The Maersk Group delivered a profit of USD 224m (USD 1.6bn) and an underlying profit of USD 214m (USD 1.3bn).

The result was negatively impacted by the low oil price and low average container freight rates. The return on invested capital (ROIC) was 2.9% (13.8%).

The underlying profit was significantly lower than same period last year due to all businesses except Maersk Drilling, Maersk Tankers and Damco being lower and Svitzer being at the same level.

The Culzean gas field project is on track within budget and according to plans.Image courtesy:  Maersk Group

“The Maersk Group delivered an underlying profit of USD 214m in the first quarter. While market conditions remain challenging, we continue to adjust our cost base to the new conditions and maintain a good operational performance across our businesses. We maintain our focus on strengthening the Group’s position in the market and have completed acquisitions within APM Terminals and Maersk Oil, and in Maersk Line we have defended our market leading position,” says Group CEO Nils S. Andersen.

Highlights:

• The Maersk Group delivered an underlying profit of USD 214m with six out of eight businesses returning a profit.

• Though profit remains challenged by the market conditions, Maersk Group continues to see good operational performance resulting from cost and optimization programs.

• Reduced cost levels bring break-even to the range of USD 40-45 per barrel from previous USD 45–55 per barrel in Maersk Oil.

• Maersk Line improved utilization, lowered unit costs by 16% year on year and defended their market leading position, delivering an underlying profit of USD 32m.

We are strengthening the Group’s position in the market and have completed acquisitions within APM Terminals and Maersk Oil.

Plugging and abandonment (P&A) of offshore wells represents the highest cost within field decommissioning for operating companies and national authorities. DNV GL has now issued a new, globally applicable Recommended Practice (RP), on risk-based abandonment of offshore wells which in combination with optimized project execution and new technology could potentially reduce P&A costs by 30–50%. The framework outlined in the RP provides the possibility for individualized, fit-for purpose well abandonment designs, a contrast to the prescriptive methodology available in the industry today.

Right cut drilling and well illustration. Credit: DNV GL

Well abandonment is driven by economic decisions, when the production of an oil or gas reservoir ceases or is no longer profitable. Authorities require that well operators perform safe and environmentally friendly operations by establishing a permanent barrier to prevent release of hydrocarbons to the surface. Traditional P&A methods are time consuming, costly and have remained unchanged despite technological advances in the industry.

“The costs related to well P&A are enormous. Using current practices, there will be a global fleet of dozens of full-time drilling rigs needed to perform P&A for generations to come. We believe the time has come to tackle this issue head on by assisting regulators and the industry to establish a new methodology for dealing with the decommissioning of wells. By using this method, hazardous wells will get the attention they deserve, and benign wells will avoid excessive rig-time and expenditure. We're looking at potential cost savings of more than USD32bn on the Norwegian Continental Shelf alone, and even more globally,” says Per Jahre-Nilsen, Business Development Leader, Drilling & Well, DNV GL – Oil & Gas.

The DNVGL-RP-E103 'Risk based abandonment of offshore wells' is based on case studies performed by DNV GL in projects dating back to 2011. A thorough process is defined where the key stages in the risk-based methodology are assessing the well barrier failure modes, well flow potential, valued ecosystem and safety components, dispersion modeling and impact analysis. These steps allow for a consistent method to be applied when assessing risk of the offshore well abandonment designs. The RP methodology provides assurance that selected well abandonment designs are robust, environmentally friendly and economically advantageous.

“DNV GL helps the industry to understand and manage the risks of their operations. Risk-based approaches are widely used in all other offshore disciplines, ensuring appropriate long-term environmental protection and also representing the most efficient method to ensure safety. It is time to apply these principles to P&A.” says Elisabeth Tørstad, CEO of DNV GL - Oil & Gas.

The main obstruction to change in this sector has been today’s prescriptive approach to the regulations, which represents a conservative interpretation of past experience and outdated technologies. Practice also differs from country to country. The new RP uses well-known and accepted risk-based approach methodology in which both environmental and safety risk aspects are key factors. Through the development of the RP, DNV GL worked with international oil and gas operators to establish an initial set of risk acceptance criteria and cross-checked these using case studies. The criteria and methodology have been further strengthened through dialogue with regulators and industry players.

The end of March saw a resolution reached between Kuwait and Saudi Arabia for the resumption of production from the Khafji field – located in the Arabian Gulf. The project was shut-in by the Saudis in October 2014 due to environmental regulation breaches, March’s initial agreement was backed by senior Riyadh officials. However, Deputy Crown Prince Mohammed bin Salman recently brought an abrupt halt to proceedings, moving to block the addition of oil from Khafji to global markets – highlighting potential discordance in Saudi Arabia’s oil policy.

