OilandGasintheMENARegion

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April2009

ForyourQueries
EconomicResearchDepartment

Marwan Mikhael

Head of Research
[email protected]
Tel: +961 1 747 812
Fax: +961 1 737 414

Alexandre Mouradian

Deputy Head of Research

[email protected]
Tel: +961 1 747 812
Ext: 1414
Fax: +961 1 737 414

Cynthia Zeilah

Analyst
[email protected]
Tel: +961 1 747 812
Ext: 1413
Fax: +961 1 737 414

Rebecca Nakhoul

Analyst
[email protected]
Tel: +961 1 747 812
Ext: 1418
Fax: +961 1 737 414

Yasmina Merhi

Analyst
[email protected]
Tel: +961 1 747 812
Ext: 1410
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Jean-Claude Cherfane

Analyst
[email protected]
Tel: +961 1 747 812 Ext: 1416
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Research Department

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OilandGasintheMENARegion

TableofContents
ForyourQueries.....................................................................................................................................3
TableofContents...................................................................................................................................4
ExecutiveSummary................................................................................................................................6
1 TheYear2008:InRetrospect.............................................................................................................8
2 GlobalOilandGasIndustryFactsandFigures...............................................................................10
2.1

ResourcesProductionandConsumption........................................................................................10

2.2

EnergyConsumptionandAlternateFuels.........................................................................................13

2.3

WorldwideOilTrade........................................................................................................................14

2.4

OilPriceCorrelations........................................................................................................................15

2.5

OilPricesandGlobalDevelopments.................................................................................................16

3 MENAOilandGasIndustryStructure..............................................................................................18
3.1

ComparativeIndustryIndicators......................................................................................................18

3.2

KeyOilandGasProducingCountriesintheMENARegion................................................................18

4 MENAIndustryScenario..................................................................................................................19
4.1

FalloutoftheGlobalEconomicWeakness........................................................................................19
4.1.1
4.1.2
4.1.3

4.2

ScaledownofCapacityAdditions.....................................................................................................22
4.2.1
4.2.2

4.3

ResourceNationalismandProtectiveRegulations.....................................................................................31
IOCs:CatalystsforGrowth..........................................................................................................................31

InherentStrengthsoftheMENARegion...........................................................................................32
4.6.1
4.6.2
4.6.3
4.6.4

DemandforGasBenefitsWhereOilPains..................................................................................................27
MENAApproach:ConsumeGasandExportOil..........................................................................................27
Iran&QatarHoldtheValve........................................................................................................................28
Investments:NaturalGasLagsOil..............................................................................................................29
SupplyYettoCatchUpWithDemand.........................................................................................................29

NOCs:TorchbearersoftheIndustryintheMENARegion..................................................................31
4.5.1
4.5.2

4.6

HistoricalLessons:InvestmentsCriticaltoSustainability...........................................................................24
AvailabilityofFundsmaynotbetheMajorIssue,UncertaintyofReturnsIs.............................................25
UpstreamProjects.......................................................................................................................................25
DownstreamProjects..................................................................................................................................26

NaturalGas:RobustDemand,butSupplyinQuestion......................................................................27
4.4.1
4.4.2
4.4.3
4.4.4
4.4.5

4.5

CuttingOutputToManagePrices...............................................................................................................22
UnwillingnesstoAddCapacityintheCurrentEnvironment.......................................................................22

ProjectInvestmentsandCompetitiveness........................................................................................24
4.3.1
4.3.2
4.3.3
4.3.4

4.4

NeartermDropinGlobalOilDemand........................................................................................................19
FundingChallenges.....................................................................................................................................20
MENACountries:FiscalBudgetsandImpactofCurrentOilPrices.............................................................21

NaturalResourceAdvantage......................................................................................................................32
HealthyGrowthbutOilHoldsTheKey........................................................................................................33
ProducersConsumingMore:APositivefortheIndustry.............................................................................35
LimitedExposuretotheSubprimeCrisis.....................................................................................................36

April2009

5 OpportunitiesandChallenges.........................................................................................................38
5.1

Opportunities...................................................................................................................................38
5.1.1
5.1.2
5.1.3
5.1.4

5.2

TheRiseofEmergingEconomies................................................................................................................38
ProductSubstitution:OilandGasvs.Coal..................................................................................................38
LowerCostofServices.................................................................................................................................38
DomesticEquipmentandServicesMarket.................................................................................................39

Challenges........................................................................................................................................39
5.2.1
5.2.2
5.2.3
5.2.4
5.2.5

GovernmentPolicies...................................................................................................................................39
MaintainingSupplyDiscipline.....................................................................................................................39
ChokePointsinExistingTradeRoutes........................................................................................................39
AlternateFuels............................................................................................................................................41
TalentPool..................................................................................................................................................41

6 FutureOutlook................................................................................................................................43
7 Appendix.........................................................................................................................................44
7.1

UpstreamandDownstreamProjectsintheMENARegion................................................................44

7.2

SecondaryMarketsTradingActivity.................................................................................................46

7.3

Countrybriefs..................................................................................................................................48
7.3.1
7.3.2
7.3.3
7.3.4
7.3.5
7.3.6
7.3.7
7.3.8
7.3.9

7.4

ListedOil&GasPlayersMultiplesComparison..............................................................................61

7.5

Oil&GasCompanyProfiles..............................................................................................................62
7.5.1
7.5.2
7.5.3
7.5.4
7.5.5
7.5.6
7.5.7
7.5.8
7.5.9
7.5.10

7.6

Bahrain........................................................................................................................................................48
Egypt...........................................................................................................................................................49
Oman..........................................................................................................................................................51
Kuwait.........................................................................................................................................................52
Qatar...........................................................................................................................................................54
SaudiArabia................................................................................................................................................56
TheUnitedArabEmirates(UAE).................................................................................................................58
Jordan.........................................................................................................................................................60
Lebanon......................................................................................................................................................60

AlexandriaMineralOilsCo..........................................................................................................................62
DanaGas.....................................................................................................................................................63
BurganCompanyforWellDrillingTradingandMaintenance....................................................................64
ContractingandMarineServicesCompany................................................................................................65
JordanPetroleumRefinery..........................................................................................................................66
ShellOmanMarketing................................................................................................................................67
NationalGasandIndustrializationCompany.............................................................................................68
AldreesPetroleumandTransportServicesCompany.................................................................................69
QatarFuelCompany...................................................................................................................................70
IndependentPetroleumGroup..................................................................................................................71

Acronyms.........................................................................................................................................72

OilandGasintheMENARegion

ExecutiveSummary
The Oil and gas industry report is the third in a series of macro-industry reports on the MENA region presented to you by the
Blominvest Research department.
As we present this report to you, we recognize that the rollercoaster ride of 2008 is far from over. World over, the financial markets
seem to be slipping into a tailspin that is being catalyzed by a worsening credit situation globally. There are some bright spots that
seem to be shaping up across the emerging markets and the MENA region to lead the next phase of growth. However, it would be
premature to predict winners right away. In a world order that demonstrates the continued dependence on oil and gas, this report
showcases the interdependence that is more obvious than ever before. In the past, upswings have followed downturns, and
chances are that this time round, it will be no different.

