Technip (Euronext: TEC) and FMC Technologies, Inc. (NYSE: FTI) have announced that the companies will combine to create a global leader that will drive change by redefining the production and transformation of oil and gas. The combined company, which will be called TechnipFMC, would have an equity value of $13 billion based on pre-announcement share prices.

Photo credit: FMC

The companies have entered into a Memorandum of Understanding (MOU) and expect to execute a definitive business combination agreement to combine the companies in an all-stock merger transaction. Under the terms of the MOU, Technip shareholders will receive two shares of the new company for each share of Technip, and FMC Technologies shareholders will receive one share of the new company for each share of FMC Technologies. Each company's shareholders will own close to 50 percent of the combined company.

The transaction brings together two market leaders and their talented employees, building on the proven success of their existing alliance and joint venture, Forsys Subsea, uniting innovative technologies, common cultures and values, enabling rapid integration. The combined company will offer a new generation of comprehensive solutions in Subsea, Surface and Onshore/Offshore to reduce the cost of producing and transforming hydrocarbons. TechnipFMC's flexible commercial model will provide both integrated and discrete solutions to customers across the value chain. With more than 49,000 employees operating in over 45 countries, TechnipFMC generated 2015 combined revenue of approximately $20 billion and combined 2015 EBITDA of approximately $2.4 billion. As of March 31, 2016, the two companies together had consolidated backlog of approximately $20 billion.

John Gremp, Chairman and Chief Executive Officer of FMC Technologies, said, "This is a compelling combination that will create significant additional value for clients and all shareholders, by expanding the success that FMC Technologies and Technip have achieved through our alliance and joint venture, to capitalize on new opportunities and drive accelerated growth." Thierry Pilenko, Technip Chairman and Chief Executive Officer, who will serve as Executive Chairman of TechnipFMC, stated, "Technip and FMC Technologies both have long track records of innovation and commitment to helping their clients meet the challenges of the oil and gas industry. A year ago, we were at the forefront of recognizing the importance of a broader view of our clients' challenges and seized the opportunity that working together in our alliance could bring. Today we want to take this strategy further and across the full footprint of the two companies. We have complementary skills, technologies and capabilities which our customers can access on an integrated basis or separately as they prefer. Together, TechnipFMC can add more value across Subsea, Surface and Onshore/Offshore, enabling us to accelerate our growth. I am confident that we can quickly demonstrate the power of TechnipFMC to our clients, our people and our shareholders."

Doug Pferdehirt, President and Chief Operating Officer of FMC Technologies, who will serve as the CEO of TechnipFMC, added, "Our alliance has shown that as customers evaluate solutions, they are involving us in the process earlier and to a greater degree than ever before. The more they seek our recommendations and new products, the more we differentiate ourselves from the competition. This transaction will allow us to deliver even greater benefits to our customers through a broadened portfolio that provides a unique set of integrated technologies and competencies that are underpinned by a history of developing rich partnerships and creating customer success. We look forward to rapidly bringing together the outstanding employees and cultures of both companies, as well as the complementary capabilities of our organizations, to position the combined company at the forefront of a new generation of solutions for the oil and gas industry."

Fugro has provided a spectrum of services to BP Trinidad and Tobago LLC (bpTT) to allow safe drilling and completion of five subsea wells in an area of strong currents. The services include wellhead motion (fatigue) monitoring, metocean measurements and positioning services.

The positioning activities were carried out onboard the drilling vessel as well as on the three supporting anchor handling tugs (one tug had subsea acoustic ROV positioning). Fugro provided bpTT with dimensional control survey services, DGNSS verification, gyrocompass calibration and offset measurements, navigation at the well locations, and final positioning of the drilling vessel within the required tolerance of 3 metres. This position accuracy was required because the five wells were being drilled in a cluster (with separation ranging between 16 and 30 metres) and because of the need to accommodate subsea Xmas trees. Survey support was provided for anchor handling and ROV operations as well as for subsea asset positioning.

Fugro deployed its WARIS to monitor bpTT’s subsea equipment integrity in an area of strong currents. Credit: Fugro

To enable the monitoring of subsea equipment integrity during operations, Fugro supplied its Wellhead and Riser Instrumentation Service (WARIS) which included monitoring at two subsea locations: on the BOP stack and on the riser, immediately above the lower flex joint. Data were relayed to the vessel by hydroacoustic modems and then transferred to secure onshore storage, before being processed and made available to staff both offshore and onshore. The motion measurements gave bpTT real-time tracking of wellhead fatigue as well as determination of foundation stiffness and the BOP stack resonant frequency. Midway through the programme the recorded real-time data were utilised to update theoretical fatigue transforms and improve the fatigue life of wellhead components.

Strong currents at the well location needed to be understood for operational planning, as well as further analysis of subsea equipment motions. Fugro installed an Acoustic Doppler Current Profiler on the seabed for metocean measurements. Current measurements were relayed to the vessel in real time using the same hydroacoustic equipment as with the WARIS.

bpTT Drilling Engineer, Anil Saisbhan said, “The additional non-traditional services from Fugro with the WARIS and real-time ADCP measurements have enabled us to realise more fatigue life of wellhead components than was theoretically suggested, as well as to mitigate against operational risk with high currents which occur sporadically in the area.”