Salman’s opposition to Khafji is arguably in direct conflict with the country’s expansion at Khurais and Safaniya and the establishment of the Public Investment Fund (PIF). Saudi Aramco plans to complete a 200 kbbl/d expansion of the onshore Khurais oilfield by 2018 after initially delaying project commissioning until 2019 due to spending cuts. Similarly, a tender is also being offered for new facilities on Safaniya – one of the world’s largest offshore oilfields with a current production capacity of 1.2 mmbbl/d. These expansions are likely to add significant volumes to Saudi Arabia’s production capacity, a tactic that may spook traders and suppress prices – contradicting any notion of halting Khafji in order to support the oil price.

January’s surprise announcement of the floating of Saudi Aramco initially appeared to be a short-term means of funding a fiscal deficit. However, recent developments suggest the idea has shifted to weaning Saudi Arabia off its reliance on crude oil export revenues. This is to be accomplished through shifting cash raised from the Aramco offering to the PIF – a multi-sector, $2 trillion fund channelled into a range of industries. The ultimate aim is to safeguard Saudi Arabia from future oil market downturns. However, the expansion of the two aforementioned oilfields will likely compromise this initiative if oil prices are driven down by trader sentiment – reducing the ultimate value of Saudi Aramco’s public offering.

Without an alignment of Saudi’s oil policies, the effectiveness of the country’s output strategy, the Aramco offering and the PIF is likely be severely eroded. Though the PIF is designed to help the Kingdom diversify its governmental revenues, its success hinges on healthy crude oil export revenues – something that is simply not possible in a world of low oil prices.

Matt Cook, Douglas-Westwood London

LORD Corporation has announced that its subsea wellbore sensors have demonstrated Subsea Instrumentation Interface Standardization (SIIS) compliance.

LORD Corporation’s Stellar Technology subsea wellbore pressure/temperature transducers passed the initial interface testing at a recent interoperability event, demonstrating compliance with the new SIIS requirements. Subsea control module (SCM) manufacturers that participated in the event were Aker Solutions, FMC, GE, OneSubsea and Proserv. Having passed each interoperability test, LORD Corporation’s wellbore sensing technology was validated to successfully interface with these SCM manufacturers.

SIIS, a joint industry project designed to achieve improvements in subsea reliability, is the new subsea instrumentation interface standard. It will soon be required by all SCM as well as oil and gas exploration and production companies. The aim is to standardize the interface between subsea sensors and the subsea control system. SIIS members consist of control systems suppliers, sensor suppliers and operators who work together defining the standards for subsea instrumentation interfaces.

According to Andy Winzenz, Commercial Director, Sensing, LORD Corporation, the company continues to expand and unify its sensing offerings and this is a major milestone.

“Demonstrating this compliance status validates our wellbore sensor communication interface with the major subsea control system manufacturers,” said Winzenz.

Subsea processes and technology present a space-saving solution for offshore facilities around the world and can help reduce the complexity of operations. For example, by utilizing subsea separation, the amount of production transferred from the seafloor to the surface of the water can be reduced. It also helps cut down on moving unwanted components to the facility on the water’s surface, just to direct them back to the seafloor for re-injection.

Typical subsea processes include subsea water removal and re-injection or disposal, single- or multi-phase boosting of well fluids, sand and solid separation, gas/liquid separation and boosting, as well as gas treatment and compression. In addition to the work flow benefits of subsea operations, sensors and transmitters can also help increase field recovery. They also make it easier to gain access to challenging oil fields, reducing additional spending for topside equipment.

More information about the SIIS certification can be found here and additional details on LORD Corporation’s subsea pressure transducers can be found here.

Fugro has begun a three-year period of metocean and ice data acquisition as part of the Barents Sea Metocean and Ice Network Project. The data will help operators to better understand relevant operational uncertainties and risk factors in the region known as “The Far North.”

The Barents Sea represents a frontier region for oil and gas exploration. The Norwegian Petroleum Safety Authority has recognized this and in its guidance states that appropriate measures to mitigate risk should be undertaken.

Fugro Wavescan buoys. Photo courtesy: Fugro

Statoil is leading a Joint Industry Project (JIP) to gather additional and necessary metocean and ice data in the region. Early acquisition of data in frontier regions is key to reducing risk for operators which, in turn, offers potential cost savings, for example through appropriate selection of drilling assets for the metocean regime, and optimisation of the timing of drilling campaigns. There are also numerous advantages to the JIP participants related to data sharing across a frontier region, such as increased understanding of metocean processes and their spatial extent and an extended data pool against which to validate models.

Having successfully worked with Statoil and several of the other JIP participants on a number of complex metocean measurement projects throughout Norwegian waters, Fugro was contracted for the project.

In October 2015 five Fugro-manufactured Wavescan buoys, one current- and water level-monitoring mooring, and five ice thickness and current-profiler moorings were deployed at offshore sites between Hammerfest and Svalbard. The robust Wavescan buoys, which are ideally suited for the conditions of the Barents Sea, are now collecting raw wave, current, meteorological and sea-water parameter data, processing the information and transmitting the summary data via satellite link. Real-time data are then displayed on a project-specific webpage that can be accessed by the client via secure log-in. Data from the current- and water level-monitoring mooring, and the five ice measuring rigs are being stored within the instruments’ internal memories for download at service visits, which are scheduled at six-month intervals for the buoys and annually in the open water season for the ice measuring equipment.

