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Vol. XLI - N° 9831 September 2012

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TOP OF THE NEWS- Energy and cyber warfare: the truth is nowhere else . . . . . . . . . . . . . . . . . . . . . . . . . - Iraqi Kurdistan: Total does it again . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SYRIA SPECIAL REPORT- Could an Alawite state, the possible refuge of Bachar al-Assad, be viable at anenergy level?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

AOGD 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contact details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total has taken a charge of €316 million in anticipation of an agreement with the U.S.government over its Iranian contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Saudi Aramco’s whole computer system is operating normally again. Sabic hasreportedly invited seven companies to bid for the construction of a polyacetal plantat the Ibn Sina complex. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Qatar Petroleum and ExxonMobil apply for approval to expand the Sabine Passterminal to enable it to export LNG. Qatar Solar Technologies and Gasal sign a long-term agreement for the supply of hydrogen and nitrogen . . . . . . . . . . . . . . . . . . . . . . Merger between Petroceltic and Melrose will create a company focused on NorthAfrica, the Mediterranean and the Black Sea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EGPC preparing to launch an international exploration bid round for 20 blocks in theWestern and Eastern deserts. Production has begun on the Abu Sennan concession ata rate of 2,200 boe/d from four wells. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dragon Oil’s oil production in Turkmenistan now running at over 70,000 b/d . . . . . Emirates Nuclear Energy Corporation awards uranium supply contracts to sixinternational companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dolphin Geophysical and Spectrum commissioned to carry out 1,500-sq km 3-Dseismic survey of the Lebanese offshore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dana Gas’s Egyptian production fell to 60,950 boe/d in the first half of this year . . . Fresh sabotage attack against the pipeline delivering feed gas to Yemen LNG. DNOInternational abandons its bid to acquire the Canadian company Calvalley Petroleum..Occidental’s gas production in Arab countries rose by 10% to 464 million cu ft/day inthe first half. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Africa accounted for 30% of Total’s hydrocarbon production in the first half of 2012..Cooperation between Total and Inpex strengthened by the Japanese company’s entréeinto deepwater Block 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chevron launches the development of the Lianzi field . . . . . . . . . . . . . . . . . . . . . . . . .

Energy resources over and above conventional oil, by Energy Funds Advisors . . . .

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ARAB OIL & GASBulletin of information and studies published fortnightly byStratégies et Politiques Energétiques (SPE)

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Energy and Cyber Warfare: The Truth Is Nowhere Else

The world’s largest national oil company, Saudi Aramco, was the targetof an invasion by a malicious computer virus in mid‐August (see our report,page 20). The company announced on 26 August that all its computer systemswere operating normally again and assured that its “principal” oil and gasexploration, production and distribution activities had not been affected by theincident. Saudi Aramco did not explain what it meant by “principal” activities,however, nor which activities did not fall under that heading. Through the voiceof its President and Chief Executive Officer, Mr. Khalid al‐Falih, the Saudi giantexplained that the virus had had a “limited” impact, that the precautionaryprocedures and multiple protection systems in place had proved theireffectiveness of this occasion, and that there would not be another attack of this kind. On this last point,one thinks inevitably of the celebrated remark of Winston Churchill, who said “We will never make thesame mistake again,” and who, with the way with words for which he was famous, added immediatelyafterwards: “But we will make others.”

The British statesman made that observation in a time of war, and referring to it in the context ofwhat happened to Saudi Aramco is thus doubly appropriate. Even though we do not know the identity orthe motives of the computer pirates who attacked the leading name in the world oil industry, nodemands were made on it, so we are clearly in the realm of politics. And as the Prussian officer andmilitary theorist Carl von Clausewitz observed so rightly as far back as the early part of the 19th century,“war is the conduct of politics by other means.”

It is obviously understandable that Saudi Aramco and Saudi Arabia, which are the principalguarantors of the stability of the world oil system, sought to reassure oil‐importing countries, the oilindustry and their own citizens on such a matter. Assuming that this attack did not effectively result inany significant damage to the Saudi national oil company, it has nevertheless created uncertainties forthe future, and not only for Saudi Aramco, which was certainly well prepared for this type of cyberwarfare and which has the resources needed to draw all the lessons of what has just occurred. That said,by its very nature the threat comes in many forms and can mutate so easily that no company can imaginethat it is able to prepare for any eventuality.

Military men and strategists have been working for years on various cyber warfare scenarios, butone may wonder whether the energy sector, in both its public and private incarnations, is sufficientlyprotected. It is banal to say that this is a strategic sector par excellence and that, for this reason alone, itis a perfect target for those who might conceive and prepare such attacks, whether they be working forgovernments or not. In the case of Saudi Aramco, demands have been posted on the internet, but onehas to remain very cautious when confronted with elements that are not only hard to verify but are alsosubject to various potential manipulations and attempts at disinformation. Faced with such questions,the well‐known adage of the intelligence services leaps quickly to mind: “Those who talk do not knowand those who know do not talk.”

While the energy sector in general is a very tempting target for modern‐day pirates, MiddleEastern countries, and especially those in the Gulf region, are particularly threatened due to their hugepotential in terms of hydrocarbon reserves and their substantial share of global oil production andexports. In April a fearsome (computer) worm caused serious damage to the files of the Iranian OilMinistry and to the operations of the country’s oil terminals. The attack was described by the specialistcomputer security firm Symantec as the most sophisticated threat it had ever seen, which led manyexperts to think that it was the work of another government or governments.

AOG / 3 1 September 2012

TOP OF THE NEWS

1 September 2012 AOG / 4

Iran had earlier been hit by the Stuxnet virus, which severely disrupted the operation of thecentrifuges it uses to enrich uranium. That attack, which was widely attributed to the intelligenceservices of either Israel, the United States or another western country, was clearly aimed at slowing theprogress of Iran’s nuclear program, something that is of great concern to a large part of the internationalcommunity. This program could trigger a military response on the part of Israel and/or the United Statesin particular, and there is a game of shadows being played out around it that is taking several forms,whether they be virtual (but with very real consequences), material (the delivery of previously damagedequipment) or human (the assassination of scientists closely involved in the Iranian nuclear program).

Over the past few years the oil industry in particular and the oil services sector in general haveinvested heavily in security in a bid to prevent major accidents that could seriously harm their personnel,their facilities or the environment, such as the massive oil spill in the Gulf of Mexico that followed theexplosion on the Deepwater Horizon drilling platform in the spring of 2010. It certainly is not comparable,but in the area of computer security the attack against Saudi Aramco could be a salutary warning to thewhole hydrocarbon and energy sector. No significant progress is possible on the security front unless theindustry becomes fully aware of the extent of its vulnerability.

Francis Perrin

Iraqi Kurdistan: Total Does it Again

Barely three weeks after announcing on 31 July that it had signed a farm‐in agreement withMarathon Oil Corporation providing for it to acquire interests in the Harir and Safen permits, giving itinterests in Iraqi Kurdistan for the first time (see our analysis in AOG, 1 Aug., 2012), Total has done itagain. On 20 August the Canadian company ShaMaran Petroleum Corp. (of Vancouver, British Columbia)disclosed that it had sold the French oil giant a 20% interest in the Taza exploration block in the samepart of Iraq. On this acreage, where the Taza‐1 exploration well is being drilled at the moment, Total willbe associated with Oil Search Limited, operator with a 60% interest, and the Kurdistan RegionalGovernment (KRG – 20%).

Total has not mentioned this latest transaction directly, having not issued any press releaseconcerning the agreement it has concluded with ShaMaran Petroleum. The announcement came fromthe Canadian company, which explained that Total would be paying US$48 million in cash for its interestand that it had undertaken to reimburse ShaMaran for the exploration costs it has incurred since 1 Aprilthis year. For the Iraqi Oil Ministry in Baghdad, however, this is yet more bad news in the trial of strengthit has been conducting with the KRG for some years over key aspects of oil policy, including theconclusion of exploration‐production agreements for blocks in the province of Kurdistan without theirbeing validated by the federal government.

Immediately after the signing of Total’s agreement with Marathon Oil, Iraq’s Deputy PrimeMinister in charge of Energy, Mr. Hussein al‐Shahristani, asserted that the French company had a clearchoice to make: either it intended to continue participating in the development of the Halfaya oil field, inwhich case it would have to cancel its farm‐in agreement with Marathon, or it decided to keep its newly‐acquired interests in Kurdistan and would then be given a certain time to dispose of its equity stake in theHalfaya development. In view of the sensitivity of the issue and its political implications, Total did notmake any comment on Mr. al‐Shahristani’s remarks, and in the press release it issued on 31 July it wentno further than confirm in the vaguest of terms “its commitment to contribute to the development of theIraqi oil sector and invest in new projects.”

Being well aware of the extreme sensitivity of the Iraqi Oil Ministry on this subject, Total could notbut know that its entrée into Kurdistan would provoke a sharp reaction, and its decision is bound to havebeen taken at the very highest level within the company. Total has never made any secret of its desire tooperate in Iraq and it is due to become operator for the development of the Safen acreage, so one mightpresume that the company will not be prepared to change its mind and pull out of Kurdistan. Thecompany is probably hoping that a compromise may be possible and that it might be able to retain itsinterest in Halfaya at the same time as investing in hydrocarbon exploration in Kurdistan, but this is by nomeans certain given what is at stake politically for the Iraqi authorities.

Taking the view that it has not been treated very well in Iraq, although it has not said so in somany words, and that the project in which it is involved in southern Iraq is not on a par with its rank, itstechnical skills, its knowledge of the country and its ambitions, Total has decided that the time has cometo send a strong message to Baghdad. This is a risky strategy, but the company is not the first major toembark on this delicate path, and it has done so knowing full well the implications of its actions.

Francis Perrin


AOG / 61 September 2012

The Arab Oil & Gas Directory 2012Is Now Available

The 2012 edition of the Arab Oil & Gas Directory (AOGD) is available. This is the 38th edi-tion of this annual reference book, which is well known in industry circles and has reviewedall the activities of the oil, gas and petrochemical sectors in the Arab countries of the MiddleEast and North Africa, as well as Iran and Sudan, every year since 1973 (see the order formon the following page).

AOGD 2012, which runs to 670 pages, includes chapters on the following countries and orga-nizations:

∙ Algeria ∙ Bahrain ∙ Egypt ∙ Iran ∙ Iraq∙ Jordan ∙ Kuwait ∙ Lebanon ∙ Libya ∙ Mauritania∙ Morocco ∙ Oman ∙ Qatar ∙ Saudi Arabia ∙ Soudan∙ South Sudan ∙ Syria ∙ Tunisia ∙ UAE ∙ Yemen∙ OAPEC ∙ OPEC ∙ Index of oil and oil services companies operating in

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Could an Alawite State, the Possible Refuge ofBachar al-Assad, Be Viable at an Energy Level?

Since January at least, when the former Syrian Vice-President, Mr. Abdel-HalimKhaddam, told the French newspaper Le Figaro that he knew President Bachar al-Assad wasthinking of establishing “his own republic”, many analysts and political pundits specialized in theNear East, as well as the media, have pondered this eventuality as a possible refuge for theSyrian president. “I know that a month ago he confided in one of his Lebanese henchmen and told himthat he intended to create an Alawite state where he could wage a fratricidal and religious war,” said Mr. Khaddam. “He is now ready to create his personal republic. He is thinking of settling in Lattaquié. Iam sure there are enough underground shelters there to which he and his clan can repair.”

Located in the north-west of the country, the “Alawite” region is a strip of land about 100kilometers long and 50 kilometers wide that runs along the Mediterranean from the port ofLattaquié in the north, close to the Turkish border, to Tartus in the south, at the frontier withLebanon. To the east, it is protected by the Djebel Ansarieh mountain range. An Alawite statealready existed there between 1920 and 1936. It was created in 1920 under the French mandate,before being attached to Syria in 1936. Syria’s Alawites are estimated to number around 2 million people, representing around 12% of the total Syrian population.

SYRIA SPECIAL REPORT

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The viability of this possible state at any level, whether it be political, religious, economicor energy-related, would mainly depend on its geographical area. It is precisely this area thatthe regime is trying to “cleanse” of its Sunni population, which explains the ferocity of thefighting in all the coastal towns in both the north and the south. To name only a few of them, thisis true in particular of Homs, in the center of the country (which borders the region in question),Tall Kalakh in the south, on the border with Lebanon, the Houla region (which controls theroad running from Homs to the port of Banias), and Idlib in the east. One of the mainchallenges for the regime remains Homs, Syria’s third largest city (with a population of 652,609,according to the 2004 census) after Aleppo (2,132,100) and Damascus (1,414,913), and thecountry’s main industrial center separating Aleppo from Damascus.

“In order to survive, Assad and his Alawite generals will fight to change Syria into Lebanon, afragmented nation where no community can govern,” Mr. Joshua Landis, of the University ofOklahoma, wrote on his blog “Syria Comment”, which was quoted by Reuters. For his part, thejournalist Mr. Xavier Baron, who is a Near East specialist, wrote on Slate: “Be that as it may, anAlawite state could prove viable, with its seaward-looking façade, its ports, its oil terminal, its airport, itsfarmland, and the homogeneity of its population, which is estimated to number some 2 million.” Quotedby francetvinfo, Mr. Baron added: “With its recent territorial victories, it would approach the size ofLebanon.” He explained that President al-Assad would always benefit from the support ofRussia, which has a naval base at Tartus, and of Iran, since by keeping a frontier with Lebanon,“it would be able to continue supplying Hezbollah.” Mr. Landis is more skeptical: “Syria would notsurvive without the coast,” he said, especially as the rebels would then have “money, legitimacy, andinternational support” to recapture the coast.

