2009's winners and losers in the oil industry
Our list of who is surviving the recession better (or worse) than most
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It is pretty safe to say that so far 2009 is not shaping up to be a vintage year for most industries. However, the oil and gas sector has been weathering the storm better than most and while board members of most companies in the industry will not be lighting cigars with $100 bills this year, they won't be climbing onto the ledge of their office window either.
So seeing as six months of the year has already passed, ArabianOilandGas.com decided to give you our list of the eight biggest winners and the two biggest losers of 2009 so far. There are a few controversial inclusions that we're sure some of you will no doubt disagree with and even more exclusions that you maybe feel are more worthy contenders for the list.
If you do disagree please feel free to leave a comment.
- The National Oil Companies (NOCs)
- Iraq’s Oil Ministry
- HeritaGE Oil
- Addax Petroleum
And the two biggest losers…
- Saudi Basic Industries Corporation (SABIC)
The National Oil Companies (NOCs)
Many people may argue that a massive slump in global demand coupled with the oil price dropping by over $100 a barrel in the space of a few short months would mean that the NOCs were having a nightmare year rather than a good one.
However, NOCs tend to look at their balance sheets over a longer period than a few months and 2009 has given them a lot more to smile about than some people might think.
First of all the oil price has rallied in recent months and currently hovers around the $60 a barrel mark. Considering the fact that global demand is at its lowest point since the 1980s then $60+ is a price all of the NOCs would have taken like a shot in December. And if anyone says otherwise, they are lying.
Secondly is that a the slowdown has given the NOCs the opportunity to pause for breath and invest time and resources into improving their infrastructures. Saudi Aramco, ADNOC and Sonatrach are three examples of NOCs investing billions of dolalrs into improving their businesses and it feels like a week doesn’t go by without at least one of them making an announcement of a multi-billion contract award.
Thirdly, the crash in prices for raw materials has meant that the NOCs have been able to slash billions of dollars from project budgets. A recent example is the Saudi Aramco joint venture the Jubail Export Refinery trimming $2.4 billion from its $12 billion budget. Other projects that have been deferred are now being taken from the shelf to take advantage of the low costs.
If the oil price can remain above $50 a barrel for the rest of this year when demand is so low, then the NOCs can look forward to a an even more prosperous future.
Even though global demand for liquefied natural gas (LNG) has slumped in 2009 Qatar has used the time to forge ahead with its impressive infrastructure plans and as a result is now the world’s largest exporter of LNG.
The centrepiece of Qatar’s investment is the Qatargas 2 project, the world’s first fully integrated value chain LNG venture.
The US$13.5 billion project at Ras Laffan Industrial City in has seen the construction of two world class liquefied natural gas (LNG) trains each with a capacity of 7.8 million tones per annum (mtpa) and 0.85 mtpa of Liquefied Petroleum Gas (LPG), 140,000 bpd of condensate, three storage tanks, power utilities and water injection systems, a fleet of 14 ships and a receiving terminal.
The LNG from Qatargas 2 will supply the UK with up to 20% of its gas needs.
Qatar’s vast reserves of gas, it has the world’s highest reserves of non-associated gas and the third highest gas reserves overall, coupled with the aforementioned infrastructure and security of supply has meant that the Gulf state has become a popular choice for countries looking to diversify gas supplies.
Other factors that undoubtedly helped Qatar cement it’s place as the top LNG exporter include recent events in the two countries with the largest gas reserves. Russia turning off gas supplies to Eastern Europe in the winter after a row over payments with Ukraine and the recent UN sanctions regarding Iran’s nuclear ambitions has meant that countries such as Poland and Romania are now buying Qatar’s LNG.
And with Qatar having enough gas reserves to supply the UK with 100% if its gas requirements for the next 250 years things can only get better for the Gulf state.
While many companies have been quick to blame their current woes on the global recession (with good reason in most cases), it seems that one outfit is feeling the credit crunch about as much as the Spanish football giants Real Madrid.
Petrofac is arguably the Cristiano Ronaldo of the oilfield services sector in 2009 and has been winning the kind of contracts that make the US$80 million Real Madrid paid for the Portuguese maestro look like small change.
The company has recently been awarded includes a massive $2.2 billion engineering, procurement and construction (EPC) contract to build an oil and gas processing plant in Algeria. The facility will be built at the El Merk central processing facility (CPF) in the North African nation's Berkine Basin and will last 44 months.
Not content with the Petrofac soon bagged another multi-billion project when it was awarded the $2.3 billion contract by Abu Dhabi Company for Onshore Oil Operations (ADCO) for the development of the onshore Asab oil field.
Under the 44-month lump-sum contract, Petrofac will provide EPC services to upgrade the production capacity of the Asab field.
Other major awards include the recent $350 million contract for the Kauther gas-field depletion-compression project in the Sultanate of Oman as well as an EPC contract for the utilities and cogeneration package at Saudi Aramco’s Karan gas development project.
Iraq’s Oil Ministry
To the untrained eye, the recent Iraq oil auctions that resulted in only one field being awarded could be viewed as an unmitigated disaster for Iraq’s oil minister, Dr. Hussain al-Shahristani, and his cohorts in the oil ministry. Indeed the whole situation has led more than one observer to ask how Shahristani has managed to cling onto his job.
However, in what has been a combination of skillful political maneuvering, stubbornness and a touch of luck the oil auctions ended up reinforcing Shahristani’s reputation as a man who is not prepared to allow Iraq’s greatest (some might also add only) assets to be sold off cheaply to foreign oil companies.
Shahristani was undeniably lucky when the only contract to be awarded was the super giant Rumaila field. When at full capacity the 17 billion barrel field will contribute more than half of the 4 million barrels a day Iraq has set as its production target.
