clear E&PM Strategy “MENA companies should develop a clear E&PM strategy to ensure that they are well-equipped to manage and execute their capital projects. This strategy will define which projects and activities will be performed by the company itself and which will be outsourced,” said Alain Masuy, principal with Booz & Company.

“To develop this strategy, companies should create a rigorous and transparent project classification framework. Projects are typically classified by risk, size, complexity, and nature.”

The process of project classification will help derive a tailored execution strategy for each project. Overall, three main types of strategies are available for a company:

• Manage and execute the project inhouse

• Manage the project in-house and outsource project execution

• Outsource both project management and project execution 2. Develop and Implement a Governance Model with Clear Accountabilities and Responsibilities A well-developed governance model will clearly define accountabilities and establish the roles of the various entities in the project setup. “Generally, direct management responsibility for the project varies depending on where it is in its life cycle. The business owner will be more heavily involved during the initial two phases (identify and assess, and select), while E&PM will manage the next two phases (define and execute).

Finally, once construction is complete, the project will revert back to the control of the business owner for operation,” said Asheesh Sastry, principal with Booz & Company. To ensure seamless accountability and responsibility during these transitions, projects typically employ a single ‘project steering committee’ that remains the same throughout the entire process. This committee will make strategic decisions regarding marketing agreements, financing, technology, and other issues that might significantly affect the business case.

3. Establish Best-Practice Processes Including Appropriate Checks and Balances MENA companies should also establish best-in-class processes to master project development and execution. These processes can be split into three areas: core delivery, support, and checks and balances.

To assess the readiness of the project to move to the next phase in the stage-gate process, top-performing companies have developed and implemented appropriate checks and balances to ensure that safety, quality, and performance standards are met and that the project business case is still valid at each gate.

These processes will also ensure that the company captures any potential synergies from concurrent projects and that it incorporates lessons learned and applicable designs from past projects.

Alain Masuy added, “Additionally, some of these companies have adopted peer reviews at different gates to augment the project governance structure and act as an independent auditor for the project team. Best-practice companies can generally differentiate the required checks and balances and deliverables based on the project class to establish the right equilibrium between flexibility and control. Finally— and critically—the gates must be closely linked to the company’s key performance indicators (KPIs).”

4. Develop In-House Centers of Excellence in Key E&PM Areas Successful companies also need to establish an engineering and technology center of excellence (COE) to improve their performance. COEs can typically cover as many as five main mandates:

• Achieve functional excellence by standardizing processes, and capturing and disseminating best practices

• Provide expert and technical services to project teams as required

• Identify, analyze, and disseminate new technologies • Manage talent development for technical staff

• Manage relationships with technical/ technological suppliers and, in some cases, coordinate research activities with academic and international institutions Jul-Aug, 2012

19

ANALYSIS

The type and number of mandates covered by the COE depends on the size and diversity of the company’s operations and the geographies it covers.

Additionally, COEs are organized according to different models depending on their degree of evolution. Nascent organizations typically establish a small and centralized COE that exchanges information with project teams. More evolved COEs at more advanced companies provide dedicated resources to project teams on a temporary basis, in order to share knowledge and bring lessons learned back to the COE.

together and whether they are willing to share common benefits. The terms of the contract become relevant in this approach.”

5. Develop Strategic Alliances to Address Local Capability Gaps Although some engineering companies can be reluctant to share their know-how, recent success stories show that with the right incentives, major international engineering firms have willingly agreed to set up mutually beneficial strategic alliances with NOCs, IOCs, and regional companies.

Instead, new graduates are seeking out other sectors, such as banking, communication and media, real estate, and IT, which are seen to offer more attractive career paths and better salaries.

To remedy this shortage in human resources, some energy companies are now creating dedicated project and commercial academies, which aim to bridge the gap between the industry and the students, as well as enhancing existing capabilities in the company.

“Structured correctly, such an alliance can bring mutual profits to both partners, and speed up the development of the energy company’s own capabilities,” said Asheesh Sastry. “A good initial step is to develop a pilot project, which offers a training ground to assess how well the two companies work 20

Jul-Aug , 2012

6. Establish Dedicated Project and Commercial Academies to Improve Learning and Development Like other regions in the world, MENA countries suffer from a scarcity of engineering resources. Over the past several decades, younger generations have drifted away from careers in oil and gas, in part because they find the job to be strenuous and unrewarding.

7. Increase Standardization Levels Across All Areas A key factor for successful project delivery is to establish internal engineering standards and increase standardization levels. These standards

are an important asset for the company and will bring many benefits:

• Increased business efficiency and overall cost reduction by simplifying design, controlling design options, and favoring interchangeability of equipment

• Enhanced technical integrity • Increased health, safety, and environmental performance

• Improved technical knowledge through technology transfer and best-practice sharing within the company as well as with other international companies “As a new wave of mega investments kicks in, now is the right time for MENA companies to fundamentally review the way they develop, manage, and execute their capital projects. They should master the seven key habits identified by Booz & Company to build world-class project delivery capabilities.

In addition, through these major capital project programs, MENA companies have a unique opportunity to build and incubate the local private sector and play an essential national role in contributing to GDP and the economy as a whole.

Perhaps most important, they can help build homegrown capabilities and reduce their dependence on outsiders,” concluded Raed Kombargi.

EVENT

IDOC 2012

This year, IDOC will feature the world’s leading Digital Oilfield (DOF) experts

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, and will include presentations from Shell, PDO and Kongsberg.

CHANGE MANAGEMENT – Effective Change Management is at the very core of any successful implementation of DOF projects or programmes, and presentations from PDO, Wipro and StepChange Global will highlight this.

D

igital Oilfield (DOF) exploitation is significantly gaining interest in the Middle East since the inaugural Conference of 2010 held in Abu Dhabi and please note that IDOC 2012 will be held in Muscat. PDO are the hosts of IDOC 2012 taking place from September 23-25 under the patronage of the Minister of Oil & Gas. The International Advisory Committee are planning a conference programme that will focus on: WHY DO DOF – This session requires an in-depth look at what the end-users feel the value creation is for DOF. Presentations will be made by leading experts from PDO, Shell, Statoil and Maersk Oil, with the latter two presentations from Trond Lilleng and Pieter Kapteyn, two of the world’s leading advocates of DOF. INSTRUMENTATION & AUTOMATION – Topics within this session include Unmanned Operations,

Closed Loops and Networks & Architecture and will be focused on presentations from Emerson, Honeywell and PDO with the latter focusing on the wireless position.

DATA MANAGEMENT & WORKFLOW AUTOMATION – The intent of this session is to explore the current challenges, and educate and inform the attendees on solutions to the problems, both from a technology and a human factors / culture perspective.

Kongsberg, Microsoft, Schlumberger and PDO will contribute.

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.

Experiences from Weatherford, KOC, CISCO, ADCO, PA Consulting and Cyviz will be forthcoming.

SMART TECHNOLOGY – This session will focus on Smart Technologies

PANEL SESSION – THE FUTURE OF DOF IN O&G – This panel session will indicate how DOF initiatives can have positive influences across organisational boundaries of the business and how to improve coexistence with other programmes and initiatives that may be running in parallel and will converge together. The panel will feature leading speakers from the companies in the preceding sessions.

Prior to the Conference will be a specialised workshop on how to implement Information and Communications Technology practices to ensure successful DOF implementation which, together with the associated exhibition, will provide delegates with a complete overview of the latest DOF benefits in depth.

Full details will be found at www.idoc-oman.com.

Official Media Partner of the event Jul-Aug, 2012

21

ENERGY SECURITY

INCREASING THREATS TO GLOBAL ENERGY SUPPLIES

As global energy supplies come under increasing attack by non-state actors and private energy holdings become key targets of political maneuverings and criminal activities, jen Alic spoke to Corporate intelligence specialist Michael Bagley and security expert Jennifer Giroux on the issues. Excerpts:

ENERGY SUPPLIES HAVE ALWAYS BEEN AT RISK, PARTICULARLY DUE TO GEOPOLITICAL MANEUVERINGS, TRANSIT THROUGH COUNTRIES IN CONFLICT AND THOSE SUFFERING FROM ONGOING POLITICAL INSTABILITY, AS WELL AS PIRACY ON THE HIGH SEAS. YOU HAVE BOTH MENTIONED THAT THE RISK TO GLOBAL ENERGY SUPPLIES IS INCREASING. HOW DO YOU SUPPORT THAT CLAIM? Jennifer Giroux: There is a plethora of energy location and armed conflict data that shows a correlation between conflict or conflict prone regions and oil and gas producing and/or transit states, both onshore and offshore.

While developing the Energy Infrastructure Attack Database (EIAD), we have seen a general rise in attacks on energy assets.

In the last decade there has been an average of 327 reported attacks on energy infrastructure globally, and this figure is likely higher due to the fact that not all attacks are reported through open sources.

Pooled together, the data reveals that not only are energy companies increasingly operating in risky, volatile environments and conflict zones, but their assets are becoming key targets for political and criminal reasons.

22

Jul-Aug , 2012

Michael Bagley: More specifically, nonstate actors from Mexico to Colombia, to Nigeria, Iraq, Pakistan and beyond are leveraging their terrain in dynamic ways.

They are using energy infrastructure targeting as a tool to air political grievances in a calculated manner.

For example, to garner illicit funds by stealing oil products and kidnapping energy sector employees, but also to generate global media attention that not only provides a springboard for groups to publicly challenge a state but also to inspire similar targeting behaviors in other regions.

Jennifer Giroux: Another interesting insight from EIAD shows that while energy attacks are dispersed they tend to have a contagion or clustering effect in certain countries. In such cases, we find that energy infrastructure is targeted on a monthly, weekly, and at times daily basis - leading to broad disruptions that have national and international effects. This has been the case in Egypt’s Sinai Peninsula, where natural gas infrastructure has been targeted on a monthly basis since February 2011 and disrupted energy supplies for Israel and Jordan. Yemen, too, has seen persistent attacks on the Marib-Ras Isa oil pipeline, for instance, that has led to a several-month shutdown that cost the country billions in revenue and shorted global supplies.

Michael Bagley: While those cases represent politically motivated attacks, in Nigeria the oil theft and sabotage business has resulted in Shell declaring force majeure on Nigerian Bonny Light crude oil and shut down 60,000 barrels per day of oil. Offshore, energy carriers are being targeted throughout the Gulf of Guinea, making this the new maritime piracy hotspot. Overall, this is a highly complex issue that makes it increasingly difficult for energy companies to navigate and operate in such spaces.

GEOGRAPHICALLY, WHAT ARE THE MOST IMMEDIATE THREATS TO GLOBAL ENERGY SECURITY? Giroux: Of course with the effects of the Arab spring still percolating, the Middle East and North Africa region will continue to go through a tested and difficult time. With that, the urgent security consideration is Saudi Arabia as attacks or even threats to their installations have the most potential to disrupt supplies and the market. Though there have been some bright spots in Iraq’s oil production, the country still have significant challenges that threaten stability on a near daily basis. I would not be surprised if we see another flashpoint of energy infrastructure attacks in this country.

Bagley: One can also not count on Libya to be a reliable production

space given the turmoil and political transitions underway. Another region is Gulf of Guinea where international oil companies are incredibly important for production and exploration activities.

Nigeria, and the Niger Delta in particular, produces light sweet crude that is incredibly important for the global market. No doubt that when these supplies are disrupted the market reflects that insecurity with price volatility.

WHILE MOST ARE AWARE OF THE RISING INCIDENCE OF PIRACY OFF THE SOMALI COAST AND THE THREAT TO OIL TRANSIT, HOW GREAT IS THE THREAT NOW EMANATING FROM THE GULF OF GUINEA AS AN OFFSHOOT IN PART OF THE CONFLICTS IN NIGERIA AND UNREST IN MALI, FOR INSTANCE? Giroux: Well, as it’s been reported maritime piracy is on the rise in the Gulf of Guinea. Furthermore, attacks in this

region are not confined to the coastal region near Nigeria (where they have been historically) but are not spreading to the shores of Togo, Ghana, Cote d’Ivoire, etc. This reveals not only the security gaps in this region but also the violent entrepreneurialism that is spreading across the states. Offshore attacks in this year are executed by gangs that use brute force to attack ships, steal contents including petrol products, and then release the ship have a few days or weeks.

Bagley: Also, oil theft gangs are multinational. For example, in a recent arrest of 27 people accused of stealing oil, 5 of them were Nigerians while the remainder were Ghanaians. The key take-away is that this is spreading and will thus become more complex and challenging to untangle the more sophisticated these oil theft gangs become. What’s more is that we cannot forget the regional context - the high unemployment, growing illicit drug trade (transiting drugs from South America via Africa

and onto markets in Europe), and weak governance issues. This makes it a high opportunity space for criminal groups to flourish and recruit.

HOW DOES THE NATURE OF THE THREAT PROVIDE US WITH A FRAMEWORK FOR DEALING WITH THE THREAT? Giroux: In these volatile regions, multinational energy companies are embedded in host communities that have legitimate grievances related to the lack of public goods and services such as clean water, decent roads, and electricity.

These grievances tend to fuel tensions and hostilities with the state that can then ripple over to hostilities with the energy companies in that area.

Bagley: In such cases, the balance of power -- and the impact should they turn their aggression to targeting the country’s energy assets -- is in many cases on the side of the communities.

Federal governments and institutions are Jul-Aug, 2012

23

ENERGY SECURITY

weak, and responses tend to be military, which generally only exacerbates and escalates conflict. Yet, multinationals have incredible power in these countries and, indeed regions and thus need to reconceptualize how they operate and do business in such spaces.

Giroux: I would argue that this begins by re-thinking what corporate responsibility means in these zones.

Building a school in one community and passing out generators does not address the deep underdevelopment issues and, in fact, can exacerbate grievances. Rather what is needed are better community relations and a development of a more holistic approach that includes not only working with local stakeholders such as community members, local businesses, and NGOs, but also coordinating the delivery of local development needs with other energy companies operating in the same challenging region.

24

Jul-Aug , 2012

Bagley: Of course, the conventional understanding of states argues that state actors are responsible for the provision of public services like electricity and roads, but in such environments the states are oftentimes too weak and too corrupt for such measures to ever be achieved in a timely and effective manner. This actually creates a great opportunity for the strong multinationals to be better partners with the local community and facilitate the building of roads and other public infrastructure to help develop the local economy - a more sustainable approach that will provide host communities with other opportunities in the formal or licit economy.

GOVERNMENTS RESPOND AND HOW CAN THIS BE ACHIEVED WITHOUT SERIOUS IMPLICATIONS BOTH IN TERMS OF COST AND RELATIONS? Giroux: As I mentioned, certain activities like buying generators and building schools, etc., are less likely to be considered “strategic� - rather they are piecemeal, CSR-type of activities that create mixed expectations and imbalances in zones where the discrepancies are so great. In my own research, I find that what many multinationals do not realize is that their sheer presence brings with it a whole host of expectations for a community about what is to come.

ARE YOU PROPOSING THAT MULTINATIONAL COMPANIES STEP IN WHERE GOVERNMENTS FAIL TO PROVIDE? IS THIS FEASIBLE? HOW WOULD HOST

In this respect I am referring to visions of large-scale development, growth, and jobs.

I have had countless conversations with people in energy producing regions and a common thread in such conversations

ENERGY SECURITY

is that they see political elites get rich while energy companies can quickly build pipelines, complex facilities, and have large compounds for their employees and yet roads are not built, electricity is scarce or inconsistent, schools are underfunded and overwhelmed, etc. In other words, community members see a mixed picture: they recognize that the money and capacity is there but yet see none of the benefits.

Bagley: The idea then is how can large multi-national companies -- mining, energy, transportation, for example work together to operate differently in these environments? A shifting of the dynamics involves a more radical way of thinking in a way that produces more sustainable communities where small and medium enterprises (SMEs) can flourish and really develop the economy in tandem with the multi-nationals.

Giroux: A paradigm shift might include thinking differently about the costs of production in such environments - in other words, not only factoring in things like procuring helicopters, materials for building energy infrastructure, paying employees, etc., but also contracting out the development of roads and clean water pipelines that could provide benefits for the community as a whole.

Essentially, transforming the local community from simply ‘hosts’ to ‘partners.’

Bagley: I totally agree. The bridge to peace and stability in many countries, particularly conflict-affected regions, requires a delicate but dedicated mix of diplomacy and security by all involved: the local population, the host country government, and the economic partners and investors. Certain countries have a military aspect to factor in as well so integrating these very different communities is how Jellyfish creates “smart power” for our corporate clients.