Fugro’s Mark Jones reports, “We have worked with Norwegian operators for many years and we know that managing risk and maintaining a safe operating environment is a priority. While there are significant historical metocean data available, additional collection of data related to the metocean and ice regime will further strengthen the safe planning of operations, design engineering, calibration of models and validation of weather forecasting in this frontier region.

“Fugro’s careful planning and management of site visits ensures that data acquisition is maximized. Equipment needs to be deployed and serviced during open water periods, and to collect data during the ice seasons.”

The first service visit was undertaken in March/April 2016, following which Fugro processed, analyzed and reported data collected over the first phase of measurements. The final dataset will be produced for the JIP partners upon completion of the measurement campaign in autumn 2018.

Software that enables acoustic data to be streamed in real-time from subsea structures as they are installed has helped to reduce non-production time (NPT) for independent oil and gas producer, INPEX, and its survey contractor, Neptune Geomatics, during construction of the Ichthys gas field, offshore Western Australia.

Supplied by subsea technology company Sonardyne Asia Pte. Ltd in Singapore, the SensorView software allowed data gathered by an acoustic transponder mounted on Tubing Head Spools (THS), to be transmitted at high speed to rig personnel monitoring the installation operations. The parameters measured by the transponder’s on-board sensors included heading, depth, sound velocity and inclination, and meant that delays previously incurred while aligning each THS to drilling templates, could be substantially reduced.

Located 220 kilometers off the coast, Ichthys represents the largest discovery of hydrocarbon liquids in Australia in over 40 years. It covers an area of around 800 square kilometers in water averaging depths of around 250 meters and is estimated to contain more than 12 trillion cubic feet of gas and 500 million barrels of condensate.

The field will be developed using a semi-submersible central processing facility, the largest of its kind anywhere in the world, and an FPSO connected by 890 kilometers of gas export pipeline to an onshore processing and storage facility at Bladin Point near Darwin.

As part of a 40 month contract, INPEX contracted Neptune to provide rig positioning and survey services during the drilling and completions phase of the project, work that is being undertaken by the Jack Bates and Ensco 5006 mobile drilling units.

At each of the five drill centers, Neptune installed a seabed array of Sonardyne Compatt 6 Long BaseLine (LBL) acoustic transponders to accurately position the spud locations and monitor the installation of the Drilling Guide Bases (DGBs) as they were lowered from the surface. Structure-mounted Compatt 6s fitted with high resolution inclinometers and depth sensors were used to verify final DGB positions and inclinations following cementing of the conductor in the top hole section.

While trying to align each THS with the DGBs once they arrived at depth, operational delays leading to rig non-productive time were incurred. To avoid such delays, INPEX requested that Neptune gather real-time positioning and heading information on each spool as it was being maneuvered.

The requirement was met using SensorView, Sonardyne’s dedicated sensor monitoring software application. It can be used in parallel with 6G acoustic positioning systems such as Fusion, or as a standalone solution for cost-effective remote monitoring and subsea data harvesting projects.

At Ichthys, SensorView was mobilized on one of the rigs and interfaced with a Dunker 6 transceiver which was deployed over the vessel’s side. Subsea, a Sonardyne GyroCompatt 6 was temporarily mounted on each THS and attached using a customized bracket designed to allow an ROV to recover the unit after each THS was installed. GyroCompatt 6 combines the features of a Lodestar Attitude and Heading Reference System (AHRS) with a Compatt 6 transponder in one unit to provide high update rate wireless attitude, heading, heave, surge, sway, pressure, sound velocity and acoustic positioning of any subsea object.

Commenting on the successful deployment of SensorView, Pat Fournier, Operations Manager for Neptune’s Geomatics service line said, “During Neptune’s recent Ichthys drilling and completions campaign, SensorView delivered us THS heading update rates of approximately one every three seconds. This was sufficient for our surveyors to fully understand the dynamic motion of the structures and thereby reduce the time needed to land them in the correct location.” He added, “We were impressed with the ease with which we could configure SensorView to work with our LBL acoustic hardware and view the data streams we needed to see.”

For more information on Sonardyne’s SensorView software click here.

Procurement specialist 80:20, a Peterson company, has had a successful start to 2016 securing a number of new contracts in the UK worth a combined value of £25 million.

The procurement services projects have been awarded by a number of key oil and gas operators and include two successful re-tenders, each for a further three years. The company will deliver strategic sourcing and supply chain management, working closely with the operators to provide an innovative service using its e-solutions software which has a record of delivering added value.

Peterson utilises in-house developed systems designed to enable the sharing of data that is often absent in our market place. This brings the benefits of faster response times, more accurate reporting, real time updates, improved cost visibility and centralised capturing of information.

Managing director Paul Dorward said: “We have had an extremely positive start to 2016, particularly in this difficult market. Our use of innovative commercial and technology solutions has been the driving force behind these wins.

