NYC-based PIRA Energy Group believes that recent economic softness will be temporary and we continue to expect above-trend growth in 2014. On the week, pretty close to flat U.S. stock profile, while Japanese crude stocks built sharply. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Economic Softness Will Be Temporary

PIRA believes recent economic softness will be temporary and we continue to expect above-trend growth in 2014. While flat price has ignored weaker economic data, crude stock builds are forecast to somewhat undermine bullish sentiment. Global refinery runs will bottom in April and then move sharply higher by midyear. Light product inventories will remain low, but diesel cracks will seasonally ease while gasoline cracks strengthen. Political risks to supply are growing, raising the probability of even larger MENA disruptions than PIRA is assuming.

Pretty Close to Flat U.S. Stock Profile

Commercial oil inventories decreased a slight 0.50 million barrels this past week, all of which was in products. This is the seventh consecutive week of product stock declines. Large product stock declines are quite typical in February because it is a strong product demand month. In fact, last year's product inventory decline during February was even larger with this past week's decline being 7.0 million barrels.

Japanese Crude Stocks Build Sharply

Total commercial stocks jumped 7 MMBbls with crude moving higher by nearly 8 MMBbls due to a surge in implied imports. Finished product stocks fell largely due to a strong draw on kerosene but also smaller draws on the other major products. Gasoil demand was very strong at 992 MB/D, the third highest level in a year. The indicative refining margin was modestly lower with all the major cracks weakening slightly.

Prices Will Be Under Some Downward Pressure

Brent crude prices remain supported by relatively tight global supply-demand balances due to continued supply disruptions and low stocks. United States crude prices relative to Brent will be choppy with WTI stronger with new pipelines, while the entire USG complex will see inventory builds during U.S. refinery maintenance before tightening again later in the 2nd quarter. European distillate cracks will trend lower as demand seasonally eases and currently tight inventories build back when Atlantic Basin runs ramp up after maintenance. Gasoline cracks are likely to increase significantly over the next few months with Atlantic Basin inventories expected to be lower than last year.

December 2013 DOE Revisions

DOE recently released its final monthly December 2013 (PSM) U.S. oil supply/demand data. While demand was revised lower by 519 MB/D, strong year-on-year gains continued. Total commercial inventories were revised higher by 8.5, with all the upward revision in products. Inventory levels of both crude and product were in deficit compared to year-ago, with that deficit having grown from end-November comparisons.

Severe Winter Weather Impacts Rail Performance

Every few years, severe winter weather causes major problems for rail transportation. This winter the weather problems have caused a record deterioration in service performance for the major U.S. railroads. These problems have contributed to the slight decline in U.S. crude by rail volumes since early December 2013. It will take two or three weeks for the rail system to recover from the cumulative effects of the weather, assuming that the rest of the winter returns to “average.” So the impact on crude by rail volumes will continue to be felt until mid-March, at a minimum.

U.S. Propane Exports Set a Record

U.S. propane exports set a new record in 2013 and are expected to increase further during the course of 2014. This will tend to keep inventories relatively low during the upcoming year, especially with stocks ending 1Q at around a record low for the period. As the season ends it will be necessary for the European and Asian chemicals operations to pick up the pace of LPG feedstock usage.

The Output of Ethanol-Blended Gasoline Soars

The production of ethanol-blended gasoline increased to a two-month high of 8,364 MB/D the week ending February 21 from 8,069 MB/D in the preceding week. U.S. ethanol output climbed for the third consecutive week, reaching 905 MB/D for the first time in five weeks.

Russian Gas Risks Greater for Central Europe; Oil Risks Minimal

The Ukrainian corridor for Russian gas exports is not as important as it used to be, but it still plays a central role in European gas supply. PIRA's analysis of pipeline flows shows that Russia can divert a little over half of the gas it moves through Ukraine to locations all over Europe. Spare capacity in the Nord Stream (Baltic) pipeline to Germany and the Yamal pipeline through Poland will allow Western Europe to receive most of the gas it needs. Central Europe and the Balkans could face some scarcity if the Ukrainian route were to temporarily disappear, but this is considered unlikely. For oil, there is less potential impact than with gas since most Russian oil exports go by tanker from Russian ports in the Baltic and Black seas.

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.

Oceaneering International, Inc. (NYSE: OII) has reported record fourth quarter and annual earnings for the periods ended December 31, 2013.

For the fourth quarter of 2013, Oceaneering earned net income of $93.4 million, or $0.86 per share, on revenue of $894.8 million. During the corresponding period in 2012, net income was $80.6 million, or $0.74 per share, on revenue of $780.9 million. For the year 2013, Oceaneering reported net income of $371.5 million, or $3.42 per share, on revenue of $3.3 billion. For the year 2012, net income was $289.0 million, or $2.66 per share, on revenue of $2.8 billion.