26

Jul-Aug , 2012

CAN YOU GIVE US SOME SPECIFIC RECOMMENDATIONS AND HOW THIS WORKS IN CERTAIN COUNTRIES? Giroux: Well, I think there are some very interesting things happening in the Niger Delta at the moment that I think could be extracted and applied in other areas. For example, Chevron Nigeria Ltd. Created the Foundation for Partnership Initiatives in the Niger Delta, PIND - a $50 million fund that seeks to provide support for socioeconomic development in the region.

This might be an interesting approach to examine more closely to see who they are working with, what are their concrete goals, and assess what type of impact they might be able to have. Overall, I would recommend that there needs to be a deeper debate about what CSR looks like in underdeveloped, energy producing regions. With that, companies should make assessments when working in such regions that not only take into account the challenges of the operating environment but also illustrate how they can partner with the community to inspire and produce bottom-up driven

Michael Bagley Michael Bagley is the president of Jellyfish, a global boutique intelligence firm that combines on-the-ground intelligence collection and analytics with an unprecedented country-to-country economic diplomacy program that helps governments, corporations, institutions and private individuals forge secure partnerships, discover new opportunities and mitigate operational risks.

Jennifer Giroux Jennifer Giroux is a global security expert who specializes in emerging threats to energy infrastructure in conflict-affected regions.

development initiatives that have local buy-in. I would not get too complicated with this but rather participate and support initiatives that have shared value - like roads linking cities and town, power/electricity infrastructure, sponsoring apprenticeship programs at local schools to meet local business needs, etc.

Bagley: Based on data and trends, as Jennifer points out in her research is that security situations in many countries are getting worse, not necessarily better. This has to do with a variety of geopolitical, military and economic reasons, too, of course, but the current frameworks and approaches are not working as best as they could. Companies can collect intelligence all day long to be aware of or get ahead of certain threats but it still does not always fundamentally change the operating environment.

The question then becomes how do certain economic partners such as extractive companies, multinationals and other institutional investors think and perform differently (yet productively) in such environments? The real potential for leadership here is to get the extractive multinational companies to think differently in volatile environments and to change the balance of power in a way that is beneficial for both their ongoing operations and to the communities in which they operate.

Jellyfish arranges partnership in over 80 countries where we offer a unique platform for clients to engage the host country governments and the local populations along with the diplomatic and military stakeholders in the country and the region. This use of the “smart power” paradigm by each of the players affects positive change for all involved from an economic, diplomatic and security aspect.

Source: oilprice.com

COVER STORY

Nabil Al-Riyami (on right) and Mohamed S. Al-Marjabi (on left)

FIRED-UP

Nabil Al-Riyami and Mohamed S. Al-Marjabi, the dynamic Omani duo behind Arabian Drilling Services, are not satisfied being just the youngest and fastest growing drilling services company in Oman. Akshay Bhatnagar spoke to the entrepreneurs who made it to the finals of Ernst & Young Emerging Entrepreneurs Awards. Excerpts of the conversation:

28

Jul-Aug , 2012

WHAT’S YOUR BACKGROUND? NABIL: After graduating from High School in Oman in 1984 I completed a degree in Mechanical Engineering from Imperial College, London. After returning to Oman I had a short stint at Muscat Municipality and Schlumberger before joining Petroleum Development Oman (PDO), where I worked for 13 years.

WHAT YOU WERE DOING IN PDO? NABIL: I joined the drilling department in PDO in 1990 ; At that time PDO had their own rigs which were owned and

operated by them. After working in the field for a few years I moved to the office and worked as a Trainer/Coach as well as in operations. Prior to leaving I was fortunate to be posted to Shell Brunei for 3 years between 1998 and 2001. Shortly after returning I resigned following which I worked for Daleel Petroleum (part of the MB Group), Falcon Oilfield Services which was a start-up and Abraj as Deputy CEO which was also a start up venture at the time. Together with Mohamed, in January of 2008 we then started Arabian Drilling Services.

WHAT’S YOUR STORY MOHAMED? MOHAMED: After finishing my High School in Oman I went to the UK for my college studies. I did my Master’s in Petroleum Engineering at Imperial College on a scholarship from PDO, then came back to PDO and worked in the drilling department where I got hands’ on training in drilling fields. During my summer holidays I would come back to Oman and work at PDO. After graduating I worked for PDO for about five years before resigning and taking up a job with International Business Jul-Aug, 2012

29

COVER STORY

PDO provides an excellent foundation and working environment but the thrill of working in a smaller and more dynamic organization with more responsibility was too great to resist Development (IBD) owned by Sayyid Mohammed Al Said. Here I had the opportunity to have a free hand starting a sub-surface division; this opportunity gave me the financial background and understanding of the business in addition to the implementation of some of my technical abilities. After about a year at IBD, Nabil and I sat together and came up with the idea of developing a drilling company. We started working on different aspects of putting together a company from scratch.

WHAT MADE YOU MOVE OUT OF THE COMFORT ZONE OF PDO TO JOIN MUCH SMALLER COMPANIES? NABIL: It was not an easy decision.

Like most large organizations, PDO provides an excellent foundation and working environment but the thrill of working in a smaller and more dynamic organization with more responsibility was too great to resist.

HOW DID YOUR STINTS IN MUCH SMALLER SET-UPS HELPED IN LAUNCHING YOUR OWN COMPANY? NABIL: It provided an excellent insight into the various functions that make up an organization and gave me the confidence of being able to start up a business from scratch.

30

Jul-Aug , 2012

TELL US ABOUT THE INITIAL DAYS OF ARABIAN DRILLING SERVICES? NABIL: Actually the seed was planted in October 2007 following which we worked towards setting up the business plan and raising finances. In January 2008, we formed the company.

MOHAMED: When we started, it was just Nabil and I. We functioned as if we had a contract in hand and worked towards building the company. We tendered 12 times before we won our first contract.

WHAT KINDS OF JOBS YOU WERE TENDERING FOR? NABIL: We tendered for drilling services.

We built a drilling rig purely on speculation that a contract would be in place. During the initial stages of setting up the company and building the drilling rig we put all the systems and processes in place as if we were going to operate. It took us a year and a half and a number of tender submissions before we were awarded our first contract.

Unfortunately, the first contract wasn’t for the rig that we were building so we built another unit for our contract in Oman and found an alternative opportunity for the one we built on speculation. We started operating in May 2010.

HOW DID YOU GET YOUR FIRST CONTRACT WITH ZERO CREDENTIALS AS A START-UP? MOHAMED: This is where we must thank His Majesty for creating an environment in Oman that is supportive and conducive to start-up companies like ourselves. We have worked in many companies within Oman and have been exposed to other countries within the region as well as in Western markets and those in South East Asia and have not seen the extent of support as what is provided in Oman from all aspects; you don’t realize just how much support there is until you look around.

WHAT KIND OF SUPPORT DID YOU RECEIVE? NABIL: We had tremendous support from the Clients (PDO), investors and the bankers / financial institutions which would not have been possible had it not been for His Majesties wise leadership.

You can put together proposals and plans but those awarding you a contract have to have faith in what you do and that you can deliver as they are carrying the risk of failure.

TELL US ABOUT THE FIRST CONTRACT? NABIL: It was a super single drilling rig contract for two rigs with PDO for four years. We had tendered in April and it typically takes about six months for the results to be announced. During the tendering stage we had a number of clarifications with up to nine people in one session questioning us on every aspect of the rig and running of the unit, from staffing, to safety and procedures.

This is where we must thank His Majesty for creating an environment in Oman that is supportive and conducive to start-up companies like ourselves. We have worked in many companies within Oman and have been exposed to other countries within the region as well as in Western markets and those in South East Asia and have not seen the extent of support as what is provided in Oman

HOW DID YOU QUALIFY FOR PARTICIPATING IN YOUR FIRST TENDER DESPITE BEING A STARTUP WITHOUT ANY CONTRACT IN HAND? NABIL: One of the biggest advantages is our extensive experience within drilling and experience with start-up ventures.

MOHAMED: There are different ways of moving forward in the market. Some may opt for the sub-contracting route to make the headway which is an easier route. But it doesn’t mean a start-up cannot come in as a contractor. Our technical abilities in drilling, our proven rig design and in depth knowledge of the technical standards required by Shell played a major role in terms of convincing PDO about our ability to meet their expectations.

After the award the next step for us was to build the rig. Mohammed went to the USA and as we had gone through the total design extensively during the tendering stage we knew exactly what we were going to build. In parallel we started the hiring process. We hired four Omanis who went with Mohammed to the US and within 4 months, by Jan`10, we had commissioned the unit in US together with PDO representatives. The rig was then shipped to Oman.

We made sure that we met every single standard that was required. Added to it was the safety aspect and unique advantages that gave us the edge which were highlighted as part of our Bid submission. Between January to May we hired and personally interviewed over 139 people before starting to operate on May 21st 2010.

Jul-Aug, 2012

31

COVER STORY

IN WHICH FIELDS YOUR RIGS ARE DEPLOYED? MOHAMED: We have super single rigs in three places. First is Lekhwair in the North of Oman. The other is in Yibal, around half-an-hour drive from Fahud.

Both of them are for PDO. The third one is in Nimr in the South of Oman for Medco LLC. In 2010, we won two contracts (from PDO). In 2011 we won another contract (from Medco).

WHAT WAS YOUR INITIAL CAPITAL INVESTMENT? NABIL: Over the last three years , a total of over USD 60 million has been invested in the company through both investors as well as financial institutions.

WHAT STAGE BANKERS STEPPED IN? 32

Jul-Aug , 2012

A smart and intelligent entrepreneur should find his niche and create opportunities. We believed in ourselves.

Maybe the road didn’t go as straight as we wanted it to be

NABIL: We went to the bankers first.

We gave a number of presentations to a number of banks after forming the company. It is not easy to raise finance without a contract. It is a chicken and egg situation. We had excellent support from National Bank of Oman who supported us even before we got the first contract. It is a challenge but I think that banks should be a bit more supportive of start-up ventures and the associated risks.

MOHAMED: A smart and intelligent entrepreneur should find his niche and create opportunities. We believed in ourselves. Maybe the road didn’t go as straight as we wanted it to be but from just two of us in 2008, we have grown to a 230 strong team in 2011, and we are 97-98 percent Omanized. We believe that one should not go against the market

but rather find a way to work with it, to think out of the box.

IN DRILLING, HOW MUCH OF THE CONTRACTS IN OMAN ARE GOING TO HOME GROWN COMPANIES? NABIL: We are probably the third Omani company (with no association with a foreign operating company) providing drilling services in Oman after MB and Abraj. MB has been an inspiration as they started a long time ago and it must have been very difficult for them to break into a market with no such precedence being set.

SO YOUR COMPETITION IS MAINLY OMANI COMPANIES? MOHAMED: We are competing with all the drilling companies whether international or Omani. There are over 12 Drilling Companies in Oman. When clients tender, they don’t differentiate the bids and give any preferential treatment to any of the companies.

DOES IT MEAN THAT NO PREFERENTIAL TREATMENT IS GIVEN TO OMANI COMPANIES IN THE AWARD OF DRILLING CONTRACTS? MOHAMED: No. We are all on equal footing.

WHERE DO YOU SEE THE COMPANY GOING IN COMING YEARS? NABIL: The next goal is to consolidate our processes and increase our rig fleet.

We want to grow within Oman and increase our foot prints regionally as well.

MOHAMED: We want to make sure that through our current operations, we are able to exceed the expectations of our clients. This year has been a period of consolidation for us. The platform is ready for us to go to the next level.

We need to ensure that we have the

ICV is going to have a positive impact across all sectors, however it is important to understand that change does not happen overnight.

Changes in policies and legislation need to be studied and reviewed before implementation

processes, procedures, systems and checklists in place. The focus is on managing processes and people.

IN OMAN, FROM WHERE THIS GROWTH IS EXPECTED? MAINLY PDO OR NEW E&P PLAYERS? MOHAMED: Most of the new entrants are not very sustainable because they have short-term programs. Our focus is on the larger players such as PDO, Oxy, BP and others including Petrogas, PTTP and Medco. If we look at Oman alone, there is plenty of room for business as there are very few local players however it is a very competitive market. There are currently over 60 rigs operating in Oman; it is second only to Saudi Arabia in the GCC region.

NABIL: We foresee major activities in Oman in the years to come. As far as the rigs are concerned, there are two elements. One is the increase in the number of rigs. The other is the ongoing tenders for expiring rig contracts.. In every cycle, on an average there are 15 rig tenders annually (including new and replacements) that take place. Oman has over 30 concessions which provide more opportunities for rig activities.

Regionally, we see good potential for expansion into markets such as Iraq, Kuwait and the UAE. At this stage, we are not participating in any external tenders but plan to start in the near future..

WHY WE DON’T SEE TOO MANY LOCAL CONTRACTORS

OPERATING DRILLING RIGS IN OMAN? MOHAMED: The business demands long term, high capital investments. It typically takes over 10 years to recover the investments in a rig however the contract cycle is around 4 years and banks fund according to the contract period only. In addition to this there could be periods in between the contracts when the unit is not deployed. It is not an easy business to be in.

HOW DO YOU SEE YOURSELF BENEFITING FROM THE CURRENT EMPHASIS ON IN-COUNTRY VALUE MAXIMIZATION? NABIL: We haven’t seen its impact yet but we do know that there is a strategy in the making but don’t know how it is going to be passed on to a company like ours. We have been consulted by the relevant stakeholders on the ICV strategy but we are yet to experience its implementation.

DO YOU THINK ICV IS GOING TO MAKE A STRATEGIC CONTRIBUTION OR IS IT GOING TO BE LIP-SERVICE ONLY? NABIL: I believe it is going to have a positive impact across all sectors, however it is important to understand that change does not happen overnight.

Changes in policies and legislation need to be studied and reviewed before implementation . We need to make sure we get it right before we move ahead.

Jul-Aug, 2012

33

OPINION

AZERBAIJAN –

UNLOCKING THE GAS Iain Conn, Chief Executive - Refining and Marketing, BP spoke about the strategic importance of Azerbaijan for a diverse and competitive European energy supply, during the Berlin Forum. Excerpts of his presentation:

N

atural gas, Azerbaijan and Europe are three important subjects when joined together represent both a fascinating challenge and a tremendous opportunity. I worry that the debate about energy in Europe has arrived in a strange place, where energy is seen only in negative terms as an unwelcome and expensive problem.

However, a little thought immediately says the opposite is the case. Energy is fundamental to our industrial and social fabric and our way of life.

And it is also a fundamental source of competitive advantage in a globally competitive world.

The world intensity of GDP is falling.

The energy intensity of GDP for China, a major driver of global energy demand growth, is higher than average and will remain so for some time. The EUis lower than average.

On average, the world is currently at about 0.15 tonnes of oil equivalent per $1000 of GDP. Now, we all know what 0.15 tonnes of oil equivalent is… it is just over a barrel. This means that on average it now costs about $115 of energy per $1000 GDP, and for China it is approaching $200. When oil prices

34

Jul-Aug , 2012

were $25/bbl this mattered less. At today’s prices, and with the potential for further rises, it matters a lot. Securing the energy for growth is expensive, and fundamental.

So if the Chinese economy has an energy intensity of GDP approaching twice that of Europe, energy is not a problem for Europe but the opposite – one of our few remaining structural sources of competitive advantage.

It is an advantage that we need to preserve and strengthen. We really need to check our mindset - to make sure that we see an efficient energy system as a source of advantage and not as a problem. So where does this structural competitive advantage for Europe spring from? Probably from many factors but these certainly include Extensive installed infrastructure and generation capacity Diversity of energy types and sources of supply Liquid and effective energy markets Embedded technological and innovative capability And there is one more obvious point from this analysis – that good energy policy is not an optional extra but a core driver of competitive advantage.

Meaning that energy policy cannot be

• • • •

based on fashions or aspirations but on a clear headed, factually based assessment of the realities of the energy economy.

And recognizing that the opportunity cost of the wrong energy policy choices can be very high.

NATURAL GAS Natural gas is an inherently competitive source of energy. Importantly it has high capital efficiency when used for power generation. Natural gas fired power stations can be highly efficient and rapidly and reliably constructed to meet demand. And the use of gas can be continually and flexibly adjusted to match changing demand – for instance if the temperature suddenly changes or the wind drops and takes wind capacity off line. Combined with the inherent combustion efficiency of natural gas, this flexibility means that natural gas can also be a major contributor to greenhouse gas emission reductions.

Relative to super-critical coal fire powered generation, natural gas fired CCGT power generation can deliver the same power at half the levelised capital cost and with half the CO2 emissions per kWh. This efficiency of a quarter the CO2 per $ invested per kilowatt can and should be locked in now, so continuing to keep Europe’s competitive advantage and

slowing the rate of greenhouse gas build up through the crucial energy transition to 2050 and beyond.