Fugro Trinidad Country Manager, Neil Bissoon, commented, “This project demonstrates another of the major advantages that Fugro can bring to operators. We delivered a cost-effective solution to bpTT’s drilling project by sharing synergistic support functions across three major services.”

Rowan Companies plc (NYSE: RDC) announced on May 23, an agreement with its customer, Freeport-McMoRan Oil & Gas LLC (FMOG), and FMOG's parent company, Freeport-McMoRan Inc. (Freeport), in connection with a drilling contract for the drillship Rowan Relentless, which was scheduled to terminate in June 2017.

The agreement provides that the drilling contract will be terminated immediately, and Freeport will pay Rowan $215 million in cash to settle outstanding receivables and early termination of the contract. Rowan may also receive additional contingent payments from Freeport of $10 million and $20 million, respectively, depending on the average price of oil over a 12-month period. In addition, Rowan expects to reduce its costs for the Rowan Relentless by efficient warm stacking of the rig.

Rowan Relentless. Photo courtesy: Rowan

Freeport recently announced a restructuring of its oil and gas business, which is operated through FMOG. As disclosed in Freeport's public filings, FMOG has substantial debt and has been negatively impacted by the sustained downturn in oil prices.

Tom Burke, President & CEO of Rowan, commented: "I am satisfied with this resolution given FMOG did not have any ongoing work for the Rowan Relentless. This accelerated payment provides additional liquidity to further strengthen our balance sheet and affords Rowan added flexibility as we review opportunities in this down market. The Rowan Relentless, our fourth high-specification ultra-deepwater drillship, had outstanding operational performance on this contract, delivering safe, reliable and efficient operations."

Rowan is a global provider of contract drilling services with a fleet of 31 mobile offshore drilling units, comprised of 27 jack-up rigs and four ultra-deepwater drillships. The Company's fleet operates worldwide, including the United States Gulf of Mexico, the United Kingdom and Norwegian sectors of the North Sea, the Middle East, and Central & South America. The Company's Class A Ordinary Shares are traded on the New York Stock Exchange under the symbol "RDC

Oilennium™ Ltd., a Petrofac company that provides eLearning training services to the oil and gas industry, has completed the Well Control Awareness Course (Level 1), which was developed for the International Well Control Forum (IWCF).

The eLearning course, which consists of seven modules, was launched and offered free-of-charge on 7 March 2016 by the IWCF. Within just 28 days, 2667 from 1000 companies in 100 countries had registered, and 745 had passed it.

Today, that number has risen to 5285 registrants from 2409 companies in 114 countries. And 1702 have earned a certificate of completion by successfully answering questions about the life cycle of a well, what triggers a well control incident and how incidents can be prevented.

Record number of registrations

Samantha O’Hara, General Manager for Oilennium, stated, “For Oilennium, the Well Control Awareness Course represents several significant milestones. It is the first course that we have created with self-enrolment capability and the first to be offered for free to everyone. When coupled with the high quality of the course, it’s no surprise that it has generated such a high number of registrations in so little time.”

Word of the course has spread quickly. Already, Texas A&M University, where approximately 59,000 students study, has made completion of the Level 1 eLearning suite a mandatory requirement for its first year undergraduate engineering students and for all of its engineering students who study at its branch in Qatar.

Shortlisted for GetEnergy 2016 Award

The course was also shortlisted by GetEnergy 2016 for the “Learning at the Core” award category. To view the video that was developed for this year’s awards, which offers a quick overview of the Well Control Awareness Course, simply visit https://vimeopro.com/oilennium/iwcf-video.

The IWCF, which sets international training standards for well control, commissioned Oilennium to create a user-friendly course to raise awareness of well control amongst those working in the global oil and gas industry, as well as those who are considering a career in the sector.

David Price, CEO of IWCF said: “We are delighted with the uptake of the new Level-1 Well Control Awareness Course since it launched in March. When working with Oilennium to develop this course it was important to us, particularly in the current climate within the industry, to give something back to the industry. By making this training readily available we believe that it will help to increase understanding of how well control events can occur and their consequences and prevention.

“The training is open to everyone. It is specifically aimed at those in the industry with a secondary involvement in well operations, but students considering a career in oil and gas or anyone else with an interest in the industry will also find it insightful. Ultimately, we want to see an increase in well competency which will improve offshore safety.”

The online offering is the latest initiative in IWCF’s ongoing campaign to increase understanding of what triggers a well control incident, the impact and how such incidents can be prevented. It is based on specific recommendations made by the International Association of Oil & Gas Producers (AOGP) in the wake of the Macondo tragedy. The recommendations state that an introductory Level 1 Awareness Training should be introduced. IWCF is the first organization to achieve this.

Utilizing colorful 3D animation technology, voice-overs and striking visual images, the fully interactive course opens with an explanation as to how reservoirs are formed, which leads to an overview of the well life cycle, from drilling and well interventions to plugging and abandonment. It also sheds light on potential hazards, methods of prevention and how kicks and blowouts are addressed by drawing upon actual, real life incidents. In addition to the technical information, the modules highlight the importance of human factors, such as behaviors and decision-making. Upon completion of the course, the user will have an awareness of the well life cycle and basic well control.