“We have a highly skilled team of procurement experts and are committed to continuing the development of our people. We have a strong affiliation with the Chartered Institute of Procurement and Supply (CIPS) which is recognised worldwide as the standard for top quality procurement professionals and we believe this is key to clients entrusting 80:20 to deliver their procurement services.”

The contract wins come as the company continues to grow its international footprint with the opening of a new base in Houston, Texas. Adrian Quick has been appointed as business manager, responsible for the company’s operations in the US. He joins a further two employees in the Houston office with additional hiring plans already in motion in response to growing business.

Global-leading energy services company Proserv has been awarded a multi-million dollar contract from Apache Corporation for work on the UK Continental Shelf.

Proserv will supply a subsea control system and associated topside and subsea interface equipment for use on the new Callater wells located south of the Beryl Alpha platform.

The latest award comes after Proserv successfully completed work for Apache on the Bacchus and Aviat extension wells for the provision of subsea control modules and services in the Forties field.

Proserv engineer at work. Photo credit: Proserv

The design, manufacture and supply of the workscope will be carried out by Proserv’s team of subsea experts in Great Yarmouth, UK.

David Lamont, CEO of Proserv, said: “This is a significant win for the company that highlights the strength of our technical and engineering expertise as well as our market-leading status in the subsea controls and communications field.

“It also reinforces that there are still major opportunities in a low oil price marketplace to provide truly smarter solutions that challenge convention and reduce operating costs, extend field-life and maximize ultimate recovery. This is where Proserv uniquely delivers”.

Formerly known as Prospect K, the Apache Callater wells are situated 335 kilometers northeast of Aberdeen. Proserv will deliver four subsea control modules with standard interfaces to provide compatible support for earlier generations of subsea controls equipment and enable future link-ups with other existing field assets in the surrounding area. This will provide Apache with a truly flexible solution to seamlessly extend field life in the future without affecting the existing subsea control systems.

This latest deal builds on a successful period for Proserv, the company revealed in April that is had secured a multi-million dollar contract with Statoil for the provision of production control equipment in Norway.

Proserv is set to supply five wellhead hydraulic power units (HPUs) for Statoil’s Gullfaks oil and gas field in the Norwegian sector of the North Sea. Design, manufacture and supply will be carried out by Proserv’s specialist engineering and project teams in Stavanger, Norway.

SeaRobotics Corporation (SeaRobotics) has announced the delivery of 5 production TankBUG remotely operated vehicle (ROV) systems to the Pittsburg Tank & Tower Group of Henderson, Kentucky. Pittsburg Tank & Tower Group (PT&T) is an industry leader in the field of tank fabrication, installation, cleaning and inspection, with service operations throughout North America and internationally. Applicable to steel, concrete or fiberglass, the TankBUG provides safe, cost-effective removal of sediments and debris from water storage facilities and reservoirs. The reliability and efficiency of the TankBUG allows maintenance inspection to occur on a predictable schedule.

Fabricated in SeaRobotics’ high-specification manufacturing facility, the TankBUG ROV system is built around a compact reliable vehicle base with a forward-mounted articulated suction and brushing assembly. The design has been optimized to handle the rigors of working on ground and elevated storage tanks. Regular cleaning and inspection of in-service tanks without the use of divers will reduce the cost of maintenance, improve tank life, and reduce the risk to human life. When equipped with plate thickness, coating thickness, and other sensors, the TankBUG inspection report will lead to proactive maintenance procedures.

“Use of TankBUG has allowed us to improve the efficiency of cleaning and inspection, improve the safety of operations, and reduce the disruption of our client’s processes,” stated Shawn Potoka, Manager of Field Operations of PT&T. “We have been pleased with the TankBUG’s performance after numerous cleanings, and it has been well received by our clients. Without TankBUG we were required to manually drain the tanks, then clean and inspect them. That could take up to 3 days. The equivalent process with a TankBUG can be done in one day,” stated Shawn.

“The acceptance of TankBUG in the marketplace is an example of the growing market for service robots. With TankBUG and our related HullBUG product line of ship hull grooming, cleaning and inspection vehicles, we look forward to servicing an expanding robotic vehicle market offering derivative products,” said Don Darling, President of SeaRobotics.

There is something about Italian products, from consumer goods to industrial objects, that carries a stylistic flair. This is well represented in the cruise ships of the Fincantieri Shipyard, such as the 2015-delivered Britannia. More recently this flair for design and quality construction is evident in the 2016-delivered fast supply vessel Blue Brother from Cantiere Navale Vittoria SPA of Adria, on the Canal Bianco which connects to the Po River in the province of Rovigo,Italy.

Tecnonavi SRL of Ancona, Italy designed the 51.75 by 9.2-meter vessel. The aluminum hull, with a depth of 2.2 meters, is painted a bright red with a white superstructure. The well-fendered bow and stern allows for personnel transfers both fore and aft. The forward mounted accommodation has seating for 71 passengers and accommodations for up to 14 crewmembers. A crane-launched rescue craft is located on the upper deck, aft of the wheelhouse.