Furthermore, recent experience confirms that natural gas is in plentiful supply in the crust of the earth. The BP Statistical Review estimates remaining reserves at about 60 years of consumption and this is largely without accounting for shale and other forms of so-called unconventional gas. As you know, shale gas has transformed the energy economy of the US in a few short years from gas deficit to self sufficient for the next hundred years. And this is not only about gas fired power. It also means that core industries in the US, such as steel and chemicals, have received an unexpected and game changing boost to their global competitiveness.

In BP we believe that China could be positioned to embark on a similar journey. In Europe, it is important that regulation of shale gas is appropriate and supports public confidence. But it would be foolish indeed for Europe not to use its unconventional gas capability to the full. Where Europe also has clear competitive advantage is in diversity of natural gas supplies.

Indigenous conventional natural gas production is in decline but Europe is a continent surrounded by large and

In BP we believe that China could be positioned to embark on a similar journey. In Europe, it is important that regulation of shale gas is appropriate and supports public confidence. But it would be foolish indeed for Europe not to use its unconventional gas capability to the full competitive natural gas supplies – including Norway, Russia, the Caspian Sea, North Africa, Atlantic Basin LNG, the Middle East and potentially the East Mediterranean. And Europe already has substantial infrastructure in place that brings the gas to the market in preference to other destinations.

So in reality Europe is positioned for competitive advantage in natural gas supply. And this advantage is strengthened by proximity to emerging new natural gas sources, that will add to the diversity and resource base available to the European market. And this is where Azerbaijan comes into the story.

AZERBAIJAN IN STRATEGIC PERSPECTIVE It’s probably fair to say that Azerbaijan has only recently become a more familiar name to the wider European

public. However, for those of us in the oil and gas industry, Azerbaijan has assumed increasing prominence and importance over the last 20 years.

It is a varied, often beautiful and richly endowed country, with a long and fascinating history and a rich cultural inheritance. And it is also a major oil and now natural gas producer and the gateway to the natural resources of the Caspian region as a whole.

Over the last 20 years, Azerbaijan has built an enviable track record as an innovative and reliable oil and gas supplier – first through the AzeriChirag-Gunashli giant offshore oil field development; then through the extraordinary Baku-Tbilisi-Ceyhan oil pipeline, bringing Azerbaijan’s oil through Georgia to the Turkish Mediterranean without adding to tanker traffic in the Bosporus; and

Jul-Aug, 2012

35

OPINION

finally through the development of the giant Shah Deniz gas field and its associated gas pipeline infrastructure.

In any circumstances this would be an impressive achievement.

For Azerbaijan, located as it is in a challenging and often troubled geographic neighborhood, it is an even more notable accomplishment.

And behind this Azerbaijan stands at the fault line of a more fundamental competition – the competition for resources between east and west, between the Atlantic and Asia.

Caspian gas is already flowing east from Turkmenistan to China. So it is of even greater importance that Azerbaijan sees its underlying strategic interest in gas supply to Europe, building upon the energy corridor it has already established with its neighbours, Georgia and Turkey.

For Europe it is equally important to secure its own strategic interests by ensuring that gas from Azerbaijan can flow to Europe as promptly and efficiently as possible. It is the practical realisation of this objective that has come to be known as the Southern Gas Corridor.

AZERBAIJAN GAS TO EUROPE The key to development of the Southern Corridor is one field that will kick start 36

Jul-Aug , 2012

the whole process – namely the Stage 2 development of the giant Shah Deniz gas field offshore Azerbaijan. Discovered

by BP in 1999, Shah Deniz is one of the largest gas fields in the world bringing the gas to market and is set to be one of the largest engineering projects in the world. Shah Deniz Stage 1 was commissioned in 2006 and is already producing 8 billion cubic meters of gas per year, or bcma, for Azerbaijan, Georgia and Turkey. Now BP and its partners are working intensively to develop the follow-on Stage 2 project for first gas delivery around the end of 2017.

Let me give you a quick overview of the Stage 2 project. It consists of six different projects: A wells project comprising of 26 wells, distributed around a field the size of Manhattan Island Offshore facilities, consisting of 500km of underwater pipelines and two very large platforms Expansion of the Sangachal Terminal, already one of the largest oil and gas terminals in the world Three pipeline projects - through Azerbaijan and Georgia, through Turkey and from Turkey into Europe.

The total cost of these projects will be around $40bn. They will produce an additional 16 bcma of gas. Some 6 bcma will be sold to Turkey and the remaining

• • • •

10 bcma will be available for onwards transmission to the European markets.

It is this 10 bcma that for the first time offers firm Caspian gas for sale in the European market. This 10bcma enables the corridor to Europe to be established. Future gas potential in the Caspian means the corridor must be built with that in mind – future expansion as and when other gas is discovered and developed.

Four key events have opened the door to this historic development: The Memorandum of Understanding signed by President Aliyev of Azerbaijan and European Commission President Barroso in Baku in January 2011, providing the political framework for sale of Azerbaijan’s gas to Europe The agreements on gas sale and transit signed by Turkey and Azerbaijan in Izmir in October 2011, crucially ensuring that Azerbaijan’s gas can reach the western Turkey border with the EU The recognition by key member states and the European Commission in November 2011 that where gas flows from the border of the EU single market is and should be a matter for normal commercial decisions

•

•

•

OPINION

The Public Policy issues being considered as part of this decision include Azerbaijan’s strategic considerations, the European Community’s stated objective of enhancing supply diversity of European natural gas markets and ensuring sustained support from all stakeholders

•

Approval by Shah Deniz partners in April this year to move to Front End Engineering and Design (FEED) for the Stage 2 project, committing substantial financial and human resources. This approval means that over the next few months Shah Deniz Stage 2 will literally start moving from sheets of paper to sheets of steel. It is now very much a real project, with hundreds of people working on it.

SO WHERE ARE WE NOW? The decision on pipeline routes are being made by the Shah Deniz partners on the basis of eight transparent criteria published a year ago. These include the normal commercial, financial and operational considerations. They also include the important aspect of sustainability.

By Alignment and Transparency, we are referring to the willingness of the selected option to cooperate technically with Shah Deniz and to align with the timeline of Shah Deniz’s full field development. The Public Policy issues being considered as part of this decision include Azerbaijan’s strategic considerations, the European Community’s stated objective of enhancing supply diversity of European natural gas markets and ensuring sustained support from all stakeholders.

In Turkey the detailed negotiations 38

Jul-Aug , 2012

to implement the Azerbaijan/Turkey agreement on gas transit are proceeding well.

Two options are on the table – expansion of the existing Turkish pipeline grid operated by Turkish gas company BOTAS and construction of a new Trans Anatolia or TANAP trunk pipeline from the Georgian to the EU border. All the parties to these negotiations - whether supplier, transit provider or purchaser – are looking for the same key criteria of expandability for future supplies and the highest international standard of operational, commercial and legal reliability.

For this reason the final arrangements for transit across Turkey can be fully expected to meet these demanding requirements. And finally we reach the question of where the gas will flow once at the EU border. The Shah Deniz partners have been looking at two basic options within the EU market. The first is the southern route through Greece and Albania to Italy. The second is into the markets of south-eastern and c entral Europe.

Shah Deniz partners recently selected the Trans-Adriatic-Pipeline (TAP) for the southern option to Italy. Exclusive negotiations are now in progress and there is no possibility of reverting to the alternative Interconnector Turkey/ Greece/Italy (ITGI) project. If Italy

wishes to import Southern Corridor gas, it will need to be through the TAP project.

And we are committed to working with the Italian, Greek and Albanian governments, and with TAP, to gain all the required regulatory approvals and permits to make this pipeline option a success. For the Central European route, the Shah Deniz partners have been considering two options. These are the South East Europe Pipeline (SEEP) and Nabucco West. The SEEP concept has been assembled by Shah Deniz partners in collaboration with Bulgaria, Romania and Hungary and offers an efficient routing into and through these strategically important markets which can be scaled up in size as new gas volumes become available.

Nabucco West will also run from the Turkish border to central Europe and is being offered by the Nabucco International Consortium on the basis of work originally carried out for their Nabucco Classic pipe from Georgia to Europe. The formal submissions for these options were submitted as per the request from Shah Deniz partners. Work is currently in progress to evaluate these submissions and selection of a preferred south –eastern and central European option is expected by the end of June 2012.

Shah Deniz partners will then be on target to make a final market and route selection which is expected before the Final Investment Decision on Shah Deniz Stage 2 itself by June 2013.

All of these options have strategic value and offer the necessary scope for scalability as future gas supplies become available. There is no predetermined winner, the competition is fully open and there is still everything to play for.

AIR CONDITIONING FEATURE

A GOBAL SURGE

With incomes rising and smaller families moving into bigger homes, the need for air conditioning is ever increasing. It is of little wonder thus, that world sales of ACs in 2011 overshot that of 2010 by 13 per cent – and is expected to grow further in the coming decades

T

he importance and size of the global commercial air conditioning (CAC) market has grown to prominence in recent years, gradually evading the shadow of the residential air conditioning (RAC) market.

Such growth has not been limited by tempering market conditions in the traditional CAC strongholds of North America, Europe, and Middle East. With demand for CAC products accelerating in other parts of the world, other regions have now entered the fray.

However, Air conditioning is a necessity in the Middle East, given its geographical location, climatic conditions and the ever-evolving infrastructure. Massive construction drives which spurred the development of numerous residential and commercial real estate projects, and high population growth have fuelled demand for airconditioners and cooling systems in the region. The region’s annual commercial air conditioning (CAC) market volume is expected to reach approximately $4bn, a 35 per cent growth from 2010.

Regional construction boom and increasing investments from China have boosted the growth. Another factor is the 2022 Qatar World Cup, which has greatly increased construction in Qatar in preparation for the mega event in the region. This directly translates to a need for CAC in a region that

40

Jul-Aug , 2012

experiences hot and humid conditions for most of the year.

The boom in real estate development together with the growing emphasis on greater cooling facilities and the resultant increase in power demand have all contributed to creating huge opportunities for manufactures and distributors in district cooling. This trend has received added impetus in recent years with the lack of

sufficient generation, transmission and distribution infrastructure to meet projected power demands.

In Oman, the air-conditioner and refrigerator market account for a whopping 65 to 70 per cent of all business in the white goods market. The market size of air-conditioning products is around 200 K units a year in Oman.

The market size for Refrigerators is around 80 K units a year. Also due to

a very fertile commercial / industrial projects scenario, there is also a great business opportunity for different air-conditioning concepts like chiller, ducted type or DVM(digital Variable Multi. Traditionally, the Sultanate has been a market for window ACs. That trend is rapidly changing as improved standards of living and more sophisticated lifestyles push customer preference to split and ducted air-

government, in keeping with these trends and demands, has established the highest standards in setting requirements for all new projects being developed for both the tourism and real estate sectors. In order to meet these requirements and to reduce the demand on the governments for energy the District Cooling solution has been developed and implemented throughout.

house than does a furnace when putting the same quantity of heat into a house.

Despite this, while residences and commercial units are set up to be cooled, rarely are proper load calculations taken into account. Heating and cooling loads are the measure of energy needed to be added or removed from a space by the HVAC system to provide the desired level of comfort within a space. The heating and cooling load calculation results will have a direct impact on first construction costs along with the operating energy efficiency, occupant comfort, indoor air quality, and building durability.

An accurate evaluation of the heating and cooling loads requires a complete understanding and accounting of the building components that make up the thermal enclosure along with the outdoor/indoor contributions to the load. The load calculation for a house where the building enclosure has been enhanced with added air tightness strategies, better windows, and additional insulation will be more sensitive to manipulation of the inputs.

conditioners. This is in line with global trends. Apart from lifestyle changes and economic development, price reductions in split units have driven demand for these models of air-conditioners.

What’s more, the air-conditioner which was earlier regarded as a seasonal product now boasts decent sales figures even during off-season.

In Oman extreme temperatures and high levels of humidity have spurred the demand for high quality, energy efficient, environment friendly and reliable cooling solutions. The Omani

MAKING THE SELECTION In countries like the GCC, the bulk of electricity that runs air conditioners in homes and businesses is generated from fossil fuels. In contrast, a large share of space heating in cooler climates is done by directly burning fuels — usually natural gas, other gases, or oil, all of which have somewhat smaller carbon emissions than coal. That, together with the energy losses involved in generation and transmission of electric power, means that on average, an air conditioner causes more greenhouse emissions when pushing heat out of a

Historically, energy codes did not address stringent levels of energy efficiency, and rules of thumb were developed for HVAC sizing that worked based on the construction at that time. Building enclosures have become more and more energy efficient as energy codes have become more stringent since 2000, but these rules of thumb have not changed.

Many HVAC companies rely on the “400 square feet per ton” rule for sizing systems. Even when a load calculation is required to be performed, the contractor may often manipulate the inputs to get a result that is close to the “400 square foot” rule of thumb. Overcoming this bias requires the builder and their trade Jul-Aug, 2012

41

AIR CONDITIONING FEATURE

Manual J and Manual D are specific protocols used to determine how much heating/cooling a home needs to stay cool and dry in the summer and warm in the winter

base sharing an understanding of the importance of achieving the stated building enclosure specifications, and undertaking visual inspections and testing during construction to verify the building meets the intended level of performance. When these checks and balances are in place, the perceived need to add factors of safety during the heating and cooling load calculation process can be avoided.

and slowing down puts undue wear and tear on the engine and braking systems, and reduces fuel efficiency.

Peak cooling loads represent the amount of heat gained by the house from the outdoor environment at design conditions, which must be removed by the HVAC system to maintain occupant comfort. Cooling loads are made up of the sensible and latent heat gains.

The mechanisms of heat gain are conduction, infiltration, ventilation, and radiation.

Comfort - Space Temperatures: Short cycling limits the total amount of air circulating through each room, and can lead to rooms that do not receive adequate duration of airflow. Short cycling of an oversized system can lead to comfort complaints when the spaces located further from the thermostat do not change temperature as quickly as spaces near the thermostat. Even in an energy-efficient house with an enhanced thermal enclosure, this can lead some rooms being colder during the heating season and warmer in the cooling season. In attempt to make the spaces further from the thermostat more comfortable, the occupant may set the thermostat set point higher, requiring additional energy.

RISKS ASSOCIATED WITH OVERSIZING Oversizing the HVAC system is detrimental to energy use, comfort, indoor air quality, building, and equipment durability. All of these impacts derive from the fact that the system will be “short cycling” in both the heating and cooling modes. To reach peak operational efficiency and effectiveness, a heating and cooling system should run for as long as possible to meet the loads.

An analogy is that of a car: highway driving at a steady speed will get the best fuel economy, while speeding up 42

Jul-Aug , 2012

First Cost, Energy Costs and Durability: An oversized HVAC system will have both a higher initial cost and a higher cost of operation.

The frequent starting and stopping of short cycling can also lead to premature failure of the equipment.

Comfort - Humidity Control: The risks associated with oversizing the cooling system, particularly in more humid climates, are also a concern. In the cooling season in humid climates, cold clammy conditions can occur due to reduced dehumidification caused by the short cycling of the equipment.

The cooling system removes moisture from the air by passing the air across a condensing coil. The system must run long enough for the coil to reach a temperature where condensation will occur and an oversized system that short cycles may not run long enough to sufficiently condense moisture from the air. Excess humidity in the conditioned air delivered to a space may lead to mold growth within the house.

Manual J and Manual D are specific protocols used to determine how much heating/cooling a home needs to stay cool and dry in the summer and warm in the winter. This load calculation process was developed by engineers in the heating and air conditioning industry and has been used for decades to accurately size heating and air-conditioning equipment.

After completing this load calculation process, one can choose a properly sized piece of machinery to satisfy the load.

However, the requirement for Manual J and Manual D calculations is widely ignored and rarely enforced. Most residential furnaces, boilers, and air conditioners are still sized by rules of thumb instead of careful calculations.

As a result, almost all of the HVAC equipment installed is oversized.

Oversizing typically ranges from 30% to 200%.

The main reason to choose right-sized equipment is to avoid paying too much money for equipment you don’t need.

A Manual J calculation will ensure you don’t spend more than necessary for your air conditioner. Moreover, a Manual J calculation will provide room-by-room heat loss and heat-gain information that is essential to good duct design. Without good duct design, you’re running the risk of comfort complaints and energy over-utilisation.