Anincreasinglyinterdependentworldisgoingthroughasevereeconomicslowdown
Global interdependence is here to stay that holds tremendous consequences for every sector, not least the energy sector. What
started as a real estate downturn in the US has impacted economic growth all over the world. Financial markets have become so
intertwined and financial products so complex, that the underlying exposure of a few institutions has brought the very question of
survival to the center stage of industry-defining boardrooms.
The global economy is in the midst of a severe slowdown and 2009 growth is estimated to top out at a paltry 0.5%, the lowest in the
past six decades. The energy system, on which billions of people rely both economically and socially, is central to the global
economy. Consequently oil, which is the primary energy source, is now at the forefront of what is probably the most turbulent and
uncertain phase in recent history. As Western nations try and grind their way through the mess, emerging economies that primarily
drove demand growth for oil since 2000, are facing a slowdown as well. Most analysts still expect healthy growth in emerging
economies and expect them to offset a part of the slowdown in the developed economies. In an intertwined world however, this
optimism might not hold much weight.

Theindustryisfacingademandslumpwithrevivalcontingentonpolicymeasures
The oil and gas industry is facing a worldwide demand slump. Consumer spending has been impacted by factors such as falling
asset values and household wealth, uncertain income prospects in the face of rising unemployment, a lack of credit and general
uncertainty about the future. Demand for oil and gas greatly depends on an economic revival, which in turn is contingent on policy
actions by governments.
The central banks in the developed nations have taken on the onerous task of reviving their economies through monetary policy
measures like aggressive interest rate cuts and bailout of troubled banks. However, with the downturn showing no signs of abating
and with interest rates already close to zero, the baton has now been passed on to the governments to shoulder the burden and
bolster the economies by providing fiscal incentives and capitalizing weak financial institutions. Economists are estimating a
demand revival in 2010, but only if there are continued, strong and timely policy actions by governments.

Oilisnotjustacommodity
Crude oil has historically been a strategic resource upon which nations predicated their economic growth and strength. In addition,
the price of oil was increasingly used to portray the military and political might of some nations. More recently, oil has also been
used as an investment vehicle and a hedging tool. This transformation of oil over time has been spurred by its depleting resource
status. In the long run, the economic growth of nations and the consequent increasing demand for oil, it is unlikely that we have
entered an era of perpetual cheap oil.

April2009

KeythemesgoverningtheindustryintheMENAregion
This report focuses on the macro structure of the oil and gas industry and the related landscape in the MENA region. It examines
the key themes that are in play across sectors in the region, and how oil-producing companies and governments are gearing up to
the challenging environment in the days ahead.

The oil price run-up in the first half of 2008 fuelled large capacity expansions. However, with the subsequent slump, there was
significant and unhealthy demand destruction, leading to a dramatic crash in oil prices during the second half of 2008. Despite the
corrective measures that included project cancellations, supply cuts and artificial demand creation strategies, the industry is faced
with the prospect of oversupply if the emerging economies slowdown further. However, the OPEC is likely to undertake all efforts,
including production cuts, needed to cushion a further fall and have a range-bound pricing in the near-term. We reckon that the
demand slump is a near-term phenomenon, and we expect an economic and energy demand revival in 2010.

Meanwhile, a host of projects that were initiated during the period of peak prices are being reviewed to reassess financial viability.
While this approach will address the excesses that were fuelled by the runaway prices, the industry could face a risk of underinvestment, if the current weakness in oil prices continues. We draw our conclusions based on a careful study of historical lessons
from Venezuela and Mexico. In these countries, under-investment led to a systemic failure in the industry, hampering the
development prospects for the region.

Amid the uncertainty surrounding oil, natural gas is emerging as an alternative energy commodity. Riding on the global focus on
clean fuels, natural gas is settling in a niche slot as a secondary option to oil. The development of the gas industry has lagged that
of oil as the MENA region seems to produce just enough gas to meet domestic consumption and free up oil for export. This
scenario could possibly lead to global undersupply. The impact on prices however will be limited, since trade in natural gas is
largely driven through bilateral agreements.

We believe that the MENA region has certain inherent strengths that make it resilient to short-term market turbulence. The
advantage of a large natural reserve base, coupled with the lowest exploration cost in the world, provides a fundamental strength
that other producer regions such as North America and the Russian Federation do not enjoy. This is all the more true in an
environment of falling prices. Leveraging this advantage and emerging stronger from the current times of turbulence calls for
coordinated efforts between the various producer countries in the MENA region.

Investor behavior and speculation are to an extent out of the gambit of policymakers in a free market economy and will continue to
contribute to price volatility. However, producer and consumer interest-groups could take concerted steps to delicately balance
supply with demand and bring about market order and stability. Today, OPEC faces the challenge of maintaining supply discipline
amongst member countries and this challenge itself, if properly addressed, could become the key success factor for the industry.

OilandGasintheMENARegion

TheYear2008:InRetrospect

The oil and gas industry is no stranger to boom and bust cycles, and like every other industry, it has been marked by the effects of
the worst financial debacle in modern market history. Traveling back in time, oil prices rose by 350% between 1979 and 1980, and
subsequently dropped back to the initial levels by 1985. While what happened in 2008 was in some way similar, the last year will
definitely go down in history as one that saw unprecedented oil price volatility. Indeed, oil prices rose by over 50%, peaking at USD
145 per barrel (WTI Cushing) in the first half of 2008, and then fell by almost 70% toward year-end. The 52-week low was
registered at USD 31, implying that within a single year, prices varied by an incredible USD 114. But, even more remarkable is the
corresponding price volatility that occurred during the last one year. In 2008, there were 15 instances of daily price change
exceeding 5%, and in five of these instances, the change was higher than 10%. The 30 day volatility in prices has almost tripled in
the last year vis--vis previous levels.
OilPrices(WTICushing)

VolatilityinOilPrices

160
+50%

140

-70%
percentage

USDperbarrel

120
100
80
60
40
20
0

180
160
140
120
100
80
60
40
20
0

Jan09

Sep08

Nov08

Jul08

May08

Jan08

Mar08

Nov07

Sep07

Jul07

Mar07

May07

Jan07

Feb93 Feb95 Feb97 Feb99 Feb01 Feb03 Feb05 Feb07 Feb09

Source:Bloomberg,Blominvest

30dayvolatility

90dayvolatility

Source:Bloomberg,Blominvest

Initially, market participants attributed the remarkable run-up in oil prices to fundamental demand and supply factors. The growing
demand was apparently fueled by the rising energy consumption of emerging economies, particularly China, which was stocking up
supplies ahead of the 2008 Beijing Summer Olympics. The rise of automobile sales in India played a role in driving demand up as
well. According to a presentation by the CEO of Eni S.p.A., the fundamental supply issue since the early 90s has been the underinvestment in the exploration and production (E&P) segment, especially in the Middle East. Global exploration was concentrated in
the US and Canada, which recorded 70% of the exploration activity despite holding only about 3% of global reserves. In contrast,
the Middle East recorded only 3% of exploration activity despite accounting for 70% of global reserves. This ultimately resulted in
lower spare capacity, down from more than 6 mn bpd in 2002 to around 2 mn bpd today. Coupled with the rising demand, this
fueled global uncertainty on the demand-supply mismatch ultimately contributing to the spiraling prices.