AOG summarizes below the energy aspects of this debate:

1. The Alawaite region’s oil and gas resources

→Oil and gas reserves and production

Generally speaking, the region in question is not important in terms of currently knownoil and gas reserves. No field has ever been discovered there, and only two companiespreviously held exploration licenses there, before pulling out following the imposition ofinternational sanctions.

Syria is a minor oil and gas producer, with estimated reserves of 2.5 billion barrels ofcrude oil and 285 billion cubic feet of natural gas as at 1 January 2012. Furthermore, Europeanand American sanctions against the regime, which began to come into force in September 2011,and the departure of almost all foreign companies with oil and gas fields in production in thecountry have led to a sharp drop in national oil production. It fell from an average of 378,000barrels/day in the first nine months of 2011 to 140,000 b/d by the beginning of August this year,according to the Oil Minister, Mr. Said Hneidi. There is not much at stake on the energy front inSyria, therefore.

The principal oil and gas producing regions are Deir ez-Zor and Palmyrides, in the eastand center of the country, where five production joint ventures used to operate, namely: Al-Furat Petroleum Company (AFPC), a joint venture between a consortium led by Royal DutchShell (50%) and General Petroleum Corporation (GPC – 50%); Deir Ez-Zor PetroleumCompany (DEZPC), a 50:50% joint venture between Total and GPC; Ebla Petroleum Company(Ebco), a 50:50% joint venture between Suncor Energie and GPC; Hayan Petroleum Company,


a 50:50% joint venture between INA and GPC; and Dijla Petroleum Company, a 50:50% jointventure between, on the one hand, Gulfsands Petroleum and Emerald Energy, a subsidiary ofSinochem (50%) and GPC (50%). The regions in which state-owned Syrian PetroleumCompany (SPC) operate stretch from the south of the country, east of Lebanon, to the north andnorth-east, at the border with Iraq, and including central areas in between (see the Syria SpecialReport in AOG, 16 Dec., 2011).

SPC’s liquids production amounted to 54.33 million barrels in the first nine months of2011, representing 52.6% of national output of 103.21 million barrels, while foreign companiesoperating in the country produced 48.88 million barrels. These figures compare with 52.5million barrels and 50.7 million barrels respectively in the corresponding period of 2010, whilethe remainder consisted of 2.54 million barrels of condensate produced by Syrian GasCompany (SGC). There was thus a 3.6% drop in foreign companies’ production between oneyear and the next. SGC’s associated and non-associated gas production totaled 8.3 billion cubicmeters, an average of 30.41 million cu m/day, in January-September 2011, up from 7.52 billion cum (27.5 million cu m/day) in the same period of 2010. Marketed gas production amounted to 5.9billion cu m and 6.69 billion cu m respectively, while 209 million cu m (489 million cu m) ofnatural gas was imported from Egypt (AOG, 1 Dec., 2011).


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The coastal region included only two exploration blocks. The first is Block 11, the 6,375-sqkm Al Asi acreage, which stretches as far as Banias and Tartus and was awarded in 2006 to theFrench company Maurel & Prom, operator with a 75% interest in association with PetroQuestEnergy of the United States. The second is Block 9 (10,032 sq km), which extends as far asLattaquié and is held by a consortium led by Loon Latakia Limited, an indirect subsidiary of theCanadian company of Polish origin Kulczyk Oil Ventures (KOV), operator with a 50% interestin association with MENA Hydrocarbons Inc., also of Canada (30%), and Triton Petroleum PteLtd. (20%). Triton is 5% owned by Agri Energy Limited. Before the uprising, KOV hadconcluded an agreement with a third party for the sale of a 5% stake in the concession (see mapin AOG, 1 Nov., 2011).

In its 2011 annual report, Maurel & Prom indicates that it took a charge of €10 million as aprovision for the depreciation of the assets of the Al Asi concession. The year before it haddrilled the Draco 1 well in the eastern part of the acreage, which yielded non-commercial oil andgas shows, after which it decided to proceed to the second four-year exploration period and toconcentrate on operations in the western part of the acreage (AOG, 16 Sept., 2010).

On 17 October 2011 KOV announced that it was suspending its exploration activities inSyria and that it had halted the drilling of the Itheria-1 well at a depth of 2,072 meters, comparedwith a target depth of 3,256 meters. It also indicated that it had asked for an extension of theinitial exploration period, but that this request had been rejected. The following month,however, GPC informed KOV that the initial exploration period of its production-sharingcontract for Block 9 was being extended by 11 months, from 28 November 2011 to 27 October2012 (for the details, see AOG, 1 Dec., 2011).

→Major offshore oil and gas prospects off the Alawite region

Substantial gas resources have been discovered in the eastern Mediterranean over thepast few years, but they are located off Israel and Cyprus, although Syria and Lebanon hope forgood news from their territorial waters in the future. For that to happen, however, they have toexplore. But Syria cannot do that off its own bat and needs the cooperation of foreign oilcompanies. This will require the lifting of sanctions, which is highly unlikely in the event ofPresident Assad withdrawing to the Alawite region.

In 2007 Syria organized an initial exploration bid round for the award of four offshoreblocks covering a total area of 5,000 sq km, but it attracted only one bid and was subsequentlycanceled (AOG, 1 Feb., 2008). Another licensing round was launched in March 2011, which wasfor three offshore blocks located in Syria’s territorial waters and its Exclusive Economic Zone(EEZ). The three blocks are contiguous and stretch from south to north some five kilometersfrom the coast; they cover a total area of 9,038 sq km and consist of the following (from south tonorth, off the borders with Lebanon and Turkey respectively):

- Block I: 3,176 sq km.- Block II: 2,977 sq km.- Block III: 2,885 sq km.

Under an exclusive contract with the Oil Ministry and GPC, CGGVeritas was to providetechnical support for this bid round. Among other things, it was to co-organize briefings anddata study sessions with Syrian officials in Damascus, London and Geneva for companiesinterested in the technical data available on the whole of Syria’s offshore. The data include 5,000


line km of multi-client 2-D seismic data acquired in 2005 over zones where the water is 500 to1,700 meters deep, an interpretation package, gravimetric data, seepage data, and a set ofreprocessed seismic data on exploitation assets. At the time, the Vice-President of the multi-client and new projects division for Africa, the Middle East and central Asia at CGGVeritas, Mr. Jim Martin, indicated that all these data indicated the presence of an active petroleumsystem. Bids were due to be submitted by 5 October 2011 (AOG, 16 April, 2011).

There seem to be very positive prospects of discovering new accumulations of gas in thisregion of the Mediterranean, according to a report by the U.S. Geological Survey (USGS), anagency attached to the United States’ Department of the Interior, devoted to an assessment ofthe undiscovered oil and gas resources in the Levant basin region. The region covers an area of83,000 sq km in the eastern Mediterranean. The USGS’s evaluation is based on geological dataacquired by Spectrum and data obtained from oil and gas wells and fields.

The USGS estimates the region’s mean technically recoverable reserves at 1,689 millionbarrels of oil, within a range of 483 million barrels to 3,759 million barrels, and 122,378 billioncubic feet (122.38 trillion cu ft) of natural gas, within a range of 50.09-227.43 trillion cu ft. Inreservoirs below the Levant salt formation, in which Israel’s Tamar, Dalit and Leviathan fieldsare located, mean undiscovered gas reserves are estimated at 80.76 trillion cu ft. The regionconcerned stretches from the south of Syria northwards to zones located off Lebanon [Editor’snote: The report, which includes maps, geological data and an explanation of the methodologyused, can be consulted on the USGS’s website].

Technically, therefore, the Alawite region could have access to substantial oil and gasreserves, thanks to the possible assistance of “friendly” countries such as Russia, China,Venezuela and Iran.

2. Downstream industries

The Alawite region lies at the heart of Syria’s oil infrastructure. Assuming the regimesucceeds in annexing Homs to this region, it would control the country’s two refineries in Homsand Banias, the Tartus and Banias export terminals, and the country’s main oil and gaspipelines (except for the Arab Gas Pipeline from Egypt and Jordan, which was due to beextended to Kalas, on the border with Turkey, but which passes by Homs), as well as fertilizerplants in Homs.

That said, crude oil feedstock would be required for the refineries, terminals andpipelines, while natural gas would be needed to fill the gaslines, and no oil or gas is currentlyproduced in the region. It would be conceivable for this potential new state to import oil forprocessing in these refineries and producing refined products for the local market, but thereagain it would need foreign exchange to pay for those imports. According to Mr. LaurentFabius, the French Foreign Affairs Minister, speaking on the RTL radio: “The war is costing himabout €1 billion a month and he has fewer and fewer resources. We estimate he only has a few monthsleft without the support of Russia and Iran.”

• Refining: Syria’s two refineries have total processing capacity of 239,865 b/d, withBanias accounting for 132,725 b/d of that and Homs for 107,140 b/d. They were operating at fullcapacity before the drop in oil production following the imposition of sanctions and covereddomestic demand in full, sometimes producing a surplus of fuel oil that was exported. Now, thedomestic market suffers shortages of various products that are needed for the economy and the


continuation of the conflict, especially gasoline, fuel oil, diesel and liquefied petroleum gas(LPG). Furthermore, the Homs refinery has been damaged by various acts of sabotage and hasbeen hit by artillery shells, but no one knows the extent of the damage, since the Syrian mediado not talk about it.

During a visit to Moscow on 3 August, a high-level Syrian delegation reached agreementon exchanging crude oil for refined products. “Russia wants to help the Syrian people," said Syria’sDeputy Prime Minister for Economic Affairs, Mr. Qadri Jamil. "We will deliver our oil and receivegasoline and fuel oil; it will be a barter.” The agreement has not been finalized yet, however, andaccording to Reuters, Syria is negotiating other similar deals and has already concluded someagreements with firms based in London, Egypt and Lebanon.

• Terminals: Syria’s principal oil export terminals are located at Banias and Tartus, inaddition to which there is a small tanker mooring facility at Lattaquié. The Banias terminal hasfive berths that can accommodate tankers of up to 130,000 dwt for loading and up to 97,000 dwtfor unloading, according to the terminal’s website. It has storage capacity for 437,000 tons ofcrude oil in 19 storage tanks. The Tartus terminal can accommodate tankers of up to 120,000 dwtand is connected to Banias by pipeline. Lattaquié can handle tankers of up to 50,000 dwt. Allthree terminals are operated by Syrian Company for Oil Transport (SCOT). Light crude fromfields in central Syria and close to the border with Iraq are exported through Banias, whileheavy crude produced by SPC is exported through Tartus.

• Pipelines: SCOT also manages the national pipeline network, which in 2010 wascomposed of 3,161 kilometers of oil pipelines and 1,997 km of gas pipelines, according to CIAFactbook. The main oil lines are the following: a 663-km export pipeline with a capacity of250,000 b/d running from SPC’s fields in the north-east to Tartus, with a connection to the Homsrefinery; a 500,000-ton/year refined product pipeline linking the Homs refinery to Damascus,Aleppo and Lattaquié; a 92-km spur line with a capacity of 100,000 b/d linking AFPC’s al-Thayem field and other fields in the same region to the T-2 pumping station on the old Iraq-Syria pipeline from Kirkuk to Banias; a 70-km spur line running from AFPC’s al-Ashara andal-Ward fields to the T-2 station; and a refined product pipeline linking Homs to Aleppo.

The gasline network is mainly composed of lines running from gas processing plants topower stations and industrial plants in Homs. It includes in particular: a 277-km line from theJbeisseh gas plant to the T-3 station and the T-4 station in Homs; a 440-km line from the Omarfield to the Tishrine power station near Damascus, with a 220-km spur line linking the Palmyraregion to Homs and the Mhardeh power station, plus a short one connecting Homs to theJandar power station; a 235-km line running from the Arak gathering center near Palmyra to theAleppo power station; and a 135-km line from Homs to the Banias power station.

Syria is also a transit country for the 1,200-km Arab Gas Pipeline, the first section ofwhich runs from Egypt to Jordan and came on stream in 2003. The first Syrian section is 319 kmlong and runs from Rehab on the Jordanian-Syrian border to the Deir Ali power station southof Damascus. From there, it passes through the capital to the al-Rayan gas compression stationeast of Homs, from where two spur lines run to the Tishrine and Deir Ali power stations. Thissection, which was built by Stroytransgaz, a subsidiary of Gazprom, was completed in 2008.

A contract for the construction of a second section was awarded to the same Russiancompany in 2008, but it was subsequently canceled due to a disagreement over the terms.Syrian Gas Company (SGC) then reassigned the contract to the Czech company Plynostav-


Regulace Plynu in October 2009. The project was broken down into two phases, the first ofwhich was due to be completed in 2011. The first 62-km leg was to have run from al-Rayan andAleppo to Kalas, on the Turkish border, enabling the Syrian network to connect up with those ofTurkey and possibly Europe. The second section was due to follow a 183-km route from al-Fireqlos, east of Homs, to Aleppo. This section was to have been built later and used for thetransportation and distribution of natural gas within Syria (AOG, 1 Nov., 2008). Now, given thestate of relations between Damascus and Ankara, it is unlikely the project will be implemented.

A final section of the Arab Gas Pipelinelinking Homs to Tripoli in Lebanon runs fromal-Rayan to Banias, from where a 32-km lineextends it to the Deir Ammar power stationnear Tripoli. This part of the project wascompleted in the autumn of 2009.

However, no Egyptian gas has passedthrough the network since July, when thelatest sabotage attack took place against the pipeline system through which Egyptian gas isexported to Israel and Jordan. It was the 15th attack since the Egyptian revolution of 25 January2011 and caused a major fire (AOG, 1 Aug., 2012). The cessation of Egyptian exports hasexacerbated Syria’s gas supply problems.