MARKETING FEATURE

GEARING FOR CHANGE After the first phase of restructuring, TMTEC Trading & Technical Services look ahead to a future of excitement and expansion

TMTEC Trading & Technical Services LLC commenced operations in Oman in 1994. Today, the business has grown and diversified to include: Installation, preventive & corrective maintenance of air conditioners and refrigeration equipment of all types and makes; Duct fabrication and cladding work; Electrical motor rewinding; Overhaul and repairs of transformers, compressors & generators; Maintenance of fire alarms and firefighting equipment; and Installation and maintenance of smoke detecting equipment, automatic doors and fire doors.

see through without shortchanging on labour and other costs. “TMTEC will strictly follow policies of transparent transactions,” says Sperlich. “Our remuneration packages and pay scales are related to the job description and we do not discriminate on the basis of nationality. We have been investing in our employees, their professional education and their wellbeing and will continue to do so in the future as well. I believe that focusing on our work ethics will earn us sincere recognition amongst our clients and competitors.”

It is General Manager, Thomas Sperlich’s vision to become ‘the Best service Provider of Home Comfort and Facility Management in the Sultanate of Oman and the GCC Region’ – A goal that the company would like to

Quality and professionalism is of utmost important and although ‘Change’ does not happen overnight, the company believes that dedication and patience will be elements necessary to succeed.

“The drive for Omanisation has become

an anchor in our strategy for expansion and first class training facilities are under way to be completed at our head office at Ghala. There we have teamed up with internationally recognized training agents in order to deliver technical as well as non-technical management training of the highest standards,” explains Sperlich further.

“The certified employees evolving out of this continuous training process will then be integrated in the companies career and succession planning where attractive remuneration packages are available for the right candidates who have shown motivation and enthusiasm to perform. The next phase of our company’s reorganisation will include the diversification of business activities and will create multiple vacancies in all levels of the corporate-hierarchy.”

Jul-Aug, 2012

43

MARKETING FEATURE

THE RIGHT CHOICE

Daikin’s VRV delivers advanced Air conditioning solutions in Oman Muscat Electronics LLC (ME) the sole distributor of the Daikin brand of airconditioners has over the years earned the trust of people of the Sultanate of Oman in air-conditioning solutions and for excellence in customer support services amongst others.

When deciding a solution for their customers, M.E. begins with the understanding of the customer’s needs and continues even after installation of the best solution. While deriving at the best solution, apart from the various standard consideration M.E. also takes into account the environmental friendliness, energy efficiency, design flexibility, zoning capabilities and user friendliness to mention a few.

FIRST IN INNOVATION AND QUALITY Daikin is able to look back on a history of innovation from the first packaged air-conditioners and heat pumps in the 1950s, to the first multi-split systems in the 1960s, to the introduction of, the VRV® system (Variable Refrigerant Volume) in 1982 and its continued development since. Daikin has also been at the forefront of ultra-efficient inverter technology as well as the development of environment friendly and safer refrigerants. Daikin continues to produce innovative, energy and space saving solutions.

RESPONSIBILITY TO ENVIRONMENT Daikin is committed to meeting the challenges of global warming and the need for sustainable resource use. This includes bringing to market the most efficient technologies and reducing to a 44

Jul-Aug , 2012

minimum the environmental impact of the production, logistics, utilization and disposal of Daikin products. Daikin’s environmental goals are contained in ISO14001 certified environmental management systems throughout the organization.

PRODUCT RANGE Daikin has become a total airconditioning solution provider with products matched to almost every requirement and budget. Daikin’s flagship products includes the FTS series- the deluxe range of wall-mount

split ACs with environment friendly R410A refrigerant, that is focused on providing homes with optimum comfort as well as ensuring a greener tomorrow.

The full range of Cassette, Ceiling suspended, Floor-standing and Ducted AC is offered under its Sky-Air series.

M.E. offers a wide selection of Packaged ACs with R-410A refrigerant for midlarge sized buildings, also Daikin’s eco-friendly, energy-efficient and revolutionary VRV® systems are apt for tall, wide and large commercial buildings and equally for residential complexes and individual villas.

In order to elevate the level of high performance and to build a solution unlike any other, Daikin developed the world’s first variable refrigerant volume system (VRV) in 1982. The high ambient VRVIII system is the 7th generation of VRVs since its launch. Completely re-engineered to realize opportunities for VRV in taller/larger buildings, it utilizes the latest advances in refrigeration and air-conditioning technology.

It is equipped with advanced built-in intelligence and flexibility. For modern building with sophisticated design, the VRV system offers advanced zoning capabilities, enhanced energy efficiency, space-saving design and reliability.

The VRV system maintains a nearly constant room temperature without the typical temperature fluctuations. The remarkable features of VRV are: Inverter compressor Environment friendly R410A refrigerant Precise room temperature with +/0.5°C attainable Inverter motor options for ducted indoor units Drain pump options for indoor units Fresh air solutions can be integrated to VRV Self-diagnosis system for ease of maintenance

The new VRV III pushes the limits to deliver advanced solutions and even more flexibility for the engineered and design-build projects. It can provide building owners with vital data on energy consumption, system operating costs and many other operating and cost parameters. This air conditioning system provides outdoor units that extend air conditioning capacity up to 54 HP. The VRV III series provides the power and versatility you need for flexible design and easy installation in largesized buildings. The Heat Recovery Series also enables simultaneous cooling and heating, meeting the various needs for temperature control.

of Oman. M.E. has received various recognitions including an award from Daikin Industries Ltd Japan for achieving the largest sales of VRV systems in the Middle-East.

The VRV III series has specially designed models for high outdoor temperatures, with an extensive capacity ranging from 8 to 36 HP. The unit can operate in adverse conditions where the temperature reaches as high as 52°C. This series incorporates Daikin’s latest technologies, including long piping and high external pressure, to meet the diverse needs of our customers.

M.E. boasts of a highly skilled design team for VRV, SkyAir, ducted and packaged air-conditioning solutions among others. In addition they have a well-trained installation team which supervises all installations and commissioning. Muscat Electronics also has a very sophisticated service center equipped with advanced computerized system analysis and the team is trained and well equipped to attend calls within 2hrs during normal working hours and also provides 24Hrs services on prior arrangement and AMCs.

M.E. has installed over 4000 Nos. of VRV systems with R410A refrigerant which are working satisfactorily for the past 8 years. The total installed capacity of R410 A VRV in Oman is above 25,000 TR. Muscat Electronics LLC has been associated with Daikin Industries Ltd., Japan for over 30 years providing total air-conditioning solutions to the citizens & residents

360o customer-care is the keystone to M.E.’s wide success. Their policy is to listen to the customer’s needs and to work with them to improve their lives through the use of advanced technology and a commitment to innovation, quality, design and value. This leads customers to falling their choice on Muscat Electronics and Daikin brand of air-conditioners.

Jul-Aug, 2012

45

CORPORATE PROFILE

BATTLING WITH ONE CRISIS AFTER ANOTHER

Massive legal losses ($18bn) in Ecuador, offshore disasters in Brazil and Nigeria, tragic deaths of its employees in several locations – Chevron is going through its worst phase ever, writes John Daly

CHEVRON, the CHEVRON Hallmark and HUMAN ENERGY are registered trademarks of Chevron Intellectual Property LLC. ©2010 Chevron U.S.A. Inc. All rights reserved.

Healthy businesses need healthy communities.

Jobs, education, and healthcare are essential.

We’ve provided microloans to thousands of entrepreneurs in Angola, funded polytechnic universities in Indonesia, and committed $55 million to The Global Fund to Fight AIDS, Tuberculosis and Malaria.

We’re making a difference where it matters.

Because the truth is, our business depends on thriving communities.

Learn more at chevron.com/weagree

C

hevron is revered in Wall St. and City of London for its massive abilities as a money machine. Last year, Chevron,

46

Jul-Aug , 2012

Professor Michel Kazatchkine tch ch hkin n

Rhonda Zygocki

Executive Director, The Global Fund to Fight AIDS, Tuberculosis and Malaria

Vice President, Policy, Government & Public Affairs Chevron

the United States’ largest oil and gas company after ExxonMobil, boosted its revenues by an impressive 25 per cent over FY 2010 to $245.6 billion. Of even greater

interest to Chevron shareholders, profits soared by 41 per cent to $26.9 billion.

Little wonder then that Chevron CEO and chairman John Watson strolled home with

roughly $25 million in total compensation in 2011, a 52 per cent increase over his 2010 pay, according to Chevron’s securities filing. 2012 and the next couple of years also promise to be fiscal bonanzas for the firm, as oil and natural gas projects in Australia, Africa and the Gulf of Mexico all begin to come online.

There is only one, or rather three, small clouds on this otherwise sunny horizon – Ecuador, Brazil and Indonesia have all brought lawsuits against Chevron for its cavalier environmental and fiscal policies. In the case of Ecuador and Brazil, the countries are seeking massive indemnities for rampant pollution at Chevron’s sites, while Indonesia is accusing the oil giant of establishing a fictitious green project scam that cost the state $270 million. It’s enough to make an executive forswear his three martini lunch. Not surprisingly, Chevron is denying all charges. In Indonesia on 17 March, Indonesian government accused five Chevron employees of fraud involving a fictitious green project involving the Green Planet Indonesia and Sumigita Jaya companies that lost the state $270 million, stating that “The Attorney-General’s Office (AGO) has named seven suspects, five of whom are from Chevron.”

Chevron’s take on its presence in Indonesia? “Chevron is a major partner in Indonesia’s economy and an active member of the community. Through our wholly owned subsidiary PT Chevron Pacific Indonesia, we are the largest producer of Indonesia’s crude oil. We are searching for new crude oil and natural gas reserves from central Sumatra to offshore East Kalimantan. We continue to innovate with new technologies that are used to sustain and enhance production from existing reservoirs. Our geothermal operations in Indonesia help make Chevron the largest producer of geothermal energy in the world.”

In any case, no major harm done… on 15 May Indonesia’s upstream oil and gas authority BPMigas reported that the agency had approved plans of development (POD) for eight oil and gas fields including the Duri concession, leased by Chevron Pacific Indonesia.

But Chevron’s overseas profit “perfect storm” may yet emerge in the southern Atlantic. South of the border, Chevron is battling a lawsuit brought by Ecuador.

Beginning in 1964, Texaco and its joint venture partner Petroecuador dumped nearly 16 billion gallons of oil waste products into the Amazonian rainforest, spilling nearly 17 million gallons of oil from its trans-Ecuadorian pipeline operation between 1971 and 1991. As Chevron merged with Texaco in 2001, Ecuador is seeking justice from Chevron, with Ecuadorean indigenous groups suing Chevron for the environmental damage.

Last year, an Ecuadorean court ordered Chevron to pay $9.5 billion in remediation costs and plaintiff damages and an additional $8.6 billion if it refused to apologize for the alleged environmental damage and has since filed charges in a Canadian court.

The issue has moved from the courts to the boardroom, as on 30 May an activist shareholder group led by New York State Comptroller Thomas P. DiNapoli urged Chevron to settle the legal battle in Ecuador, saying it has hurt indigenous people in Ecuador and damaged Chevron’s reputation.

Watson fired back, accused the Ecuadorean plaintiffs’ attorneys of fraud and said that although the company lost in an Ecuadorean court, an international court in the Netherlands has ruled in Chevron’s favor and Chevron later issued a statement in response to the new lawsuit in Canada, saying “the Ecuador judgment is a product of bribery, fraud, and it is illegitimate. The company does

not believe that the Ecuador judgment is enforceable in any court that observes the rule of law.” But, whilst the Indonesia case is “chump change” and Ecuador’s protest can be dismissed as history, Chevron faces a potential Everest of problems in one of the world’s most promising markets, Brazil’s offshore oil fields.

On 21 March, Federal prosecutors in Rio de Janeiro charged Chevron and 17 executives of “environmental crime” in connection with a major spill off southeastern Brazil on 23 November 2011 of 2,400 barrels of crude, which led authorities to suspend all of Chevron’s drilling operations and to deny the company access to huge new offshore fields. Moving forward, in April Brazilian judge Vlamir Costa Magalhães advanced a criminal case against Chevron and drilling-rig operator Transocean to a different court in Rio de Janeiro, with Brazilian prosecutors instituting a civil lawsuit seeking damages of roughly $11.2 billion. The local prescribes Chevron CEO Watson as “a man of short temper and a history of friction with company shareholders.”

While Indonesia as a static if not declining market and the Ecuadorian case is history; potentially being locked out of the development of Brazil’s offshore oil fields, which Spanish oil giant Repsol described as “One of the areas with the highest hydrocarbon reserves growth in the world,” is not a happy prospect for Chevron. Perhaps it’s time to time to fess up to the authorities in Indonesia and pay off Texaco’s sludge tab, if America’s second largest energy concern wish to remain a major player in Brazil? In such a case, perhaps Chevron CEO Watson will have to be satisfied with a 2012 pay of a mere $25 million as chevron pays its debts.

Source: oilprice.com Jul-Aug, 2012

47

MARKET REPORT

OIL MARKET CHALLENGES IN 2012

The ongoing challenges to world economic recovery have led to even larger uncertainties for oil demand in the second half of this year, says an OPEC report.

Excerpts of the report:

S

igns appear to be showing that the global economy is slowing further. From the Euro-zone crisis to a notable deceleration in the developing and emerging economies, the current challenges are manifold. Despite having lost some steam recently, the US economy seems to be more resilient than the other developed economies. However, towards the end of the year, fiscal challenges are expected to re-emerge, as sovereign debt levels remain elevated.

Japan is also expected to continue its recovery from last year’s low growth, but its current expansion remains fragile and highly dependent on stimulus and exports. The major weakening factor for the world economy, however, is still the Euro-zone, where many issues ranging from the public debt situation in Greece, to the ailing banking sector in Spain, remain unsolved.

The weakness in the OECD economies is having a global impact, particularly on emerging markets. China already experienced a declining trend in exports, which fell from a monthly average expansion in 2011 of 15.1 per cent y-o-y to 4.9 per cent so far in 2012.

Contributing to this trend has been the decelerating trade with the European Union, which turned negative in February to only pick-up again in May.

48

Jul-Aug , 2012

Given their dependence on exports, it remains to be seen how China and, to some extent, India will manage to stimulate their economies locally. China needs to carefully direct any further stimulus to offset its recent deceleration, as too aggressive supportive measures might possibly lead to an overheating in select core asset markets. This would ultimately have unintended, negative global consequences. In contrast, India is facing declining output and rising inflation, which limits its ability to counterbalance this trend via expansionary monetary policies.

Given the renewed attention to macroeconomic factors, the uncertainties facing Europe and the slowdown in the emerging economies have led to a shift in market sentiment. This has triggered a strong outflow of financial funds from the paper oil market, amplifying the recent downward trend in prices.

Additionally, the current weakness of the Euro-zone has caused the value of the euro to decline significantly against the US dollar. These ongoing challenges to world economic recovery have led to even larger uncertainties for oil demand in the second half of this year. Higher gasoline prices also could impact US demand growth during the driving season. Additionally, the surge in Japan’s oil usage could ease if the

government were able to bring back its nuclear power plants into service.

Amid these uncertainties for world oil demand, non-OPEC supply is expected to perform well in the coming quarters, despite disruptions in some countries, supported by growth in the US. At the same time, OPEC NGLs and nonconventional oil are projected to see a healthy increase during this period.

Taking these developments into account, the second half of the year could see a further easing in fundamentals, despite seasonally higher demand. Indeed, firm global supply and higher OPEC production have led to a continued build in OECD commercial stocks. Leading the build has been US crude, with inventories now standing at the highest level since 1990. Moreover, high OPEC crude oil production standing above market requirements provides further confirmation that the market remains amply supplied.

OPEC REFERENCE BASKET The OPEC Reference Basket extended losses into a second straight month in May, to incur its biggest month-tomonth decline since December 2008. It lost a significant 10 per cent of its value during the month, but remained above the key $100/b. A massive speculative sell-off, brief prospects of an easing of geopolitical tensions, record crude

stock-builds, weak economic data from the world’s major economies and heightened concern over the stability of the Euro-zone weighed heavily on the global petroleum markets, and this was echoed in the Basket price. Commodity Futures Trading Commission’s (CFTC) reports showed that, during the two weeks to 22 May, speculative traders reduced their net long futures and options and the two main crude oil futures by an all-time record of more than 83,000 positions.

Moreover, higher oil supply also played a key role in the easing in crude oil prices during the first half of the year.

Slowing demand growth expectations in China and India also reduced a key pricing support.

In May, the Basket dropped to an average of $108.07/b, decreasing by a hefty $10.11/b or 9.4 per cent, from April. However, year-to-date, the Basket averaged $115.69/b, $9.49/b above the same period last year. Without exception, all Basket component values decreased significantly in May, by twice as much as last month’s losses and registering the Jul-Aug, 2012

49

MARKET REPORT

biggest deterioration since December 2008; together they lost a sizeable $11.30/b on average. Brent-related crudes — Saharan Blend, Es Sider, Bonny Light and Girassol — fell by $9.90 to an average of $111.40/b, down 8 per cent for the month. Meanwhile, Middle Eastern crudes Murban and Qatar Marine also dropped, by $9.73, or 8 per cent, to $109.19/b.