Fourth quarter 2013 results included a $3.3 million charge to establish an allowance for doubtful accounts related to Remotely Operated Vehicles (ROV) receivables from OGX Petróleo e Gás S.A., which initiated a court-supervised restructuring under Brazilian bankruptcy law during the period. This charge was recorded as an ROV selling, general and administrative expense.

Quarterly EPS increased year over year due to profit improvements by all oilfield business operations, led by ROV and Subsea Products. Subsea Products achieved record quarterly operating income.

Annual EPS increased as all operating segments attained higher income. Four of five segments achieved record operating income. Although not a record, Subsea Projects operating income increased by 48%. Overall operating margin was the second highest in Oceaneering's history.

M. Kevin McEvoy, President and Chief Executive Officer, stated, "Results for the fourth quarter and the year were exemplary as we achieved record EPS in each period. Our ability to produce these exceptional results is largely attributable to our global focus on deepwater and subsea completion activity, the business expansion strategy we have in place, and our solid operational execution.

"We achieved record ROV operating income for the tenth consecutive year on higher global demand to provide drill support and vessel-based services and the expansion of our fleet. We increased our days on hire by more than 9,000, to over 91,000 days for the year. Our fleet utilization rose to 85% from 80% in 2012. During 2013 we put 26 new ROVs into service, retired 10, and transferred 1 system to Advanced Technologies for non-oilfield use. At year end, we had 304 vehicles in our ROV fleet.

NYC-based PIRA Energy Group believes that low inventories are currently supportive for oil prices. On the week, U.S. product stocks draw while crude builds, while in Japan crude and finished product stocks ease. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

World Oil Market Forecast

Significant momentum in major developed economies should provide a lift for emerging markets, eventually easing financial market pressure. Low inventories are currently supportive for oil prices. Diesel cracks stay strong for two to three more weeks before seasonally weakening, while gasoline cracks will benefit from a substantial refinery maintenance program. Cushing crude stocks will drain, supporting WTI, while also weighing on LLS, but then back pressure on WTI will occur until refiners return from maintenance. Political risks were balanced in January and PIRA assumes disruptions remain high but will decline in 2014, although it is by no means a sure bet.

U.S. Product Stocks Draw While Crude Builds

Total commercial inventories decreased this past week with major draws in products partially offset by a large build in crude. The drivers behind this week were mostly due to a weather-related demand surge and a crude import surge to over 8 MMB/D for the first time since September (which was also partly weather-related as imports bounced back from earlier port delays). Products drew (and crude built) even with higher crude runs and higher product imports.

Japanese Crude and Finished Product Stocks Ease

Crude runs eased on the week and the crude import rate backed down from 4.2 MMB/D to 3.66 MMB/D. The 1.6 MMBbl crude stock draw was a reversal of the build seen the previous week. Finished products drew 1.5 MMBbls with a modest decline in gasoline and gasoil and more substantial declines in jet-kero and fuel oil. The indicative refining margin was modestly lower with all the major product cracks declining slightly.

U.S. Propane Continues to Lead the NGL Market

U.S. propane storage is at a new all-time period low for the latest week. The weather will remain quite cold with stocks drawing further. The imbalances in the Midcontinent are being somewhat relieved as movements are redirected. The flow of product from the USGC is expected to slow given current adverse trade economics.

U.S. Ethanol Prices and Margins Tumble

U.S. ethanol prices and margins tumbled in January. Higher corn and natural gas prices and lower co-product DDG credits also put downside pressure on margins. RIN prices soared due to uncertainty in the timing of the EPA finalizing the biofuel requirements for 2014. 

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. 

Liftboats have come a long way. Since breaking out of the Gulf of Mexico the global fleet of these self-propelled, self-elevating vessels has grown by over a third and now stands at more than 300 units worldwide. They are now tried and trusted in West Africa, the Persian Gulf and the North Sea. In South East Asia, they are finally gaining a foothold with key operators. Unlike immobile jack-up barges, liftboats offer more, typically performing well intervention, maintenance and installation workscopes. They are now being used for offshore EOR campaigns and we would not be surprised to see a growth in such deployments. The concept is also making a big impact in the offshore wind turbine installation business.

Here at DW, we have been monitoring the oil and gas liftboat markets and as a conservative forecast, we expect the demand for liftboats outside the Gulf of Mexico to increase by more than 3,500 days over 2014-2018. A number of factors will contribute to this, the two most important being their improved specifications and the increased recognition from operators of the value liftboats represent.

With the latest generation of liftboats offering increased water depth capabilities they are able to access an increasing proportion of existing fixed platforms. The increased deck space they offer enables them to carry more equipment, such as coiled tubing or chemicals for well intervention work – here their value is underlined by Halliburton's decision to invest in a fleet of five for its Gulf of Mexico slickline services. But arguably the biggest factor behind the increase in demand will be the attitude of E&P operators who are renowned for their conservatism; their aim in the race for new approaches is usually to finish second. However, despite this, liftboats have broken through. And demand is growing.