Easy to administer & track course activity

For the IWCF, it is very easy to administer because participants enroll themselves. By accessing the course’s customized dashboard reporter, IWCF managers can track all activity associated with the course. At a glance they can view who has registered, their individual progress and completion of the course. It identifies the company and geographic location, as well.

About International Well Control Forum

Founded in 1992 by oil and gas operators, the IWCF is an independent, not for profit organization with elected representatives and a global network of branches, representing the entire industry. Headquartered in Montrose, UK, IWCF administers well control training, assessment and certification programs. IWCF is committed to creating a step-change in well control knowledge and recently invested in new facilities in Montrose to enhance training for assessors and instructors, including the use of simulators to replicate real-life scenarios. IWCF has certified over 160,000 people on almost every continent through 210 accredited training centers.

About Oilennium Ltd.

Oilennium Ltd. is part of oilfield services company Petrofac. Oilennium was founded in 2000 to provide bespoke blended learning solutions for companies operating in the international energy sector. Learning programmes are available about the oil and gas industry, risk management, Leadership and Management, drilling, QHSSE, process safety and equipment operations, among a host of others.

To date, approximately 75,000 people around the world have access to Oilennium’s eLearning programs. Oilennium provides a broad range of learning programs to numerous corporate customers, including Chevron, Enbridge Pipelines, ConocoPhillips, ADCO, Perenco, Halliburton, Baker Hughes, ECITB, Hydratight, Noble Drilling, Pacific Drilling, Marathon Oil, Seajacks, Transocean, and Weatherford. Oilennium operates from its global headquarters in Loddon in Norfolk, England, and its regional offices in Houston Texas, the United Arab Emirates and Aberdeen, Scotland.

Under a program organized by the Research Partnership to Secure Energy for America (RPSEA), Doris Inc., the Offshore Technology Research Center (OTRC) at Texas A&M University and Sevan Marine have carried out further research and model scale testing of Sevan Marine’s cylindrical hull for application in GOM ultra deep water. The model tests at OTRC confirm the favorable motion characteristics of the Sevan Marine design enabling the application of with Steel Catenary Risers (SCR) and permanent mooring in even the harshest hurricane conditions. Several major oil companies attended the Industry Day held on Wednesday, May 11, 2016 further highlighting the keen interest which exists in the market for Sevan Marine’s cylindrical design.

Photo credit: Sevan Marine

Further research and testing is planned in order to bring Sevan Marine’s patented SCR concept to its full potential. Sevan Marine is confident that this can be a game changing technology for deep water offshore applications particularly in the U.S. Gulf of Mexico’s outer continental shelf in years to come.

Sevan Marine would like to give its special thanks to Doris Inc., the OTRC and RPSEA for their great support.

Funding for the projects is provided through the “Ultra-Deepwater and Unconventional Natural Gas and Other Petroleum Resources Research and Development Program” authorized by the Energy Policy Act of 2005. This program—funded from lease bonuses and royalties paid by industry to produce oil and gas on federal lands—is designed to assess and mitigate risk enhancing the environmental sustainability of oil and gas exploration and production activities.

RPSEA is under contract with the U.S. Department of Energy’s National Energy Technology Laboratory to administer three areas of research. RPSEA is a 501(c)(3) nonprofit consortium with more than 180 members, including 24 of the nation's premier research universities, five national laboratories, other major research institutions, large and small energy producers and energy consumers. The mission of RPSEA, headquartered in Sugar Land, Texas, is to provide a stewardship role in ensuring the focused research, development and deployment of safe and environmentally responsible technology that can effectively deliver hydrocarbons from domestic resources to the citizens of the United States.

Olympic Shipping has entered into a frame agreement with Canyon Offshore, Inc. for the joint marketing and subsequent operation of the subsea construction vessel Olympic Athene and Canyon’s ROV systems, which will see the companies work together to secure utilization for the vessel and Canyon Offshore’s systems and services with third party clients.

Olympic Athene. Photo credit: Olympic Shipping

The framework agreement will operate initially for six months, with the potential to be evergreen thereafter. The Olympic Athene has commenced its first job with a third party client in the U.S. Gulf under this agreement.

Stig Remøy, CEO of Olympic Shipping, stated “I am happy to see that we, together with Canyon Offshore, are able to set up a structure that offers our clients high quality vessel and ROV services.”

Ian Edmonstone, President Canyon Offshore, said “we are also pleased to continue our long term relationship with Olympic Shipping and look forward to providing quality subsea project solutions to our Americas client base.

Work is due to start shortly on the first of a new class of Damen utility vessel UV2410. This multi-role platform is the result of extensive consultation with customers active in the aquaculture industry in the UK and Norway. For these customers it was important that the rule length of the new vessel be no more than 24-meters and, for UK customers in particular, that it fits within the 200 Gross Tonage limit. Feedback indicated that within that length maximum possible protected deck space and good seakeeping were top priorities, along with ample accommodation.