• Fertilizer plants: Two state-owned enterprises have a monopoly on fertilizerproduction – General Fertilizer Company (GFC) and General Establishment for ChemicalIndustries (GECI). Three main plants were operating near Homs, two of which producednitrogenous fertilizers and one phosphate fertilizers. The first has a capacity of 150 tons/day andreceived naphtha feedstock from the nearby refinery. The second is larger, having a capacity of1,000 tons/day of ammonia and 1,100 tons/day of urea. It originally ran on naphtha feedstock,but was converted to natural gas by Technip, in association with a subsidiary of M. W. Kellogg.Feed gas comes from the Jbeisseh processing plant and is delivered through the Jbeisseh-Homsgasline.

The third fertilizer plant has the capacity to produce 1,400 tons/day of triplesuperphosphate (TSP) using around 800,000 tons/year of phosphate rock extracted from minesin the Khunaifis region, 50 km south of Palmyra.

To sum up, the energy dimension is not a critical one in this context, since Syria as awhole – and the Alawite region in particular – has limited hydrocarbon potential and is feelingthe full brunt of economic and financial sanctions and pressures. While it is certainly possiblethat new oil and gas discoveries may be made, this would require more foreign investment, ascenario that assumes the preservation of a unified nation state, an end to the violence, and thelifting of sanctions, which is to say the complete opposite of what would result from the creationof a separate Alawite state.

The rest of the world can do perfectly well without Syrian oil and gas, even though thiseventuality would make it difficult for natural gas to be supplied to Europe in future throughthe Arab Gas Pipeline. But there is sufficient alternative oil and gas production capacity aroundthe world for consuming countries and the oil and gas markets not to have any reason to panicin the face of this political scenario. The likelihood of its materializing on a lasting basis remainsquite low moreover.


Syria is a transit countryfor the Arab Gas Pipeline,

but no Egyptian gas is beingtransported through it now

Stratégies et Politiques Energétiques (SPE)Middle East | North Africa | Sub-Saharan Africa | Caspian Sea | OPEC | Oil Markets and Prices

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IRAN

q Total Has Taken a Charge of €316 Million in Anticipation of anAgreement with the U.S. Government Over its Iranian Contracts

In the course of a presentation of its results for the second quarter of this year, Totalrevealed that it had made a provision of 316 million euros in its accounts for the period inanticipation of concluding an agreement with the American authorities concerning the gascontracts the French company won in Iran in the 1990s. The French company indicated thatnegotiations aimed at reaching a resolution of these procedures had made progress recently. Itindicated that it was cooperating with the United States’ Securities and Exchange Commission(SEC) and the Department of Justice (DOJ), both of which are conducting inquiries into Total’scontracts with Iran.

The only gas contract concluded by Total in Iran in the 1990s was the buyback agreementcovering phases 2 and 3 of the development of the super-giant South Pars gas and condensatefield. At the time, Total and its two foreign partners, Petronas and Gazprom, were the firstcompanies in the hydrocarbon sector to openly defy the United States’ Iran and Libya SanctionsAct [Editor’s note: often known as the D’Amato or D’Amato-Kennedy Act, which became theIran Sanctions Act in 2006, following Libya’s return to grace within the internationalcommunity in the middle of that decade]. Total signed three other buyback contracts with Iranbetween 1995 and 1999 [Editor’s note: Two of these agreements were actually concluded by ElfAquitaine, which was taken over by Total in 1999], which were for the development of theoffshore Sirri A and E, Balal and Dorood oil fields [Editor ’s note: The contract for thedevelopment of Sirri was signed before ILSA was passed by the United States Congress, but atthe time it was perceived as a provocation in Washington and led some senators to vote in favorof what was going to become ILSA].

These four field development projects have all been completed and Total has officiallyhanded over the field facilities and operational responsibility to National Iranian Oil Company(NIOC), as stipulated in the buyback contracts, and the company is no longer involved in theexploitation of these fields. Since 2011, moreover, Total no longer produces any oil or gas in Iran.In its Reference Document for 2011, Total explained that some payments owed to it by the Iranianauthorities in respect of South Pars phases 2 and 3, Balal and Dorood were still outstanding.Earlier this year, the company stopped purchasing Iranian hydrocarbons. In 2011 it purchased49 million barrels of hydrocarbons from Iran worth around 3.7 billion euros.

Total pointed out in its Reference Document for 2011 that the United States government haddecided in May 1998 not to impose sanctions against the company under ILSA in respect of theSouth Pars field and that this official renunciation remained in force [Editor’s note: The decisionnot to apply the sanctions was the outcome of negotiations between the United States and theEuropean Commission, which took Total’s side and at the end of 1996 had prohibited Europeancompanies from complying with American laws that, like ILSA, had an extra-territorial reach].Total added, however, that the American decision did not apply to its other activities in Iran.After Congress passed the Comprehensive Iran Sanctions Accountability and Divestment Actin July 2010, the U.S. Department of State indicated that the United States would not sanctionTotal and that the company would not be pursued for its past activities in Iran so long as itcomplied with its commitments [Editor’s note: commitments given to the U.S. administrationconcerning its activities in Iran].


In the second half of the 1990s, Total defied the American government by refusing toabide by U.S. legislation that had an extra-territorial application and was strongly supported bythe French government and the European Union (EU). Since then, the situation has alteredconsiderably in two essential respects: the attitude of France and the EU towards Tehran and theexpansion of Total’s operations in the United States.

Since 2010 in particular, the EU has imposed a series of restrictive measures against Iranin order to put pressure on the country over its nuclear program, and those measures went as faras an embargo on all imports of crude oil, petroleum products and petrochemicals from Iran,on which the decision was taken on 23 January 2012. France is one of the countries that pushedthe hardest for this tightening of sanctions against Tehran. Furthermore, while Total had a verysmall presence in the United States in the 1990s, it has considerably developed its activities therein the recent past, with a particular focus on the deep offshore of the Gulf of Mexico, shale gasin Texas and Ohio, and research-and-development into oil sands. Total’s share of production inthe United States amounted to 56,000 barrels of oil equivalent per day in 2011, compared with16,000 boe/d in 2009.

QATAR/OMAN

q Qatar’s Buzwair Industrial Gas Corp. to Build an Air SeparationPlant in the Sur Industrial Zone

Buzwair Industrial Gases Corporation, which is part of Qatar’s Buzwair Group, hassigned a contract for the construction of an industrial gases plant on the Sur Industrial Estate,according to the Oman Daily Observer. The plant will have an initial capacity of 60 tons/day ofgaseous oxygen and 70 tons/day of liquid oxygen, nitrogen, liquid argon and other industrialgases. Its output will be mainly earmarked for an integrated steel mill that is due to be built at Sur.

“We have signed a contract with Buzwair for the establishment of an industrial gases plant on abuild-own-operate (BOO) basis," the Operations Director of the Omani company Sun Metals, Mr. P T Sivarajan, told the Daily Observer. Sun Metals is developing a 1.2 million ton/year steelcomplex at Sur. “The Buzair facility will be constructed on the site of the steel mill complex to provide uswith a continuous supply of industrial gases," he added. In May Buzwair Industrial Gases signed anagreement with Sun Metals for the supply of industrial gases over a 15-year period. Mr.Sivarajan pointed out that this agreement gave Sun Metals an option to acquire the Buzwairplant.

The gases will be supplied to a steel melt shop, while surplus volumes will be sold on thelocal market. Two of Oman’s largest industrial facilities are located on the Sur Industrial Estate,namely the gas liquefaction complex comprising two trains owned and operated by Oman LNGand a third train developed by Qalhat LNG, and the Oman-India Fertilizer Company (Omifco)fertilizer complex.

Sun Metals is to build a steelworks incorporating the Rotary Kiln technology of the U.S.company Allis Chalmers, which will enable it to feed electricity into the Omani national grid.The complex is due to have a capacity of 600,000 tons/year of continuously cast billets and200,000 tons/year of direct reduction iron (DRI). Buzwair expects the project to cost around $300million.


SAUDI ARABIA

q Saudi Aramco’s Whole Computer System Is OperatingNormally Again

Saudi Aramco announced on 26 August that all its principal internal computing serviceswere operating normally again, after they had been the victim of an attack by a malicious viruson 15 August. The virus came from an external source and infected some 30,000 workstations,which have now been cleaned and brought back into operation. The company explained,however, that as a protective measure, their connection to external on-line services was stillrestricted.

The national oil company confirmed once again that its primary hydrocarbon explorationand production systems had not been affected, as they operate in systems of isolated networks.Production facilities were similarly operating at 100% of their capacities, since their controlsystems are also isolated from the outside world.

“We tackled the threat straight away, and our precautionary procedures, installed in order tocounter such threats, as well as our multiple protection systems enabled us to prevent these cyber-threatsfrom spreading,” explained Saudi Aramco’s President and Chief Executive Officer, Mr. Khalid al-Falih. “We want to assure everyone concerned, our customers and our partners, that our main oil and gasexploration, production and distribution activities, from the wellhead to the distribution network, havenot been affected and that they are functioning as reliably as ever.” He added that the company wascontinuing to investigate the causes of the “incident” and those responsible for it.

Ten days earlier, on 15 August, Saudi Aramco had announced on Facebook that it had“isolated all its electronic systems from outside access as an early precautionary measure that was takenfollowing a sudden disruption that affected some of the sectors of its electronic network. The disruptionwas suspected to be the result of a virus that had infected personal workstations without affecting theprimary components of the network. Saudi Aramco confirmed the integrity of all of its electronic networkthat manages its core business and that the interruption has had no impact whatsoever on any of thecompany's production operations.”

Mr. al-Falih explained that the impact of the virus had been “limited and simple and that itwas going to be resolved shortly.” He added that this attack would not be repeated due to theprotective firewalls installed in the company’s systems and pointed out that it had set up aspecialized task force that would announce its results shortly, especially as some programs hadalready been brought back into operation. He similarly denied reports that the hackers wereemployees of Saudi Aramco. The pirates had not been identified and the company was notheeding the erroneous reports circulating on social networks such as Twitter, declared Mr. al-Falih.

The zataz.com website indicated that two groups of pirates (Young Arab Moslems andCutting Sword of Justice) had claimed to be behind the attack, which had been carried out toprotest against the “support [of the Saudi leadership] for the United States and Israel”. One of thesources explained that it had affected all of Saudi Aramco’s 40,000 computers and 2,000 servers.“All workstations have been closed definitively and they will not be able to be brought back into operationquickly,” declared one of these groups. The Saudi national oil company’s principal website,www.aramco.com, was shut down for 24 hours. People were redirected to another address,


www.saudiaramco.com, on which the company subsequently published its press release. Thepirates insisted that they had also disrupted Tadawul, Saudi Arabia’s stock exchange, but itswebsite, tadawul.com.sa, which was inaccessible after the attack, was back on line on 25 August,when the 10-day Ramadan holiday came to an end.

The specialist computer securitycompany Symantec issued a warning aboutthe Shamoon virus the same day, describing itas a threat used in “specific targeted attacksagainst at least one organization in the energysector,” although it had not yet named theentity at the time AOG went to press.Symantec pointed out that the significant feature of this attack was that it was aimed atdestroying files and data and at paralyzing the infected workstations, without any specificdemand being made in exchange.

q Sabic Has Reportedly Invited Seven Companies to Bid for theConstruction of a Polyacetal Plant at the Ibn Sina Complex

Saudi Basic Industries Corporation (Sabic) has reportedly invited seven companies tosubmit bids by 24 October for a contract to build a 50,000-ton/year polyacetal (POM) plantwithin the complex of one of its subsidiaries, National Methanol Company (Ibn Sina).According to industrial sources quoted by Reuters, the companies concerned are the following:Dragados of Spain, China National Chemical Engineering Co., CTCI of Taiwan, and the SouthKorean companies Hyundai Engineering, Daelim Industrial, Hanwha Engineering and SKEngineering and Construction.

The project is being undertaken under the terms of an agreement concluded betweenSabic and Celanese Corporation in April 2010, which provided for the Ibn Sina complex to beexpanded and for the validity of their joint venture agreement to be extended to 2032. At thetime, Sabic estimated the cost of the POM plant at $400 million (AOG, 16 April, 2010). Ibn Sina isa producer of methanol, one of the principal inputs for the production of POM, together withMTBE.

Sabic indicated that engineering and construction work would get under way in 2011 andthat the plant would enter production in 2013. Celanese added that its shareholding in Ibn Sina


The Saudi stock exchange reportedly came

under cyber attack

Shareholdings in Ibn Sina

Ibn Sina is a joint venture between Sabic (50%), CTE Petrochemicals Company

(CTE), which is controlled by Elwood Insurance Ltd. and is based in the Cayman Islands

(25%), and Texas Eastern Arabian Ltd. (25%). The initial shareholders – Celanese

Arabian Inc. and Texas Eastern Arabian Ltd., a wholly-owned subsidiary of Duke Energy

Corporation – each had a 50% interest in CTE. Following various operations, Elwood

Insurance, a wholly-owned subsidiary of Celanese Corp., acquired the latter’s holding in

CTE. As a result, CTE remains a 50:50% joint venture between Celanese and Duke

Energy.

would rise to 32.5% following the commissioning of the POM plant, while Sabic’s would remainunchanged (see sidebar).

q NCC Signs Three Time Charter Agreements with Sabic forChemical Carriers

National Chemical Carriers Company (NCC) has signed three time charter agreementswith International Shipping and Transportation Company Ltd., a subsidiary of Saudi BasicIndustries Corporation (Sabic), for three liquid petrochemical carriers. Two of these vesselshave a capacity of 45,000 dwt and the third a capacity of 75,000 dwt. The agreements are for fiveyears and carry options for five-year extensions. National Shipping Company of Saudi Arabia(Bahri) informed the Saudi stock exchange (Tadawul) on 14 August that the agreements wereworth SR 480 million ($128 million) over the first five years.