Douglas-Westwood

NYC-based PIRA Energy Group believes that ongoing growth of shale continues to dominate both the oil and gas outlooks. On the week, the U.S. product stock draw resumes, while Japanese commercial stocks drew sharply. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Shale Growth Continues To Dominate

The ongoing growth of shale continues to dominate both the oil and gas outlooks. Even with a slowdown in growth from the recent pace, shale will remain a major contributor to global liquids growth and the US will still face a steady decline in import requirements. However, we continue to face increasing violence in Iraq, significant outages in Libya coupled with political turmoil, sanctions and extremely uncertain negotiations with Iran, growing unrest in Venezuela, and an unending war in Syria that could spread violence anywhere in the Middle East. The bounceback of global demand growth in 2013, even during a subpar economic growth year, confirms our view that reports of the death of demand growth are premature.

U.S. Stock Draw Resumes

Overall commercial oil inventories drew this past week with product stocks falling and crude building. This was the sixth consecutive weekly product stock decline and fifth consecutive crude inventory build. The entire product inventory decline was outside of the three major light products, for they built a combined 0.6 million barrels. A similar major light product inventory profile is forecast for next week. In contrast, crude inventories are forecast to decline, for the Gulf Coast faced extended weather related delivery delays which will keep imports low.

Japanese Commercial Stocks Draw Sharply

Total commercial stocks were sharply lower by 8.6 MMBbls due to a sharp drop in crude stocks and a much lower draw in finished products, which was mostly kerosene. Runs eased slightly and crude imports plunged. Gasoline and gasoil demands fell back slightly, and gasoline stocks build modestly, while gasoil stocks still were able to post a small draw on much lower yield and higher incremental exports. Kerosene demand perked up and the draw rate came in at its highest rate of the year

U.S. Refiners Have Significantly Reduced Yield of Fuel Oil + Asphalt

U. S. refiners have typically had the lowest yield of residual fuel products (residual fuel oil plus asphalt) compared to other refiners worldwide. However, beginning in 2008, U.S. refiners have reduced their yield of fuel oil/ asphalt at a faster rate than can be accounted for by facilities additions alone, from over 7% to less than 5%. With continued substitution of light shale crudes, PIRA estimates that the yield of fuel oil plus asphalt for U.S. refiners will continue to decline to around 4%.

U.S. Propane Stocks Will Continue Lower

Export cancellations and fog delayed shipping from the USGC led to a relatively low stock draw last week. The pace of inventory decline should pick up as new record low positions will continue to be set. The March trading arb is open. Winter is not yet over but sentiment shifted as it is close to winding down, but not before some late season cold blasts.

Ethanol Manufacturing Margins Rise

U.S. ethanol production margins improved significantly the week ending February 14 due to higher ethanol values, stable corn costs, and lower natural gas prices. Rising DDG and RIN values also provided support

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.

For several years we have been voicing our concerns over a tide of issues facing the oil majors; firstly it seems that their oil production has peaked, then one year ago we noted that the spiraling capital expenditure was unsustainable – some will remember that the likelihood of 'Capex Compression' was the subject of our first 'DW Monday'. And it is now happening. Hess's 2014 spend is to be 30% lower than that of two years earlier, Shell is reducing by 20% compared to 2013, BG's is also set to fall and BP's Bob Dudley has stressed the importance of "capital discipline".

The upstream spend of the publicly listed international oil majors totaled about $270bn in 2013, approximately one-third of industry upstream spend. If we project the trajectory of Shell to the other IOCs then we might expect their Capex to fall by 20% over the next two or three years. This would equate to about 7% of the total industry's annual upstream Capex. The brunt is likely to be felt in the high Capex segment, notably in arctic, deepwater and LNG projects, reflected in our forecasts being somewhat more conservative than other firms.

However, there is the other 93% of Capex to go for, possibly in excess of $650bn in 2014. There are two other important groups of players in the game – the highly innovative smaller independent oil companies responsible for the surging onshore production of oil & gas from the US shales and at the other end of the scale the national oil companies such as Saudi Aramco. The NOCs are typically characterised by long-term spending programmes, and commit to long contracts for equipment and services. The NOCs are in the main continuing their spend – as we will show in a later edition, they are having to drill more and more holes for less and less oil. Indeed, in the latest Barclay's Capital industry survey, the NOC's expected their spend to grow at some 11%.

So what of the impact on the oilfield services companies? The cutback in high Capex projects will impact on the unprepared and those who do not have diversified offerings and client base. But all downturns bring major opportunities for well financed companies able to take the long term view – oil & gas is not a short-term business. Indeed, our research in Middle East tells us that the process of becoming an accepted vendor to NOCs such as Saudi Aramco can take several years.