While geopolitical developments are frequently cited as the reason behind high oil prices, they no longer make a convincing story
on their own, given what happened in 2008. The slide in the price of the dollar had an impact on oil prices as well. Oil, being a
dollar denominated asset, started to attract investors looking for a hedge against inflation in the face of falling US interest rates and
a depreciating dollar.

Not long ago, a few celebrated analysts had predicted that oil prices will surpass the USD 200 mark. But, in recent times all
analysts have substantially reduced estimates to reflect the current state of the markets. The wide variation in oil price estimates
alone contradicts the widely held viewpoint that only fundamental factors drive oil prices. Furthermore, global demand and supply
economics do not change enough overnight to warrant the price volatility that was witnessed in the recent past.

The erratic behavior of oil prices has led many to point fingers at the speculative activity in secondary markets. While the role of
speculative financial activity in driving up prices and exacerbating volatility has always been important, the extent of its impact on
prices may have been underestimated. With millions oil future contracts traded every day, moderate swings in the underlying
prices can get highly accentuated and result in larger swings in either direction. Within three weeks of launching oil contracts on the
DGCX in June 2008, the exchange witnessed record trading volumes of 3,500 contracts per day with over USD 3 bn of business
being transacted. On the NYMEX alone, 18 contracts barrels were traded on the secondary market for each physical barrel trade.

April2009

NYMEXAnnual VolumeofFutureContracts

Forecastedvs.ActualCrudePrices
400

140
MnContracts

USDperbarrel

120
100
80
60

339

300
192

200
100

73
37
18

40

92

73
38
16

46
24

112

97

88
45
19

190
122

60

53
17

19

135

71
23

30

39

20

2000
Q107

Q207

Q307

Q407

Forecast

Q108

Q208

Q308

2001

2002

2003

2004

2005

2006

2007

2008

Q408

Actual

Source:Bloomberg,Blominvest

AllEnergyFuturesContracts

OilContracts

NaturalGasContracts

Source:Bloomberg,Blominvest

The combined impact of the financial crisis, the uncertainty of global economic prospects and the fall in demand brought about by
high prices finally led to a collapse in oil prices toward the end of 2008. When prices surpassed the USD 100 mark, consumers
started to feel the pinch, since governments could no longer continue retail subsidies given fiscal constraints. Demand elasticity
started kicking in and consumers responded in the only way they could by cutting consumption. While experts are still predicting
strong demand growth in emerging markets, which could partially offset the OECD demand slump that is expected in 2009, it may
not be long before the US and European economic woes deepen further, and impact important markets like Chinas manufacturing
industry. It is noteworthy to mention that one of the largest government bailouts was made by China and is primarily targeted to
cushion the impact on the Chinese manufacturing industry.

OPEC responded aggressively to plummeting oil prices by cutting production levels twice in the last three months of 2008. The
second announcement of 4.2 mn bpd cut was the deepest ever, but it still failed to support prices in any meaningful way, which fell
a further 10% within the next two days. Analysts believe that the fall was largely due to heightening concerns over an OECD-led
global economic recession in 2009. Further, there were concerns as to whether OPEC members will really adhere to the production
cut, given the fact that of the first agreed cut of 1.5 mn bpd, only 85% was actually implemented. Maintaining supply discipline is
still a challenge. As of January 2009, only 3.3 mn bpd of the production cut had come through, thereby validating market
participants original concerns. While Saudi Arabia has adhered to its reduction target, most other OPEC countries are yet to meet
January production cut targets.

There is no denying the fact that the swing in oil prices is bad news for all stakeholders in the industry. For oil producing companies
that have investments worth billions of dollars, the price uncertainty creates hurdles to further investment plans. Indeed, many of
the projects and investment plans that were unveiled during the first half of 2008 stand shelved, delayed or renegotiated to reflect
lower output prices and lower input costs in the latter part of the year.

For governments in the MENA region, which strongly depend on oil revenues for infrastructure development, social welfare
spending and investing in economic diversification, the uncertainty can jeopardize critical budget plans. Finally, the surplus cash
generated in periods of high oil prices can lead to asset price bubbles, which could potentially go bust with the advent of more
prudent times. It is therefore in the interest of all parties involved that prices remain in a range that promotes long-term demand
growth and provides economic viability for oil producing nations.

OilandGasintheMENARegion

GlobalOilandGasIndustryFactsandFigures

2.1

ResourcesProductionandConsumption
Oil ProvenReserves&R/Pratio
800

160

755
683

billionbarrels

600

120

117

567

82
400

86
344

200

80
40

21

20

483

386

23

0
atend1987

atend1997

atend2007

MiddleEast

Source:BPStatisticalReview2008,Blominvest

RestoftheWorld

Source: BPStatisticalReview2008,Blominvest

GlobalR/PRatio Oil
The proven global resource base for oil has expanded
substantially over the past few decades on account of
new discoveries, expansion in existing fields and
technological advancements.

60

No.ofYears

45

Resources are plentiful to cover current consumption

needs as reflected in the R/P ratios (Reserves to
Production). As of 2007, global oil reserves are
expected to last for a little over 40 years. The Middle
East controlled about 61% of proven global oil
reserves in 2007.

30
15
0

Source:BPStatisticalReview2008,Blominvest

Top10OilConsuming Nations(2007)

Top10OilProducing Nations
24

10.4

10.0

10
millionbpd

6.9

4.4

3.7

3.5

3.3

2.9

2.6

2.6

16
12
7.9

5.1
2.7

2.7

2.4

2.3

2.2

2.2

2.0

0
KSA Russ.Fed. US

Iran

China Mexico Canada UAE Venezuela Kuwait

Source:BPStatisticalReview2008,Blominvest

10

20.7

20
millionbarrelsdaily

12

US

China Japan Russ.Fed. India Germany Canada KSA Brazil Mexico

Source: BPStatisticalReview2008,Blominvest

April2009

OilConsumptionbyRegion20032007

GlobalOilproduction&Consumption(2007)

100

100
22.7

24.0

24.4

24.9

25.4

24.0

24.9

25.0

24.9

25.0

20

19.9

20.1

20.3

20.5

20.1

5.2
4.8
2.6

5.5
4.9
2.6

5.7
5.1
2.8

5.9
5.2
2.8

6.2
5.5
3.0

2003

2004

2005

2006

2007

60
40

AsiaPacific
MiddleEast

NorthAmerica
South&CentralAmerica

76

77

78

82

85

84

83

50

100
75

75
millionbpd

MillionBarrelsPerDay

80

79

43

43

45

45

46

46

32

31

30

32

34

35

25

46

46
50

36

35

25

0
2000

Europe&Eurasia
Africa

2001

2002

2003

ProductionNonOPEC

Source:BPStatisticalReview2008,Blominvest

2004

2005

2006

ProductionOPEC

2007

Consumption

Source:BPStatisticalReview2008,Blominvest

Emerging economies such as China and India account for

an increasing portion of the oil demand growth.
The transportation industry is the largest end-user of oil
accounting for about 50% of global oil consumption. Its
share in total demand is expected to grow further.
The US is the largest consumer nation in the world
accounting for about 25% of global oil consumption.