NCC, which was created in 1990, is a joint venture between Bahri (80%) and Sabic (20%)and currently operates a fleet of 21 ships for the transport of chemicals, petrochemicals andrefined vegetable oils which have a combined capacity of 940,000 dwt. The company has fourmore tankers under construction, which will increase its fleet to 25 ships and their total capacityto 1.2 million dwt by the end of 2013.

q Saudi Aramco to Utilize Quadrise Technology in its Refineries

Quadrise International Limited and Quadrise KSA Limited, which are both subsidiariesof the British group Quadrise, signed a memorandum of understanding (MOU) with the Saudifirm Rafid Group for Trading & Contracting on 22 August establishing an exclusiverelationship with Saudi Arabia in anticipation of the conclusion of contracts providing forQuadrise MSAR technologies and fuels to be utilized in the kingdom. In addition, when the firstcontract for installing the MSAR process in one of the country’s main refineries is finalized,Quadrise and Rafid Group will enter into a joint venture to undertake all new projects in SaudiArabia, in which the Saudi partner will have an interest of up to 30%, according to Quadrise.

The MOU was concluded as a result of the following developments:

- The decision taken by Saudi Aramco approving the potential application of MSARtechnology in its refineries.

- The confirmation of the refinery selected by Saudi Aramco for the first utilization of theMSAR process. The refinery concerned [Editor’s note: which has not been identified] currentlyproduces over 25 million barrels/year (4 million tons/year) of fuel oil.

- The commercial terms governing the assistance to be provided by Quadrise experts inthe refineries’ conversion of crude oil or fuel oil into MSAR fuel oil are being discussed withSaudi Aramco.

The final detailed configuration of the project decided by Saudi Aramco will determinethe timetable for the installation of the MSAR process. The first application will be followed by abroader program entailing the processing of larger volumes of heavy residues and theirconversion into MSAR fuel oil.


Quadrise technology makes it possible to produce a grade of heavy fuel oil at a lower costwhen the tarry residue with a high sulfur content is blended with low-sulfur diesel oil. SaudiArabia utilizes this diesel oil for the generation of electricity. A special chemical process enablesQuadrise to produce fuel oil without using diesel, which would reduce the kingdom’s powergeneration costs. It would also increase the volume of middle distillates available in refineriesand lead to a reduction in imports of diesel.

q Sino-Saudi Gas Defers the Drilling of Another Exploration Wellon its Concession

Sino-Saudi Gas, a joint venture between Sinopec (80%) and Saudi Aramco (20%), hasdecided to defer indefinitely the drilling of another well on its concession in the Rub’ al-Khalidesert, according to industrial sources. The joint venture is continuing to evaluate the plannedsite of the well, which was due to be spudded in September. In January the President and ChiefExecutive Officer of Saudi Aramco, Mr. Khalid al-Falih, indicated that Sino-Saudi Gas haddecided to enter into the second phase of its exploration agreement and to drill more wells on itsacreage starting in the second half of 2012 (AOG, 1 April, 2012).

News in Brief

l The President and Chief Executive Officer of Saudi Aramco, Mr. Khalid al-Falih, has toldAl Riyad that some of the shares in Saudi Aramco Total Refining and PetrochemicalCompany (Satorp), a joint venture between Saudi Aramco and Total, Sadara ChemicalCompany (jointly owned by Saudi Aramco and Dow Chemical) and Rabigh 2 (SaudiAramco/Sumitomo Chemical) will be sold to the public and the banking sector in duecourse. On the other hand, he added, the Jazan refinery will remain the sole property ofSaudi Aramco.

l Saudi Aramco Energy Ventures (SAEV), a new subsidiary of Saudi Aramco that wascreated in July (AOG, 16 July, 2012), has signed an agreement with Oslo-based EnergyCapital Management (ECM) for investing $120 million a year in European companiesspecialized in unconventional gas and in seismic and drilling technologies, one of thepartners in ECM, Mr. Arne Freiland, has told Bloomberg. ECM used to manage theinvestments of the Norwegian company Statoil.

l SNC-Lavalin has won a 10-year contract for providing operations and maintenanceservices to the King Abdullah Petroleum Studies and Research Center (KAPSARC). Thecontract is worth $135 million and calls for the provision of integrated facility andcommunity management services for the project. The KAPSARC will consist of thefollowing main elements: a 65,000-sq m research and office complex, a residential areathat will accommodate around 1,000 residents, and a utility zone incorporating a centralutility plant with a 5-MW photovoltaic solar power plant and associated utilities.


A r a b O i l & G a s Av a i l a b l e b y E - M a i l a t N o E x t r a C h a r g e

To prevent any delay in the postal delivery of the paper edition, AOG is available by e-mail at no extra charge. Subscribers in all countries who receive only the paper edition are invited toprovide us with their e-mail address, so they can start receiving AOG by e-mail (the price of a print ande-mail subscription is a little higher - see p. 2).

QATAR

q Qatar Petroleum and ExxonMobil Apply for Approval toExpand the Sabine Pass Terminal to Enable it to Export LNG

Golden Pass Products LLC, a joint venture between Golden Pass LNG Terminal LLC, asubsidiary of Qatar Petroleum (QP), and Golden Pass Pipeline LLC, a subsidiary ofExxonMobil, has applied to the United States Department of Energy (DOE) for permission toexpand the Golden Pass LNG Terminal at Sabine Pass, Texas, to enable it to export liquefiednatural gas (LNG).

The project, which is expected to costsome $10 billion, will entail utilizing theexisting facilities, together with additionalpre-processing and gas liquefaction facilities,for the export of 15.6 million tons/year ofLNG, which is equivalent to 2 billion cubicfeet/day. The United States currently produces some 72 billion cu ft/day of natural gas. Theadditional facilities will be built alongside the existing terminal and connected to it. Theterminal currently consists of two berths for methane tankers, five storage tanks, each of whichhas a capacity of 155,000 cubic meters, and a 111-km-long pipeline system that connects it to theGolden Pass Pipeline network. The final investment decision will be taken once the necessaryapprovals have been obtained. The expanded terminal would then be equipped for both theimport and the export of LNG.

Golden Pass Products pointed out that the project offered an opportunity to takeadvantage of the United States’ abundant natural gas reserves. The application submitted to theDOE indicates that the LNG would be exported to countries with which the United States hasconcluded free-trade agreements. Other countries could be added to the list in a subsequentsubmission. The company added that, once government approval had been obtained and theinvestment decision taken, the work would take around five years.

The Sabine Pass terminal was completed in 2010 and officially inaugurated in April 2011(AOG, 16 April, 2011). It has the capacity to receive around 2 billion cubic feet/day of LNG. Theproject was conceived in 2003 and received the official approval of the American authorities inJuly 2005, when forecasts about the future of U.S. gas demand were optimistic.

The project was integrated with the development of the gas liquefaction train of Qatargas 3, a joint venture between Qatar Petroleum (QP – 68.5%), ConocoPhillips (30%) andMitsui & Co. Ltd. (1.5%). Its train is number 6 of the Qatargas complex and has a capacity of 7.8million tons/year (AOG, 16 Oct., 2010). Its output was originally earmarked principally for theAmerican market, but following the drop in gas prices in the United States, a large part wasdiverted to China and other markets, such as Canada, Dubai, Thailand and other Asiancountries.

The Golden Pass terminal, which is owned by a consortium comprising QP (70%),ExxonMobil (17.6%) and ConocoPhillips (12.4%), is one of those located on the United States’Gulf of Mexico coast. Cheniere Energy, one of the first companies to have built an LNG importterminal, also at Sabine Pass, has already secured the approval of the federal authorities for the


The expansion is expectedto cost $10 billion

construction of LNG export facilities there. According to American sources, Cheniere has signedcontracts with customers in the United Kingdom, South Korea, India and Spain, with deliveriesscheduled to begin in 2015.

q Qatar Solar Technologies and Gasal Sign a Long-TermAgreement for the Supply of Hydrogen and Nitrogen

Qatar Solar Technologies (QSTec) and Gasal Q.S.C. have announced the signing of along-term agreement for the supply of hydrogen and nitrogen. Gasal, which is a joint venturebetween the French company Air Liquide, Qatar Petroleum (QP) and Qatar IndustrialManufacturing Company (Qimco), is to invest in the construction of facilities for the productionof extremely pure hydrogen and is to extend its industrial gases pipeline network in Ras Laffan,and connect the QSTec plant to it for the delivery of nitrogen. The new facilities are to be built byAir Liquide Ingénierie et Construction and will be commissioned and operated by Gasalfollowing the expansion of its pipeline network in 2013.

“Our polysilicon plant will need pure hydrogen and nitrogen gases in order to make the veryhighest quality of polysilicon, the essential building block of the world's most efficient solar technologies,”said the Chairman and Chief Executive Officer of QSTec, Mr. Khalid Klefeekh al-Hajri. In the nottoo distant future, QSTec aims to be producing solar modules in Qatar fabricated utilizing itsown polysilicon, both for local use and for export.

In phase 1, the plant will produce 8,000 tons/year of polysilicon, and its capacity couldsubsequently be stepped up to 45,000 tons/year on the 1.2-million sq m site in Ras Laffan. Onceconverted into modules, the initial plant could result in the generation of the equivalent of 1,400MW of solar energy, and that would be increased to 6,000 MW of solar power in a second phase(AOG, 1 July, 2012).

QSTec is a joint venture between Qatar Solar, a wholly-owned subsidiary of the QatarFoundation for Education, Science and Community Development (70%), SolarWorld AG(29%) and Qatar Development Bank (1%). It acquired its second-generation polysilicontechnology from the German company Centrotherm Photovoltaics.

At the end of July Gasal announced that it had completed the construction of two airseparation units. One plant in Messaid started supplying oxygen and nitrogen to the QatarSteel plant and five other nearby industrial facilities in April, while the second plant, which islocated in Ras Laffan, came on stream in July and supplies nitrogen to Ras Laffan OlefinsCompany (RLOC). Gasal announced its intention of producing hydrogen last December (AOG,1 Jan., 2012).

q Qatar Holding Acquires a 20% Interest in the British AirportOperator BAA and a 22.22% Holding in CITIC Capital

Within the space of four days, between 18 and 22 August, Qatar Holding (QH) completedtwo major new investments. It began by acquiring a 20% shareholding in the British companyBAA Ltd., which operates Heathrow airport near London, the largest in Europe, as well as theairports of Glasgow and Aberdeen in Scotland and those of Stansted and Southampton inEngland. Then it purchased a 22.22% interest in the Chinese fund management company CITIC


Capital Holdings Limited on the occasion of a new share issue. CITIC Capital is an affiliate ofChina Investment Corporation, China’s sovereign wealth fund.

→ BAA Ltd.: QH announced on 18 August that it had signed an agreement with theSpanish company Ferrovial and other investors for the acquisition of an indirect interest inBAA. The deal is worth £900 million ($.4 billion) and is due to be finalized before the year end,after the necessary regulatory authorizations have been obtained, including that of theEuropean Commission’s Competition Directorate.

QH, a sovereign wealth fund that is a wholly-owned subsidiary of Qatar InvestmentAuthority (QIA), is going to purchase Ferrovial’s 10.62% holding in FGP Topco Ltd., BAA’sparent company, for £478 million, as well as the interests of 5.63% and 3.75% held respectivelyby Britannia Airport Partners and GIC Special Investments Pte Ltd. for the balance of £422million, according to a statement released by the Spanish company. Barclays Bank acted asQatar Holding’s financial advisor for the operation. It was in June 2006 that a consortium led byFerrovial acquired BAA for £10.3 billion.

In a statement, Qatar Holding explained that it still regarded the United Kingdom as anattractive place to invest, stressing its confidence in the “long-term fundamental strength of theBritish economy” and describing this deal as a “fantastic opportunity to enhance the fund's reputation,particularly in the infrastructure sector.”

According to data provided by Real Capital Analytics (RCA) and published by Reuters,Qatar invested €3.5 billion ($4.3 billion) in real estate acquisitions in Europe in the 12 months tomid-August 2012, including the athletes’ village in the Olympic Park in London and a shoppingmall on the Champs Elysées in Paris. The QIA has invested total of €5.7 billion in real estatesince 2007, 80% of that in London and Paris, according to RCA. In addition, account also has tobe taken of the shareholdings it has acquired in energy companies such as Royal Dutch Shelland Total (AOG, 1 and 16 May and 1 June, 2012) as well as in companies in various otherindustrial sectors.

→ CITIC Capital announced in the wake of its new share issue that CITIC PacificLimited and CITIC International Financial Holdings now held a combined interest of 42.78%in it, alongside China Investment Corporation (CIC – 31.11%), QH (22.22%) and themanagement and trustee of CITIC Capital’s share issue program (3.89%). The value of thetransaction was not disclosed.

Welcoming QH’s investment in the company, the Chief Executive Officer of CITICCapital, Mr. Yichen Zhang, said the Qatari company was not only going to “provide us with anenlarged capital base to fund our business expansion and investments, but also its significant backing willstrengthen our brand positioning meaningfully as the most preferred and committed partner to investwith, both in and outside China.”

CITIC Capital, which was founded in 2002 and has offices in Hong Kong, Shanghai,Beijing, Tokyo and New York, manages an investment portfolio valued at over $4.4 billion onbehalf of a group of international investors. As for CIC, its largest shareholder, it manages fundsestimated to be worth $482 billion.