Finally it must be remembered that E&P is not just Capex – the oil and gas must be kept flowing and the associated maintenance, modifications and operations (MMO) spend keeps slowly ramping upwards.

Douglas-Westwood

Speaking to investors today, new Shell CEO Ben van Beurden updated on the company’s priorities: improving Shell’s financial results and achieving better capital efficiency, as well as continuing to strengthen operational performance and project delivery.

Van Beurden, who became the new CEO of Royal Dutch Shell plc (“Shell”) on 1 January 2014, said Shell’s strategy overall is sound. The company has a high quality portfolio and key strengths in technology and project delivery. Shell will continue to invest in new projects that deliver more energy to customers, and create value for shareholders. The strategy is designed to deliver through-cycle growth in cash flow, to drive competitive returns and a growing dividend.

Van Beurden said: “Our ambitious growth drive in recent years has yielded a step change in Shell’s portfolio and options, with more growth to come, but at the same time we have lost some momentum in operational delivery, and we can sharpen up in a number of areas.”

“Our overall strategy remains robust, but 2014 will be a year where we are changing emphasis, to improve our returns and cash flow performance”, he continued, highlighting three priorities:

•    Improved financial performance, including restructuring in some areas of the company

•    Enhancing capital efficiency, with hard choices on new projects, reduced growth investment,

    and more asset sales

•    Continued strong delivery of new projects, and integration of recent acquisitions.

The landscape the company had expected has changed. Factors such as the worsening security situation in Nigeria in 2013, and delays to non-operated projects in several other countries, have altered the outlook. Oil prices remain high globally, but North America natural gas prices and associated crude markers remain low, and industry refining margins are under pressure. Restructuring and improving profitability in North America Upstream resources plays, and Oil Products world-wide, is a particular focus for the company.

The recent Ninth Circuit Court decision against the Department of the Interior raises substantial obstacles to Shell’s plans for drilling in offshore Alaska. As a result, Shell has decided to stop its exploration program for Alaska in 2014. “This is a disappointing outcome, but the lack of a clear path forward means that I am not prepared to commit further resources for drilling in Alaska in 2014,” van Beurden said. “We will look to relevant agencies and the Court to resolve their open legal issues as quickly as possible.”

The company will increase the pace of asset sales, which are expected to be $15 billion for 2014-15 combined in Upstream and Downstream. “We are making hard choices in our world-wide portfolio to improve Shell’s capital efficiency”, van Beurden said.

With a changing operational landscape and the streamlining of Shell’s portfolio, the company will no longer be updating against previous cash flow and net spending targets. “I want Shell to be measured on our competitive performance”, van Beurden said.

Capital spending will be reduced. In 2013, this totaled $46 billion, including $8 billion of acquisitions. In 2014, Shell expects total capital spending of around $37 billion, including $2 billion of previously announced acquisitions.

Innovative large-scale projects such as Pearl gas-to-liquids have been the main drivers behind Shell’s recent increase in cash flow, which reached over $87 billion in 2012-13 combined, an increase of 35% on 2010-11. Recent start-ups and Shell’s latest projects and acquisitions – dominated by liquefied natural gas, and deep-water oil in the Gulf of Mexico, Brazil and Malaysia – are expected to build on this growth in 2014.

Shell has distributed more than $11 billion to shareholders in dividends and repurchased $5 billion of shares in 2013. Reflecting confidence in the potential for free cash flow growth in 2014, the company is expecting the Q1 2014 dividend to be $0.47/share, an increase of over 4% compared to Q1 2013, and total dividends announced in respect of 2014 to be potentially over $11 billion.

Coastal Energy Company ("Coastal") (TSX:CEN) (AIM:CEO) announces the successful completion of the previously announced merger (the "Merger") with Condor Acquisition (Cayman) Limited (the "Purchaser"), a newly-incorporated entity controlled by Compañía Española de Petróleos, S.A.U. ("CEPSA") and in which Strategic Resources (Global) Limited ("SRG") is an investor. Pursuant to the Merger, the Purchaser acquired all of Coastal's issued and outstanding shares (the "Common Shares") for consideration of C$19.00 per Common Share with effect from January 17, 2014.

With the completion of the Merger, the Common Shares are expected to be delisted from the Toronto Stock Exchange ("TSX") 2 to 4 business days following closing. In addition, the depositary interests representing Common Shares will be delisted from the AIM market operated by the London Stock Exchange plc ("AIM") with effect from 7:00 am (UK time) on January 21, 2014. Coastal intends to apply to the relevant securities regulatory authorities to cease to be a reporting issuer in the applicable jurisdictions in Canada.
Advisors and Legal Counsel

Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC acted as financial advisors to Coastal. Stikeman Elliott LLP, Cleary Gottlieb Steen & Hamilton LLP and Walkers acted as legal advisors to Coastal. Goldman Sachs International acted as financial advisor to CEPSA. PriceWaterhouseCoopers acted as a financial advisor to CEPSA and SRG. Freshfields Bruckhaus Deringer acted as legal advisor to CEPSA. Blake, Cassels & Graydon LLP, Baker & McKenzie International and Conyers Dill & Pearman acted as legal advisors to CEPSA and SRG.