Source:OPEC,Blominvest

NaturalGasProvenReserves&R/Pratio
125

400

380

100

trilioncubicmetres

104

97
282

76

300
73

75

205

200

50
50

31

100

47

44

40

25

0
100

0
atend1987

atend1997
MiddleEast

atend2007
RestoftheWorld

Source:BPStatisticalReview2008,Blominvest Source:BPStatisticalReview2008,Blominvest

11

OilandGasintheMENARegion

OilProductionbyRegion(20032007)
100

millionbpd

80
60
40
20
0

7.8
14.2

7.8
14.1

7.9
13.7

7.9
13.7

7.9
13.7

17.0

17.6

17.5

17.6

17.8

23.4

24.8

25.4

25.6

25.2

6.3
8.4

6.7
9.3

6.9
9.8

6.9
10.0

6.6
10.3

2003

2004

2005

2006

2007

AsiaPacific
MiddleEast

NorthAmerica
South&CentralAmerica

Europe&Eurasia
Africa

Source:BPStatisticalReview2008,Blominvest

Source:OPEC,Blominvest

Source:OPEC,Blominvest

The Middle East accounts for over 41% of global natural gas reserves. However, the region has not fully tapped its supply potential
as reflected in the relatively lower 12% share in global production.
Natural Gas primarily finds end usage in the industrial segment and in electricity generation.

NaturalGas R/PratioinNo.ofyears
(2007)

250

206
200
150

Source:BPStatisticalReview2008,Blominvest

100

74
51

77
55

37

50
10
0
North S.&Cent. Russian Europe& Middle
America America Federation Eurasia
East

Africa

Asia
Pacific

Source:BPStatisticalReview2008,Blominvest

12

April2009

2.2

EnergyConsumptionandAlternateFuels

GlobalEnergyConsumption2006

LargeHydropower
3%

FossilFuels
79%

Renewable
Energy
18%

NuclearEnergy
3%

Traditional
Biomass
13%

SolarHot
Water/Heating
1.3%
OtherPower
Generation
0.8%
Biofuels
0.3%

Source:OPECWorldOilOutlook2008,Blominvest

Source:OPECWorldOilOutlook2008,Blominvest

13

OilandGasintheMENARegion

2.3

WorldwideOilTrade

Source:BPStatisticalReview2008

Source:BPStatisticalReview2008,Blominvest

14

Source: BPStatisticalReview2008,Blominvest

April2009

2.4

OilPriceCorrelations

RatioofOilpricetoGold price

PriceCorrelation CrudeOilvsGold
1200

0.18

1000

0.15

800
600
400
200

ouncesofgoldperbarrel

160

120

80

40

USDperounce

USDperbarrel

Oil vs. Gold: Oil prices are strongly correlated to gold in the long run. The ounces of gold required to pay for 1 barrel of oil
increased in 2008 due to the runaway oil prices. However, this is now returning to the historical average of 0.06 gold ounces per
barrel.

CrudePrices

0.12
0.09
0.06
0.03
0.00

Gold

Source:Bloomberg,Blominvest

Source:Bloomberg,Blominvest

Oil vs. Equities: We find no meaningful correlation between oil prices and equities. Some studies point out that during certain
periods following rising oil prices, there has been a lagged impact on corporate profitability and subsequently on stock prices.

PriceCorrelation
CrudeOilvsS&P500Index
160

160

1800

PriceCorrelation CrudeOilvsS&P500Index
(SinceJan2008)

1600

160

PriceCorrelation CrudeOilvsUSD
(LongtermTrend)

S&PIndex

USDperbarrel

S&PIndex

USDperbarrel

1500
120
120
1200
1200

80
80
900
800

600

40
40
400
300

0
0
0
0

CrudePrices
S&P500
CrudePrices
S&P500

Source:Bloomberg,Blominvest
Source:Bloomberg,Blominvest

Oil vs. Dollar: Crude oil prices have exhibited an inverse relationship with the US Dollar over the last five years. The negative
relationship has been even more pronounced in the last one year. The slump in oil prices in the second half of 2008 corresponds to
a strengthening dollar trend. Oil was widely used as a hedge against falling dollar prices in the first half of the year and these
hedged positions may have unwounded following the financial turmoil.

1.2

160

1.0

120

PriceCorrelation CrudeOilvsUSD
(SinceJan2008)

0.9

40

0.6

0.4

CrudePrices

USD/EUR

Source:Bloomberg,Blominvest

15

0.8
0.8

80

0.7
40
0.7

EUR/USDExchange

0.8

USDperbarrel

80

USD/EUREchange

USDperbarrel

0.9
120

0.6

CrudePrices

USD/EUR

Source:Bloomberg,Blominvest

OilandGasintheMENARegion

2.5

OilPricesandGlobalDevelopments
Oilprices(AllCountriesSpotPriceFOBWeightedbyEstimatedExportVolume)
Fallingoilstocks
Demandfromdeveloping
countries
WeakUSdollar

160
HurricaneKatrina
Demandfrom
developingcountries

140

USDperbarrel

120

Releaseof
emergencyreserves
OPECproduction
increase

American
interventioninIraq

100

GulfofMexico
productionrecovery
ArrivalofAfricanoil

80

Global
economic
slowdown

IsraelLebanonconflict

Highoilstocks

HurricaneIvan

60
40
20

Averageannualprice

Dec08

Sep08

Jun08

Mar08

Dec07

Sep07

Jun07

Mar07

Dec06

Sep06

Jun06

Mar06

Dec05

Sep05

Jun05

Mar05

Dec04

Sep04

Jun04

Mar04

Dec03

Sep03

Jul03

Apr03

Jan03

Weeklyprice

Source:Blominvest

USDperbarrel

CrudePricesvsPolitical Unrest

160
Iran/Israeltensions
140
USinterventionin
Iraq

120

100

IsraelLebanon
conflict

VenezuelanStrike
Dec16,prodfalls
to630,000

80
Nigeriastrike
60

EndofIranIraqwar
(19801988)