The operation was not Qatar’s first acquisition in China. The QIA was the leadingpurchaser of shares in Agricultural Bank of China (Agbank) when they were put up for sale in


2010 and, according to Thomson Reuters, it still holds shares worth $2.7 billion in the bank. TheQIA has also applied for a license and a quota of $5 billion for investing in China under the“qualified foreign institutional investor” (QFII) program, whose creation was announced byChina Securities Journal in June.

Furthermore, the QIA announced on 24 August that it had increased its shareholding inthe Swiss mining company Xstrata to 12.135% (including options) through the purchase of 2.88million shares at a price of £9.2987 a share. Excluding share purchase options, its holding totals345.8 million shares, 11.517% of the company’s equity. The Qatari sovereign wealth fund is thesecond largest shareholder in Xstrata after Glencore, with 33.65%, and it is trying to improve theterms of Glencore’s takeover bid for the company (AOG, 16 Aug., 2012). This policy led Glencoreto issue a firm warning to the QIA recently, explaining that it would not hesitate to abandon itsbid for Xstrata if Qatar continued to show itself to be too greedy.

According to Mr. Hussain al-Abdulla, a member of the QIA’s board of directors, theQatari sovereign wealth fund has $30 billion to invest in 2012, while the total value of its assetsis estimated at “well over” $100 billion.

News in Brief

l Qatar Gas Transport Company (Nakilat) has secured an Islamic loan – Murabaha – of$380 million, consisting of a $200-million tranche from Qatar International Islamic Bank(QIIB) and a $180-million tranche from Qatar Islamic Bank (QIB). The company’sManaging Director, Mr. Muhammad Ghannam, explained that the funds would enable itto look for new investment opportunities offering a high return and to maximize profitsfor its shareholders.

l Qatar Petroleum has reduced its shareholding in Industries Qatar (IQ) from 70% to 51%by transferring 104.5 million IQ shares to the General Retirement and Social InsuranceAuthority, according to a Zawya Dow Jones report citing IQ.

l Qatar Petroleum has awarded a contract worth QR 130 million ($41.9 million) to ScomiOiltools (Caman) Ltd., a subsidiary of the Malaysian company Scomi Group Bhd, for thesupply of drilling fluids and engineering services over a three-year period. The fluids willinitially be used by four drilling rigs.

EGYPT/ALGERIA

q Merger Between Petroceltic and Melrose Will Create a CompanyFocused on North Africa, the Mediterranean and the Black Sea

The British companies Melrose Resources Plc and Petroceltic International announcedon 17 August that they intended to merge in an operation that would “give the combined group agreater presence in North Africa, the Mediterranean and the Black Sea, where the two companiesalready operate.” When the operation is finalized, Petroceltic International’s shareholders willhold 54% of the stock of the new entity, which is to be called Petroceltic, and Melrose Resources’shareholders 46%.


Under the agreement concluded between the two companies, each Melrose shareholderwill receive 17.6 Petroceltic shares at a premium of 6.2% over the price of 135.5 pence they werefetching on the stock market at the close of trading on 16 August, plus a special dividend of 4.7pence. The deal values Melrose at £165 million. In addition to its assets in Algeria, Italy and theIraqi Kurdistan region, Petroceltic will gain those of Melrose in Egypt, Bulgaria and Romania,including producing fields in the first two of those countries.

Out of the information provided by the two companies about the deal, AOG wouldhighlight the following:

- The enlarged company will control proven and probable (2P) reserves of 84 millionbarrels of oil equivalent (boe), contingent (or 2C) resources of 357 million boe, and unriskedprospective resources of 1,365 million boe [Editor’s note: Figures for possible and prospectiveresources have to be treated with great caution].

- The merger will increase the two companies’ financial flexibility and enable the newentity to push ahead with a balanced growth strategy that will include an active exploration anddrilling program and participation in the future development of the Ain Tsila gas field inAlgeria.

- The enlarged company will find itself in a healthy financial situation, with a new $300-million loan facility advanced by HSBC that will be available for an 18-month period startingfrom the date the agreement takes effect. These funds will enable it to finance all of Melrose’soutstanding debts, among other things.

In a presentation devoted to the planned merger, Petroceltic also provided the followingimportant details:

→ The operation and the distribution of Petroceltic shares should be completed by 10October and the new company’s shares start to be traded on the Alternative Investment Market(AIM) in London and the Enterprise Securities Market (ESM) in Ireland the following day.

→ On the day the agreement was signed, Petroceltic International and Melrose Resourceshad stock market valuations of £194 million ($305 million) and £157 million ($246 million)respectively.

→ Exploration/production portfolio: Production from Melrose’s fields in Egypt andBulgaria is expected to average 28,000 boe/d in 2012.

→ Development: The Ain Tsila gas and liquids field in Algeria could enter production atthe end of 2017 and its plateau rate of production is estimated at 355 million cubic feet/day ofwet gas (AOG, 16 Aug., 2012).

→ Appraisal and exploration:

- Petroceltic’s assets: The company holds eight licenses in Italy containing estimated net2C resources of 52 million boe and median unrisked prospective resources of 723 millionboe. In Iraqi Kurdistan, it has interests in two concessions, Dinata and Shakrok, whichare operated by Hess and are estimated to contain median unrisked prospective resourcesof 571 million boe. There are plans for laying a pipeline close to these concessions.


- Melrose’s assets: In Egypt, it holds four concessions, including Mansoura and SE Mansoura, in which it has 100% interests. It has 11 fields in production there, includingWest and South Khilala and West Dikirnis, which accounted for 67% of the company’soutput in 2011 and contain net reserves of 74 million boe. An LPG plant at W. Dikirnis iscurrently being expanded. Melrose is also operator of the Mesaha concession in UpperEgypt with a 40% interest, where a 1,041-line km 2-D seismic survey has been completed, awell is due to be drilled in 2012 and more seismic surveys are planned. It also has a 100%interest in the Qantara concession, where a gas processing plant came on stream in 2011and production amounted to 0.9 million cu ft/day of gas and 99 b/d of condensate.

In Bulgaria, Melrose holds the Galata block with a 100% interest, where four fields havebeen discovered that are expected to yield 38 million cu ft/day of gas. In Romania, itoperates two concessions with 40% interests that are located in an under-explored basinwhere recent discoveries have been made nearby. In Turkey, it operates the MardinSouth concession with a 66.67% interest.

→Melrose’s concessions are currently producing 30,000 boe/d

“The announcement of the merger rather eclipsed that of our interim results, but the first half of2012 was a period of solid progress for the company,” said Melrose Resources’ Executive President,Mr. Robert Adair, on 22 August. Its concessions produced a total of 21,300 boe/d in the first sixmonths of this year, giving Melrose a share of 16,200 boe/d. Output consisted of 103 million cuft/day of natural gas and 3,584 b/d of oil, condensate and LPG, with Melrose’s share amountingto 44.6 million cu ft/day and 1,550 b/d respectively.

Following the completion of two development wells at the West and South Khilala fieldsin Egypt, Melrose’s production has increased and is now running at 30,000 boe/d. “We areconfident of achieving our target of 28,000 boe/d for the whole year,” added Mr. Adair.

The company’s investments totaled $24.9 million in January-June this year (as against$30 million in the corresponding six months of 2011), of which $19.6 million was invested inEgypt, $2.8 million in Bulgaria and $2.5 million in Romania. As at 30 June last, Melrose’s totaldebt stood at $263.2 million ($367 million). The company sold its remaining interests in theUnited States in 2011.

Its net earnings after tax fell to $32.7 million in the first half of 2012 from $46.7 million inthe same period of 2011 as a result of a fall in its Egyptian production. Despite the unstablepolitical situation in Egypt, Melrose says it has received regular payments for the sale of itshydrocarbons to the government, in accordance with a pre-established timetable.

On its Egyptian concessions, Melrose has recently been preparing to hook up two earlierdiscoveries, East Dikirnis and West Abu Khadra, to its production facilities. It has awarded acontract for the supply of two compression stations at West Khilala, each of which will have acapacity of 37.5 million cu ft/day. It has also issued a tender for the front-end engineering workand the project should be launched in mid-2013.

Talks are continuing with the Egyptian authorities for an extension of the Mansouraexploration agreement, and they have confirmed that it will be extended by at least six months,taking it up to the end of 2012. According to Melrose, that is a sign that the authorities would beprepared to grant extensions of other licenses.


EGYPT

q EGPC Preparing to Launch an International Exploration BidRound for 20 Blocks in the Western and Eastern Deserts

Egyptian General Petroleum Corporation (EGPC) is going to launch a new internationalexploration bid round within the next two months for the award of 20 blocks in the Western andEastern Deserts. The Chairman of EGPC, Mr. Hani Dahi, maintained on 21 August that thisreflected the interest shown by foreign companies in investing in Egypt and demonstrated that“we are still an attractive market for investment”. He expects foreign investments to total $8.5billion during the 2012-13 fiscal year.

Mr. Dahi added that the “significant” discovery made recently with the Emry Deep 1Xwell drilled on the Meleiha concession in the Western Desert, which has the potential toproduce 10,000 barrels/day of crude, had confirmed once again the country’s abundanthydrocarbon resources. The concession is held by Eni through its local subsidiary IEOC,operator with a 56% interest, in association with Lukoil (24%) and Mitsui (20% - AOG, 1 June,2012).

Meanwhile, EGPC is continuing to evaluate the technical bids submitted by the 24companies that were prequalified to participate in the international bid round launched inSeptember 2011 for the award of 15 onshore and offshore blocks, for which the closing date was29 March 2012 (AOG, 1 Oct., 2011, 1 Jan. and 16 July, 2012). Mr. Dahi added that the evaluationof the priced bids would be completed within 10 days.

q Production Has Begun on the Abu Sennan Concession at a Rateof 2,200 BOE/D from Four Wells

Kuwait Energy Company and Egyptian General Petroleum Corporation (EGPC) haveannounced the start of production from four wells on the Abu Sennan concession in theWestern Desert, which are yielding crude oil and gas/condensate. The concession is held byKuwait Energy, operator with a 50% interest, in association with Dover Investments Limited(28%) and Beach Petroleum (Egypt) Pty Ltd., a subsidiary of the Australian company BeachEnergy (22%). An extended production test got under way towards the end of July which isexpected to last six months (AOG, 1 Aug., 2012).

According to Kuwait Energy, total combined production is running at around 2,200barrels of oil equivalent per day, which breaks down as follows between the four wells: ZZ-4 –267 b/d of crude; Al Ahmadi-1 – 420 b/d of oil; Al Jahraa-1X – 500 b/d of oil; and El-Salmiya-1 –1,000 boe/d of gas/condensate. The productive formations are Bahariya, Abu Roash G, AbuRoash E and Abu Roash C. The operator announced the ZZ-4 and Al Ahmadi-1 discoveries inAugust 2011, the Al Jahraa-1X find in February 2012 and the El Salmiya-1 find in March this year(AOG, 16 Feb. and 16 March, 2012).

“The Abu Sennan concession has yielded discoveries resulting in three development leases beinggranted within the concession yielding finds to date, and we look forward to starting our development activities for these leases,” said the Chief Executive Officer of Kuwait Energy, Ms. SaraAkbar.


News in Brief

l On the occasion of a visit to Cairo on 22 August of the Managing Director of theInternational Monetary Fund (IMF), Ms. Christine Lagarde, Egypt tabled a formalrequest for an IMF loan of $4.8 billion. The Fund indicated that it would send a technicaltask force to Cairo in early September to discuss this request.

CASPIAN SEA

q Dragon Oil’s Oil Production in Turkmenistan Now Running atOver 70,000 B/D

On the offshore Cheleken concession in Turkmenistan operated by Dragon Oil, crude oilproduction increased by 10.7% to 64,200 barrels/day in the first half of this year from 58,000 b/din the corresponding period of 2011. Moreover, the company reported on 11 August that outputwas then up to 70,017 b/d. Dragon Oil is 51.5% owned by Dubai-based Emirates National OilCompany (ENOC). The recent rise in production is attributable to the installation of sandremoval equipment on some platforms and the insertion of sand filters in oil wells, whose flowrates had been reduced in the second quarter due to the growing encroachment of sand.

Dragon Oil expects its production to increase by a further 10-15% between now and theend of 2012, and its medium-term objective is for output to reach 100,000 b/d by 2015.

Dragon Oil exported 5.8 million barrels of crude in January-June this year, up from 4.9million barrels in the first six months of 2011, and all the crude was exported via Baku, inAzerbaijan, under the terms of an fob contract ex-Aladja quay. The main route through which itwas transported was the BTC (Baku-Tbilissi-Ceyhan) pipeline operated by BP. Dragon Oilobtained an average selling price of $102/b in the first half of 2012, as against $100/b in January-June 2011.

As a result of the increase in its production and higher prices, Dragon Oil’s revenues roseby 12% to $588.4 million in the first six months of this year from $527.4 million in the sameperiod of 2011. Its operating earnings nevertheless dipped by 1%, from $407.3 million to $404.2million from one period to the next, while its net earnings were virtually unchanged at $308.9million ($309.4 million). Dragon Oil had cash, cash equivalents and term deposits of $1,666.5million as at 30 June 2012, up from $1,256.7 million a year earlier. In June the company launcheda share buyback program entailing the repurchase of 5% of its issued share capital for $200million (AOG, 16 June, 2012).

