In my last year’s message, I had hinted on my anticipation of downward pressure on oil price in 2014, due to enhanced supply from US Shale oil and slowing demand, especially from China.
First three quarters of 2014 posted continuation of strong oil price from 2013. However in the last quarter, there was clear over supply situation, especially with US coming up as the strongest producer with its continuous growth in shale oil production. However, this time around, contrary to the norm being followed in the past, OPEC led by Saudi Arabia decided not to play the counter-balancing act by managing the supply side through production cut. With non OPEC countries also remaining bullish in their production, the oil price started an unprecedented downturn in wake of supply overhang, which in 2015 has continued to fall and has landed at less than 50% of its 2014 highs. In tandem to that, on the demand side, China has shown signs of slowing down, putting pressure on commodities’ demand growth at large. This combined with expected supply reinforcement coming from Iran in the foreseeable future, means oil price will remain under pressure in the short term.
Having said that, Petrogas has historically managed well such down turns, through cost discipline and prudent operations and have actually come out leaner and stronger in the process, with strategic acquisitions to ride the upswing. This time is no different and it’s a question of time (which is the biggest variable), when the oil price will rebound due to eventual supply deficit, impacted by the current activity slow down and deferrals, in the exploration and development space.
2014 was also a significant year for Petrogas in terms of M&A activities, as in November, Petrogas acquired Chevron’s upstream and mid-stream subsidiaries in Netherlands. With this, Petrogas established its foothold in the Dutch sector of North Sea. It was the most significant acquisition done by Petrogas, which included acquisition of offshore oil and gas operating and producing assets and a talented pool of human resource. On top of access to existing production and reserves, this acquisition also allows Petrogas to explore consolidation opportunities within North Sea and the region at large, leveraging its offshore capabilities and as a niche player of shallow gas.
2014 was another excellent year with regards to HSE performance for Petrogas with no major incidents reported in any of the operations performed by Petrogas E&P, its subsidiaries and their contractors. Petrogas’ continual focus on HSE improvements has resulted in such achievement.
Petrogas continued its support to charities, local communities and NGO’s in and around the areas of its operations. In addition, Petrogas continued its investment in the In-Country-Value (ICV) of the services, equipment and materials sourced for Omani oilfield operations under the initiative and guidance of Ministry of Oil and Gas. Petrogas is committed for the improvement of Omani content by grooming and developing young Omani employees for its future growth.
Petrogas will continue with its production and development activities in 2015. While block 5 in Oman will see drilling of highest number of wells with 6 rigs deployed in the block, a significant development program is planned in A18 block in the Dutch sector of North Sea, scheduled at the end of the year 2015, by installation of an offshore platform and starting drilling campaign of three wells in the shallow gas block. Also, Petrogas will start drilling in its exploration block in Oman (Block 55) by drilling the first well in the later half of 2015.
Finally, I would like to thank the Government of Oman, the Netherlands and Egypt, our partners and stakeholders for their support. I would also like to thank our management and staff for another successful year. I am confident that Petrogas is well positioned to meet the challenges of 2015 especially in this low oil price environment. My appeal to all staff is to rise up to the occasion, reinforce the feeling of ownership and create value within each one’s domain, through strict cost discipline, out of the box thinking and prudent operations, always with an eye towards safety and environment, which assumes prominence over any economic consideration.
Finally, I am confident, as in the past, Petrogas will successfully manage this unprecedented industry crisis and at the same time will continue delivering sustained value-generating growth.