The oil minister also managed to persuade a BP-led consortium to accept an offer of US$2 for every extra barrel of oil produced by the field. To put the figure in perspective, an IOC could expect to earn $20 for every extra barrel on an oilfield in the US.
Shahristani also showed deft political nous after stating that two gas fields in the auction that had attracted no bids would now be operated by local, state-run companies. Before the auction the oil ministry has been under fire for not giving state-run companies an opportunity to bid for contracts. The gesture had the effect of cutting the protestors off at the knees.
Iraq knows that it has potentially the second largest oil reserves in the world after Saudi Arabia and it also knows that the oil is going nowhere. Shahristani has sent a loud and clear message to the IOCs that he firmly believes that they need Iraq’s oil more than Iraq needs them.
It speaks volumes about the current state of US supermajor ExxonMobil when it feels it is in a healthy enough financial position to walk away from the Iraq oil auctions when the financial terms don’t suit.
After posting profits of US$45.22 billion on revenues of $425.70 billion in 2008, Rex Tillerson, ExxonMobil’s CEO, said earlier this year that the current financial climate is not going to affect any of the company’s investment plans or force any redundancies.
Tillerson also said that the company had a budget of $129 billion to invest in exploration, production and refining in both oil and gas over the next five years.
With numerous joint ventures in the Middle East including the Qatargas 2 project as well as a number of high profile downstream and refining projects in Saudi Arabia it seems that 2009 is business as usual for the US hydrocarbons giant.
The London listed, but Canada-based exploration and production company Heritage Oil is another big winner in 2009. The company recently agreed a deal to acquire Turkish E&P company Genel Enerji in a deal that values the new company at US$5 billion.
The deal makes the new company, renamed HeritaGE Oil, arguably the biggest oil and gas player in Iraqi Kurdistan.
The board of the new compnay believes that the merger will result in the new company becoming a major force in the Iraqi oil industry. And with production from Taq Taq and Tawke currently around the 30,000 barrels per day (bpd) mark and expected to increase to 43,000 bpd (net) to the enlarged group by the end of 2009, who can blame them?
The cash flow generated from the Taq Taq and Tawke fields will enable HeritaGE Oil to significantly invest in the jewel of its crown, the enormous Miran oilfield in Iraqi Kurdistan. It is believed that the field holds up to 4.2 billion barrels of oil and when the company begins prudciton on that field, watch as the supermajors form an orderly queue.
The French contractor has been cutting a swathe through the industry in a similar fashion to Petrofac recently. The most high profile of its contract awards are the two it has won to carry out the engineering, procurement and construction (EPC) of the conversion unit and the offsites and utilities at the Saudi Aramco Total Refining Co (Satorp) oil refinery at Jubail.
It is estimated that the value of the contracts is around the US$3 billion mark and added to the recent contract it won for a mid-sized LNG plant in China and the $4 billion joint venture with Chiyoda for the construction of the LNG trains at the Qatargas project at Ras Laffan Industrial City it seems that the credit crunch has yet to hit the French engineering giant.
The Swiss-Canadian exploration and production company spent the first half of 2009 being pursued by a number of major oil companies before finally succumbing to an offer worth around US$7.2 billion from Chinese supermajor Sinopec.
Addax Petroleum had become one of the largest producers in West Africa, holding significant licences in Nigeria and Gabon, but it was the two licences held in Iraqi Kurdistan, for the Taq Taq and Sangaw North, that had attracted interest from the big players.
The company was helped by the recent thawing of relations between the Iraqi Oil Ministry and the Kurdistan Regional Government (KRG), but credit should be given to the company for being one of the first E&P companies to enter the semi-autonomous region. The courage has paid off
and with a rich benefactor behind them it seems the future looks bright.
And the two biggest losers…
If things weren’t bad enough for Iran’s hydrocarbons industry after UN sanctions over the country’s nuclear ambitions meant that many foreign IOCs, including French supermajor Total, had to pull out of production contracts, then the recent presidential elections have resulted in even more uncertainty.
Iran is believed to be suffering declining oil production rates of between 4%-8% and much of the country’s vast reserves require expensive gas injection techniques that it has not got full access to due to the international sanctions.
Various projects, including the development of South Pars, the world’s largest gas field, are years behind schedule and a brain drain has meant that the industry is missing many talented and highly trained Iranian industry professionals.
Even the recent announcement that US$70 billion was going to be spent on the North and South Pars gas fields was met with scepticism by industry experts after no indication was given as to where the money would come from.
While the political situation remains it seems that despite having the third largest oil reserves and second largest gas reserves Iran’s energy sector has a long hard road ahead before it can achieve its potential.
Saudi Basic Industries Corporation (SABIC)
The massive slump in both demand and price for petrochemicals products has meant that the region’s largest petrochemicals company has not enjoyed a great 2009 thus far.
The Saudi Arabian company posted a US$259.3 million loss for the first quarter of the year compared with profits of $1.84 billon for the same quarter in 2008 and also looks set to announce a 78% drop in Q2 profits compared to the corresponding period of 2008.
The main source of SABIC’s woes stems from the $11.6 billion purchase of GE Plastics in 2007. The company’s vice chairman and CEO Mohamed Al-Mady admitted earlier this year that the company had paid over the odds for the American petrochemicals giant.
This led to SABIC making a $315 million goodwill impairment charge earlier this year which led to the $259.3 million loss.
To make matters worse the company recently become embroiled in an anti-dumping dispute with both China and India
However, the company is cutting costs and is still massively investing in projects designed to significantly increase capacity. So when the world lifts itself out of recession and demand for petrochemical products begins to rise, SABIC should be in a position to see 2009 as a stumble rather than a fall.