The vessel is fitted with a Dynamic Positioning 2 system from Kongsberg that includes two bow thrusters as a part of the required redundancy. Main propulsion power for the vessel is four Cummins KTA50-M2 diesels, each rated for 1342 kW (1800 HP) each at 1900 RPM. The engines each turn a fixed propeller through ZF 5050 A gearboxes with 2.962:1 reduction. The four engines deliver a total of 5,372 kW (7200 HP) to give the Blue Brother a top speed of 28 knots.

Capacities include 120 cu. meters of fuel, 115 CM or water and 1.5 CM of lube oil. While remaining under the ownership of the shipyard group, the boat will join the fleet of Bambini SRL under charter.

Bibby Offshore has announced a multimillion pound contract with a global energy player, to provide first gas and construction support on its assets in the Southern North Sea.

The contract, due to be executed between Q3 and Q4 2016, will see Bibby Offshore’s construction support vessel Olympic Ares, and its diving support vessel Bibby Polaris, perform subsea engineering work 150km off the coast of Lincolnshire, in water depths of 21m and 48m.

The workscope, which includes precommissioning and commissioning support, involves Bibby Offshore carrying out a range of construction services comprising valve operations, spool installation, umbilical pull in and lay, trenching and stabilization through installation of concrete mattresses. Supported by Bibby’s dedicated onshore engineering team, the company will have access to offshore construction and pull in/lay teams, ensuring efficiency and productivity is maximized.

The contract is Bibby Offshore’s second construction project with the client, following a previous successful campaign in 2015.

Howard Woodcock, chief executive at Bibby Offshore, said: “This is a significant win for Bibby Offshore - not only is it a strong representation of our technical engineering capabilities, but it further underlines our commitment to the North Sea market.

“Continued collaboration with this important and valued client reinforces confidence in our innovative solutions and operational abilities. In an increasingly competitive market, our skillset helps our clients conduct operations in a safe, efficient and cost-effective manner.”

MacGregor, part of Cargotec, continues to add to its market-leading Pusnes product range and its latest introduction is a Pusnes RamWindlass. The new windlass is based on a chain-jack design and employs similar technology used in MacGregor's successful range of Pusnes RamWinches.

MacGregor's new Pusnes RamWindlass meets market demand for ever more compact deck machinery arrangements

"The Pusnes RamWinch is well known in the industry for its compact size and low weight. It can be found on most of the spar platforms in the Gulf of Mexico and also on several other types of floating production units," says Torbjörn Rokstad, Director, MacGregor Pusnes Mooring Systems. "However, over recent years, market demand has seen the need for an even more compact, chain-jack type design, resulting in the development of our new RamWindlass."

Current RamWinch designs have a main cylinder that extends below the winch foundation plates to exert the stroke or 'jacking' movement and each stroke moves the chain two links at a time. The Pusnes RamWindlass features some significant advances over current RamWinch designs. For example, it locks the chain on every chain link, instead of every second link. Locking one link at a time translates into a shorter stroke for the ram, which therefore requires less space. Also jacking occurs on the cable lifter, not on the chain.

"Space is at a premium on floating production units and with the new RamWindlass operators will benefit from an even more compact design, which requires less height clearance in the mooring arrangement," continues Mr Rokstad.

The Pusnes RamWindlass has an all-in-one foundation requiring no deck penetration and its simple design leads to low maintenance requirements and high levels of reliability.

"Our extensive knowledge and experience of operating Pusnes RamWinches has been an essential part of the design process for the new RamWindlass," adds Mr. Rokstad. "All in all there is great market potential for it."

Trust is earned, and after equipping over 20 purpose supply vessels (PSV)/multipurpose supply vessels (MPSV), GE (NYSE: GE) is proud to have been chosen as the trusted partner of choice for Hornbeck Offshore Services’ (HOS) next generation of U.S. flag, Jones Act-qualified MPSVs, constructed at Eastern Shipbuilding.

The scope of GE technology onboard these two vessels include the first MKII MV3000 Active Front End (AFE) drive. Manufactured in Kidsgrove U.K., these drives have one of the highest power density of any drive ever produced by GE’s Marine Solutions, providing performance comparable to a much larger solution while occupying far less space onboard.

Hornbeck MPSV

In addition to the drives, GE has also provided its latest generation dynamic positioning (DP) system. With the help of HOS’ input, the SeaStream* DP system has a completely redesigned and improved user control interface. The new interface puts the control of the ship back into the hands of the mariner with simpler, intuitive controls allowing critical information to be delivered in an easy to comprehend manner for the user, which results in more efficient DP operations.

Commenting on the project, Ken Munroe, executive vice president and chief operating officer of Eastern Shipbuilding Group said, “GE has already provided equipment on more than 20 vessels built by us, which is a testimony of our trust in their solutions. Throughout our long-term relationship, we have been very happy with their high-performance solutions.”