Image credit: Damen

The Utility Vessel 2410 delivers all these requirements and more besides. “With the wide beam of 9.5 meters and minimal superstructure this vessel provides 120 m² of unobstructed deck space, yet still has comfortable accommodation for up to six crew. The design is optimized for a wide range of roles including maintenance support, oil recovery, diving support, buoy handling, safety stand-by, ROV support, surveying and much more” said Lodewijk van Os, Product Director Workboats.

“It is also ideal for aquaculture, with easy access to the waterline amidships via steps and a three-metre opening in the bulwark, and the capability of mounting dedicated equipment including up to two cranes. In fact, the deck is pretty much ready for anything; A-frames, winches, davits for rescue boats, task-specific containers and many other types of equipment can be quickly added and removed as the vessel receives new assignments.”

The Utility Vessel 2410 shares many of the renowned attributes of other vessels from Damen’s extensive workboat ranges. As well as for aquaculture companies, Damen envisages that the 2410 will be very attractive to port authorities, governmental organizations, marine contractors and anyone involved in varied, water-based maintenance operations.

From small trawlers to large container ships, producing clean, fresh water while underway is an essential shipboard operation. Thousands of professional mariners have placed their trust in FCI Watermakers for their desalinization needs. The company's ultra-reliable Neptune and Poseidon lines offer simple and cost-effective use, and require little maintenance.

The innovative Neptune is one of the most adaptable commercial watermakers available. It's offered in both a framed and modular configuration for ease of installation—no need to torch a hole to fit it in—and has a small footprint. It'll make from 1,275 to 9,500 gallons per day (GPD) and is built to run non-stop, 24/7, with a low power draw.

With the ability to make up to 40,000 GPD, the high-output, state-of-the-art Poseidon is built with unrivaled quality. It's available in a compact frame and easily installed as a refit or in a new build. Like the Neptune, it's highly tolerant of changing water salinity and turbidity.

Both are simple to operate using FCI Watermakers' industry-leading V4 Controller. The 7" touchscreen panel is intuitive to set up a scheduled process or maintenance event. It has type approval certifications from ABS, GL, Lloyd's Register EMEA, Det Norske Veritas and the Russian Maritime Register of Shipping.

Because the Neptune and Poseidon use only commercial grade, belt-driven pump and motor assemblies, maintenance is minimal. And when it's time to replace disposables, they're all low-cost, non-proprietary parts—an important consideration for vessels destined for foreign ports.

DNV GL has been awarded a contract by COSCO Shipping Company Limited (COSCO SHIPPING) of China for the installation engineering services for the BorWin gamma high voltage direct current (HVDC) converter platform.

The Dutch-German transmission system operator TenneT is developing the offshore AC/DC converter platform BorWin gamma as part of the grid connection project BorWin3. The project will provide an essential renewable offshore resource to meet increasing energy demands in Germany, as part of the German Energiewende (Energy Transition) program.

Artist's impression of the BorWin gamma HVDC platform © Petrofac

A consortium of Siemens and Petrofac has been contracted by TenneT to design, build and install BorWin gamma. COSCO SHIPPING was awarded the transportation and installation contract by Petrofac and has chosen DNV GL's Noble Denton marine services as partner to fulfill the dynamic positioning (DP) float-over job.

Pioneering technology

DNV GL’s Noble Denton marine services pioneered and developed DP float-over, a heavy module installation method using a dynamic positioning vessel, together with COSCO.

"DNV GL has jointly completed 10 installations successfully around the world with COSCO,” explains Andy Wang, project director of DNV GL - Oil & Gas Greater China. “Our experts have a solid track record in DP float-over that won the confidence of Petrofac and Siemens," he continues.

“Our investment in innovative solutions and leading technology for heavy offshore module transportation and installation has given us a long-standing reputation that led us to win this contract. We sincerely look forward to working with COSCO and the consortium partners on this important project,” says Arthur Stoddart, regional manager of DNV GL - Oil & Gas Region Greater China, Korea & Japan.

BorWin gamma: facts and figures

This project will create a few new entries to DNV GL's record book. Weighing in at a massive 18,000 metric tons, BorWin gamma will be one of the heaviest HVDC platform ever installed; moreover, it will be the first DP float-over operation in the North Sea and Europe.

The installation is expected to commence in the summer of 2018. Once completed, it will transmit approximately 900 MW of wind power, which is roughly equal to the annual electricity consumption of 1 million German households.

Scheduled to go online in 2019, the BorWin gamma platform will be installed nearly 130km off the German coast in the North Sea, at a water depth of approximately 40m. The 900 MW DC transmission will be through 320 kV cable of 160 km length.

Sky-Futures, a leading provider of drone inspection services for the oil and gas industry, has raised £2.5m from award-winning venture capital fund, MMC Ventures.

The Series A investment – the largest ever into drone technology in Europe – comes after a year of significant expansion for the business, growing by 700% in FY2014. This investment will enable Sky-Futures to continue its rapid growth and continue building out its integrated technology inspection platform.