GulfWar
9/11

40
AsianEconomicCrisis

Russiainvades
Georgia

20

IsraelandPalestineconflict
Dec07

Dec05

Dec03

Dec01

Dec99

Dec97

Dec95

Dec93

Dec91

Dec89

Dec87

Dec85

Dec83

Source:Blominvest

16

April2009

CrudepricesversusOPECannouncement

USDperbarrel
160
140

OPECincreasedprodby
2.5mnbpdbetweenApr
91&Oct92

Productionat20yrlow:13.7mnbpdin
Jun1986
SaudiArabiaincreasesprodby3.8mn
bpd

120

OPECincreases
prodby2.8mn
bpdin2002

OPECincreases
productionby1mnbpd
in2005
OPECabandons$22
$28priceband

100
OPECincreasesquotato27.5
mnbpdeffectiveJan
98,underestimatesimpactof
Asianfinancialcrisis

80
OPECincreasesprodby2
mnbpdin1989

60

OPECcutsproduction
by3.5mnbpdin2001

OPECcutproductionbycut
1.2mnbpdbyApril98

40
20

OPECcutsprodby4.2mn
bpdbetweenSep2008&

Mar08

Apr07

May06

Jun05

Jul04

Aug03

Sep02

Oct01

Nov00

Dec99

Jan99

Feb98

Mar97

Apr96

May95

Jun94

Jul93

Jul92

Aug91

Sep90

Oct89

Nov88

Dec87

Jan87

Feb86

Mar85

May83

Apr84

Source:OPEC,Blominvest

CrudeOilpricesvs.Production/Supply disruptions
160
HurricaneKatrina: Atleasttwenty
offshoreoilplatformswere
missing,sank,orwent
adrift,accordingtotheUSCoast
Guard

140
HurricaneIvan:PetrleosdeVenezuelaS.A.
temporarilycloseditsoilrefineryinCuraao,and
twoportswerebrieflyshutdown, causinga
delayintwooildeliveries.
TheValeroEnergyCorporationshutdownits
largestoilrefineryinAruba.
TheAtlanticLNGcompanyclosedexports.

120
100
80

Grangemouthrefineryshut
down:Thepetrolsupplyof
Scotlandwasseverelyaffected
bythestrike

60
ShellquitsNigeriaoilstations
Inresponsetointensificationof
militantresistanceagainsttheir
presenceintheoilrichNigerdelta

40
ExplosionatTexasRefinery:
Fourteenpeoplediedasa
resultoftheexplosionand
about70wereinjured

20

17

Dec08

Oct08

Aug08

May08

Mar08

Jan08

Nov07

Aug07

Jun07

Apr07

Jan07

Nov06

Sep06

Jun06

Apr06

Feb06

Dec05

Sep05

Jul05

May05

Feb05

Dec04

Oct04

Jul04

May04

Mar04

Jan04

Source:Blominvest

OilandGasintheMENARegion

MENAOilandGasIndustryStructure

The MENA region, even though endowed with large petroleum resources, is still far from achieving its full potential. While the region
holds 66% of worlds proven reserves of crude oil and condensate, it accounts for only 37% of the global oil output. Similarly, it holds
46% of proven natural gas reserves, but contributes to only 17% of the total gas output.

3.1

ComparativeIndustryIndicators

SnapshotoftheOilandGasIndustryintheMENAregion

UAE

KSA

Bahrain

Oman

Kuwait

Qatar

Jordan

Lebanon

Egypt

TotalOilProduction(000barrelsdaily)
2,570** 9,260**
48.6
760** 2,570** 850**
N/A
N/A
630**
F
F
F
F
TotalOilConsumption(000barrelsdaily)
450
2,154
35
72
276
95
112
106
651
TotalGasproduction(Bncubicmeters)
49.2
75.9
10.9*** 24.9***
12.6
59.8
N/A
N/A
46.5
TotalGasconsumption(Bncubicmeters)
43.2
75.9
10.9*** 12.1***
12.6
20.5
N/A
N/A
32
Refinerycapacity(000barrelsdaily)
620
2100
249
85
905
200
90
N/A
726
R/PRatio(Oil)
91.9
69.5
N/A
21.3
*
62.8
N/A
N/A
15.7
R/Pratio(Gas)
*
94.4
7.4
28.6
*
*
N/A
N/A
44.3
*Morethan100yrs**2008figures***2006figures,F=Forecastvalue
Source:BPStatisticalReviewWorldEnergy2008,EIA,OPEC,Blominvest

3.2

KeyOilandGasProducingCountriesintheMENARegion

Population:75.05mn
GDPpercapita*:USD2,109
ProvedOilReserves:4.1bnb
ProvedGasReserves:2.06tcm

Population:24.24mn
GDPpercapita*:USD21,221
ProvedOilReserves:264.2bnb
ProvedGasReserves:7.17tcm

Population:3.4mn
GDPpercapita*:USD46,397
ProvedOilReserves:101.5bnb
ProvedGasReserves:1.78tcm

Kuwait

SaudiArabia

Population:0.76mn
GDPpercapita*:USD25,245
ProvedOilReserves:0.1bnb
ProvedGasReserves:0.09tcm

Population:1.2mn
GDPpercapita*:USD106,460
ProvedOilReserves:27.4bnb
ProvedGasReserves:25.6tcm

Bahrain

Egypt

Qatar
UAE
Oman

Population:4.49mn
GDPpercapita*:USD56,667
ProvedOilReserves:97.8bnb
ProvedGasReserves:6.09tcm

Population:2.7mn
GDPpercapita*:USD21,704
ProvedOilReserves:5.6bnb
ProvedGasReserves:0.69tcm

Source:Blominvest

18

April2009

MENAIndustryScenario

4.1

FalloutoftheGlobalEconomicWeakness

There is little doubt that 2008 will go down in the annals of history as a unique year, particularly for the oil-producing nations. The
rising oil prices in the first half of the year opened up a host of opportunities for new ventures, both within the region and beyond.
However, the economic weakness and the financial crisis that followed have been so widespread that the MENA region did not
escape unharmed. Plummeting oil prices amid rising concerns over the global economic outlook, and the ensuing drop in global oil
consumption have taken their toll on the region. Project investments in the sector have seen significant scale downs, given the
difficulty of accessing both equity and debt funding. Finally, the crisis has had negative implications on government spending and
domestic investments in the MENA countries, as most governments seem to have factored in a USD 60 or higher oil price in their
fiscal budget plans.

4.1.1 NeartermDropinGlobalOilDemand
The high oil prices in the second and third quarters of 2008 hit consumer demand hard. With governments worldwide facing fiscal
constraints on their ability to provide subsidies, consumers responded by cutting back on fuel usage and personal spending.
Simultaneously, the financial sector took a beating following the property market slump and the credit crunch, sending shockwaves
across all sectors of the economies worldwide.