Latin American Basket components — Ecuador’s Oriente and Venezuelan Merey — lost even more to average $101.11/b in May, down by $10.13, or 9 per cent.

The remaining Basket components, namely Arab Light, Basrah Light, Kuwait Export and Iran Heavy, also lost 9 per cent of their value in May, to end at $107.16/b, which was $10.50 below the previous month. Besides the direct effect of the drop in the two main futures markets on the overall deterioration in the component values, market sentiment for the regional physical crude oil, that the Basket components are benchmarked against, weakened sharply over the month. In Asia, differentials came under pressure, amid lower official selling price formulae (OSPFs), weaker refinery 50

Jul-Aug , 2012

margins and healthy supply. The poor sentiment weakened the Dubai market structure, with the front-month-tofuture-month spread narrowing from the previous month’s highs, but remaining in backwardation.

Meanwhile, sweet grades were supported by ongoing Japanese demand for utility crude burning. In Europe, the Urals differentials continued to recover from the record lows seen a month earlier, but lost momentum amid ample alternative supplies, sour and sweet, and despite lower imports from Iran. Some pressure, however, may have resulted from European refinery maintenance marking its second-highest monthly figure this year. Meanwhile, regional light grade differentials slipped, due to the ample availability of cargoes, as well as plummeting values for light distillates. On the US Gulf Coast (USGC), the higher inflows from the Middle East seen in recent months served to undermine differentials for Mars crude, while formula-related regional grades, such as Mexican Maya and Venezuelan Mesa-30, also remained

very weak, due to the weakness of West Texas Sour (WTS), a key grade in the formula. Moreover, the strong influx of very light-sweet crude into the Gulf Coast dragged down Light Louisiana Sweet (LLS) differentials considerably to a significant discount to Dated Brent.

On 11 June, the OPEC Reference Basket stood at $97.34/b, more than $10 below the May average.

THE OIL FUTURES MARKET Global crude oil futures prices took their biggest beating in almost three and a half years. The Nymex WTI (West Texas Intermediate) front-month contract dropped a strong $8.63, or 8.4 per cent, in May, on top of last month’s losses, while the Intercontinental Exchange (ICE) Brent front-month plummeted by over $10.20, or 8.5 per cent, falling for a second month in a row. Numerous reasons were behind the drop, including a massive liquidation of net long managed money positions, heightened concern over the stability of the Euro-zone, a dimming economic outlook, mounting evidence of a steadily increasing global crude stock-

build and easing geopolitical tensions.

Money managers reduced their net long speculative positions for Nymex oil contracts by a massive 34 per cent, the largest amount on record on an outright basis, over the two weeks in May that prices slid the most, according to the CFTC reports. Data from the ICE also shows that positions on Brent fell by a significant 28 per cent. The collapse happened in line with a near $10/b fall in WTI in the week ending 8 May during a massive sell-off. In addition to this, the announced substantial increase in initial margins for non-hedged futures positions on the Nymex might have forced many market participants to revise down their positions.

A weaker global economic outlook and the increasing probability of a new financial crisis in Europe also helped in sending crude prices lower. Fears about European debt resurfaced, with borrowing rates for ten-year bonds in several Mediterranean countries increasing, including heavyweights Spain and Italy. In Asia, Chinese economic data was also well below

expectations, as year-on-year (y-o-y) retail sales growth fell to the lowest level for at least five years.

The World Bank also cut its 2012 annual growth forecast for the Chinese economy, which, in turn, slowed emerging Asian growth for this year, weighing down on crude prices. Oil supply fundamentals played a leading role in the price correction too, with higher production for the past six months. Given weak demand, the logical consequence of such high production levels was a massive global implied stock-build. Evidence of growing stocks can be seen in official Chinese data, with an implied stock build of 580,000 b/d seen over the first four months of the year. Similarly, US crude stocks have built by 54 mb since the end of last year (equivalent to 353,000 b/d) to reach 385 mb, the highest level since 1990.

Nymex WTI front-month averaged $94.72/b in May, the first time it was below $100/b this year, and this was down 8.4 per cent from the April

average. ICE Brent front-month fell by 8.5 per cent, or $10.20, to end the month at an average of $110.29/b. Compared with the previous year, the front-month WTI year-to-date average was up by nearly 3 per cent, at $101.37/b, while ICE Brent was almost 6 per cent higher at $117.17/b. Both contracts were above the key price levels of $100/b and $110/b in May, respectively. The Nymex WTI and ICE Brent stood at $82.70/b and $98.00/b on 11 June 2012, respectively.

Crude oil futures prices fell sharply in the first week of June, when both Nymex WTI and ICE Brent settled below the key $100/b mark, at $83/b and $98/b respectively. This transpired as weak US jobs data, soft Chinese manufacturing and the deepening Euro-zone crisis sparked another broad market sell-off. Crude oil futures sank with Wall Street, which dropped by more than 2 per cent. The Dow Jones industrials average crossed into negative territory for the year.

Source: OPEC Market Report Jul-Aug, 2012

51

ALTERNATIVE ENERGY

JUST HOW GREEN IS

GOOGLE Google Ventures has launched a $100 million venture capital fund for innovative clean technology start-ups, writes Jen Alic

G

oogle may have a bad track record on privacy practices, but when it comes to green, the internet giant is clean, racking up over $850 million in investments to develop and deploy clean energy and earning the top spot on Greenpeace’s list of IT giants who are using and advocating for clean energy. In February, Greenpeace ranked Google the best on its “Cool IT Leaderboard”, although it only scored 53 out of 100 points on the ranking system, still putting it ahead of Cisco, with 49 points. But it was a reluctant gift from Greenpeace, which has been hounding the IT giant for some time over its long overdue moves to shift to green and to use its influence and outreach to advocate for renewable energy.

Google may have gotten off to a slow green start, but in the long term, the IT giant should benefit from the move. It is now sourcing more than 20 per cent of its global energy use from green sources such as solar and wind. As a major consumer of energy, reducing consumption will help its profit margins and its clean energy efforts should boost its public image 52

Jul-Aug , 2012

at a time when Google is mired in litigation over privacy practices. And Google’s influence should not be underestimated, which is something Greenpeace understands well. Not only is Google going green, it’s also dabbling in policy initiatives, offering up its own clean energy proposals for government consideration (such as a plan to remove US dependency on fossil fuels entirely within 22 years). So far, Google has invested $10 million in two solar companies, eSolar and Brightsource, and has created a $280 million fund with SolarCity in California to install solar panels in 9,000 homes on a lease option. The IT giant has invested another $15 million in wind energy, and $10 million in enhanced geothermal systems. Most significantly, Google Ventures has launched a $100 million venture capital fund for innovative clean technology start-ups.

Beyond that, the IT giant is seeking to foray into the utility sector by applying for a license to sell bulk electricity.

Smart grids and plug-in cars are also on its list of green projects, as are a number of riskier ventures, including work on a heliostat - a mirrored device

that directs the sun’s rays to create thermal energy - and high-altitude flying wind turbines. While Google and other IT giants such as Cisco, Ericsson and Dell top Greenpeace’s clean energy use and advocacy list, the environmental groups says that there is still an insufficient amount of movement in terms of addressing pollution. “Google tops the table because it’s putting its money where its mouth is by pumping investment into renewable energy,” Greenpeace International analyst Gary

Cook told reporters upon the release of the “Cool IT Leaderboard.” However, he said, while the IT industry is driving significant energy demand with its data centers and global infrastructure, when it comes to addressing pollution, action has been slow.

Certainly, Google’s original plans for energy have been scaled down, and many of the more eclectic projects the company once envisioned have been cancelled as results were not forthcoming as predicted.

Still, the company is now investing more in clean energy than ever - in fact, ten times more than in 2010. This is a remarkable sum for an IT company when you compare it to renewable energy investments in energy giants such as BP, for instance, which invested around $1.6 billion in 2010. Google’s focus has shifted from the eclectic to the practical, a shift most clearly seen in its drive to deploy commercial solar panels and wind turbines - investments that promise a return.

In the realm of clean energy and the US drive to reduce dependency on foreign fuel imports, Google and other IT giants could wield a significant amount of influence, both on the public and on policy. Now that that IT giants are largely on board with the clean energy initiative - though the jury is still out on Apple and Oracle - this momentum should pick up pace.

Source: oilprice.com Jul-Aug, 2012

53

VIEWPOINT

SOUTH-EAST ASIA: THE JOURNEY TO A MORE SECURE AND SUSTAINABLE ENERGY FUTURE “South-East Asia is again at the forefront of historic changes in the energy industry,” said Simon Henry, Chief Financial Officer, Royal Dutch Shell plc, in a presentation in Thailand recently. Excerpts of the presentation:

O

ne hundred and twenty years after Shell’s first delivery of kerosene to Thailand sparked a revolution in the global oil trade, SouthEast Asia is again at the forefront of historic changes in the energy industry.

As the region undergoes an intensive phase of industrial development, its primary energy demand could incease by as much as half by 2025. The issue of how to develop a secure and sustainable regional energy system is high on the policy agenda, as ASEAN works towards a single market.

Shell’s first delivery of kerosene to Thailand in 1892 was an important moment in the history of the oil industry. Its journey via the Suez Canal to Bangkok and Singapore was the first carried out by a bulk oil tanker.

These tankers sharply increased the volume of oil products that could be transported, sparking a revolution in the international oil trade and, eventually, the global economy. Fast forward 120 years and Shell is again growing its presence in South-East Asia.Thailand’s GDP grew 11 per cent in the first quarter of 2012, compared to the previous three months. That underscores the resilience and vitality of Thailand’s industrial sector. Thailand is not alone. Countries across South-East Asia are achieving some impressive growth rates, despite

54

Jul-Aug , 2012

severe economic problems elsewhere in the world. That bodes well, as ASEAN member nations work towards a single market in 2015.

But ASEAN’s gathering strength also brings challenges. I will briefly discuss one of the biggest: how the region can develop a supply of energy that is secure, affordable and sustainable. At Shell, we think that the region’s primary energy demand could increase by around half by 2025. Its power needs will be even more acute. According to one consultancy (Wood Mackenzie) power demand in South-East Asia could triple by 2030.

Yet the region also faces declining longterm production in some of its precious energy resources, notably natural gas.

This should not obscure the fact that the region’s gas deposits will make a significant contribution for many years.

For example, Vietnam will continue to increase its gas production, while 2011 saw major gas discoveries in Indonesia and offshore Sabah. But several of the region’s gas production areas are entering their maturity, including the Gulf of Thailand. That raises the prospect of growing dependency on imported gas, as well as oil. Thailand will import more pipeline gas from Myanmar and liquefied natural gas from elsewhere – as well as more electricity from Laos.

Another factor is that the most intensive phase of the region’s economic development will happen against a backdrop of high and volatile oil prices.

It will also take place amid concern about rising greenhouse gas emissions and air pollution. The ASEAN Plan of Action for Energy Co-operation is a strong roadmap for tackling these challenges. I see three critical steps for the region: First, expanding and diversifying its energy supply; second, moderating energy demand by

promoting efficiency; and third, the right government policies. So my first priority is for the region to expand and diversify its energy supply. Clearly, renewables will play an increasing role: geo-thermal power and hydro-electricity will build on their established presence in parts of the region. And biofuels are set for rapid growth across South-East Asia. Even so, fossil fuels are still expected to supply more than two-thirds of the region’s total primary energy in 2035.

What’s the best way ahead in the power sector? The prospect of nuclear power gaining a foothold in ASEAN has become more uncertain after last year’s accident in Japan – although several countries continue to ponder its merits.

And with regional gas production set for long-term decline, governments are relying more on coal-fired power.

This is, to an extent, unavoidable. But I would like to re-assert the importance of natural gas as a reliable and sustainable fuel for South-East Asia. As the cleanest burning fossil fuel, natural gas has clear environmental advantages. Gas-fired power plants greatly reduce emissions of pollutants like sulphur dioxide and nitrogen oxides. These take a terrible toll on air quality and human health in Asia. In 2007, the World Bank estimated the health cost of air pollution in China to be in the range of between 1 per cent and nearly 4 per cent of the country’s GDP. Gas-fired generators also typically

generate 40-60 per cent less CO2 than coal-fired power plants. And they are the natural ally of renewable energy, because they can be quickly switched on and off when the wind stops and the sun doesn’t shine. Over the long-term, carbon capture and storage technology could reduce CO2 emissions from gas-fired power close to zero.

To strengthen gas supply security, ASEAN countries must be encouraged to realize the full potential of their gas resources. That means continuing to look for and develop resources in frontier areas, such as deep water fields. It also means expanding the Trans-ASEAN gas pipeline and regional power networks.

This will promote economic integration, as well as a more secure and flexible energy supply. In fact, this is already a major priority for the Thai government and its neighbours. The ASEAN energy ministers have resolved to strengthen energy ties and co-operation between their countries. They also want to develop a common regional framework for the trading and marketing of oil and gas.

The private sector will play an important role in realizing these aspirations. But I should emphasise that it will not be sufficient for the region to focus simply on attracting capital investment and building the physical infrastructure. ASEAN must also address complex legal and regulatory issues. These include setting common and Jul-Aug, 2012

55

VIEWPOINT

supplier, Qatar has provided much of this increase. This is great news for Asia: about 40 per cent of Qatar’s LNG is reserved for Asian markets, on the basis of long-term contractual commitments.

robust regulatory standards – especially on safety – and clear guidelines for regional energy co-operation.

I would also invite ASEAN governments to reflect on the remarkable expansion in the world’s gas supplies. In North America, technological advances have opened up vast new reserves of tight gas, shale gas and coal seam gas. Over the past decade, Shell and other energy companies have developed technology to unlock gas from dense rock such as shale. We use horizontal drilling and a technique called hydraulic fracturing, which pumps water under high pressure into the rock, creating cracks that allow gas to flow more freely to the well.

North America may now have 100 years of gas supplies at current consumption rates. Only a few years ago, it was assumed that long-term production decline had set in. This new gas abundance has led to much lower prices for North America – providing businesses with a major competitive advantage. Gas there now costs around $2.50 per million Btu, compared with a 10 year average of about $6 per million Btu. Tight gas holds much promise in the rest of the world.

In South-East Asia, there are deposits of coal seam gas in Indonesia, for example in South and Central Sumatra. Several companies are drilling pilot wells, with the Indonesian government keen to 56

Jul-Aug , 2012

ascertain the potential for large-scale production.

LIQUEFIED NATURAL GAS (LNG) The tight gas revolution carries a much bigger implication for South-East Asia: it adds impetus to the expansion of the global and regional LNG market. Of course, LNG has a long history in the region, with Indonesia, Malaysia and Brunei all major long-term suppliers.

And now Thailand has become an LNG importer, with plans to expand the Map Ta Phut re-gasification terminal.

At Shell, we regard the country as a potential LNG customer of great importance. Several other countries in the region are also preparing to become LNG importers, including Malaysia, Indonesia and the Philippines. This highlights the region’s progress in strengthening its energy infrastructure.

These countries will benefit from the rapid expansion in global LNG supplies.

Last year’s tragedy in Japan highlighted LNG’s ability to match gas supply with demand as it fluctuates around the world.

To cover the shortfall in Japan’s energy supplies, LNG cargoes were diverted at short notice from a range of locations, including Russia, Australia and Korea.

Over the past three years, global liquefaction – or production – capacity has increased by around 40 per cent. In becoming the world’s largest LNG

This is only the beginning. An increasingly diverse group of LNG exporters will supply South-East Asia, providing access to vast gas reserves around the world. By 2020, Australia could rival Qatar as an LNG exporter.

The country has around half a dozen large-scale LNG projects planned or under construction. These include projects to convert coal seam gas to LNG, making this abundant gas source exportable to Asian markets.

Then there’s North America. Its tight gas production boom means that it no longer requires major LNG imports, freeing up significant supplies for Asia and Europe. North America’s enormous tight gas resources will probably now give rise to a trans-Pacific LNG trade.

The US Department of Energy has granted permission for LNG exports from the country’s Gulf Coast. And the development of even half of the projects under consideration would turn the US into a significant LNG exporter. That’s not all: recently, Shell and our Asian partners announced plans to develop an LNG export facility in Canada, the world’s third largest gas producer. So South-East Asia has every reason to back natural gas as a secure and sustainable energy source, and every reason to make the most of its domestic gas resources.