Image Courtesy: Sky-Futures

Founded in 2009, Sky-Futures is the world leader in oil and gas drone inspections, working with more than 30 of the biggest oil and gas companies in the world including Apache, BG Group, BP, ConocoPhillips, Shell and Statoil. The drones collect high definition video, stills and thermal imagery data, which is analysed in a proprietary data platform and delivered to the client as a technical report written by highly qualified, in-house global industry experts. Sky- Futures now delivers drone inspection services in the North Sea, the Middle East, South East Asia and North Africa, and has recently opened an office in Houston, Texas to serve clients in the Gulf of Mexico, having been one of the first companies to receive FAA regulatory approval to operate in the US.

This investment follows two significant seed rounds, which included prominent angel investors Nick Robertson (CEO of ASOS) and Jon Kamaluddin (former International Director of ASOS).

James Harrison, co-founder and CEO of Sky-Futures, said: “We have experienced a fantastic level of growth in the past year, expanding our global reach and further establishing ourselves as the world leaders in oil and gas drone inspection. We recently received the permit to use our drones in United States National Air Space, an incredibly significant development, allowing us to further expand our international operations footprint.”

“Today’s funding announcement marks the next stage for Sky-Futures, and we are looking forward to working with the MMC Ventures team as we further develop our technology- driven commercial drone services.”

Simon Menashy, Investment Director at MMC Ventures, said: “Drone technology is an exciting area of innovation, but it’s only now that we are seeing leading commercial operators emerge. Sky-Futures’ use of drone technology in the oil and gas market is world-leading and changes the game for platform operators in terms of cost, safety and depth of data analysis. We’re excited to work with an exceptional trio of founders in James, Chris and Nick, and look forward to helping the team to take the business to the next level of global scale.”

Subsea 7 S.A. (Oslo Børs: SUBC, ADR: SUBCY) has announced the details of the major(1) contract award that was first announced on 20 May 2016 .

The contract was awarded by Beatrice Offshore Windfarm Limited (BOWL)(2), for the engineering, procurement, construction and installation (EPCI) of the Beatrice wind farm turbine foundations and array cables, offshore Scotland, UK.

Located in the Outer Moray Firth, the Beatrice wind turbines will generate 588 Megawatts of power once the wind farm becomes fully operational in 2019.

Subsea 7, in alliance with Seaway Heavy Lifting(3), will project manage, design, engineer, fabricate and install EPCI jacket foundations and array cables for 84 wind turbines, and perform the transportation and installation of the offshore transmission modules.

Project management and engineering has already started at Seaway Heavy Lifting's offices in Glasgow, Scotland, and Zoetermeer, the Netherlands, and at Subsea 7's office in Aberdeen, Scotland.

Offshore installation activities will be executed in 2017 and 2018 using Seaway Heavy Lifting's heavy-lift vessels, Stanislav Yudin and Oleg Strashnov. Both these vessels provide significant lift and installation capabilities ideally suited for the challenges of installing wind farm foundations.

Jean Cahuzac, Subsea 7 Chief Executive Officer, said: "This offshore wind farm project is our largest North Sea award to date. Subsea 7 and Seaway Heavy Lifting have a strong reputation in their respective areas of expertise. This contract recognises both companies' capability to execute contracts safely, on time and within cost targets and is another major step forward in establishing Seaway Heavy Lifting as a leading EPCI contractor in the offshore renewables market."

(1) Subsea 7 defines a major contract as being over USD 750 million and this contract is over USD 1.0 billion in value.

(2) Beatrice Offshore Windfarm Limited (BOWL) is a joint venture partnership between SSE (40%), Copenhagen Infrastructure Partners (35%) and SDIC Power (25%).

(3) Subsea 7 is a 50% shareholder in Seaway Heavy Lifting.

U.S. Commercial Stocks Draw as Demand Increases Sharply

U.S. commercial inventories drew for the second week in a row, the first time that has occurred this year. However, the decline was modest. Crude stocks saw a gain, while the four major products drew sharply; it was the largest weekly drop of the year and more than experienced at any weekly point in 2015.

Something Has to Give

NYMEX futures brief excursion back below $2/MMBtu suggests the market is having second thoughts about the industry’s ability to cope with surplus supplies this season. Though the largest weekly storage injections typically occur during the spring, when weather-related demand is at a low ebb, the recent acceleration in stockpiling has nevertheless reignited oversupply concerns.

Qatari LNG Pricing Is Getting More Competitive across Europe

LNG pricing around Europe is not so clear cut as Henry Hub + X or JKM – Y. As LNG globally is a continually maturing market, we are seeing gas pricing evolve in multiple ways across different regions of Europe. Based on volume of sales and available data, Qatari LNG prices offer the best window into the competitiveness of LNG on the Continent until now, but we are going to see U.S. LNG stake its claim in the months ahead and subvert the status quo.

U.S. Gulf LNG Cargos Ship Out; FOB Pricing Details Emerge. Liquefaction Costs?

As Shell’s first “contracted” cargo sets sail from Cheniere’s Sabine Pass terminal as part of a BG legacy tolling agreement, the first official FOB pricing data from February/March for U.S. Gulf-generated cargos at the export point at Sabine Pass is registering from U.S. government sources. The numbers, while striking, offer little in the way of information regarding the actual unit costs for U.S. liquefaction.