According to the EIA, global oil consumption remained largely unchanged in 2008 compared to 2007, but is expected to fall by
800,000 bpd in 2009, before rebounding by 880,000 bpd in 2010. The OECD nations have suffered the worst of the global
weakness. The estimated consumption decline in OECD countries is likely to offset any growth in the non-OECD regions, particularly
China, Middle East and Latin America. Oil consumption in the OECD countries declined by an average 1.4 mn bpd in 2008, with a
further decline of 1.3 mn bpd expected in 2009. In the US, total consumption of petroleum products in 2008 was down by 5.7% or
1.2 mn bpd. Oil consumption in 2009 is estimated to drop by a further 2% or 400,000 bpd, due to the continued economic weakness.
However, natural gas consumption increased by 0.7% in 2008, largely due to a 5.8% increase in heating degree days1. Demand is
expected to fall by 1% in 2009, before rising by 0.7% in 2010.

WorldOilConsumptionGrowth

WorldOilConsumptionGrowth(Trend)

1.2
0.4
0.0
0.4

1Q09E 2Q09E 3Q09E 4Q09E 1Q10E 2Q10E 3Q10E 4Q10E

0.8
1.2
1.6
OtherCountries

China

US

Source:EIA,Blominvest

million bpd

millionbpd

0.8

3.0
2.5
2.0
1.5
1.0
0.5
0.0
0.5
1.0
1.5

2002 2003 2004 2005 2006 2007 2008 2009E 2010E

OtherCountries

China

US

Source:EIA,Blominvest

Thenumberofdegreesperdaythatthedailyaveragetemperature(themeanofthemaximumandminimumrecordedtemperatures)isbelowabasetemperature,usually65degrees
Fahrenheit,unlessotherwisespecified.Usedtodetermineindoorspaceheatingrequirementsandheatingsystemsizing.TotalHDDisthecumulativetotalfortheyear/heatingseason.
ThehighertheHDDforalocation,thecolderthedailyaveragetemperature(s).

19

OilandGasintheMENARegion

WorldOilConsumptionGrowth
0.8
0.4
millionbpd

A notable point from various demand estimates is the

projected increase in y-o-y consumption growth in 2010,
albeit modestly, after the expected decline in 2009. The two
factors that seem to be driving this are the low base in 2009
and more importantly, the assumption that the world
economy will rebound in 2010 after a recessionary 2009.
This implies that the demand slump is a rather near-term
event with positive results expected after the next 12-18
months. Another notable point is that the global economic
weakness and the negative energy demand scenario is
likely to be largely concentrated in the OECD countries.

0.0
0.4

2008

2009E

2010E

0.8
1.2
1.6
OECD

NonOECDAsia

FormerSovietUnionandEasternEurope

Other

Source:EIA,Blominvest

4.1.2 FundingChallenges
While low demand is expected to be a rather short-term obstacle, the constraint on access to funds is likely to have longer term
consequences. The overall industry figures for project funding indicate an almost equal share of equity and debt funding. However,
within the industry supply chain, there are differences in the funding structure. Equity investments are more prominent in upstream
and midstream projects, whereas debt is the preferred funding mode in downstream projects. While the largely equity-financed
upstream segment may not face immediate funding issues, the highly leveraged downstream segment may get squeezed during the
credit crunch.

ProjectInvestments:SourceofFunding

OilSupplyChain
Upstream
Midstream
Downstream
GasSupplyChain
Upstream
Midstream
Downstream
PowerLink
Generation
Total

Investments
(USDbn)

79
11
153

62
24
79

112
520

Proportion
(%ofTotalInvestment)

15%
2%
29%

12%
5%
15%

22%
100%

Equity

Debt

100%
100%
35%

90%
100%
40%

25%
54%

0%
0%
65%

10%
0%
60%

75%
46%

Source:APICORP

With the current credit crisis, the funding burden may increasingly shift toward equity, thus posing additional risk to project sponsors
and shareholders. Credit spreads for the MENA region have widened sharply in the last two years, and have undergone a more
severe expansion in the last few months. This reflects the reduced risk appetite of lenders (including financial institutions) and
implies higher borrowing costs for project sponsors. Borrowing costs aside, the spread dynamics also raise the more fundamental
issue of the sheer availability, or lack thereof, of debt funds.
Further, not all countries in the region have a favorable sovereign rating. Of the sixteen petroleum producing countries in the MENA
region, only seven are rated investment grade. The most recent rating change happened in January 2009, when Moody's Investors
Service downgraded its sovereign rating outlook for Bahrain from stable to negative because of the impact of falling oil prices.
However, Lebanon has been an exception with Moodys raising its sovereign rating outlook from stable to positive in December
2008, citing the resilience of Lebanons public finances to external shocks.

20

April2009

SovereignRatingsasofDecember2008
Standard&Poor's
AA/Stable/A1+
AA/Stable/A1+
AA/Stable/A1+
AA/Stable/A1+
A/Stable/A1
A/Stable/A1
B/Stable/C
BB/Stable/B
BB+/Stable/B

EmergingMarketSpreads
800

EIU
BBB/Stable
A/Negative
A/Stable
A/Stable
A/Negative
A/Stable
CCC/Stable
B/Stable
BB/Stable

600
basis points(bps)

Country
SaudiArabia
UAE
Qatar
Kuwait
Bahrain
Oman
Lebanon
Jordan
Egypt

400
200
0
2003

2004

2005

Source:S&P,EIU,Bloomberg

2006

2007

2008

JPMorganEMBI

Source:Bloomberg,Blominvest

4.1.3 MENACountries:FiscalBudgetsandImpactofCurrentOilPrices

%ofGDP

Most MENA countries reacted to the oil price spike in 2008

by boosting government spending on new oil & gas projects
FiscalBalance OilPriceScenarios
as well as on other development initiatives focused on
infrastructure and economic diversification. However, the oil
20
price slump has dramatically altered the budgeted spending
plans in 2009 for most governments. It is now widely
expected, both by analysts and government agencies, that
10
oil prices in the range of USD 40-50 will cause problems for
most government planning. The large surpluses that these
economies enjoyed in the recent past could potentially turn
0
into deficits if oil prices remain at current levels, and
AbuDhabi
Kuwait
SaudiArabia
Bahrain
governments stick to their current spending plans.
10

Most estimates, including those of the IMF and rating

agencies like Fitch, indicate that oil prices will need to cross
20
USD 50 (crude prices settled at USD 45 in mid-February
2009) for Saudi Arabia's fiscal balance to break even in
USD40
USD50
USD60
2008-2009. While some economies such as Saudi Arabia,
UAE and Kuwait are better placed, the situation is not as
Source:FitchRatings,Blominvest
favorable for the other countries in the region. According to
the IMF, Oman and Iran will break even at oil prices of USD
77 and USD 90, respectively, but this seems an unlikely scenario given the current price levels. On the other hand, the UAE faces a
unique situation. Some analysts opine that while UAEs government finances will breakeven with oil priced at around USD 25,
Dubais private debt, used to fund its massive infrastructure and real estate projects, could become a government liability. In this
case, oil prices have to average in the range of USD 60-USD 70 for fiscal breakeven.