What about the transport sector? Despite the promise of electric vehicles, global demand for liquid fuels is likely to rise by around one-fifth by 2030. At Shell, we believe that biofuels – such as biodiesel and ethanol – are the most effective way to broaden the global transport fuel mix over this period.

We expect their share to increase from

around 3 per cent today to 9 per cent by 2030. Biofuels are also the best way to reduce CO2 emissions in the transport sector. For example, Brazilian sugar cane ethanol reduces emissions by around 70 per cent compared to petrol, across the lifecycle from the cultivation of the sugar cane to using the ethanol as fuels.

Thailand’s strong agricultural base is supporting a growing biofuels industry.

Not only should this ease Thailand’s dependence on imported oil, it could also prove an excellent export opportunity.

The government’s 15 year alternative fuel plan is an important step in the right direction.Of course, biofuels can throw up social and environmental challenges.

One way we’re addressing these is by working with NGOs and others to push for international standards for the sustainable sourcing of biofuels.

All of which brings me to a second priority for the region: curbing its rising energy consumption.Stricter fuel efficiency standards will be crucial -- as will the construction of more efficient power stations. We must also consider the historic transformation underway across the region, as countries make the transition from rural to urban societies.

South-East Asia’s urban population has almost doubled in the past two decades: some 44 per cent of the population now lives in urban areas. That will rise to two-thirds by 2050 (UN). This has significant implications: urban dwellers typically consume more energy than their rural counterparts, partly because they tend to be wealthier.

More positively, the shift to urban living provides opportunities to improve energy and resource efficiency. This is partly a question of scale: energy, water, and other services are increasingly managed at a city, rather than a national, level. Careful planning and controlled urbanisation can have a major impact

on future energy use. Cities with higher population density, such as Singapore, are more energy efficient. By contrast, sprawling cities in the USA have much higher levels of energy consumption. In many, per capita energy consumption for personal travel is five to ten times higher than in some developed Asian cities.

Urban mass transit is another way to keep personal vehicles off the road.

Bus rapid transit corridors are a costeffective option that can handle up to 50,000 passengers an hour – nearly as many as subways. Jakarta is the first South-East Asian city to introduce such a system. The results are striking: in 2009, the Trans-Jakarta Busway was used by some 250,000 people a day, an 11 per cent increase on the previous year.

That resulted in estimated fuel savings equivalent to some $100 million.

All of which leads to my final point. The right government policies will be critical to meeting the region’s energy challenge.

One important political issue is the subsidies that support the consumption of fossil fuels. In a global survey, the IEA identified 37 countries with estimated subsidies totaling $409 billion in 2010. Subsidies shield consumers from higher energy costs. But they also bring unintended consequences: in South-East Asia, subsidized power tariffs discourage industry investment in new

energy supplies and power capacity. And, globally, subsidies simply encourage people to use more energy.

The Thai government has made a strong start in reforming prices for liquefied petroleum gas and compressed natural gas in the transport sector. But as the government contends with public opposition, we must remember the broader benefits of removing subsidies.

The IEA estimates that if subsidies were phased out worldwide, global energy demand would fall 4 per cent by 2020 and nearly 5 per cent by 2035.

The IEA also estimates that only 8 per cent of the $409 billion in support in 2010 reached the poorest households.

The agency argues that providing similar levels of financial support directly to low-income families would be far more efficient. For ASEAN countries, policy frameworks that incentivize energy investment are also important.

I’m talking about stable fiscal and regulatory frameworks for investments that can run to billions of dollars over several decades. Governments around the world often respond to oil and gas price increases with tax hikes, only to leave the higher rate in place when the price weakens. This discourages investment and accentuates energy price volatility.

Jul-Aug, 2012

57

CEO SPEAK

DRILLING DEEPER 58

Jul-Aug , 2012

“It’s not enough to aspire to be in the right place at the right time; you also have to do the hard work of building capacity and building consensus, developing people and their skills, and delivering top-notch execution every single day,” said Khalid A. Al-Falih, President and chief executive officer, Saudi Arabian Oil Company (Saudi Aramco) while delivering a speech at Standford University recently. Excerpts of the speech:

B

ack in the 1930s, the first concession agreement was granted by the Saudi Government to the Standard Oil Company of California — predecessor of today’s Chevron which was headquartered in San Francisco.

In fact, our company’s first name was the “California-Arabian Standard Oil Company” — and I note that “California” comes before “Arabia”!

Those historic links with California are reflected in the multi-dimensional partnerships in education, research, and innovation that Saudi Aramco and Stanford have enjoyed for many decades. Forty of my fellow Aramcons are Stanford alumni including Saudi Arabia’s Minister of Petroleum & Mineral Resources and the Chairman of our Board of Directors, Ali Al-Naimi while another 13 are currently studying here. Earlier this year, we also had the pleasure of hosting around 30 Stanford MBA students at our headquarters in Dhahran.

We are going to celebrate Saudi Aramco’s endowment of the Max Steineke Professorship in the School of Earth Sciences, further cementing the ties between Stanford and our company, and highlighting the legacy of an outstanding Stanford alumnus and an icon in the history of the global petroleum industry.

That chair is named for perhaps the most inspirational employee to pass through these hallowed halls, a first-generation

Aramco pioneer and our former Chief Geologist, Max Steineke. Sent to Saudi Arabia by Standard of California in the mid-1930s, his resilience and optimism overcame almost five years of frustration, as a number of wells were drilled and failed to deliver.

Management back in San Francisco sent a telegram to the field crews in the Kingdom to stop working. However, the men on the receiving end of that cable chose to ignore it at least for a while and Max Steineke ordered his men to “drill a little deeper.”

When they did, they discovered the first oil in Saudi Arabia in commercial quantities, and in March 1938, Dammam Well Number 7 “Lucky Number Seven,” as it was called became our first gusher. Now I am not advocating that you ignore the directives of your senior management but I am glad that in this instance those early oil pioneers trusted their own instincts and superior local knowledge by “drilling deeper”!

I want to drill a little deeper when it comes to understanding Saudi Aramco today, and where it is headed in the future. I want to drill a little deeper intellectually, to explore the theory and practice of leadership. And as well as drilling deeper, I’d like to talk about how we’re aiming higher when it comes to unleashing the full power and potential of an already successful organization through transformative change.

SAUDI ARAMCO TODAY Let me begin by providing some

context, because to appreciate the view from the top, one has to understand the organization being led and the context in which it operates. Saudi Aramco is in many ways a unique company, as are the leadership challenges it presents.

Earlier I mentioned the California Arabian Standard Oil Company, which became the Arabian American Oil Company Aramco once Texaco acquired a 50 percent stake. Eventually Exxon and Mobil also bought in investment which was welcome given the size and scale of the upstream operation in Saudi Arabia. To bring the story full circle, the Saudi government acquired Aramco from those four American parent companies by 1980 though they continued to manage it on the government’s behalf until the establishment of Saudi Aramco back in 1988. And while the company began nearly 80 years ago as an upstream powerhouse, producing crude oil in one country, over time it has become an integrated global energy enterprise.

Saudi Aramco’s story is one of success, and it does well by multiple measures.

For example, we’ve produced more oil in our history than any other company on the planet. Aside from being a sizable producer of natural gas, nearly one in every seven barrels of oil that will be produced around the world today will come from Saudi Aramco, and over the next 24 hours, we will provide more than 10 million barrels of oil to the global energy market. We are also the only producer with sizable spare production Jul-Aug, 2012

59

CEO SPEAK

statement has profitability at its heart, and it reads, “Saudi Aramco’s mission as an integrated international company is to engage in all activities related to the hydrocarbon industry, on a commercial basis and for the purpose of profit.”

capacity, which plays a critical role in helping to stabilize markets and reduce volatility. Our ability to make up for production shortfalls elsewhere around the world has been demonstrated many times over the decades, most recently when Libyan supplies were disrupted last year. No one else has the capacity or capabilities we do, and that requires large investments, operational excellence, and political prowess!

Downstream, we have extensive refining assets in the Kingdom and around the world through a network of joint ventures, which stretch from Texas to Tokyo. We continue to build our refining capacity and move further down the value chain initiatives. We are in the privileged position of not carrying any debt on our balance sheet and of being able to selffinance our own industrial initiatives.

But with such scale, competence and influence comes tremendous responsibility. Certainly there is our global responsibility as a major energy provider, but as the national oil company of Saudi Arabia, we also bear tremendous responsibilities to the Kingdom and its people. To that end, we act as the engine of the Kingdom’s economy not only as the predominant source of revenue and the sole provider of energy to the nation, but also by 60

Jul-Aug , 2012

helping to build national capacity and grow the Saudi economy.

Of course, the revenues we generate are significant, and profitability is as vital to Saudi Aramco as to any multinational oil company. Although we are a stateowned enterprise, we maintain an arm’s length fiscal relationship with the government, and pay taxes and royalties now just as we did when we were an American-owned company. And we report to an independent Board of Directors comprising both international and national business leaders, educators and officials.

We also exhibit a high degree of operational complexity, even beyond the technologically sophisticated core oil and gas business. Because of the scale of our operations, we operate our own fleet of fixed-wing and helicopter aircraft; operate a healthcare system with a patient population in the hundreds of thousands; and maintain housing compounds and remote area camps, with all the logistics that entails.

CHALLENGES Because of the breadth and complexity of these various mandates especially the national challenge we must be absolutely clear about our mission or risk becoming distracted and unfocused. Our mission

Sounds good, but what does it mean in practice? Let me highlight four of the leadership challenges that flow from that mission. First, we have to execute at “best in class” levels, because day-today performance is absolutely essential for business success. That goes beyond operational excellence, and extends to high levels of performance in executing projects, maintaining fiscal discipline, and ensuring safety and environmental stewardship. It also means building capacity in our work force, to ensure our men and women have the skills, expertise and job knowledge needed to achieve those high standards day in, and day out.

Second, we have to invest wisely and ensure we direct capital in the most effective manner in what is both a resource-intensive business and a longterm industry. To give you an example of those time horizons, I was in Texas recently to inaugurate an expansion of our joint venture Port Arthur Refinery a 10-billion-dollar project which makes it the largest refinery in the Western Hemisphere. That facility is state-ofthe-art, but it was first built in 1903 in the wake of the Spindletop oil rush, more than a century ago! And recently, at our Board meeting in Tokyo, we presented our crude oil production strategy, showing the resources we will be producing a century from now, in the first decade of the 22nd century.

It is also a far-flung enterprise, with a worldwide reach and global partnerships. For example, in March I was in Beijing to sign agreements with two leading Chinese petroleum

enterprises to build a refinery on Saudi Arabia’s Red Sea coast and another in China’s Yunnan Province. Those ventures will join partnerships we already have with American, AngloDutch, French, Russian, Italian, Korean and Japanese companies.

misperceptions and encourage a more rational discussion of the energy choices we face. We have to insert ourselves into the public narrative by engaging the minds (if not always the hearts) of audiences far and wide. This is one of my most important responsibilities.

Third, we have to not only to achieve profitability, but also to maximize our contributions to the Saudi economy and society, leverage our core strengths for the benefit of the nation, and strengthen our ability to meet growing global demand for oil, products and petrochemicals. That entails, among other areas of focus, developing human resources, promoting innovation and entrepreneurship, and expanding in areas of the business that are richer in terms of value addition and job creation.

To recap, we are one of the world’s largest, most successful and most profitable energy enterprises. But we face tremendous challenges as an industry, and in terms of development in the Kingdom of Saudi Arabia as well as a host of exciting opportunities on the horizon.

Fourth, one of the most complex challenges for us or any petroleum company is the central position that energy occupies on the global public agenda. Oil is inseparable from economics, politics and the environment, and is often the subject of fierce debate.

Unfortunately, those debates generate more heat than light.

But we do our stakeholders and wider society a disservice if we fail to correct

LEADING TRANSFORMATIVE CHANGE Now, one response to that situation would be to focus only on our tried and true strengths and core competencies.

There’s something to be said for that strategy, and many companies have pursued it with success. But at Saudi Aramco, we view the situation differently. I have often compared Saudi Aramco to a high-performance racing car: if you drive it downtown through traffic and encounter lots of stoplights and intersections, it will never reach top speed. Instead, you have to get it out on the super speedway, rev the engine, and unleash the vehicle’s true potential.

So we see our strengths as sources of leverage for new initiatives. Rather than being content with the status quo, we are challenging ourselves to unleash the full potential of our company and above all, of our people. Of course change is never easy or resistance-free. Some ask why we are trying to undertake sweeping change at what is already the world’s most successful oil and gas company; don’t fix it if it’s not broken, they say.

I agree it’s far from broken but it’s not as good as it could be. And to me that’s an irresistible challenge and a personal responsibility.

That’s why last year I launched a major Strategic Transformation Initiative called the Accelerated Transformation Program, or ATP which will dramatically change our company.

The goals of that initiative are captured in our Strategic Intent for the company, namely that, “In 2020, Saudi Aramco will be the world’s leading integrated energy and chemicals company, focusing on maximizing its income, facilitating the sustainable and diversified expansion of the Kingdom’s economy, and enabling a globally competitive and vibrant Saudi energy sector.” Those 39 words are my mandate for moving our company forward over the next decade or so.

Jul-Aug, 2012

61

CEO SPEAK

We’ve broken that intent into 14 specific initiatives, grouped under four main focus areas, or what we’ve termed “pillars.”

The first pillar is business strategy 101: building and developing our portfolio.

That means leveraging our upstream success by exploring in frontier areas like the deep offshore Red Sea and assessing the resource potential of unconventional petroleum resources, like shale. It also means investing in the downstream space so that in the next decade our total global refining capacity both wholly owned and joint ventures will approach eight million barrels per day the largest of any oil company on earth. It also means building a top-tier chemicals business by moving further down the value chain, and getting more involved in power generation, including, it might surprise you, investments in renewables, particularly solar.

The second pillar is all about our engagement with the Kingdom, and ensuring that as Saudi Aramco enhances its global leadership position, we leverage that leadership for the progress of the Kingdom. That means helping to develop the local energy support sector, so that we can source an increasing volume of our goods and services

from domestic suppliers, including more high-value products. It means helping raise educational standards and developing a knowledge base for the Kingdom’s future. And it means working to reduce the Kingdom’s level of energy intensity and create a more energy efficient nation, and playing our part in diversifying the Saudi economy.

Some people think those two pillars are stretch targets, but for me, it is the third and fourth pillars which will be the most challenging.

The third pillar is about expanding Saudi Aramco’s capacity and capabilities through enhancing the performance of its people. We have to develop leaders, managers and professionals for a new, more complex, and faster moving business environment that rewards wellreasoned and calculated risk-taking, and pushes decision-making down in the organization. At the same time, we are bringing a new generation of young men and women into our ranks and by 2016, roughly 40 percent of our employees will be under the age of 30.

They have a different worldview and different expectations, and I have spoken often of the need to not only get these young people ready for the company, but to get the company ready for these

young people. That also means fostering a climate that encourages innovative thinking and solutions, and developing a technology and R&D engine that ranks among the strongest in the world.

Our fourth pillar is ultimately all about streamlining our business processes.

I refer to it as fixing the plumbing and wiring in the company and we all know how disruptive a process that can be in our homes! That’s one of those calculated risks I just mentioned, but we need to do it if we are going to have organizational flexibility and dexterity.

When I’m asked about transformation, I am reminded of a quote by “The Great One,” Wayne Gretzky and yes, I am probably the first Saudi oilman to derive business strategy from ice hockey!

One of the keys to Gretzky’s legendary success was his ability to be in the right place at the right time, which he explained like this: “I skate to where the puck is going to be, not where it’s been.”

But being able to do that requires hard work, as well as teamwork and coordination after all, Gretzky never skated alone against six opponents!

Getting ahead of the puck also requires physical conditioning, skating and stick-handling skills, and situational analysis. And of course, sometimes hockey requires beating up on the competition, in more ways than one!

Business is the same way it’s not enough to aspire to be in the right place at the right time; you also have to do the hard work of building capacity and building consensus, developing people and their skills, and delivering top-notch execution every single day.

In a nutshell, that’s how I see my role.

Doing it can be exhausting at times, but I love my job and I’m passionate about delivering the transformation our company needs.

62

Jul-Aug , 2012

EVENTS CALENDAR

EVENTS CALENDAR

TITLE

DATES

LOCATION

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 We Doing It Right?

4 - 5 Sep 2012

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

SPE Hydrocarbon Economics and Evaluation Symposium

24 - 25 Sep 2012

Calgary, Alberta, Canada

Petroleum Reserves & Resources Estimation – PRMS Applications Guidelines Document

25 - 26 Sep 2012

Mexico City, Mexico

SPE International Professionals in Energy Conference (IPEC): Empowering Women’s Leadership

25 - 26 Sep 2012

Kuwait City, Kuwait

SPE PRMS Reserves and Resources Definitions - Applicable to Both Unconventional and Conventional Resources?