Net income was 11% up on 2012 due to diesel (20%) and gasoline (11%) price increases in 2013, increased production of oil products, cost optimization, gains from the sale of assets, lower write-offs for dry wells and lower foreign exchange impact due to hedge accounting. Adjusted EBITDA totaled R$ 62.967 billion, up 18% on 2012.

Fourth quarter net income was R$ 6.281 billion, up 85% on the third quarter. This result reflects higher oil export volumes, lower dry well write-offs, gains from sale of the interest in block BC-10 and tax benefits stemming from provision of interest on own capital.

2013 oil and natural gas production totaled 2.539 million barrels of oil equivalent per day (boed), down 2% on 2012, primarily due to delays in starting up new systems, natural decline of fields and sale of assets abroad. Fourth quarter domestic output was up 1% on the third quarter.

In 2013, five new platforms came on stream and another four systems were deployed at their permanent locations. A pre-salt daily output record of 371,000 bpd was set on December 24th.

Proven reserves in Brazil reached 16 billion barrels of oil equivalent, up 1.6% on 2012. The Reserve Replacement Ratio has been higher than 100% for 22 years in a row.

Average production of oil products in Brazil totaled 2.124 million bpd in 2013, up 6% on 2012, cutting back diesel and gasoline imports.
 PROEF (Campos Basin operational efficiency improvement program) contributed with additional oil output of 63,000 bpd. Operational efficiency reached 75% for the Campos Basin Operational Unit (UO-BC) and 92% for Rio (UO-RIO).

PRODESIN (divestment program) contributed R$ 8.5 billion to cash flow in 2013 .

PROCOP (operating costs optimization program) achieved savings of R$ 6.6 billion in 2013, exceeding the R$ 3.9 billion target set for the year.

NYC-based PIRA Energy Group reports that western Canadian and Bakken crude price differentials strengthened in January. On the week, U.S. stocks declined. In Japan, crude and product stocks also drew. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Western Canadian and Bakken Crude Price Differentials Strengthened

Western Canadian and Bakken crude price differentials strengthened in January, as frigid temperatures in the North slowed production growth, and rail volume continued to rise. Cushing stocks were flat in January, but WTI moved into backwardation in anticipation of large stock draws following the recent startup of TransCanada's Gulf Coast pipeline.

Another U.S. Stock Decline

January has been remarkable with U.S. oil inventories falling over 700 MB/D or some 22 million barrels. This past week contributed 5.3 million barrels of the decline, all of which was in products since crude oil inventories built slightly

Japanese Crude and Product Stocks Draw

Total commercial stocks drew 5.9 MMBbls on the week. Crude runs rose slightly and implied crude imports eased sufficiently to draw crude stocks 2.4 MMBbls. Finished product stocks also drew with declines in kerosene, fuel oil, and a more modest draw on gasoil stocks. Gasoil demand was relatively strong at 960 MB/D. Kerosene demand was surprisingly lower, but a low yield allowed for a strong stock draw rate of 139 MB/D for the week.

Aramco Crude Price Differentials for March

Saudi Arabia's formula prices for March were recently released. Pricing adjustments for the key markers were lowered for Asian destinations on all grades of crude, other than Arab Heavy. The greatest reduction was on the lightest grades, which saw more generous terms by as much as $1.40/Bbl. European pricing differentials were raised across the board, with the greatest increase at the heavy end. Pricing for purchases destined to the U.S. were left unchanged.

U.S. Propane Remains the Market Leader

U.S. propane remains the market leader as low inventories and on-going cold weather provides price support. The economics of moving cargoes from the USGC to either Europe or Asia has turned negative. Indeed, North Sea cargoes are due to arrive in the Northeast, as some U.S. export shipments are also canceled. The redirection of propane to the mid-continent seems to have been effective in taking some of the froth out of the market.

Ethanol Prices Higher

U.S. ethanol prices increased the week ending January 31 as weather-related production problems and rail car shortages persisted. Demand was strong as the manufacture of ethanol-blended gasoline rose to a five-week high, and inventories declined.

Ethanol Output Decreases

U.S. ethanol production declined to a three-week low of 895 MB/D the week ending January 31 from 900 MB/D in the preceding week as brutally cold weather and power shortages limited output. Inventories dropped by 193 thousand barrels to 16.7 million barrels, the largest week-on-week draw since October.

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.