Stressing the progress made towards diversifying the company’s assets, the ChiefExecutive Office of Dragon Oil, Mr. Abdul Jaleel al-Khalifa, pointed out that “Dragon Oil, in aconsortium of companies, has been awarded Block 9 for exploration and development in Iraq and theinitialing of the service contract has already taken place. In Tunisia, our partner in the Bargouexploration permit, Cooper Energy Limited has secured a rig to commence drilling of the HammametWest-3 well in the Hammamet West oil field at the end of this year or early next year.” And he added:“We continue our search for oil and gas assets in the regions of interest to us and to this end Dragon Oilhas been prequalified for bidding for blocks in Afghanistan later this year.”


Mr. al-Khalifa also disclosed that a letter of intent had been signed with Grup ServiciiPetroliere SA (GSP) for the lease of the GSP Jupiter drilling rig for offshore drilling in Tunisia. It isdue to start operating between December 2012 and March 2013, depending on when the rigarrives on site. In addition, Mr. al-Khalifa indicated that the Iraqi contract was initialed on 16 July.

Drilling operations

Dragon Oil is now planning to bring atotal of 16 new development wells intoproduction in 2012, two of which aresidetracks from existing wells, compared withthe 13 announced at the beginning of the year.Between January and mid-August, thecompany completed 12 wells, two of which were sidetracks at the Dzheitune (Lam) field. Inaddition, the Dzheitune (Lam) 13/171 exploration well and the Dzheitune (Lam) C/175development are being drilled at the moment.

The Caspian Driller jack-up rig is expected to arrive on site at the end of 2012 and to begindrilling operations in the first quarter of 2013. Negotiations for the lease of two more drillingrigs for use on the Dzhygalybeg (Zhdanov) A and B platforms as soon as they are ready, as wellas for another jack-up rig, were underway in mid-August. A contract for the jack-up rig isexpected to be signed in early 2013.

Infrastructure works

The Dzhygalybeg (Zhdanov) A platform, which was originally scheduled for deliverytowards the end of the first quarter of 2012 (AOG, 1 Sept., 2011), is now expected to be deliveredat the year end and could be ready to start drilling in the first quarter of 2013. Fabrication of theDzhygalybeg (Zhdanov) B platform is advancing and it should be delivered in time to startdrilling operations in the first half of next year. The Dzhygalybeg (Zhdanov) Block 4 collectionplatform and the laying of associated intra-field pipelines have almost been completed.

Bids submitted for the construction and installation of the Dzheitune (Lam) D and Eplatforms are being evaluated and contracts should be awarded at the end of this year. DragonOil is also preparing to issue tenders for three more platforms for the Dzheitune (Lam) field, F, Gand H, together with associated pipelines, and the company thinks it could award contracts forthem in 2013. Dragon Oil’s investments totaled $208 million in the first half of 2012, up from$151 million in the corresponding six months of 2011, of which 54% (45%) was devoted toinfrastructure and the rest to drilling operations.

Gas processing plant

Dragon Oil now supplies a large volume of unprocessed gas to a compression station,enabling it to considerably reduce the flaring of associated gas. The Turkmen authoritiesauthorized the company to issue a tender in 2012 for the engineering, procurement, constructionand installation of a gas processing plant. The plant is expected to take two to three years tobuild following the award of the contract. It will have the capacity to process 220 million cubicfeet/day of gas, “which should allow us in the future to strip around 2,900 barrels of oil equivalent perday of condensate and blend our share of condensate with our entitlement share of crude oil,” Dragon Oilexplained in a statement.


Dragon Oil plans tobring 16 wells intoproduction in 2012

UNITED ARAB EMIRATES

q Emirates Nuclear Energy Corporation Awards Uranium SupplyContracts to Six International Companies

On 15 August Emirates Nuclear Energy Corporation (ENEC) announced the results ofthe tender issued in July 2011 for the supply of uranium over 15 years for the four nuclearreactors it is planning to build in the United Arab Emirates (UAE – AOG, 16 March, 2012).Contracts have been awarded to six leading suppliers of nuclear fuel for the provision of a rangeof services to ENEC in this area.

“The resulting fuel strategy guarantees security of supply, quality assurance of fuel-relatedmaterials and competitive commercial terms to protect the interests of the UAE peaceful nuclear energyprogram by providing volume flexibilities and the ability to adapt to changing market conditions,” ENECexplained in a statement.

Starting in 2014-15, the six following companies will participate in ENEC’s uraniumsupply program and/or will provide associates services:

- Uranium One, Inc., of Canada, and United Kingdom-based Rio Tinto will supply thenatural uranium.

- ConverDyn, of the United States, will supply conversion services. Conversion is theoperation through which uranium concentrate is converted into a material that is ready tobe enriched.

- Tenex, of Russia, and Areva, of France,will supply uranium concentrate aswell as conversion and enrichmentservices.

- United Kingdom-based Urenco willprovide enrichment services.

The six contracts are worth a total of around $3 billion, according to ENEC’s projections.They will enable the Barakah power station to produce up to 450 million MWh of electricityover 15 years starting in 2017, when the first reactor is scheduled to come on stream. ENEC isplanning to go back to the market from time to time to take advantage of favorable conditionsand consolidate the security of its supplies. The enriched uranium will be delivered to KepcoNuclear Fuels (KNF), which will assemble the nuclear fuel in preparation for its use in theUAE’s four planned reactors.

KNF is part of the consortium headed by Korea Electric Power Corporation (Kepco), themain contractor for the four nuclear power stations, which won a contract in December 2009 forthe design and construction of the plants and the provision of operational assistance. Thecontract is worth $20.4 billion and calls for the construction and commissioning of four 1,400-MW nuclear reactors as well as the supply of the necessary fuel. The whole project is scheduledfor completion in 2020 (AOG, 1 Jan., 2010).

Among the six companies just awarded fuel supply contracts, only Areva and Tenexhad provided any details about their contracts at the time AOG went to press. The Frenchcompany indicated in a statement that its contract was worth more than €400 million ($492.86


These six contractsare worth some $3 billion

between them

million) and that it “provides for Areva to supply enriched uranium over a period of eight years forthe future Barakah nuclear power station under construction in the United Arab Emirates … By 2020,when four power stations will be in operation, nuclear energy is due to be meeting up to 25% of theUnited Arab Emirates’ electricity needs, which are forecast to reach 40 GWe in 2020 as against 15.5GWe today.”

For its part, Tenex, which is a subsidiary of the Russian company Rosatom StateCorporation, confined itself to pointing out that its contract was the first it had won in the Gulfregion. The company’s Managing Director, Mr. Alexey Grigorev, maintained that the UAE’snuclear development program was based on the most exacting standards in terms of safety,transparency and non-proliferation, which made the country “a role model for nuclear energydevelopment and for industry newcomers worldwide.”

News in Brief

l Dubai Electricity and Water Authority (DEWA) is going to start work at the year end onthe final phase of the Jebel Ali “M” power station. It is expected to cost over Dh 10 billion ($2.72 billion) and will increase DEWA’s power generation capacity by 2,000 MW and its desalinated water production capacity by 140 million gallons/day,according to the Authority’s acting Vice-President for Strategy and Development, Mr. Waleed Salman.

l Ettihad Rail, which is developing and will operate the UAE’s national railroad network,has issued tenders for the first three contracts connected with the second phase of the railnetwork. Prequalified companies have been invited to bid for the design and constructionof the 137-km section between Ruwais and Ghweifat and the 190-km section betweenLiwa and Al Ain, as well as for the supply of signaling and communications systems andfor the commissioning of the second network’s stage. Construction work is due to beginearly next year. Phase 1 of the network is being developed in partnership with Abu DhabiNational Oil Company (ADNOC), which will utilize it as the primary mode of transportfor moving granular sulfur from Shah and Habshan to the port of Ruwais, from where itwill be exported (AOG, 16 Nov., 2011).

LIBYA

q Libya 2012 Summit – Oil, Gas and Sustainable Growth (Tripoli,24-26 September 2012)

The Libya Summit – Oil, Gas and Sustainable Growth will be taking place in Tripoli on 24 to26 September next. It is being organized by CWC Group in close collaboration with Libya’sNational Oil Corporation (NOC), which is supporting the conference and will be represented atit by several speakers. The confirmed speakers include Mr. Bashir Garea, NOC’s ExplorationDirector, and several other executives from the national oil company, including Mr. Adel AhmedTawil, Industrial Director, Mr. Salem Ragab Alnawal, Human Resources Director, and Mr. Mohamed Harari, a senior planning specialist.

→ Contact: Phillip Clark - tel.: +44 20 7978 0056; email: [email protected];Catherine Jacobs – tel.: +44 20 7978 0049; email: [email protected]


LEBANON

q Dolphin Geophysical and Spectrum Commissioned to CarryOut 1,500-Sq Km 3-D Seismic Survey of the Lebanese Offshore

The Norwegian company Dolphin Geophysical, in collaboration with Spectrum, hasbeen commissioned to carry out another multi-client seismic survey over the Lebanese offshore.Utilizing the Polar Duke seismic vessel, Dolphin is to acquire at least 1,500 square kilometers of3-D seismic data. Dolphin explained on 17 August that the vessel would be mobilized at onceand acquisition operations begin straight away. It added that data acquisition would becompleted in September and that the data would be available for clients before the year end.

According to Spectrum, the contract was awarded by the Lebanese Ministry of Energyand Water and calls for the conduct of a multi-client 3-D (MC3D) seismic survey over the south-western part of Lebanon’s Exclusive Economic Zone (EEZ – see map). Some 3,000 sq km of dataare due to be acquired altogether, of which the 1,500 sq km represent the first phase. The areaconcerned is considered to be “highly prospective” by the French firm Beicip-Franlab, whichcarried out an earlier study for the Ministry. Spectrum added that some of the data processedrapidly on the Polar Duke would be available as early as November and that the whole surveywould be completed in early 2013, when the Lebanese government is planning to launch its firstexploration bid round for offshore blocks.

In January the Ministry ofEnergy and Water renewed for afurther five years its agreement withSpectrum for the reprocessing ofmulti-client seismic data acquired inthe eastern Mediterranean,including over Lebanon’s offshore.Two data sets designated Leb-02 andEMED-OO (East-Med) comprise22,645 line km of 2-D data and 5,526sq km of 3-D data acquired in fourseparate seismic surveys conductedoff Lebanon (AOG, 1 Feb., 2012).Spectrum was commissioned toreprocess the Leb-02 data in time forthe planned exploration bid roundfor the award of offshore blocks,which was due to be launched in thefirst half of 2012. Lebanon’sterritorial waters in the easternMediterranean cover an area of22,730 sq km and have never beenexplored.

In 2011 the Ministry ofEnergy and Water contractedBeicip-Franlab to interpret more


Sourc

e :

Spectr

um

.

than 10,000 line kilometers of 2-D seismic data and prepare a regional interpretation report[Editor’s note: The Ministry explained that this report would be for internal use]. In partnershipwith the Oil for Development program of the Norwegian government and the Norwegiancompany PGS, Beicip-Franlab was also commissioned to finalize the decrees putting into effectthe oil legislation needed for the launch of the planned exploration bid round (AOG, 16 Jan.,2012).

Despite the progress made at this level, the regional political situation and Lebanon’sinternal politics are continuing to delay the whole process. A new oil law was promulgated in2010 (AOG, 1 Sept., 2010), but it only came into force in January this year (AOG, 16 Jan., 2012).Furthermore, it will only become effectively applicable once a six-member committee has beencreated that will be responsible for overseeing the activities of the hydrocarbon sector. At thetime AOG went to press, 18 of the 613 candidates had been prequalified, according to theEnergy Minister, Mr. Gebran Bassil, but the six members of the future committee had still notbeen selected.

News in Brief

l The Ministry of Energy and Water has invited international companies to seekprequalification to bid for an EPC (engineering, procurement and construction) contractfor the construction and commissioning of storage facilities for petroleum products at thesite of the Tripoli refinery. Prequalification documents can be obtained from the Ministryat the following address: Furn El Chebbak, Centre Gharios, 11th Floor, Beirut; tel.: 00961 1284780/782; fax: 00961 1 284781. Applications have to be submitted by 14 September at thelatest either to the above address or by email to: [email protected].

UAE/EGYPT/IRAQ

q Dana Gas’s Egyptian Production Fell to 60,950 BOE/D in theFirst Half of This Year

The Sharjah-based company Dana Gas has reported that production from its interests inEgypt and the Iraqi Kurdistan region averaged 60,950 barrels of oil equivalent per day (boe/d)in the first half of 2012, down from 65,600 boe/d in the corresponding period of last year. Itsoutput in January-June this year consisted of 32,750 boe/d of crude oil, natural gas andcondensate produced in Egypt and 28,200 boe/d of gaseous products produced in Iraq.

Dana Gas’s share of output in Iraqi Kurdistan is derived from its 40% shareholding inPearl Petroleum, whose production had averaged 19,800 boe/d in the first six months of 2011.That 42% increase in Pearl’s first-half production between 2011 and 2012 is attributable to anincrease in the volumes of natural gas delivered to the twin-train liquefied petroleum gas (LPG)plant at the Khor Mor field following the completion of an early production facility (EPF) at thefield of the same name, as well as to the LPG and condensate extracted from the additionalvolumes of natural gas.

In Egypt, Dana Gas expects its production to increase further this year thanks to theinstallation of compression facilities, the drilling of new production wells, and the start-up oftwo new fields.


The company’s gross earnings rose by 13% to Dh 767 million ($209 million) in the firsthalf, while its net earnings bounded by 79% to Dh 387 million from Dh 216 million in the sameperiod of 2011. Its hydrocarbon sales revenues edged up by 1%, from Dh 1,243 million to Dh 1,254 million, from one period to the next, despite the arrears on payments due to it by theEgyptian government and the Kurdistan Regional Government for purchases of hydrocarbons.In a report on its first-half results, Dana Gas indicates that it is continuing to look for “an agreedsolution that is fair to all holders of sukuks” (Islamic bonds), which are worth $1 billion altogetherand fall due on 31 October 2012 (AOG, 1 June, 2012).