30 Sep - 3 Oct 2012

Penang, Malaysia

Designer Chemicals and Fluids for the Oilfield

30 Sep - 5 Oct 2012

Algarve, Portugal

Fractured Reservoirs Development: Challenges and Opportunities

2 - 3 Oct 2012

Kuwait City, Kuwait

Shale as a Reservoir: Leveraging Formation Characterisation, Well Placement and Unique Completions to Improve Multi-Stage Stimulation

2 - 4 Oct 2012

Prague, Czech Republic

SPE Annual Technical Conference and Exhibition

8 - 10 Oct 2012

San Antonio, Texas, USA

Flow Assurance – The Healthy and Happy Field

14 - 17 Oct 2012

Bangkok, Thailand

AAPG/EAGE/SPE Shale Gas Workshop

15 - 17 Oct 2012

Muscat, Oman

Control of Major Accident Hazards

15 - 18 Oct 2012

Bandar Seri Begawan, Brunei

Russian Oil and Gas Exploration & Production Technical Conference and Exhibition

16 - 18 Oct 2012

Moscow, Russia Source: Industry websites

Jul-Aug, JJu ul-Au ul -A Aug, Au g, 201 20 2012 00112

63 63

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 64

Jul-Aug , 2012

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.

Haifa Advt

PROFILE

POWERING UP

Voltamp Power LLC successfully completes its testing of the first order of four 125 MVA 132/33 kV Power Transformers. Two of them have already been delivered to Oman Electricity Transmission Company SAOC (OETC)

O

n the occasion of the delivery of its first unit of 125 MVA Power Transformer, H. E. Mohammed al Mahrouqi, Chairman PAEW said, “The dispatch of the 125MVA power transformer, manufactured by Voltamp at Sohar for the first time in the GCC, is indeed a proud moment for Oman and all Omanis.

Now our power companies, utilities and contractors, do not have to look abroad for such transformers.

Apart from manufacturing transformers up to 220KV class, location of the factory within Oman offers utilities the added benefit of locally available repairs and after sales services. I am also glad to learn that Voltamp has commenced providing in-house training of Nationals and employees of public utilities in transformer design, manufacturing and maintenance.”

The 125 MVA Power Transformers have been 100 per cent manufactured 66

Jul-Aug , 2012

at Voltamp’s World Class Power Transformer Factory located in the Sohar Industrial Area, Sultanate of Oman.

“It’s a new era for the region’s power manufacturing business. This factory in size, capability and quality is the first in Oman and GCC. It was a dream to have a local factory with such hi-tech products manufactured in Oman. It will also be a great opportunity for many Omanis to start a long career in different skill sets,” says, Mr. Hassan Abdwani, Dy. CEO, Electricity Holding Co. Voltamp has received an overwhelming response from Oman Utilities and the Oil & Gas Sector who have welcomed its foray into hi-tech manufacturing with their full hearted support. Voltamp Power is executing numerous orders from Distribution Utility Companies and EPC Contractors for Power Transformers ranging from 20 MVA 33 kV to 90 MVA

132 kV for various Projects including those of the Petroleum Development of Oman. Voltamp is committed to deliver world class products locally at competitive prices. Voltamp’s new factory has the annual capacity to produce 6,500 MVA and the range extends up to 315 MVA 220 kV Class. The testing facility is at par with the best in the world and has been approved by KEMA, Netherlands who witnessed type tests recently.

Voltamp Power LLC is a fully owned subsidiary of Voltamp Energy SAOG, a public company incorporated in the Sultanate of Oman. The shares are listed on the Muscat Stock Exchange. It currently produces a large range of power and distribution transformers, low voltage switchgear and package sub-stations through its four manufacturing units located in Rusayl and Sohar, Oman. It also undertakes repairs and refurbishment of complete range of transformers.

GLOBAL ROUND-UP

TEPCO Increases Total Wheatstone LNG Offtake Chevron Corporation’s Australian subsidiaries have signed additional binding agreements with Tokyo Electric Power Company (TEPCO) for liquefied natural gas (LNG) offtake and equity interests in the Chevron-operated Wheatstone Project.

Under the agreements, TEPCO will purchase an additional 0.4 million tons per annum (MTPA) of LNG from the Wheatstone Project for up to 20 years. In addition TEPCO, through a related company, will acquire from Chevron a 10 percent participating interest in the Wheatstone field licenses and an eight percent interest in the Wheatstone natural gas processing facilities.

These agreements, and the previously announced sales and purchase agreement, increases TEPCO’s total Wheatstone LNG offtake to 4.2 MTPA. Joe Geagea, president, Chevron Gas and Midstream, welcomed TEPCO’s further investment in the Wheatstone Project. “TEPCO is one of the world’s leading LNG customers and we are pleased to expand the strong partnership between our two companies.”

Roy Krzywosinski, managing director, Chevron Australia, said, “More than 80 percent of Chevron’s equity LNG from

Wheatstone is covered under long-term off-take agreements with customers in Asia. “These agreements continue to demonstrate Wheatstone is well-placed geographically to meet the Asia Pacific region’s demand for a safe, reliable and cleaner-burning source of energy.” The Chevron-operated Wheatstone Project will become one of Australia’s largest resource projects. Located at Ashburton North, 7.5 miles (12 kilometers) west of Onslow in Western Australia, the foundation phase of the project will consist of two liquefied natural gas trains with a combined capacity of 8.9 MTPA and a domestic gas plant.

BP Starts Up Galapagos Development BP has begun the initial start-up of the Galapagos development in the deepwater U.S. Gulf of Mexico, one of a series of new major upstream projects that the company expects to bring into production this year.“The start-up of this project in the Gulf of Mexico is one of BP’s key operational milestones for 2012, one of six highmargin projects we expect to come on stream this year,” said Bob Dudley, BP group chief executive. “I expect that the operational progress we are now making will deliver increasing financial momentum for BP as we move into 2013 and 2014.” The Galapagos development

68

Jul-Aug , 2012

includes three deepwater fields and increases the capability of a key offshore production hub for BP. The fields - Isabela, Santiago and Santa Cruz - are being produced using subsea equipment on the floor of the Gulf. A new production flowline loop has been added to carry output to the nearby Na Kika host facility, a BP-operated platform located roughly 140 miles southeast of New Orleans in 6,500 feet of water. The Na Kika facility, with a production capacity of 130,000 barrels of oil equivalent per day, has been modified to handle output from the three fields.

Full ramp-up of the project is expected around the

end of June. “The Galapagos development marks another significant step forward for BP in the Gulf of Mexico, and reflects the potential we continue to see in this world-class basin, now and in the future,” said James Dupree, Regional President of BP’s U.S. Gulf of Mexico business.

BP’s overall interest in the three-block area that includes the fields comprising the Galapagos project is about 56 per cent. Noble Energy, Inc., Red Willow Offshore, LLC, and Houston Energy, L.P., are co-owners. BP is the operator of the Isabela field, while Noble Energy operates the Santiago and Santa Cruz fields. The Galapagos development required the installation of new subsea infrastructure, production risers, topsides as well as other modifications. BP expects to invest at least $4 billion a year on oil and gas development in the Gulf of Mexico over the next 10 years, following its strategy of focusing investment and future growth around the company’s strengths, including deepwater exploration and development. “BP’s continuing investment in the Gulf of Mexico is yet another example of our commitment to the U.S. economy and energy security,” Dudley added. “This investment, along with our ongoing commitment to the Gulf Coast region, demonstrates the importance of the U.S. to BP’s long term strategy.”

Shell and Partners Announce LNG Project in Canada Shell, Korea Gas Corporation (KOGAS), Mitsubishi Corporation, and PetroChina Company Limited have announced that they are developing a proposed liquefied natural gas (LNG) export facility in Western Canada, near Kitimat, British Columbia. This project will help make Canada’s abundant supplies of cleaner-burning natural gas available to global markets including Asia’s dynamic and fast-growing economies. It brings together partners with a unique combination of strengths: innovation, financial muscle, development expertise and access to important markets. Shell holds a 40 per cent interest in the LNG Canada project, with KOGAS, Mitsubishi and PetroChina each holding a 20 per cent interest. The proposed project includes the design, construction and operation of a gas liquefaction plant and facilities for the storage and export of LNG, including marine off-loading facilities and shipping. LNG Canada will initially have two LNG processing units, or “trains,”

each with the capacity to produce six million tonnes of LNG annually, with an option to expand the project in the future. The partners will decide whether to move ahead with the project’s development after conducting engineering work and environmental assessments, as well as consultations with local communities and other stakeholders.

Chevron Enters into Agreement with Kosmos Energy Chevron Corporation’s wholly owned subsidiary Chevron Global Energy Inc. (Chevron) will be assigned a 50 percent working interest in Blocks 42 and 45 offshore Suriname through an agreement with Kosmos Energy. Under the agreement, Kosmos will have a 50 percent working interest and remain operator of both blocks until the end of the exploration phase. Chevron will assume the remaining 50 percent working interest and will be the operator following any commercial discoveries.

“This agreement enables us to explore for new resources in this frontier basin,” said George Kirkland, vice chairman, Chevron Corporation. “These blocks are on trend with new deepwater Cretaceous discoveries in the region.” Blocks 42 and 45 are approximately 155 miles (250 kilometers) from Paramaribo and cover a combined area of about 2.8 million gross acres, at water depths ranging between 650 and 8,500 feet (200-2600 meters). “We are very pleased to participate in Suriname’s emerging energy sector,” said Ali Moshiri, president of Chevron Africa and Latin America Exploration and Production Company. “These blocks will expand our exploration portfolio in Latin America.”

Start-up could come around the end of the decade, assuming all necessary regulatory approvals and investment decisions.The project announcement comes in the context of growing demand for natural gas in Asia and elsewhere, as countries look to support economic development with cleaner forms of energy.

WorleyParsons Awarded EPCM Contract in Brazil and China WorleyParsons has been awarded the engineering, procurement and construction management (EPCM) services contract for the delivery of acrylic chemicals projects for BASF. The projects include the design and construction of acrylic acid and super absorbent polymer plants to be located in Eastern China and Northern Brazil. WorleyParsons’ scope of work will be delivered from its Beijing office with support from WorleyParsons’ office in Sao Paulo, Brazil.

The contract revenue to WorleyParsons is estimated to be US$80 million and the contract is scheduled to be completed in late 2014. John Grill, Chief Executive Officer of WorleyParsons, commented: “We are very pleased to have been awarded this significant opportunity to further develop our relationship with BASF. The projects represent an important investment by BASF and we are delighted to be working with them in their delivery.”

Jul-Aug, 2012

69

GLOBAL ROUND-UP

BP Lifts Force Majeure on Libyan Exploration

BP has lifted Force Majeure in respect of its Libyan Exploration and Production Sharing Agreement (EPSA) with the National Oil Corporation (NOC) effective 15th May 2012.

Force Majeure has been in place since 21st February 2011. Discussions between NOC and BP have agreed how the impact of Force Majeure will be mitigated in BP’s existing contract terms. The agreement was signed on 29th May by Dr. Nuri Berruien, Chairman of the NOC, and Felipe Posada, Regional President for BP in North Africa, during a visit to Tripoli with Dr. Michael Daly, BP’s Executive Vice President for Exploration.

Dr Michael Daly said: “The lifting of Force Majeure is a significant milestone in BP’s plans to return to the exploration of onshore and offshore blocks in our existing EPSA contract.

We look forward to working with the NOC and our partners in the Libyan Investment Authority to safely implement our drilling programme.”

Nuri Berruien, Chairman of the NOC said: ”We thank BP for its commitment to Libya by lifting the force majeure. The NOC will work with BP to deliver the objectives of the EPSA and extends all help and support to BP in order to implement the agreed work program as per existing EPSA terms.”

Liquid Robotics and Schlumberger form Oil & Gas JV Liquid Robotics, Inc. and Schlumberger have created Liquid Robotics Oil & Gas, a joint venture to develop services for the oil and gas industry using Wave Gliders, the world’s first wave-powered, autonomous marine vehicles.

The joint venture will combine Liquid Robotics Wave Glider technology with Schlumberger oil and gas expertise and industry knowledge to integrate and deploy new solutions for customers worldwide. Liquid Robotics and Schlumberger have equal ownership of the joint venture. Liquid Robotics will provide 70

Jul-Aug , 2012

fleets of Wave Gliders together with relevant engineering, piloting and maintenance expertise, while Schlumberger brings their upstream technology and market leadership.

The joint venture will be the exclusive distributor of Wave Glider products and services to oil and gas customers worldwide. Wave Gliders offer a game-changing capability to operate offshore for up to a year without requiring a crew, fuel or a dedicated support vessel during their mission.

Schlumberger Introduces Fully Sourceless LWD Formation Evaluation Service Schlumberger has introduced the NeoScope sourceless logging-while-drilling formation evaluation service based on pulsed neutron generator technology that eliminates the need for chemical sources. Unique NeoScope technology provides real-time measurements close to the bit to guide interpretation and decision making in all drilling environments. “With its compact design and neutron-on-demand technology, this service saves rig time, reduces risks and provides a comprehensive suite of petrophysical measurements,” said Steve Kaufmann, president, Schlumberger Drilling & Measurements. “With more than 200 jobs conducted in the field test phase for customers in over 30 countries, the NeoScope service has demonstrated its ability to provide high quality data while lowering operational and technical risk.”

Schlumberger has field tested the NeoScope service extensively for the last four years in a wide range of formations and environments that range from tight carbonates to conventional clastics to validate the measurement response.

Schlumberger technical experts have also verified the challenging measurement physics through extensive modeling and experimentation both in the laboratory and the field.

Typical of the jobs run during the field test phase, the service was used to acquire a full suite of petrophysical measurements in a directional exploration well in Africa, where poor borehole conditions prevented wireline tools from reaching the entire interval of interest.

The NeoScope measurements acquired helped save the customer seven days by eliminating the time and cost associated with chemical source deployment. The service offers a full suite of sourceless formation evaluation measurements, including spectroscopy, sigma, neutron porosity and neutron-gamma density and delivers gamma ray images and array resistivity measurements for well placement.

Rosneft and ExxonMobil to Develop Tight Oil Reserves Rosneft and ExxonMobil are going to jointly develop tight oil reserves in Western Siberia and establish a joint Arctic Research Center for Offshore Developments.

The agreements, which support implementation of the companies’ August 2011 long-term strategic cooperation agreement, were signed by Rosneft President Igor Sechin and Stephen M. Greenlee, president of ExxonMobil Exploration Company. Vladimir Putin, President of the Russian Federation, Rex W. Tillerson, chairman and chief executive officer of Exxon Mobil Corporation, and other top managers of the companies were present at the signing ceremony.

Rosneft and ExxonMobil agreed to expand and expedite joint efforts to develop oil reserves in tight low-permeability formations in Western Siberia using advanced technologies that ExxonMobil has successfully employed in North America.

in 2013. ExxonMobil will finance the geological studies and exploratory drilling. Participating interests in a potential development phase will be 66.67 percent for Rosneft and 33.33 percent for ExxonMobil.

The agreement establishes a pilot programme to determine the technical feasibility of developing the reserves and is an extension of a technical research program, which Rosneft and ExxonMobil signed in April 2012. In the near future, Rosneft and ExxonMobil will approve a work program for selected Rosneft license blocks which will include geological studies and drilling of Bazhenov and Achimov reservoirs. Drilling is scheduled to begin

“We are not only looking at new geographical regions of operation but are also studying the potential of difficult to produce reserves in traditional oil producing regions,” said Rosneft President Sechin. “In Western Siberia, an extremely promising area in this respect is the Yuganskneftegaz Region. Development of these reservoirs will require a combination of state-ofthe-art technologies, expertise in developing tight reservoirs, and appropriate fiscal terms, which the government of Russia started preparing this year. This will both help meet the growing need for energy in Russia itself and maintain stability in global markets.”

Petrofac Awarded Project Offshore Cote d’Ivoire Petrofac, the international oil & gas service provider, has been awarded a fast track front end engineering design (FEED) project offshore the Côte d’Ivoire. Petrofac’s Engineering & Consulting Services (ECS) team based in Woking, UK will undertake the work on the Gazelle field in Block C1-202 on behalf of Rialto Energy (Rialto) and Société Nationale d’Opérations Pétrolières de la Côte d’Ivoire (PETROCI). Rialto is operator of the block and holds an 85% interest, while PETROCI hold the balance.

The contract is expected to be completed in October and at its peak will involve a team of 75 personnel. The FEED will support the award of the early engineering, procurement, installation and commissioning contracts for both the offshore platform and offshore and onshore pipelines, which are expected to be awarded by the end of the year.