Shell announces an agreement to sell a 23% interest in the Parque das Conchas (BC-10) project offshore Brazil to Qatar Petroleum International for approximately US $1 billion, subject to closing

The transaction is subject to approval by the National Petroleum and Gas Agency (ANP, Brazil's Oil and Gas regulator) and the Administrative Council for Economic Defense (CADE, Brazil's anti-trust authority).

Shell will continue to operate BC-10 with a 50% working interest and retains a significant upstream presence in Brazil. In addition to the recent entry into the Libra oil discovery, Shell is currently operating two floating, production, storage and offloading (FPSO) vessels in Brazil's offshore – the Espírito Santo at Parque das Conchas and the Fluminense at the Bijupirá/Salema fields.

Currently, BC-10 is producing approximately 50,000 boe/d. Since coming on-stream in 2009, BC-10 has produced more than 80 million barrels of oil equivalent (boe). Phase 2 of the project, to tie-in the Argonauta O-North field, came online on October 1st 2013, with an expected peak production of 35,000 boe per day. The final investment decision for Phase 3 of the BC-10 project was taken in July 2013 and once online is expected to reach a peak production of 28,000 boe.

Shell has also other interests in Brazil, particularly our Lubricants business and our joint venture Raízen, the leading sugar cane ethanol producer.

New report reveals optimism in the sector but caution over rising costs and oil prices

Amid a positive outlook for the industry in 2014, senior oil and gas professionals have forecasted tighter monitoring of capital expenditure (capex) this year, according to new research published today by DNV GL, the leading technical advisor to the oil and gas industry. While nine in 10 (88%) respondents to the research are confident about the sector, concerns over rising operational costs, a shortage of skilled professionals and competition from international rivals are causing professionals to focus spending on the projects that will provide the greatest return on investment.

According to the report, the proportion of companies planning to increase investment in new projects has declined by 18 percentage points over the past three years, from a high of 63% in 2012 to just 45% in 2014. For the first time since 2011 and the aftermath of Macondo, overall confidence in the oil and gas sector has fallen – albeit only by one percentage point – signaling a shift in sentiment.

The findings come from a new research report, Challenging Climates: The outlook for the oil and gas industry in 2014, which was undertaken on behalf of DNV GL. The research provides a snapshot of industry sentiment about the year ahead and is based on a survey of more than 430 senior oil and gas professionals and in-depth interviews with more than 20 industry executives.

Key findings include:

•    Despite some signs of caution, the overall outlook for 2014 is confident among industry professionals: around nine in 10 (88%) are optimistic about the outlook for 2014

•    Respondents expect to keep a closer watch on costs: six in 10 (62%) intend to pressure suppliers to curb cost increases next year, especially across Asia

•    Uncertainty over oil and gas prices will be more prevalent in 2014: nearly one in four (23%) of industry professionals thinks oil and gas prices will weaken this year, while 36% remain unsure

The report revealed a number of other findings including the skills issue and related to various regions. More about this here:

Shortage of key skills will be greatest barrier to oil and gas industry growth, new research reveals
 

North Sea oil and gas investment softens

New report reveals confidence among Asia Pacific oil and gas professionals 


New report reveals: North America and Brazil to hold greatest growth opportunities for oil and gas industry in 2014
 

Elisabeth Tørstad, CEO of DNV GL – Oil & Gas, says: “Oil and gas industry projects are becoming increasingly complex as the industry continues to operate in more challenging environments. The cost of exploration and production is rising, the industry’s pool of skilled professionals is decreasing and companies are feeling greater pressure on their overheads. This is all leading to great focus and a degree of ‘belt tightening’ across the industry with a view to keeping a tighter rein on capital expenditure. Although confidence is still high, for the first time since 2011 and the aftermath of Macondo, overall confidence in the oil and gas sector has fallen marginally, signaling a slight shift in sentiment.

“We’re also starting to see signs of greater consolidation across the oil and gas industry supply chain. Our research gives clear signs that pressure will be put on suppliers to become more innovative, to reduce costs and to show value in 2014 by providing access to scarce, in-demand skills and by demonstrating real quality in the products and services they deliver.”
 

Greater consolidation 


In response to rising costs, operators will seek to rely on larger supply chain partners which are more capable of providing a consistent global service, according to the report. About one in five (22%) survey respondents says that their company will increase its work with larger partners, compared with just 6% in 2012.
Furthermore, more than a third (37%) of operators say that their companies intend to acquire partners with the specialist knowledge and skills they need as they move into tougher exploration and production sites, with almost half (49%) saying they will need to increase alliances with others to share knowledge in order to cope with more challenging environments.

In turn, DNV GL’s research affirms that operators will focus on controlling risks and costs by seeking greater standardization in their procurement approaches. This gives rise to greater interest in oil companies centralizing, standardizing and streamlining their supply chain to avoid costs in creating new solutions.
Future investment

The report also reveals that the US, Brazil and Australia are the top investment destinations for 2014, with larger operators seeking to expand into challenging new environments such as deepwater sites in East Africa and the Arctic.
 