“These are our flagship U.S. MPSVs, and we are delighted to have some of the newest and most-advanced technology from GE equipping them,” said William Krewsky, director of projects and engineering at Hornbeck Offshore. “The solution provided by GE has been met with initial appreciation by our fleet operators during the sea trials and delivery of the lead vessel.”

Tim Schweikert, president & CEO, GE’s Marine Solutions said, “At GE, customers define our success. We are delighted to provide the best of our solutions to enable Eastern Shipbuilding to build the next flagship vessels for HOS. Our longstanding relationship with them is a result of providing years of cutting-edge and reliable solutions, which have met their high standards.”

GE will provide its solutions for two of HOS’ MPSVs, both of which were delivered by the yard in January and April of this year, respectively. GE will also provide training to enable operators to use the new technology efficiently.

• Indicates a trademark of the General Electric Company and/or its subsidiaries.

Canadian Wildfires Tighten Onshore Markets in May

Crude prices surged in April on market expectations of tightening fundamentals in the second half of the year. Dangerous wildfires in the oil sands town of Fort McMurray, Alberta, have caused substantial volumes of production to be shut in which will support Canadian differentials.

Seasonal Rally Stalls on Restocking Concerns

A “business as usual” approach to rebuilding inventories is simply not achievable in light of the record end-winter storage level. Moreover, a sustainable recovery in prices will simply not occur unless the weekly injections significantly trail the average. Toward that end, PIRA foresees the acceleration in production declines playing a key role to seasonal rebalancing — eventually moving prices back in line with levels that justify the lifting costs for producers.

Coal Demand Hammered in Europe, ex Germany; Bullish Policy Risks Surface

2016 is looking to be a difficult year for European coal-fired generation, with increasing hydro and renewable generation and more competitive gas pricing slashing coal burn and pushing coal generation to new multi-year lows. In contrast to the rest of Europe, German coal-fired dispatching is holding up quite well. While German gas units are up year-on-year, the bulk of German coal is finding support in a variety of factors, ranging from lower nuclear and inflexible lignite generation or even resilient power exports. In this context, it’s interesting German policymakers appear once again to be shifting toward an even tougher stance against carbon-intensive generation.

Oil Drags Coal Lower; Prompt API#2 Finds Some Support

Prompt seaborne thermal coal pricing was mixed last week, with API#2 (Northwest Europe) finding some support from the rise in NBP gas pricing and evidence of Colombian supply shifting into the Pacific Basin (discussed below), while FOB Newcastle (Australian) prices weakened marginally. Beyond the prompt market, all three pricing curves moved decidedly lower, with the decline in the oil market pulling coal prices lower. Looking ahead, much will depend on the strength of Pacific Basin coal demand and whether or not demand growth there will be strong enough to offset weakness in the Atlantic Basin and absorb excess supply moving east.

CA Carbon Burdened by Auction Lawsuit

Benchmark California Carbon Allowance contract prices have rebounded from April lows below the floor price, likely related to the auction lawsuit. PIRA expects the May auction to be undersubscribed, but ongoing buying works to push secondary market prices in line with the auction reserve. PIRA believes the auctions will be ultimately be upheld; in any case, they would not be halted until the CA Supreme Court rules in 2017. The market will continue to react to legal developments.

Military Progress in Yemen Could Lead to a Partial Resumption of Oil Production

Reports indicate that Yemen could export a crude cargo from its southeastern Ash Shihr terminal as soon as the end of May. Exports from Ash Shihr have been shut for over a year, but a restart became possible in late April when the Saudi-led coalition retook control of the facility from Al Qaeda. Ash Shihr handles all of the oil exports from Yemen’s Hadramawt province, where production reportedly totaled ~50 MB/D before port closures in April 2015. The cargo in question will most likely come from storage, but a production restart could potentially follow.

S&P 500 Eases

The S&P 500 eased again this past week. It was its second straight decline after a nice leg higher over the better part of two months. Despite the drop, high yield debt (HYG) improved, while emerging market debt (EMB) was flat. Volatility increased and the Russell 2000 eased. The yield on the BAA-rated corporate bond has continued to decline. The U.S. dollar was generally lower, and commodities were mixed on the week.

U.S. Ethanol Output Falls

Inventories built, rebounding from a three-month low the week ending April 29. Ethanol-blended gasoline manufacture fell from a 2016-high.

Uncertainty Rules

May and June WASDE’s rely on acreage from the Prospective Plantings (PP) report at the end of March and trend line yields established by the USDA at its annual Outlook Forum in February. With that history, plugging in the numbers should be pretty straight forward in estimating this week’s WASDE and June for that matter. That said, there seems to be a lot of consternation this month as far as estimates are concerned.

Refining Healthy, But Carefully Balanced

Tightening balances will push crude prices higher with fundamentals now passing their weakest point. The global stock surplus will start to decline in 2Q16, with a larger drop in 2H16. European refining margins will stay generally healthy and runs reasonably high through the summer before weakening. But product markets are carefully balanced, with strong demand growth offsetting high refinery production/stock levels. Gasoline cracks will stay seasonally strong, but lower than in 2015. Diesel cracks will only gradually recover, weighed down by high stocks.