PublicFinancesandBreakevenOilPrices

AbuDhabi
Kuwait
SaudiArabia
Bahrain

BudgetBalance(%ofGDP)
2007
25.5
40.6
16.9
2.2

2008E
31.3
27.8
24.5
5.2

2009F
6.6
13.6
4
2.2

BreakevenBrentPrice(USD)
Current
45
45
45
45

2008E
31
42
50
74

2009F
40
NA
54
70

Source:Fitch

21

OilandGasintheMENARegion

4.2

ScaledownofCapacityAdditions

The obvious response to the slowing global demand has been to cut short-term output. However, the other notable trend is the
unwillingness to add new capacity for future growth, especially in the downstream segment. The concerns faced by the industry
include both uncertainty on investment returns given the low oil price, and the uncertainty on how long the current recessionary
period will last. The latter is significant since companies will not want to be faced with unutilized capacity in a low demand
environment.

4.2.1 CuttingOutputToManagePrices
In recent months, the OPEC has taken steps to stabilize prices by reducing production

On October 24, 2008, in an unscheduled meeting, OPEC decided to cut oil production by
5% or about 1.5 mn bpd from the previous levels of 29 mn bpd, to stem the collapse in
prices. The conference noted that the market was oversupplied with crude for some time
and forecasts indicated that the price fall will deepen despite the approach of winter in the
Northern hemisphere.

Then, on the 17th of December 2008, OPEC convened an extraordinary meeting in Oran,
Algeria. The conference determined that crude volumes entering the market remained
well in excess of actual demand, demonstrated by the fact that OECD crude stocks were
well above their five-year average and were expected to continue rising. The conference
also noted that, if unchecked, prices could fall to levels that may jeopardize the
investments required to guarantee adequate energy supplies in the medium to long-term.
The conference agreed to cut production by 4.2 mn bpd with effect from 1st January
2009. It is important to note that, during the conference, member countries had strongly
emphasized their commitment to meet their individually agreed upon production targets.
However, according to data from Middle East Economic Survey (MEES), OPEC
production in January 2009 stood at 26.5 mn bpd as opposed to the target of 24.8 mn
bpd. Only Saudi Arabia seems to have strictly adhered to the production cut schedule.
There have been similar instances in the past that clearly demonstrate that maintaining
supply discipline even within the OPEC remains a challenge.

OPECProductionCutTargets

SaudiArabia
Iran
UAE
Kuwait
Venezuela
Nigeria
Angola
Libya
Algeria
Qatar
Ecuador
Total

bpd
466,000
199,000
134,000
132,000
129,000
113,000
99,000
89,000
71,000
43,000
27,000
1,502,000

%oftotal
cut
31%
13%
9%
9%
9%
8%
7%
6%
5%
3%
2%
100%
Source:OPEC

4.2.2 UnwillingnesstoAddCapacityintheCurrentEnvironment
As per APICORP review, the potential MENA energy capital
investments requirements over the 2009-2013 period are
estimated at USD 650 bn. However, many projects appear
to stand postponed beyond the five-year horizon or have
simply been shelved. As a result, the projects that are
actually in progress amount to USD 520.0 bn or 80% of the
above potential. The ongoing credit crisis has dented the
investment outlook. Over the past five years higher project
costs have continued to be the main cause of the scaleback in proposed investments. However, given the drop in
demand for oil services work in the past six months, the
above trend may no longer continue. According to the
APICORP index, the cost of the average energy project has
risen three times since the first review in 2003. This
escalation is largely due to the cost of Engineering,
Procurement and Construction (EPC), which represents
70% of the total cost of a typical large scale energy project.
The key contributing factors to EPC inflation have been
rising prices of factor inputs, higher contractor margins and
the systematic pricing of project risks.

22

TotalMENAProjectsinOilandGassupply chain
200

ApparentlyShelved

ActuallyinProgress

160
120
80

40
0

OilSupplyChain

GasSupplyChain

Source: APICORP

April2009

In Saudi Arabia, 13% of the potential USD 163

bn energy investments in the sector have been shelved
or postponed beyond the five-year review period.
Further, the kingdom is not taking on any new contracts
for offshore drilling rigs that have expiring contracts.
Examples of large project cancellations especially in
Saudi Arabia include the following:
a) According to a Reuters report, Saudi Aramco
cancelled a planned re-development of the
Dammam oil field due to cost concerns.
b) French oil major Total said on November 12th,
2008 that the award of construction tenders for
its USD 10 bn Jubail refinery JV with Saudi
Aramco has been delayed because of
uncertainties in global financial markets.
c) There have been delays in the refinery JV
between Aramco and US major ConocoPhillips
at Yanbu.

Bahrain
Oman
Egypt
Kuwait
UAE
Qatar
Iran
Saudi
0

NumberofProjects
(Confirmedvs.Postponed/Shelved)

50
TotalConfirmed

100
150
Postponedorshelved

200

Source:APICORP

In Qatar, the moratorium in place on further development of its North Field gas reserves and the resulting gas
export policy pause (in this review no new LNG scheme is expected beyond 77 Mt) have put its shelved and postponed
projects at an even higher 37% of potential investment capital requirements of USD 76 bn.

Project Cancellations Largely Concentrated in the Downstream Segment

One important trend emerging from the shelved projects schedule is the severity of the scale-downs in investments in the
downstream segment vis--vis the upstream segment. Clearly it appears that given the subdued demand outlook, the refinery
segment that caters to the end demand for oil, has witnessed a higher proportion of projects that are being postponed or shelved.
This is mainly because of decline in global demand, the threat of an oversupply of fertilizers, petrochemicals & refined petroleum
products, and the decline in margins because of reduced prices and fixed feedstock prices. Furthermore, downstream project
investments are highly leveraged and with the current credit crunch, both the availability and the cost of debt funds is a rising
concern. More specifically, a much higher proportion of shelving has been observed in the gas and ethane based petrochemical
sector. The latter is shown by a report by consultants Wood Mackenzie published in early November, as it concluded that only 30 of
the 160 refining projects announced since 2005 will now go ahead. However, we note that some of the delays are largely due to
renegotiations on the pricing front, given that the associated costs for oil services has dropped substantially in the past few months.

Upstream investments, primarily involving E&P projects, have continued on track, as countries realize that finding new reserves is
critical to the long-term sustainability of their oil and gas industries. The industry relies on internal accruals for funding
upstream/midstream activities, while external equity funding drives the more risky downstream investments. Evidently, the risk
appetite of equity investors has soured in the volatile markets, thereby impacting downstream activities. However, the oil companies
themselves seem to be facing a more tolerable risk climate, which possibly explains their continued investments in the upstream
segment.
OilpricesversusProjectDevelopmentandCancellation

USD
160

Manifaoilfielddevelopment
awardedtoItaly'sSnamprogetti
SaudiAramco
cancelledacontract for
thedevelopment of
theManifaoilfieldthat
itawardedtoItaly's
Snamprogetti,and
also itwillretender
thecontract

140
SaudiAramcoinvitebids
for $10bnManifa
developments

120
100

AccordingtoTotal,awardof
constructiontendersforitsUSD10
bnJubailrefineryJVwithSaudi
Aramcoisdelayedbecauseof
uncertaintiesinglobalfinancial
markets.