“We have achieved our revenue estimates for the first half and posted strong net profit figures ofDh 387 million,” said Mr. Adel al-Sabeeh, Chairman of Dana Gas. “Our revenue collections were inline with expectation and we continue to have constructive discussions with both the government ofEgypt and the government of the Kurdistan region of Iraq on payment of the company’s receivables.”

Dana Gas had cash and cash equivalents of Dh 601 million as at 30 June last, up from Dh 411 million at the end of 2011. The company explained that its cash flow continued to sufferthe negative consequences of the world economic situation and regional political events, whichhad resulted in “sporadic and late” payments from the Egyptian state-owned enterprisesconcerned. Political disputes in Iraq similarly affected state payments to companies operating inthe Kurdistan region. “Dana Gas hopes these problems will resolve themselves in the short and mediumterm,” the company added.

“We have maintained strong levels of net production in the first half of the year,” noted Mr. Ahmed al-Arbeed, CEO of Dana Gas. “Good progress is being made on our drilling program inEgypt, with one new field discovery (the West Al Baraka field) in the south of the country … I am alsopleased to report that the commissioning and start-up of the natural gas liquids plant in Ras Shukheir(Egypt) is advancing well and should be operational in the second half of this year.” This plant will havethe capacity to process 150 million cubic feet/day of gas for the production of liquefiedpetroleum gas (LPG). Its output will consist of 110,000 tons/year of propane for export and20,000 tons/year of butane that will be sold to the state.

The output of the West Al Baraka-2 well on the Komombo (or Kom Ombo) concession inUpper Egypt increased from 30 boe/d to 173 boe/d after fracturing. Long-term tests are to becarried out of the well to gain a better appreciation of its productivity and the extension of thereservoir, as well as to determine the number of wells to be drilled. A second exploration on thesame block, Faris-1, was spudded at the end of June and is due to be taken down to a total depthof 6,300 feet to tap the Komombo “A” formation.

Output of Crescent Petroleum and Dana Gas in Iraqi Kurdistan has risen to 70,000

boe/d

Dana Gas is a subsidiary of Crescent Petroleum, and the two companies, which are jointoperators of the Khor Mor field, announced on 8 August that the total production derived fromtheir main activities in the Iraqi Kurdistan region had steadily risen to reach 70,000 boe/d,consisting of 330 million cu ft/day of gas and 15,000 b/d of associated condensate. Since the fieldcame on stream in October 2008, its cumulative production has totaled over 249 billion cu ft ofgas and 11.7 million barrels of condensate. The gas fuels local power stations that have a totalcapacity of 1,750 MW. By the end of June the two partners had invested $963 million in the KhorMor and Chemchemal concessions under the contracts they signed with the Kurdistan RegionalGovernment in April 2007.



YEMEN

q Fresh Sabotage Attack Against the Pipeline Delivering Feed Gasto Yemen LNG

In a very brief press release consisting of just three sentences, Yemen LNG Companyconfirmed that the gasline running from Block 18 to the Balhaf terminal on the Gulf of Aden hadbeen damaged in another sabotage attack on 21 August. The bomb attack took place at 1.15 amthat day at a point 171 kilometers north of the Balhaf gas liquefaction plant operated by YemenLNG. The company pointed out that no one was killed or injured in the attack.

This was the fourth officially acknowledged attack since the beginning of this year, andon three of those occasions Yemen LNG has issued a very concise but explicit press release

A project linking North and South Yemen

Largest ever industrial investmentand first limited recourse project financing in Yemen

Yemen

Saudi Arabia

Iraq Iran

OmanU.A.E.

QatarS

ourc

e :

Yem

en L

NG

.

(AOG, 16 April and 1 May, 2012). Thethree earlier attacks took place at the endof March, at the end of April and in themiddle of May. They were all assumed tobe the work of Al Qaeda in the ArabianPeninsula (AQAP). Up to now, none hascaused the company too much ofproblem in economic terms, but on theoccasion of a bilateral energy forum held in Sana’a in June, the South Korean Ambassador toYemen stressed the “vital need” for the country’s oil and gas pipelines to be protected. Korea GasCorporation (Kogas) imports some 3.5 million tons/year of LNG from Yemen, and three Koreancompanies hold a combined interest of 21.43% in Yemen LNG – Kogas (6%), SK Energy (9.55%)and Hyundai Corporation (5.88% - AOG, 1 July, 2012).

Besides the above-mentioned companies, the shareholders in Yemen LNG are Total ofFrance (39.62%), Hunt Oil Company of the United States (17.22%), state-owned Yemen GasCompany (16.73%) and Yemen’s General Authority of Social Security and Pensions (5%).

q DNO International Abandons its Bid to Acquire the CanadianCompany Calvalley Petroleum

Abandoning its stated intention, DNO International ASA has finally decided not tolaunch a takeover bid for the Canadian company Calvalley Petroleum Inc., which hasexploration-production interests in Yemen. The Norwegian firm explained on 23 August that,despite its discussions with Calvalley Petroleum, it had been unable to determine either theexact nature or the potential impact of a claim on Calvalley by Al-Zarqa Electricity under anagreement signed between the two companies as far back as December 1996.

DNO International had publicly announced its intention of launching a takeover bid forCalvalley, and the process was due to have been formally initiated around 12 July. But it shelvedits plans temporarily in light of new information provided by the Canadian company. DNO thenexplained that it was going to try and hold constructive discussions with Calvalley and that itdid not rule out the possibility of reviving its plans for launching a takeover bid depending onthe outcome of those discussions (AOG, 16 July and 1 Aug., 2012).

Calvalley Petroleum’s version of events is rather different from DNO International’s. Italso issued a statement on 23 August in which it explained that, in view of the different optionsavailable to it, it had not considered the terms of DNO’s proposed bid particularly interesting.As regards the dispute with Al-Zarqa Electricity, Calvalley indicated that it had suggestedproviding DNO with confidential information about it, on condition that the Norwegiancompany signed a confidentiality agreement with it, which DNO refused to do. Calvalley, whichhad indicated on 11 July that it was going to examine various strategic options for increasingshareholder value, added that it was continuing to talk to several other third parties but thatthere was no guarantee that this process would result in a deal.

In Yemen, Calvalley Petroleum is operator of Block 9 (the Malik acreage) with a 50%interest. One of its associates is thinking of selling its 25% stake in the concession and theCanadian company has a pre-emptive right to purchase it. On 23 July, however, Calvalley’sboard of directors announced that the company would not be exercising this pre-emptive right.


Latest sabotage attackagainst the Yemen LNG gasline

is the fourth publicly acknowledgedsince the beginning of 2012

ARAB COUNTRIES

q Occidental’s Gas Production in Arab Countries Rose by 10% to464 Million Cu Ft/Day in the First Half

Los Angeles, Calif.-based Occidental Petroleum Corporation, which has extensiveinterests in the Middle East and Libya, has reported a 10.2% increase in its natural gasproduction in Arab countries in the first half of this year. It amounted to 464 million cubicfeet/day during the period, up from 421 million cu ft/day in the corresponding six months of2011. In the second quarter in particular, output averaged 481 million cu ft/day, 13.4% morethan in April-June 2011 (424 million cu ft/day).

Occidental’s gas production in the region comes from a field in Bahrain, its interest inDolphin Energy Limited (DEL), which produces gas in Qatar, and fields in Oman. In the firsthalf of this year, the American company’s share of gas production amounted to 224 million cuft/day in Bahrain (30.2% more than in the corresponding period of 2011), 183 million cu ft/dayin respect of DEL (8% down), and 57 million cu ft/day in Oman (14% up).

As regards Occidental’s production of hydrocarbon liquids (crude oil and natural gasliquids) in Arab countries, on the other hand, it was 4.9% down at 195,000 barrels/day in the firsthalf of this year, as against 205,000 b/d in January-June 2011. The most important countries forthe company were Qatar, where its share of output amounted to 82,000 b/d during the period,and Oman (63,000 b/d). Its production continued to decline in the second quarter, when itaveraged 190,000 b/d, although that was very slightly - 1% - higher than in the correspondingthree months of 2011 (188,000 b/d).

Occidental Petroleum’s worldwide hydrocarbon production increased by 5.1% to 760,000barrels of oil equivalent per day in the first six months of 2012, including 319,000 b/d of liquidsand 837 million cu ft/day of natural gas in the United States.


Occidental Petroleum’s Hydrocarbon Production in Arab Countries

2Q2012 2Q2011 1H2012 1H2011

Crude oil (‘000 b/d)Bahrain 4 3 4 3Dolphin Energy 9 10 9 10Oman 62 68 63 67Qatar 74 68 73 72Others 32 28 37 43Total 181 177 186 195

NGLs (‘000 b/d)Dolphin Energy 9 11 9 10

Total liquids (‘000 b/d) 190 188 195 205

Natural gas (mcfd)Bahrain 230 172 224 172Dolphin Energy 194 203 183 199Oman 57 49 57 50Total gas 481 424 464 421

Source : Occidental Petroleum, 26 July 2012.

COMPANIES

q Africa Accounted for 30% of Total’s Hydrocarbon Production inthe First Half of 2012

The worldwide liquid and gaseous hydrocarbons production of the French companyTotal edged down by around 1% to 2,317,000 barrels of oil equivalent per day in the first half ofthis year, while its output averaged no more than 2,261,000 boe/d in the second quarter inparticular, 2% less than in April-June 2011. On the other hand, Total’s production in Africa was7% up at 707,000 boe/d in the first half and 12% up at 706,000 boe/d in the second quarter.

Through the first six months of this year, the African continent accounted for 30.5% ofTotal’s global hydrocarbon production, far ahead of the Middle East (494,000 boe/d, 21.3% of thetotal) and Europe (464,000 boe/d - 20%). The proportion was 31.2% in the second quarter of 2012in particular.

In four of the seven major world regions for which Total gives detailed figures, itsproduction declined in the first six months of this year, namely the Middle East, Europe,Asia/Pacific and South America. BesidesAfrica, Total reports that its productionbounded by 125% to 185,000 boe/d in theformer Soviet Union and rose by 3% to 69,000boe/d in North America, but these regions arefar less important for the French group thanAfrica, the Middle East and Europe.

While Africa is the most important region for Total in terms of its total hydrocarbonproduction, the continent plays a key role in terms of liquids in particular, since the Frenchcompany’s liquids output in Africa amounted to 570,000 b/d in the first half, representing 46.6%of its worldwide liquids production of 1,224,000 b/d. Moreover, Total’s liquids production inAfrica is on a strongly upward path, since it was 10% up in the first half and 18% higher in thesecond quarter of 2012, whereas its global liquids production declined by 2% in the first half androse by around 2% in the second quarter.

After Africa came the Middle East, where Total’s liquids production amounted to 305,000b/d in the first half, 24.9% of the total, and Europe (212,000 b/d - 17.3%). On the other hand,Africa was sixth out of seven regions for Total’s natural gas production in January-June thisyear; its gas production in Africa declined by 3% to 702 million cubic feet/day during theperiod, while its total gas production amounted to 5,974 million cu ft/day, the same as in thefirst six months of 2011. Africa thus accounted for 11.7% of Total’s total natural gas productionin the first half of 2012.

Total’s hydrocarbon production in Africa in January-June this year was affected negatively by an accident in Nigeria and positively by the recovery of its production inLibya.


A F R I C A N O I L

Africa provided47% of Total’s liquids

production in the first half


Total’s Worldwide Hydrocarbon Production by Geographic Area(‘000 boe/d)

2Q2012 1Q2012 2Q2011 2Q2012/2Q2011 1H2012 1H2011 1H2012/1H2011

(%) (%)

Europe 429 499 475 -10 464 528 -12

Africa 706 709 628 +12 707 659 +7

Middle East 477 511 571 -16 494 576 -14

North America 69 68 66 +5 69 67 +3

South America 187 182 190 -2 185 188 -2

Asia/Pacific 213 214 241 -12 213 241 -12

CIS 180 189 140 +29 185 82 +126

Total output 2,261 2,372 2,311 -2 2,317 2,341 -1

Source : Total, 27 July 2012.

Total’s Worldwide Liquids Production by Geographic Area(‘000 b/d)

2Q2012 1Q2012 2Q2011 2Q2012/2Q2011 1H2012 1H2011 1H2012/1H2011

(%) (%)

Europe 199 226 240 -17 212 251 -16

Africa 573 566 484 +18 570 517 +10

Middle East 310 300 321 +3 305 323 -6

North America 25 24 26 -4 25 29 -14

South America 60 63 73 -18 61 78 -22

Asia/Pacific 25 24 28 -11 25 28 -11

CIS 26 26 25 +4 26 19 +37

Total output 1,218 1,229 1,197 +2 1,224 1,245 -2


Total’s Worldwide Natural Gas Production by Geographic Area(million cu ft/day)

2Q2012 1Q2012 2Q2011 2Q2012/2Q2011 1H2012 1H2011 1H2012/1H2011

(%) (%)

Europe 1,264 1,492 1,284 -2 1,378 1,512 -9

Africa 674 730 734 -8 702 726 -3

Middle East 916 1,143 1,355 -32 1,029 1,372 -25

North America 253 247 226 +12 249 215 +16

South America 759 663 650 +17 711 611 +16

Asia/Pacific 1,019 1,073 1,209 -16 1,046 1,206 -13

CIS 837 878 619 +35 859 337 +155

Total output 5,722 6,226 6,077 -6 5,974 5,979 -


ANGOLA

q Cooperation Between Total and Inpex Strengthened by theJapanese Company’s Entrée into Deepwater Block 14

Total announced on 21 August that it had sold the Japanese company Inpex Corporationa 9.99% stake in Block 14, in which the French company has a 20% interest alongside CabindaGulf Oil Company Limited, operator with 31%, Sonangol Pesquisa e Produção (20%), EniAngola Exploration, B.V. (20%) and Galp Exploração e Produção Petrolifera, S.A. of Portugal(9%). The operator is a subsidiary of Chevron Corporation. Technically, Total’s 20% interest willbe transferred to a new subsidiary of the French company, Angola Block 14 B.V., in which Inpexwill become a shareholder.