Focus on the Gas Flows, Not Carbon Floors

The recent jump in spot gas prices reflects trader jumpiness more than a change in underlying fundamentals. Spikes in recent weeks have been assigned to proposed carbon floors, initially in France and potentially across the European Union. In first looking at the French proposal, PIRA outlined in our European Electricity Service that the impact of gas demand on the Continent may not look the same as the experience of the carbon floor in the United Kingdom. For the gas market to move up and remain up on these policy changes, asset players, like utilities, need to be buying these volumes for their hedging portfolios. Given that no policy has officially changed, PIRA sees most of this move up as speculative and not possessing strong legs.

Global Equities Ease Again

Global equities generally fell back again on the week. Defensive sectors did the best, with consumer staples and utilities posting gains and the defensive indicator being marginally changed. In the U.S., energy was down 3.3% and banking down 3.8%. Internationally, all the indices, other than Japan, which posted a gain, did worse than the U.S. Latin America and emerging markets were the weakest performers.

U.S. Ethanol Prices Advance

Ethanol prices rose during the week ending April 29. Prices were driven by a plunge in output, strong demand and declining stocks. Higher corn and petroleum values were supportive.

Wheat Tour Impresses

Tour findings suggest a Kansas wheat harvest of an amazing 382 million bushels, 19% higher than USDA estimates. Timely rains, not genetics, were the main catalyst. The Kansas crop is now considered by many to have the potential of “best ever.” The average field yield estimate was almost 49 bpa, up 13 bpa from last year. With yields like that, the “loss” of 7.6% of planted acreage just doesn’t matter.

Perhaps the Market Will Get a Little Short-Term Help It Needs Nows?

Unlike April, May is not a good seasonal month for crude oil prices going up. While fundamental data continues to point to ongoing rebalancing of oil markets, with for example U.S. oil inventories increasing at roughly half the typical rate in April, stocks are still increasing from an already high level. Prices have not surprisingly moved up faster than the improvement in supply/demand, but this is the way our market works and this will continue to be the case. But this does indeed pose risks to the front of the market with time spreads particularly exposed. Europe looks dodgy with prompt cargoes backing up, despite a healthy North Sea maintenance program in June and with especially strong futures time spreads. On our side of the Atlantic we have a big build coming up in next week’s EIA data in Cushing, partly related to Marketlink maintenance, but now the market is receiving help from the Canadian wildfires. While this is indeed cruel help because of the concerns about loved ones and the savagery of lost homes, there will be lost oil output. So far, it could be perhaps as much as 500 MB/D that is shut in and there are risks to much greater supply.

Global LPG Weekly Scorecard

U.S. Mont. Belvieu LPG prices faired marginally better than the broader energy markets: propane prices declined last week by only 1.5% to near 49 ¢/gal, while butane dropped 0.5%to near 63¢/gal.

U.S. LNG Storage Will Emerge as a Trading Asset

In the unchartered terrain of U.S. Gulf LNG production, with its unprecedented potential for massive gas demand swings, the relatively quiet realm of LNG storage is set to become a hotter commodity off which to trade. If Henry Hub prices are already being affected in some part by the on-again, off-again nature of 700-800 MMCF/D (19.8-22.7 MMCM/D) of gas flows to Sabine Pass, what kind of volatility can we expect a few years down the road when 8-10 BCF/D (227-283 MMCM/D) of gas flows are tied to U.S. LNG production?

February 2016 U.S. Domestic Production Decline Accelerates, Still Trails PIRA Estimates

DOE recently released its February oil balances. Domestic crude supply, which is domestic crude production plus the balancing item, fell 266 MB/D, month-on-month, and shows a year-on-year decline of 646 MB/D. In contrast, the weekly data posted a monthly equivalent decline of 195 MB/D, Feb. vs. Jan. This implies domestic crude supply was reduced 71 MB/D from what the weekly data had been showing. As PIRA has pointed out the DOE monthly collection methodology tends to overstate production since its survey universe lacks full coverage of smaller producers. It is the balancing item that reflects this bias and this is why PIRA adds it to reported production to estimate domestic crude supply. This was referred to in a PIRA Spotlight, posted March 3rd, titled, "Negative Balancing Item Points to Lower than Reported U.S. Crude Production."

Business Customers Gas Prices Under Review in France

France’s antitrust regulator has ordered power utility Engie SA to change its natural gas prices for non-residential customers to better reflect its costs. Acting on a complaint filed in October by rival Direct Energie, the regulator, Autorité de la Concurrence, said Engie, formerly known as GDF Suez, didn’t reflect all its costs in some of the individual offers made to large companies. The company’s price policy could threaten to push rivals out of the market, it said. Even though the probe isn’t complete, the regulator said it found enough evidence to force Engie to change its pricing policy immediately.