Indonesian Industrial End-Users Get Price Relief

The Indonesian government lowered the price of natural gas for seven industry sectors to accelerate economic growth and improve the competitiveness of national industry. The decline in gas prices retroactively from January 1, 2016, is contained in the Presidential Decree No. 40 of 2016. The seven industries that obtain the reduced gas prices are fertilizer, petrochemical, oleochemical, steel, ceramics, glass, and rubber gloves.

Italian Gas-Fired Dispatching Surges

In spite of a surprisingly low day-ahead price settlement, Italian day-ahead prices have been generally supported during May, in tandem with a significant recovery in the utilization of the Italian gas fleet, as shown by gas burn increasing over 25% Y/Y so far during May. While a lack of solar output has contributed to a larger increase in Italian gas dispatching over the past weeks, we see a structural trend toward a higher utilization of the CCGTs in the Italian market, in line with the recovery in the spark spread we have also seen along the curve. This is in part tied to the retirements of older steam units and, most likely, lower load factors of less efficient coal units.

A Tighter Market in 2017

PIRA’s outlook for the U.S. coal market in 2017 projects that the current trajectory of coal supply cuts will ultimately drive stockpile levels back into balance early next year. Rising natural gas (and oil) prices will result in potential coal market shortfall, as coal demand recovers against a backdrop of a much smaller and perhaps constrained coal logistics chain.

Massachusetts Supreme Court Decision: RGGI Is Not Enough

The Massachusetts Supreme Court handed down a unanimous opinion that found that the state’s DEP had failed to properly implement regulations as required under the state’s Global Warming Solutions Act. The DEP is now required to issue new regulations, but it is unclear how this can be enforced from a practical and political standpoint. The Court faulted the RGGI as inadequate because it allows Massachusetts entities to purchase out-of-state reductions. Massachusetts is the third-highest RGGI-emitting state and its emissions exceeded the state budget in 2015. More broadly, this decision highlights issues with the RGGI program review and its alignment with individual state climate goals.

Global Equities Fractionally Changed

Global equities were, on balance, modestly changed. The broad U.S. market was higher on a Friday-to-Friday basis. The growth indicator moved higher, while the defensive indicator gave ground. The strongest sectors were banking and energy. The weakest sectors were the defensive sectors of utilities and consumer staples. Internationally, most of the tracking indices moved higher, though Latin America posted a moderate decline.

Freight Market Outlook

Low oil prices are causing non-OPEC production to decline by 870 MB/D in 2016, offset by a near equal rise in OPEC output, benefiting the tanker sector. Most of the non-OPEC production declines in 2016 are for onshore grades in the U.S., China and Canada and shorter-haul grades from Mexico and the North Sea. These are being replaced by higher output from OPEC, mostly Iraq, Iran and Kuwait, boosting waterborne trade and ton-miles. While there are still substantial volumes of excess crude being contained on tankers via floating storage or operational slowdown, these will soon decline as excess stocks are worked down over the balance of 2016.

Propane Stocks in U.S. Build Slowly; Surplus Narrows

Strong export volumes and higher propane demand caused a relatively small build in propane (excluding propylene) stocks last week. The DOE reported the total propane inventory to be 70.2 MMB with a week-on-week build of 920,000 barrels. The year-on-year surplus narrowed by 1.3 MMB to a slim 4.6 MMB.

Stocks and Production Declined

Ethanol stocks declined for the ninth time in 13 weeks the week ending May 13. Output fell to 948 MB/D as several plants were undergoing routine maintenance.

Meal’s the Deal

Without question the meal market has been the bullish star since the May WASDE. The soybean complex is full of rumors as to why meal has outperformed everything else in the grain/oilseed sector, especially soybeans themselves. Speculative upside pressure continues to be strong despite an increase in futures margin last week, which seemed to do nothing but squeeze out some weak shorts. Traders appear desperate to find both a reason for the extended meal rally as well as searching for that elusive “top.”

Japanese Runs Ease; Both Crude and Product Stocks Build

Crude runs continued to fall amid increasing turnarounds. Crude imports fell back, but not sufficiently to prevent a crude stock build. Finished product stocks also built, largely due to middle distillate stocks moving higher. The kerosene stock build rate throttled back with higher demand and lower yield. Refining margins remain very soft, though on the week light product cracks improved.

State of the Global Economy in Early Second Quarter

In PIRA’s economic outlook for 2016, global activity is expected to pick up steam after a sluggish start to the year. For this forecast to track, data for the second quarter will need to register meaningful improvements from the first quarter. It is too early to determine whether the expected lift is taking place — key global statistical releases currently extend only through April. But available information has been generally encouraging for the U.S., Europe, India, and Brazil, while growth in China will probably stay similar to the pace observed during the first quarter.

Biofuels Prices Increase the Week Ending May 13

The main driver of increased biofuels prices was sharply lower stocks. Rising corn and petroleum prices provided support. Margins jumped.