Download a complimentary copy of Challenging Climates from: http://www2.dnvgl.com/2014-challenging-climates.pdf
 

NYC-based PIRA Energy Group Reports that Asian oil fundamentals remained largely positive. On the week, U.S. commercial oil stocks increased and Japanese crude stocks built, but finished products drew. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Asian Oil Fundamentals Remain Largely Positive

Oil prices will come under the increasing influence of global crude stock building as refinery maintenance takes hold. Asian gasoline cracks should improve seasonally and some further minor gains are forecast. Naphtha cracks have begun to ease and should decline further. Gasoil cracks have held relatively firm, but lower demand should allow room for some easing, though turnarounds will limit erosion. Fuel oil cracks have improved with lower Asian stock levels being seen in January.

U.S. Commercial Stocks Increase

Overall U.S. oil commercial inventories increased the week ending February 7^th as crude stocks built and product inventories drew. The product inventory declined week-on-week and the decline was smaller than the prior week, largely due to a fall off in reported demand, while higher product output was offset by lower product imports.

Japanese Crude Stocks Build, but Finished Products Draw

In Japan, total commercial oil stocks were modestly higher with a build in crude outpacing a draw in finished products. Runs moved modestly higher as did the implied crude import rate, which led to the crude stock build. Gasoline demand was higher, perhaps influenced by the holiday, but exports fell back and stocks built slightly. Gasoil demand was lower, but held up rather well considering the holiday

EPA Issues Guidance for Fracking Using Diesel, With Little Likely Impact on Production

Final Permitting Guidance for Oil and Gas Hydraulic Fracturing Activities Using Diesel Fuels, was released on February 11th — more than a year later than initially expected. While PIRA believes implementation of the guidance will have limited direct impact on operations, their issuance provides additional insight into the Administration's approach to fracking — confirming their desire to have EPA engaged in the regulatory process while not imposing any serious obstacles to growth in production.

Crude Tanker Markets to Start 2014 Strong

Crude tanker markets are off to a strong start in 2014 with the Baltic Dirty Tanker Index doubling in mid-January from the end of November 2013 to its highest level since 2008. The improvement was driven by an exceptionally strong winter rally in Atlantic Basin Aframax trades. Clean tanker trades however, did not participate in the rally.

U.S. Market Moves Closer to Equilibrium

The extraordinary efforts undertaken to move propane from the USGC to the Midwest and East Coast have had the desired effect of easing the spread between Mt. Belvieu and Conway prices. The warming for the next week will certainly further help ease conditions as has price induced demand losses. Nevertheless, propane stocks will end the heating season at a quite low level.

Ethanol Production Rises W/W

U.S. ethanol output rose to a three-week high of 902 MB/D the week ending February 7^th from 895 MB/D during the preceding week despite soaring natural gas prices and rail car shortages. Inventories increased by 323 thousand barrels to 17.1 million barrels, the highest since July.

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.

Milbank, Tweed, Hadley & McCloy LLP has represented international lenders Mizuho Bank, Ltd. and Itaú BBA International plc in providing approximately $150 million in financing for the purchase of an innovative compact semi-submersible multi-service vessel destined for Brazil's most productive offshore oil and gas location.

The support unit, named Olympia, represents a groundbreaking new vessel design, which suppliers believe will change the long term landscape of the offshore vessel market. It was developed to help increase production in Brazil's Campos Basin, source of some 80% of the country's substantial oil reserves. DP-3 rated, meaning it has redundant systems designed to hold it in place in virtually all weather and sea conditions, the 276-foot (84.25 meters) craft was built in Fujian Province in southern China and holds up to 500 people.

Olympia is the first of a group of three sister vessels ordered by Rio-based oil and gas firm GranEnergia and will be leased to state-owned energy major Petrobras. Olympia is part of Petrobras'$5.6 billion program to increase operating efficiency in the Campos Basin, a 44,000-square-mile area off the coast north of Rio de Janeiro. The vessel, whose primary function is to act as a floating accommodation unit for rig personnel, will begin operating in the Campos Basin in the second quarter of 2014.

New York-based project finance partner Daniel Bartfeld led the Milbank deal team, which included London-based partner James Cameron, and associates Fernando Capellão, Russell King and Caroline Rasmussen. Milbank has previously advised on the financing of a new fleet of deepwater drillships produced in South Korea that are also on the frontlines of Brazil's burgeoning offshore oil recovery sector.

"

We're delighted to participate in this important financing for a new generation of advanced support and maintenance vessels for the Campos Basin, site of significant ongoing investment by Petrobras,, Mr. Bartfeld said. "

The Olympia is one part of a larger effort to increase productivity and efficiency in this mature drilling area, which, despite challenging conditions, remains Brazil's most productive offshore oil field."