Martin Barnes, General Manager for ECS Woking commented: “This is an extremely intense FEED schedule and I look forward to the team delivering a high quality product for Rialto and PETROCI. In carrying out this work we are also able to draw

on the extensive capability of our subsea pipeline consulting and engineering services business, KW Ltd, which differentiates and adds significant

value to our offer. Strategically, the project also represents an important offshore reference for us in the West African market.”

Jul-Aug, 2012

71

REGIONAL ROUND-UP

SABIC and ExxonMobil’s JV at Al-Jubail

Saudi Basic Industries Corporation (SABIC) and affiliates of ExxonMobil have announced that they will construct a world-scale specialty elastomers facility at the Al-Jubail Petrochemical Company (Kemya) manufacturing joint venture. The facility will be integrated with the existing Jubail complex and is expected to be completed in 2015. The companies have approved the next stage of project development -- engineering, procurement and construction (EPC). The facility will have the capacity to produce up to 400,000 tonnes per year of rubber -- including halobutyl, styrene butadiene, polybutadiene, and ethylene propylene diene monomer (EPDM) rubbers -- thermoplastic specialty polymers, and carbon black to serve local markets, the Middle East and Asia. Kemya has awarded the EPC contract for the elastomers facility to Technip, Tecnicas Reunidas and Daelim.

Kemya is a 50-50 joint venture between SABIC and Exxon Chemical Arabia Inc., an affiliate of ExxonMobil Chemical Company. The two companies have collaborated closely since 1980 when they established the joint venture, which produces polyethylene, ethylene, and propylene. The new synthetic rubber project represents a significant broadening of Kemya’s product portfolio. Associated with the new Kemya elastomers facility is the establishment of the High Institute for Elastomer Industries (HIEI), a vocational training center in Yanbu; a product application center in Riyadh; and thermoplastic polyolefin compounding and inventory management facilities in Jubail. The facilities are aligned with Saudi Arabia’s national industrial clusters development program to expand and diversify its manufacturing sector. The HIEI will employ Saudis as instructors to deliver innovative polymer science education programs developed at the University of Akron Research Foundation, in Ohio, USA, to train Saudis for the Kingdom’s developing elastomers conversion industry.

Mohamed Al-Mady, SABIC Vice Chairman and CEO, said, “The Kemya elastomers facility demonstrates our commitment to build and champion a first-rate rubber industry in Saudi Arabia that supports job creation, develops downstream industries and helps diversify the national economy.

The strategic partnership between SABIC and ExxonMobil provides the strength of industry-leading competitive assets, introduces new specialty products to the Kingdom and offers global marketing and supply capability of exceptional quality. We will provide the building blocks for our customers to successfully compete on a domestic and international scale in markets for a wide range of applications.” “ExxonMobil is proud to be a leading foreign investor in, and customer of, the Kingdom of Saudi Arabia,” said Steve Pryor, president of ExxonMobil Chemical Company. “This first-of-itskind elastomers facility in the Kingdom creates a platform that will support the development of a rubber industry, which is designed to produce a broad range of consumer products.”

72

Jul-Aug , 2012

UMG launches the Kongsberg EM2040 Multibeam Echo Sounder in Middle East Unique System FZE, a Unique Maritime Group Company and one of the world’s leading integrated turnkey subsea and offshore solution providers, in association with Bayanat Mapping & Survey Services, a leading provider of geospatial products and services, has launched EM 2040 Multibeam Echo Sounder on Bayanat’s survey catamaran, at Reem Island in Abu Dhabi, UAE. The launch featured the first demonstration in the Middle East of the Kongsberg EM2040 Multibeam Echo Sounder, the first system to bring all the advanced features of deep water multibeams to the near bottom sounding environment. The basic EM 2040 has four units, a transmit transducer, a receive transducer, a processing unit, and a workstation. Unique System is the exclusive representative of Kongsberg Maritime products in the Middle East.

“Bayanat is proud to partner with Unique System FZE for this launch. Given our positioning as a local geospatial leader, we are confident that this collaboration will ensure we continue to deliver world-class geospatial and hydrographic services to better serve all our customers in the UAE and beyond.” said Dr. Adel Al Shamsi, Hydrographic Surveying Director, Bayanat for Mapping & Surveying Services. “EM 2040 is the world’s only true wideband high resolution Multibeam Echosounder system. EM 2040 is designed to meet all requirements for hydrographic and inspection surveys and provides exceptional resolution and performance, including the ability to fulfill required along track coverage at twice the survey speed,” said Geir Skogen, Sales Manager of Kongsberg.

Viking Services B.V. completes acquisition of Viking International, Viking Geophysical and Viking Oilfield Services Viking Services B.V. (Viking) has announced the completion of its acquisition of Viking International, Viking Geophysical and Viking Oilfield Services. Viking is the JV between funds managed by Abraaj Capital, a leading private equity firm investing in global growth markets and Dalea L.P., a private investment company founded by N. Malone Mitchell, 3rd with investments in the oil and gas, agriculture, consumer retail, and real estate sectors.

The acquisition strengthens Viking’s position as a fully integrated oilfield service group focused on providing services in the conventional and unconventional resource plays in Turkey, Poland, Bulgaria, Romania, Kurdistan and other key Eastern European and Middle Eastern countries. The combined group boasts a strong portfolio of services across the well life cycle including geophysical services, drilling services and completion services inclusive of fracture stimulation with a fleet of best in class, technologically advanced equipment. With strong backing from its shareholders, Viking intends to continue investing capital to expand its presence and service base across the Middle East, North Africa and Eastern Europe.

Dustin Guinn, Chief Executive Officer of Viking, said: “We are extremely excited about the acquisition of Viking International, Viking Geophysical and Viking Oilfield Services. Viking has demonstrated a unique ability to assemble high quality assets and management with a proven history of operational success and fiscal responsibility. The ability to attract investors of Abraaj and Dalea’s caliber, who share Viking’s competitive desire for controlled growth and unquestioned excellence, will undoubtedly accelerate our ability to expand our operational footprint and execute Viking’s business plan.”

Aramco opens Motiva JV refinery in US

Saudi Aramco and Royal Dutch Shell have launched the $10bn expansion of their joint-venture Motiva Enterprises Texas Gulf Coast refinery as it neared its top capacity, Saudi Gazette has reported.

The total cost of expanding the Motiva Enterprises Port Arthur refinery to 600,000 barrels per day (bpd) was “in the range of” $10bn, double its original estimate, Saudi Aramco chief executive Khalid Al-Falih said. The expansion, which made the Motiva Port Arthur refinery the largest in the US, was originally budgeted at $5bn, but had climbed to an estimated $7bn in the fourth and fifth years of the project, according to Wall Street analysts citing information from Motiva and Shell.

Aramco, Dow seek $12.4bn financing for JV Saudi Aramco and Dow Chemical have sent requests to banks for $12.4bn in financing for their $20bn Sadara Chemical Co joint venture, Bloomberg has reported, citing two bankers with knowledge of the situation. The two partners plan to raise $2.66bn in bank loans, $1.4bn from the sale of Islamic bonds, $6.5bn from export credit agency financing, $1.3bn from Saudi’s Public Investment Fund, and $530m from the Saudi Industrial Development Fund, the people said. Sadara may begin production in 2015, with 40 per cent of its output being exported to Asia and as much as 35 per cent to the Middle East and Africa, Dow Chemical CEO Andrew Liveris said.

Jul-Aug, 2012

73

REGIONAL ROUND-UP

Qatar: Report to chart role of gas to liquids in meeting market demands The gas-to-liquids (GTL) process offers an alternative route to monetise gas resources by turning it into high-quality liquid hydrocarbons which are heavily demanded in the rapidly-expanding Asian markets and elsewhere across the globe, according to the Executive Vice-President and Chairman of Qatar Shell and Managing Director of Pearl GTL Wael Sawan. Sawan told the global publishing, research and consultancy firm Oxford Business Group (OBG) that Qatar Shell was focusing on creating the supply chains needed to bring gas-to-liquids products to the market.

“Products like GTL gasoil and GTL naphtha should register growth in demand of around 30 per cent from today to about the year 2020, and a significant part of that growth will come from demand within Asian markets,” he said. “We have invested not only in Asia Pacific but also in Europe and the US where we can see potential for these products.”

Sawan said Qatar was ideally placed to take on the increasingly important role of research and development (R&D) hub for the energy industry, given its abundant oil and gas facilities, and the high number of key players located there. He said many cutting edge collaborative programmes were already up and running, including a joint initiative between Qatar Petroleum, Imperial College and Qatar Shell which was exploring the key area of carbonates.

“Having a facility where all these entities can come together is a massive boost,” he said. “Increasingly, we see the enthusiasm of academics and researchers, and more importantly, the appetite of companies.”

74

Jul-Aug , 2012

Significant GCC Petrochemical Industry Growth in 2011

The Gulf Petrochemicals & Chemicals Association (GPCA) has released its 2011 annual report showing the GCC sector continuing to strengthen its position globally. Regional petrochemicals production capacity grew 13.5 per cent last year, according to the report, to nearly 116 million tons, up from 102 million tons in 2010, on the back of further expansion of manufacturing facilities.

Saudi Arabia alone accounted for more than half of the US$100 billion in sales generated by the GCC petrochemicals sector, with Saudi Arabian Basic Industries Corporation posting total revenues in 2011 of US$50.64 billion and a net profit of US$7.8 billion.

The GPCA annual report provides a comprehensive overview of the major sector developments in each of the Gulf states. The report also describes 2011 as a year of consolidation after the demand slump caused by the 2008 economic downturn, with the industry recording sales and revenue growth and notable progress in the development of new projects. “Continued investment and a cluster of significant new agreements demonstrate the leading role the GCC petrochemicals sector is now playing worldwide,” said Dr. Abdulwahab Al-Sadoun, Secretary General of the GPCA. “The GPCA is pleased to announce this market growth and to recognize the contribution of every industry player across the region.” He added: “We are optimistic about 2012, despite the gloomy economic forecast in European and overseas markets, due to the continued focus on technology, innovation and long-term partnerships.”

The most significant deals signed in 2011 include Saudi Aramco and Dow Chemical Company’s joint venture – Sadara Chemical Company signed in October 2011, a large scale project which will include 26 manufacturing units for performance product output, including Polyurethanes among others. There was a surge in deals for additional new downstream facilities in Saudi, ensuring 2012 and beyond will be the most dynamic the country’s downstream sector will have ever seen.

In December 2011, Qatar Petroleum joined forces with Shell to build a petrochemicals plant at the cost of $6.8 billion. Borouge is another joint venture, between Abu Dhabi’s National Oil Company (ADNOC) and Borealis of Austria. Borouge awarded several contracts throughout 2011 to expand its petrochemical complex Borouge 3. In January 2011, the company awarded an $111 million contract to Alpine Bau Deutshland AG to construct a series of non-process buildings for the expansion of the complex as well as awarded $169 million to Hyundai to build a polyethylene (XLPE) unit as part of Borouge 3.

Jacobs bags contract from Saudi Kayan Petrochemical Company Jacobs Engineering Group Inc. ha won a design contract from Saudi Kayan Petrochemical Company, an affiliate of Saudi Basic Industries Corporation (SABIC), to develop a process design package (PDP) and front end engineering design (FEED) package for the build of an ultrahigh-molecular-weight polyethylene (UHMWPE) plant in the Industrial City of Jubail in the Kingdom of Saudi Arabia.

The contract will be executed from Jacobs’ Winnersh, UK and AlKhobar offices. UHMWPE is used in many industrial applications including batteries and industrial fibers. This plant is to have a production capacity of 35,000 tonnes per year using ethylene sourced from Kayan’s existing olefins plant and is of significant strategic importance as SABIC is to use its own technology. SABIC, headquartered in Riyadh, ranks among the world’s top petrochemical companies and is a market leader in the production of polyethylene, polypropylene and other advanced thermoplastics, glycols, methanol and fertilizers. Jacobs Group Vice President Bob Irvin stated, “We are delighted to have been awarded this high profile project, which we

take to be both a statement of our Client’s confidence in our ability to deliver strategic projects of this nature and the commencement of what we hope will be a significant and long-term relationship with SABIC that will drive mutual benefits to our businesses and build upon our presence and future capability in the Kingdom of Saudi Arabia”. Jacobs is one of the world’s largest and most diverse providers of technical, professional and construction services.

Iraq’s energy projects worth $300bn With its enormous reserves, and equally big ambitions, the Iraqi oil and gas sector is now opening up for business. Iraq is planning an unprecedented expansion of its oil and gas production, lifting output to more than 12 million barrels a day (b/d) by 2017 with the help of more than a dozen international oil companies. The upstream expansion, matching in under a decade what Saudi Arabia achieved in 70 years, will be accompanied by an overhaul of the country’s decrepit oil and gas infrastructure.

After years of conflict, with an estimated $300bn worth of energy projects planned over the next decade, the country will be the focus of attention for investors in the region. Few other countries across the globe offer such an opportunity.

But it also comes with considerable risks.

Iraq’s political instability and tense security situation are just the most apparent of the obstacles ahead for the projects market. In addition to this, there are a number of important

questions over the country’s ability to deliver on its potential.

The opportunities presented by the market are outlined in the latest report by MEED Insight, the

Iraq Oil & Gas Projects Market 2012. Covering more than 150 pages, the report provides a comprehensive assessment of the upstream, midstream and downstream oil and gas sectors in the country in addition to a macroeconomic and political overview.

“Over the next five years, we estimate that Iraq will have to invest an estimated $100bn if it is to achieve the target it has set of increasing crude oil production capacity to more than 12 million barrels a day,” says Adal Mirza, Gulf Correspondent - Energy & Industry, MEED. “The pace of growth is unprecedented, but this will also require another $30bn worth on investment in its export infrastructure to get the oil to market and the same again to turn Iraq into a major refiner. But there are also enormous challenges for those are prepared to work in Iraq - from political instability, corruption and a Byzantine bureaucracy.

Nonetheless, Iraq represents perhaps the single largest market of opportunities in the oil and gas sector, for oil field services providers and engineering and construction firms.”

Jul-Aug, 2012

75

BOOK CORNER

PRIVATE EMPIRE: EXXONMOBIL AND AMERICAN POWER Steve Coll In this insightful and non-accusatory account, Pulitzer Prize – winning author, Steve Coll, investigates the largest and most powerful private corporation in the United States, revealing the true extent of its power. The first hard-hitting examination of ExxonMobil, Private Empire is the masterful result of Coll’s indefatigable reporting. He draws here on more than four hundred interviews; field reporting from the halls of Congress to the oilladen swamps of the Niger Delta; more than one thousand pages of previously classified U.S. documents obtained under the Freedom of Information Act; heretofore unexamined court records; and many other sources. A penetrating, newsbreaking study, Private Empire is a defining portrait of ExxonMobil and the place of Big Oil in American politics and foreign policy.

THE POWER OF HABIT: WHY WE DO WHAT WE DO, AND HOW TO CHANGE Charles Duhigg In The Power of Habit, award-winning New York Times business reporter Charles Duhigg takes us to the thrilling edge of scientific discoveries that explain why habits exist and how they can be changed. With penetrating intelligence and an ability to distill vast amounts of information into engrossing narratives, Duhigg brings to life a whole new understanding of human nature and its potential for transformation. Along the way we learn why some people and companies struggle to change, despite years of trying, while others seem to remake themselves overnight and see how implementing so-called keystone habits can earn billions and mean the difference between failure and success, life and death.

WHAT MONEY CAN’T BUY: THE MORAL LIMITS OF MARKETS Michael Sandel Should we pay children to read books or to get good grades? Is it ethical to pay people to test risky new drugs or to donate their organs? Isn’t there something wrong with a world in which everything is for sale? In recent decades, market values have crowded out nonmarket norms in almost every aspect of life-medicine, education, government, law, art, sports, even family life and personal relations. Without quite realizing it, Sandel argues, we have drifted from having a market economy to being a market society. Sandel examines one of the biggest ethical questions of our time and provokes a debate that’s been missing in our market-driven age: What is the proper role of markets in a society, and how can we protect the moral and civic goods that markets do not honour and money cannot buy?

76

Jul-Aug , 2012

YOUR COMFORT IS OUR CONCERN Air-conditioning & Refrigeration.

Electrical Maintenance & Repair.

Professional Motor Rewinding.

Overhaul & Repair of Compressors.

Transformers & Generators.

TMTEC Trad. & Technical Services LLC PO Box: 455 - Mina al Fahal, Postal Code: 116, Sultanate of Oman.

Tel: +968 2459 5848 / 2459 5838, Fax: +986 2459 4838ŘŒ Gsm: +968 95497051