Freight Rates Hold Steady on China’s Solid Start to 2016

Cape fixing volumes have slowed and bunker prices have continued to climb, giving fundamental support to rates. In a rollercoaster month, 180,000 dwt Cape rates have generally covered typical operating costs although the Baltic 5TC average weakened recently to close at just under $7,000/day. With the Panama Canal Expansion now a reality, voyage calculations show that exporting Colombian coal to Asia via an expanded Panama Canal will prove hard to justify in comparison to sending fully-loaded Capes to Asia via the Cape of Good Hope.

D.C. Circuit Grants En Banc Appeal for Clean Power Plan Litigation

In another unusual move in a litigation that has been marked by unusual moves, the D.C. Circuit, of its own volition, decided to shorten the review of the Clean Power Plan by bypassing the three-judge panel and preemptively granting review to the entire D.C. Circuit Court en banc. PIRA had expected a review by the Court en banc in the event EPA lost in the initial panel decision. That it has been granted now does not change our expected timeline much. Key to whether the move actually impacts the CPP’s chances at being upheld is whether two Democrat-appointed judges on the D.C. Circuit — Merrick Garland, and Nina Pillard — will recuse themselves from considering the merits of the case, impacting the balance of power on the Court.

Saudi Arabia's Financial Cushion Remains Substantial

Saudi Arabia's ability to weather lower oil prices remains substantial. Foreign exchange reserves have been liquidated by $159 billion, or 21%, since peaking in August 2014. Even so, reserves of foreign exchange are $587 billion at end-March, still a substantial cushion. As oil prices have recovered from January lows, the rate of FX liquidation has slowed with the decline for March being $5.6 billion. However, if Saudi Arabia were forced to continue drawing down reserves, it would at some point put increased pressure to re-adjust (devalue) its currency, which has been pegged to the dollar at 3.75 SAR/USD since 1986.

Fed Inflation Expectations Rise

The Cleveland Fed released its assessment of inflation expectations for May, which showed a second straight rise in inflation across all the key timeframes. The S&P 500 eased slightly on a weekly average basis, but it was modestly higher Friday-to-Friday. High yield debt (HYG) and emerging market debt (EMB) rose slightly. The U.S. dollar was generally higher, and commodities continued their uptrend.

EPA Proposes Biofuels Requirements Higher Than this Year’s Mandates

The proposed total renewable fuel mandate for 2017 is 18.8 billion gallons, up from 18.11 billion in 2016. It is much less than the 26.0 billion gallons in RFS2. The proposal will be open to public comment through 2011.

Coal Pricing Moves Sideways Along with Oil

Prompt seaborne coal prices mirrored those of oil last week, with a modest rally on Monday largely negated by a downshift over the balance of the week. 3Q16 API#4 (South Africa) and FOB Newcastle (Australia) prices ticked up modestly, while API#2 (Northwest Europe) lost some ground. Coal fundamentals, specifically in the Atlantic Basin, offer minimal support to pricing currently, given weak demand from Europe and strong supply from Russia. The most bullish factor for coal pricing is the continued strengthening in the oil market.

Asian Demand Update: China Again Boosts Regional Growth

PIRA's latest update of Asian oil demand again shows improved growth due to further gains in Chinese apparent demand. The most recent demand growth assessment is 1.16 MMB/D. PIRA's April update of Asian demand had shown growth of 909 MB/D. China's most recent growth assessment, covering Feb.-Apr., is showing growth of 850 MB/D, an improvement from the 525 MB/D seen last month (Jan.-Mar.). It still needs to be emphasized that the Chinese improvement is not necessarily actual consumption, but is based on apparent demand calculations and reflects a crude import figure for April of 7.9 MMB/D.

RIN Balances to Tighten; Prices to Rise

The EPA’s proposed renewable fuel standards for 2017 is expected to tighten the RIN market and drive up prices. The volume of banked RINs is plummeting and is anticipated to be practically exhausted by the end of 2017. RIN prices are expected to surpass $1 by the beginning of next year.

Canadian Oil Sands Restart Plans Halted

The situation in and around Fort McMurray has degraded significantly. Fires are now moving north of Fort McMurray towards oil sands sites. On May 16 a mandatory evacuation was issued for the area north of Fort McMurray, affecting Syncrude and Suncor’s main operations. The Enbridge system has also been affected with fires encroaching within 1 km of the crucial Cheecham terminal. Given the deteriorating situation, PIRA now estimates the cumulative loss will be around 25 million barrels in a most optimistic scenario and 30 million barrels in a most likely scenario.

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.

API has called on the federal government to align its offshore leasing program to reflect America’s new role as a global energy superpower and focus on the opportunities this creates for the country. API Executive Vice President Louis Finkel addressed flaws in the Bureau of Ocean Energy Management’s 2017-2022 Outer Continental Shelf Oil and Gas Leasing Program during a press briefing ahead of the Senate Energy and Natural Resources Committee hearing.

“The United States needs forward-looking energy policy,” said Finkel. “The U.S. has become the number one producer of oil and natural gas in the world thanks to development that has taken place mostly on private and state lands. At the same time, thanks to industry efforts, methane emissions are down significantly as well as carbon and other air emissions, all while energy production has been going up.”