U.S. Labor Market Is Still Solid, But What About the Equity Market?

In April U.S. job growth came in below expectations, and the household labor market survey showed sluggishness. Meanwhile, the ISM business surveys and vehicle sales were constructive. Overall, the U.S. economy’s momentum has stayed intact in all likelihood, while the chance of the Fed staying put at the next policy meeting has become even greater. Other topics discussed in this report: the relationship between gasoline prices and U.S. consumer spending; the price-income ratio for U.S. housing; and a recent significant rise in the price-earnings ratio for the S&P 500 index.

Aramco Pricing Adjustments for June Suggest Willingness to Sell Less Oil

Saudi Arabia's formula prices for June were just released. The biggest change was a tightening in pricing into Asia. The changes to Asia suggest that Saudi is willing to see its liftings drop if customers so choose. In Northwest Europe, pricing was also tightened on all grades except for Arab Extra Light. The adjustments were in alignment with PIRA's European pricing model. Pricing for U.S. destinations was reduced $0.20/Bbl on all grades except for Arab Light, which was left unchanged.

Canadian Wildfires Hit Oil Sands Production

Wildfires continue to ravage the Fort McMurray area, compelling oil sands operators to shut facilities or curtail volumes to allow workers to evacuate. PIRA estimates current production losses to be around 1.0 MMB/D and expects the cumulative loss to be between 10 to 15 million barrels in our Reference Case scenario. No oil sands facilities have so far been damaged, but the situation is obviously unpredictable. Production losses are expected to result in strengthened western Canadian differentials, with Syncrude-WTI expected to rise from $1.45/Bbl in April to $3.50/Bbl in May and WCS-WTI expected to strengthen from a discount of $12.40/Bbl in April to $11.75 in May.

The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA’s current analysis of energy markets around the world as well as the key economic and political factors driving those markets.

Forum Subsea Rentals, a subsidiary of Forum Energy Technologies, Inc., has further strengthened its global offering of state-of-the-art rental equipment by placing a multi-million dollar equipment order with subsea technology provider, Sonardyne International Ltd.

This order demonstrates Forum’s commitment to long-term growth and continued investment in new equipment to ensure customers are offered the latest, cost-effective rental solutions coupled with assurance of reduced downtime by utilising new assets.

Some of the equipment ordered will deployed within Forum’s global rental pool, however the majority is committed to secured field development projects in West Africa and North Africa.

Included in the order are multiple Ranger 2 GyroUSBL acoustic positioning systems which combine Sonardyne’s 6G acoustic positioning transceiver technology and a Lodestar AHRS sensor in the same mechanical assembly. These systems are ideally suited for quick deployments on vessels of opportunity as without need for a USBL calibration to determine the alignment of the ship’s motion sensors to the acoustic transceiver, they provide significant saving in vessel time and operational costs.

Richard Main, Operations and Global Asset Manager for Forum Subsea Rentals, said: “Our continued investment in new products is essential to ensure the long term reliability and dependability of the Forum Subsea Rentals global fleet. Even given the downturn in the industry, demand for Sonardyne 6G equipment remains high and this further investment in the technology will ensure that we are well placed to meet our customers’ requirements and position us well when the market recovers.”

Alan MacDonald, Sales Manager for Sonardyne, commented: “Forum Subsea Rentals has long been a rental supplier of Sonardyne equipment and we’re delighted with the continued demand for 6G to support important field development projects. This latest investment demonstrates continued commitment to providing its customers with the best available and lowest risk subsea technology for all their survey and construction campaigns.”

Saipem and its consortium partners Bos Shelf and Star Gulf have been awarded call-off 007 under the Shah Deniz Stage 2 Master Agreement by BP, on behalf of the Shah Deniz partnership. The total value of the contract is approximately $1.5 billion (Saipem share approximately $1.3 billion), with a duration of five years plus a possible extension for a further five.

Shah Deniz gas field in the Caspian Sea. Photo credit: BP

The Shah Deniz field is located 90 kilometers offshore Azerbaijan, in water depths from 75 meters to 550 meters. The scope of work of the call-off refers to the transport and installation of subsea production systems and subsea structures, laying of fiber optic cables and production umbilicals, laying of 90 kilometers of pipelines, the activation, crewing and operations management of the new-build Subsea Construction Vessel (SCV) Khankendi, the SCV diving support, remotely operated vehicle (ROV) support and marine base management post 2017.

Saipem has been involved in the Shah Deniz Stage 2 project since 2014.

Commenting on the award, Stefano Cao, Saipem CEO, said: “We are delighted to have secured this major award, which enables us to continue and consolidate our 20-year relationship with BP and Socar in Azerbaijan and to put our world-class people and technologies at their disposal for the timely and efficient delivery of Shah Deniz Stage 2. This award also further strengthens Saipem’s key role in the construction of the Southern Gas Corridor where the company has a total of four contracts, in the upstream segment and in gas transportation infrastructure both onshore and offshore.”