NYC-based PIRA Energy Group reports that Brent crude prices have stayed strong this month. On the week, U.S. products draw while crude stocks build, while in Japan crude stocks jumped. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Brent Prices Strong This Month

Brent crude prices have stayed strong this month supported by relatively tight global supply-demand balances and low inventories but will trend lower later this quarter as refinery maintenance cuts crude demand, crude supply continues its unrelenting growth in the United States, and supply disruptions elsewhere directionally ease. 

U.S. Products Draw While Crude Stocks Build

Surprisingly low crude runs were largely responsible for the first crude inventory increase in eight weeks. They also contributed to a larger product stock draw versus the week earlier. A reported demand increase and increased product imports were also factors in the week-on-week product stock change. This past week's overall inventory change was 1.3 million barrels larger than the inventory decline for the same week last year, thereby widening the year-on-year stock deficit. U.S. commercial oil inventories are declining significantly this January and this has happened just once in the last ten years.

Another Jump In Japanese Crude Stocks

Another relatively high crude import rate produced a crude stock build on slightly lower runs. Modestly higher stock builds were registered on all the major products (mogas, gasoil, naphtha, jet, and fuel oil), though kerosene stocks drew seasonally. Margins were slightly softer with weaker light product cracks overshadowing higher fuel oil cracks. 

U.S. Propane Is Continuing To Exert Price Leadership

U.S. Propane is continuing to exert price leadership although developments in the mid-continent are certainly in a state of disequilibrium given high demand for tight supplies. The wide gap to the Gulf Coast is certainly encouraging flows north with the price level leading to demand destruction. 

Ethanol Prices and Margins Decline

U.S. ethanol prices resumed their downward trend the week ending January 17 as improving weather in the Midwest led to higher operating rates and reduced transportation problems. Manufacturing cash margins fell as a result of the decrease in ethanol and co-product values. 

China Quarterly Oil Demand Monitor

China’s apparent oil demand disappointed in 2013, as growth slowed meaningfully from 2012. Reasons for the slowing were not immediately apparent. The pace of GDP growth did not change between the two years, and physical indicators that can directly be tied to oil demand (such as vehicle sales, ethylene production, and air travel) recorded healthy increases last year. Looking to 2014, the key story for China is an ongoing push for structural reform. 

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. 

NYC-based PIRA Energy Group believes that oil prices strongly supported by tight oil supply/demand balances. On the week, U.S. Stock Draw Led by Crude Oil, while Japanese Crude Stocks jumped. Specifically, PIRA’s analysis of the oil market fundamentals has revealed the following:

Oil Prices Strongly Supported By Tight Oil Supply/Demand Balances (Asian Outlook)

Oil prices have been strongly supported by relatively tight oil market supply/demand balances that have lasted through the early part of 2014. As oil markets progress through the first quarter, supply/demand balances will soften and prices will likely weaken from today's levels but the erosion should be limited in scope. OPEC and Saudi Arabia, in particular, have the means to limit declines as output remains in their comfort zone and can be adjusted as needed. 

Massive U.S. Stock Draw Led by Crude Oil

This past week's inventory decline is the largest ever recorded for this particular week and drove the year-on-year stock deficit to 57.2 million barrels, or 5.2%. With reported (four week average) demand running 4.2%, or 780 MB/D above year ago levels, days' supply forward inventory cover is quite low, although not as low as in 2007/2008.

Big Jump in Japanese Crude Stocks

Of note on the week was a huge surge in crude stocks of 10.8 MMBbls as crude imports rose from 3 MMB/D to 5.5 MMB/D. Finished product stocks drew 1.2 MMBbls. While gasoline stocks built slightly, all the other major products drew. Gasoil demand rebounded from abnormally low levels. Kerosene stock draws resumed after a one week increase.

Fracking Policy Monitor

The BLM rules regarding fracking on federal lands remain without a finalization date and the diesel guidance has been mired at OMB for over 115 days. The Congressionally mandated study on drinking water safety – likely to inform regulations post-2016 – also faces issues that may bolster attacks on its legitimacy. PIRA believes that given President Obama’s support of fracking, we are unlikely to see new federal regulations or stepped-up enforcement before November 2014 elections.

U.S. Continues to Show LPG Price Strength

Propane continues to see upward price moves as storage is pulled to record lows, particularly in the Midwest. With the cold returning, and exports and feedstock use on-going, prices will remain relatively firm. Just as the U.S. was strengthening, international markets were relatively weaker, narrowing export arb opportunities.

U.S. Ethanol Production Drops

Ethanol production plummeted to a fourteen-week low 868 MB/D from 919 MB/D the week ending January 10 as frigid weather conditions in the Midwest negatively affected operations at several plants. PADD II stocks rose for the fifth consecutive week, bringing them to the highest level since the end of April 2013.  

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.