Today, 87 percent of federal offshore areas remain off limits to oil and natural gas production. The Department of the Interior removed the Atlantic portion of the leasing program during the draft portion of the program development earlier this year, leaving only offshore Alaska as the area with the most potential for new oil and natural gas resources. However, the plan is not yet finalized, and leasing areas have not been confirmed.

“Leaving out offshore Alaska would put the U.S. at a serious global competitive disadvantage, considering that Russia, Iran, Norway and other countries are moving rapidly to develop oil and gas resources,” said Finkel. “We must continue to think ahead, explore and develop new areas to protect U.S. energy security for generations to come.

“American consumers, American businesses and future generations need energy programs from the Interior Department to align with today’s energy realities.”

Arctic offshore energy development could add 27 billion barrels of oil and 132 trillion cubic feet of natural gas to America’s proven energy portfolio and create more than 54,000 jobs across the country, according to recent studies. It’s estimated that the Beaufort and Chukchi seas have more technically recoverable oil and natural gas than the Atlantic and Pacific coasts combined.

API thanked Congress for focusing on the important issues surrounding energy and the Department of Interior’s 5-year plan.

API is the only national trade association representing all facets of the oil and natural gas industry, which supports 9.8 million U.S. jobs and 8 percent of the U.S. economy. API’s more than 650 members include large integrated companies, as well as exploration and production, refining, marketing, pipeline, and marine businesses, and service and supply firms. They provide most of the nation’s energy and are backed by a growing grassroots movement of more than 30 million Americans.

The Ministry of Petroleum and Energy has awarded five licenses to Statoil in the 23rd licensing round, four as operator and one as partner.

“The Norwegian continental shelf (NCS) is the core of Statoil’s business, and we are very pleased with the award in the 23rd licensing round, which will strengthen our exploration portfolio. Gradually opening up new areas is crucial for us to maintain profitable and high-level production up to and beyond 2030,” says Arne Sigve Nylund, Statoil’s executive vice president for Development & Production Norway.

The award covers five commitment wells – one in the vicinity of Statoil’s existing position, and four in the southeastern part of the Barents Sea, providing access to interesting acreage in a new area on the NCS.

“We will now be able to explore a very interesting area in the Barents Sea. There is always uncertainty related to probability of discovery in new areas. But if we make a discovery, it may involve considerable resources. Exploring in such areas and making substantial discoveries are vital if the NCS is to maintain its production,” says Jez Averty, Statoil’s senior vice president for exploration on the NCS.

“We have built on our 40 year-long history in North Norway, and our long experience from Barents Sea exploration. A large Statoil team has worked for 24 months to improve this application, and I am very proud of the effort made by everyone across Statoil that has led to this award,” says Averty.

“Based on in-house work and seismic data acquisition in 2013 and 2014 Statoil is well prepared for exploration drilling. Through the Barents Sea Exploration Collaboration (BaSEC) the industry has laid the groundwork for conducting safe and cost-effective drilling. We expect to drill the first well already in 2017, and will cooperate with our partners to reach this goal,” says Averty.

“We regard this award as a great opportunity, and strongly believe that if we find sufficient resources we will be able to develop them profitably,” concludes Averty.

In the 23rd licensing round Statoil has been awarded new exploration licenses in the following areas:

• 30 % share and operator for exploration license PL859 (blocks 7335/1,2,3; 7336/1; 7434/7,8,9; 7435/9,10,11,12; 7436/10)

• 40 % share and operator for exploration license PL857 (blocks 7132/1,2,3,6; 7133/1,4; 7232/10)

• 35 % share and operator for exploration license PL855 (blocks 7324/5,6; 7325/4,5)

• 40 % share and operator for exploration license PL854 (blocks 7322/3; 7323/1)

• 20 % share for exploration license PL858 (blocks 7234/3, 6; 7235/1,2,3,4,5)

Statoil has, on behalf of the Aasta Hansteen license, decided to cancel the contract with Seadrill for the West Hercules drilling rig.

On contract with Statoil since 31 January 2013, the rig has carried out an exploration campaign offshore Newfoundland in Canada for the past 18 months.

West Hercules drilling rig (Photo: Ole Jørgen Bratland/Statoil)

According to the original plan the Aasta Hansteen license was to take over the rig in the second quarter of 2016 for a drilling campaign to be started around 1 July 2016.

In the autumn of 2015 it was decided to postpone the Aasta Hansteen field start-up one year until the last half of 2018, and consequently the field drilling program will also be postponed. One of the reasons is that it is not preferable to complete the wells too early before production start-up.

The contract for West Hercules was originally to expire on 31 January 2017.

Wood Group has been awarded an evergreen master services agreement (MSA) by Statoil to support the life cycles of its offshore and onshore facilities. Work and services covered by the MSA include engineering studies, detailed engineering, procurement services and management assistance services.

“This MSA reflects Wood Group’s strong relationship with Statoil,” stated Robin Watson, chief executive. “We look forward to leveraging our global knowledge and expertise to provide Statoil with the best technical services for its facilities.”

Wood Group has supported Statoil for many years. Recent work includes four subsea contracts, support for the Statoil Technical Efficiency Program (STEP), and providing maintenance and modification services to four installations on the Norwegian continental shelf (NCS).