Block 14 thus offers both parties a new opportunity to strengthen their strong andlongstanding cooperation, which has already been enshrined in agreements in variousproducing countries. One of the most spectacular manifestations of their partnership is theIchthys project in Australia, for which Inpex is the operator with a 66.07% holding. Total hasacquired a 30% interest in this huge gas development project, which is expected to cost someUS$34 billion. It entails the development of an offshore gas field, the construction of a gasliquefaction plant onshore, and the laying of a gasline to link the production facilities to theLNG plant.

Elsewhere in the world, Total and Inpexare 50:50% partners in the offshore Mahakamconcession in Indonesia. In Abu Dhabi, theyare both shareholders in Abu Dhabi MarineOperating Company (Adma-Opco) - Inpexthrough the intermediary of Japan OilDevelopment Company ( Jodco). InKazakhstan, Total and Inpex have 16.81% and 7.56% stakes respectively in the consortiumholding the prestigious North Caspian concession, which includes the super-giant Kashaganfield. Elsewhere in the Caspian Sea region, the two companies are shareholders in theconsortium that operates the Baku-Tbilissi-Ceyhan pipeline, in which Total has a 5% stake andInpex 2.5%. And in Canada, Inpex has a 10% equity stake in the Joslyn oil sands project, ofwhich Total is the operator with a 38.25% interest.

Block 14 covers an area of 4,094 sq km about 100 kilometers off the Cabinda coast, in anarea where the water is between 200 and 1,500 meters deep. It is located close to Block 0, whichis also operated by Chevron, and produced 187,000 barrels/day of oil in 2011. Three fields orclusters of fields are in production there: Kuito, Benguela-Belize-Lobito-Tomboco, andTombua-Landana. According to Total, the concession is currently yielding just over 160,000 b/dof crude. Chevron has made other discoveries there and more fields will be developed in thefuture, therefore. The U.S. company says studies are currently under way for the developmentof Lucapa and Malange. Exploration operations are still underway on the block, moreover.

Inpex is not a newcomer to Angola, since it is associated in the exploitation of fields onBlocks 3/05 and 3/91 as well as in the exploration of the onshore Cabinda North concession. TheJapanese company points out that it is currently involved in 70 projects in 27 different countriesand says it intends to expand its presence in Africa.


Inpex and Total are associated in severalother oil and gas projects

The share of productionreverting to Total in Angolaamounted to 135,000 barrels of oilequivalent per day in 2011, downfrom 163,000 boe/d in 2010 and191,000 boe/d in 2009. The companywas the country’s leading operator

last year, operating fields that yielded a total of 640,000 boe/d in 2011. Its share of output comesmainly from Blocks 17 (which Total operates), 0 and 14. On Block 17, three development hubs,Girassol-Rosa, Dalia and Pazflor, are in production, while a fourth, CLOV, involving theCravo, Lirio, Orquidea and Violeta fields, is under development. This fourth hub is expected toenter production in 2014.

Total is also involved in the liquefied natural gas project of Angola LNG, in which it has a13.6% equity stake and which is due to bring its gas liquefaction plant into production before theend of this year. In addition, the French company has a 30% interest in ultra-deepwater Block 32.This acreage has considerable potential, since 12 oil discoveries have already been made there.

ANGOLA/CONGO

q Chevron Launches the Development of the Lianzi Field, WhichIs Shared between Angola and Congo

Chevron Corporation has embarked onthe development of the Lianzi oil field, whichis located offshore in a zone that is sharedbetween the Republic of Congo (CongoBrazzaville) and Angola. The field is located105 kilometers from the coast in 900 meters of water. It will be hooked up to the Benguela-Belize-Lobito-Tomboco (BBLT) platform on Block 14 off Angola (see above).

The development is expected to cost $2 billion. The field is due to enter production in2015 and achieve a plateau rate of output of 46,000 barrels of oil equivalent per day. Theoperator of the Lianzi field is Chevron Overseas Congo Limited, with a 31.25% interest, and itsassociates are Total (36.75%), Eni (10%), Sonangol (10%), the Société Nationale des Pétroles duCongo (SNPC – 7.5%) and Galp of Portugal (4.5%).


The project is expectedto cost $2 billion

Total has become theleading operator in Angola,

with an output of 640,000 boe/d

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Subscribers in all countries who receive only the paper edition are invited to provide us with

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Source : Total. Map TroisCube, August 2012.

Location of Block 14

(Following is the text of an article that appeared in the July-August edition of the Oil VisionNewsletter published by Energy Funds Advisors – www.energyfundsadvisors.com. Based in Paris, EnergyFunds Advisors offers services in the field of asset management with an exclusive focus on energy-relatedissues. Energy Funds Advisors – ENFA – advises the French fund management firm La Française AM– www.lafrancaise-am.com – on the investment policy pursued by its LFP ENFA Vision Pétrole fund.Contacts at ENFA: Olivier Rech and Luca Baccarini; [email protected] [email protected]. Francis Perrin, Chairman of Stratégies et PolitiquesEnergétiques and the Publisher and Editor-in-Chief of Arab Oil and Gas, is a member of ENFA’scommittee of experts).

Oil market: a wide range of resources…

ì The global market for fuels and other refined products was mainly satisfied from thebeginnings of industry in the late 19th century until the early 2000s by extraction and refining ofnatural resources commonly called "oil". Although its physicochemical characteristics arevariable from one production site to another (eg liquid viscosity), the structuring element is thatit is a liquid hydrocarbon extracted from a porous and permeable rock by conventionaltechniques of drilling. Schematically, oil, liquid at its natural state, is produced thanks to thedifference between the high pressure of the rock it impregnates and atmospheric pressure at thewellhead. Conventional oil currently accounts for 80% of global liquid hydrocarbons. With veryfew exceptions (in Saudi Arabia and Japan), crude oil is not used directly but after conversion(distillation) in a refinery.

ì About 8% of world oil market comes from liquids (ethane, propane, butane, pentane)that usually accompany the production of natural gas. These hydrocarbons have markets,particularly in petrochemicals, which unlike conventional oil do not require refining.

ì The third component of the oil market, with 7% of total supply, consists of hydrocarbonresources described as unconventional as they are very little, if any, liquid at their natural state.The extraction by pressure difference, as in the case of conventional oil, is very limited orimpossible so that production requires the resource to be liquefied in situ with heat injection.These resources cover mainly the oil sands and extra heavy oils and require a highly refinedtreatment in order to be processed into refined products standards.

ì Representing 2.5% of the world, oil from shale and tight reservoirs belong to theconventional oil category by the physicochemical characteristics of the extracted resource,which is liquid at the natural state, but to the unconventional oil category due to the productiontechniques. The impregnated rock is very tight, so that only the combination of horizontaldrilling (technology now common) and hydraulic fracturing allows circulation in the rock andthe extraction of liquids (and also gas).

ì Biofuels contribute to 2.2% world market in volume. Ethanol is produced fromseveral agricultural resources, beet (sugar cane, sugar beet) and starch (corn, wheat, barley).Biodiesel is derived from vegetable oils derived mostly from soy, rapeseed, sunflower andpalm.


Energy Resources Over and Above Conventional Oil

ì Finally, 0.3% of the world market is provided by the conversion of natural gas andliquefaction of coal into petroleum products (mainly fuels) through chemical processes.

… with specific constraints and risks

ì Conventional oil is still the main component of the oil market. Its dynamic, crucial tothe balance between world supply and demand, is based on the potential for new discoveriesand the recovery rate of producing fields. It is clear that new discoveries of conventional oil havenow been lower than production for about 20 years and that large onshore oil basins are matureor declining, the bulk of current and future potential residing in offshore areas. Technologyplays a positive role in delaying field decline because of the sophisticated techniques used topartially offset the drop in pressure in the reservoir rock as the oil is extracted, but resources inplace are never fully recovered: oilfield developments now allow to recover from 30 to 50% ofthe liquids in place.

Unlike the misrepresentation that is usually done, conventional oil reserves diminish.Over the last 5 years, the net growth in production was limited to 0.4 million barrels per day (outof 69) while the world oil market grew by 2.8 million barrels per day. The prospects for outputgrowth are very low, limited on the short-term to only spare production capacities (about 2million barrels per day) in the major OPEC countries. The threshold of 70 million barrels per dayis a limitation that will be difficult to overcome: the start of decline in conventional oilproduction is very likely between 2015 and 2020.


ì The contribution of fluids associated with the production of conventional natural gashas also been very low since 2006 (0.1 million barrels per day out of 6.9). Growth prospects arehowever quite important because the dynamic of discoveries of gas resources remains positivein the world, as evidenced by the new fields discovered in East Africa and the Mediterranean.But natural gas liquids are not as valuable as other resources in the oil market because theycontribute only marginally to meet the demand for fuels.

ì At first glance, extra heavy oils andtar sands show the highest growth potentialbecause of estimated resources largelyuntapped, comparable to those ofconventional oil. Yet, despite the on-goingdevelopment projects in Canada, thecontribution of all these resources to the worldmarket was negative by 0.4 million barrels perday (for a total of 6).

The structuring element of extra heavy oil production lies not in very large volumes ofresources but in the low recovery rate (about half that of conventional oil) and the slowoperation because the projects are based on heavy infrastructure that require development time of 5 to 10 years. Potential output growth is significant but on a timehorizon of several decades, provided that the environmental consequences of this sector arereduced.


Extra heavy oil production:huge resources but low

recovery rate andslow operation

ì While they represent only 2 million barrels per day, crude from shale (source rocks)and tight reservoirs (low permeability) have made the largest contribution to growth of theglobal market with 1.5 million barrels per day since 2006, exclusively in the United States. Thisperformance, largely not foreseen by analysts, is fuelling predictions of exponential growthwhich however need to face certain realities.

Unlike extra heavy oil showing low-flow production over long periods,production profiles of shale oil show rapiddeclines after a few months or weeks. It istherefore necessary to adopt an extensiveapproach to production capacity bymultiplying the number of boreholes. This intensive drilling, favoured by a legal frameworkthat allows private ownership of the subsoil, is made possible in the United States by a buoyantoil services industry which has no equivalent in the world. It appears unlikely that theexperience of shale oil is repeated outside the United States.

It should also be noted that the combination of increased well drilling and the difficulty ofdeveloping infrastructure for collection and transportation of oil and gas results in the U.S. in asharp increase in volumes of gas flared (thus emissions of greenhouse gases) , energy waste andenvironmental aberration which was thought limited to Russia and Middle East countries.

ì With over 1 million barrels per day, biofuels have made the second contribution to thegrowth of the oil market, driven primarily by ethanol (0.85) and secondly by biodiesel (0.2).However, it appears that production of first generation biofuels is facing increasing competitionbetween food and energy uses, as suggests the current drought in the U.S. which couldchallenge the fact that 40% of corn is processed into ethanol.

The potential for growth worldwide is now low and the future of biofuels will be basedon the transformation of non-food biomass. But the industry development of second generationbiofuels will be slow and limited for two reasons: firstly, the collection of scattered biomassresources is very expensive because of the logistics and secondly, the capacity of processingplants is very low, between 3 and 5,000 barrels per day, compared to the standard capacity of anoil refinery between 100,000 and 200,000 barrels per day.

ì Coal liquefaction (CTL, Coal-to-Liquids) is a chemical process that provides a quarterof the consumption of petroleum products in South Africa, pioneering country for historicalreasons. This sector, however, requires a large supply of cheap coal, such conditions that arenow rarely met because coal remains the primary source for rapidly growing electricitygeneration in non-OECD countries. China, which has vast reserves of coal, still has not lifted themoratorium in place since 2008 on CTL projects. The large emissions of CO2, if they are notcaptured for storage, are also a major handicap in the development of this sector.

The chemical conversion of natural gas (GTL, Gas-to-Liquids) in petroleum productsoffers a new market for the gas industry. As for coal liquefaction, this sector only makes sense ifabundant and cheap resources (because of geographical distance, for example) are available. Butunlike CTL, GTL is a recent and sophisticated technology with feedback on an industrial scalelimited to less than 5 plants worldwide. Unless technological breakthrough that wouldsignificantly reduce investments, GTL will still face strong competition from LNG (LiquefiedNatural Gas) which is an old and simple technology that allows to value more and more gas


It appears unlikelythat the experience of shale oil

is repeated outside the U.S.

resources far from major markets in Asia, Europe but also South America. The contribution ofCTL and GTL sectors contributed less than 0.2 million barrels per day to the growth of the oilmarket since 2006.

The structurally tight oil market

ì This brief overview of the differentresources, some less known than others, thatmake up the oil market suggests that no sectoris able in the medium term (before 2020) tomake a contribution equivalent to that ofconventional oil in the 20th century.

ì Conventional oil has a high risk of early decline in production before 2020. Therestructuring of the world oil market by the emergence of new industries and resources does notchallenge the diagnosis of a structurally tight market.

G

G G

G


Conventional oil has a high riskof early decline in production

before 2020

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