80
60
40

ConocoPhillipsannounced thedelay
ofbidding fortheconstruction ofa
plannedoilrefineryatYanbufor
USD 10bn.

20
0
Jan/07

Apr/07

Jul/07

Oct/07

Dec/07

Mar/08

Jun/08

Sep/08

Dec/08

Source:Oil&Gasinsight,Blominvest

23

OilandGasintheMENARegion

4.3

ProjectInvestmentsandCompetitiveness

As discussed in the previous chapters, there have been a host of project cancellations, delays and investment cutbacks as a result
of falling oil prices. While cutting back on projects might prove positive in the short-term, the outcome may not be favorable from a
long-term perspective. It can be argued that only the excess undertakings of the past are being cut in the current environment.
However, if the current trend of cutting back on proposed investments persists (and this seems rather likely under current market
conditions), the argument may not hold well anymore. Historical as well as regional experiences tell us that under investment in the
sector will be detrimental to the industry for years to come. The availability of investment funds does not seem to be the major
challenge. It is the uncertainty of returns in the current environment that seems to be the major concern for both the industry and
investors.

4.3.1 HistoricalLessons:InvestmentsCriticaltoSustainability
In the past, countries that held back investments into the Oil and Gas sector witnessed a precipitous decline in production that has
taken years to recover from. Venezuela and Mexico are two countries used here as examples to highlight this point.
The Venezuelan economy depends to a great extent on the performance of the Oil & Gas sector, which drives around 80% of
exports and contributes to 40% of government income. The sector witnessed a drastic decline in production volumes starting in 1972
and lasting until 1986. During this period, average daily production declined by 43%, a fall that was attributable to the low level of
investments that were made into the sector. As per the Energy and Mines Ministry (MEM), the average annual investments in the
petroleum sector (at constant prices) during the late 1960s and 70s were almost half the level of those made in the fifties. Clearly,
this led to a lagged impact on production starting in the mid-seventies, a problem that was compounded by the oil shocks in 1973
and 1979. While the level of investments was aggressively increased starting in 1978, it was not until 1987 that the decline in y-o-y
production growth was stemmed. Even so, it took almost thirty years for the country to bounce back to the peak production level of
1972.

60

60

50

50

40

40

30

30

20

20

10

10

4000

OilProduction Venezuela

3000
'000bpd

70

years

billionbarrels

OilProvenReserves&R/Pratio Mexico
70

2000
1000
0

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

Source:BPStatisticalReview2008,Blominvest

24

Source:BPStatisticalReview2008,Blominvest

April2009

A similar and a more recent example is Mexico. The countrys crude oil reserves have declined from 47.8 bn barrels in 1997 to 12.2
bn barrels in 2007, which is about a 10-year supply remaining at the current production rate. In the past twenty years, the state
owned Petrleos Mexicanos or Pemex, which is the monopoly player, did not invest significantly in finding new reserves. The
companys profits fuel government income, but limited resources are invested back into exploration activities. While offshore drilling
in the Gulf of Mexico offers some promise the availability of capital to finance new ventures is constrained. Industry estimates peg
the exploration capital required at USD 50 bn over the next 10 years. But there are obstacles to foreign investments in oil that
hamper progress on this front. As recently as last year, Pemex announced that with no new finds, the countrys oil reserves may run
out within seven years.

We note that oil is a capital intensive sector with projects having a long gestation period and hence the impact of any under or over
investments is likely to have long-term impacts on the industry. Project investments are necessary not just to maintain
competitiveness but to address the more basic question of sustainability as well.

4.3.2 AvailabilityofFundsmaynotbetheMajorIssue,UncertaintyofReturnsIs
While access to debt funding may have taken a hit, we believe that the equity funding tap has not dried up. Governments, sovereign
wealth funds (SWF) and oil producing companies in the region all have adequate liquid balances for funding new projects. For
instance, Dana Gas in its preliminary results release for 2008, disclosed cash and bank balances of AED 789 mn, reflecting a
healthy liquidity position. An early 2008 estimate pegs the assets of SWFs at about USD 3 trillion. However, the long term returns of
investments made in the current environment are yet to be evaluated.
We notice that some of the major re-scheduling and re-bidding processes are not meant to completely scale back planned
investments but are merely cost renegotiation procedures to reflect the less favorable investment environment. According to news
reports, Saudi Arabia has asked the four companies that already submitted their bids for the Karan gas field development project to
re-submit bids that take into account the current economic scenario. This may result in savings of around USD 1 bn for the oil major.
Similarly, Saudi Arabia announced that it had canceled a contract for the development of the Manifa oil field and awarded to Italys
Snamprogetti, in July 2008. The sovereign said it will re-issue the contract to reflect lower costs.

4.3.3 UpstreamProjects
Despite the challenges faced by the industry, the MENA countries are continuing to bring in upstream developmental projects for a
number of reasons. First and foremost, the demand from emerging economies, especially China and India continues to be strong.
Secondly, based on their budget plans, the governments in the MENA region seem to be forecasting a rebound in oil prices to USD
75-80. Hence, the rationale for returns on new project investments might be strong at these higher price levels. Nevertheless, if oil
prices continue to remain weak through the first half of 2009, then further delays and cancellations in the upstream sector cannot be
ruled out. Third and most importantly, the low exploration costs in the region imply that Global Oil majors may now turn their
attention to exploration and drilling in the Middle East region as opposed to the US & Canada where the cost of exploring oil is much
higher. Furthermore, the higher cost exploration that made economical sense when oil prices hovered over USD 100 now no longer
holds well.

Recentcommitmentstoupstreaminvestments
Project
NorthernFields
Deeponshoregasexploration
Block70(onshoreMaribbasin)
Offshorefields
OffshoreExplorationlicense

Country
Kuwait
Bahrain
Yemen
AbuDhabi
Qatar

Notes
Newcapacitysanctioned
BiddingProcessin2Q09
Agreementtofarm
MOUforE&P
Awardedoperatorship

Companies
NA
viaNOGA
Total,KNOC
ADNOC,RDS
Wintershall

Source:VariousNewsReports,Blominvest

SaudiArabiaandUAESpotanOpportunity
Saudi Aramco is aggressively expanding upstream capacity, to the tune of estimated net additions of 2.45 mn bpd during the 20062011 period. Amid falling oil prices, the company launched a review of all its long-term projects in November 2008. However, as
stated by Executive Director, Khaled al-Buraik, the review is largely aimed at revisiting the economics of the individual projects with
their vendors and partners rather than cutting back on any of the proposed plans. However, the review is likely to result in some
delays while the financials are renegotiated.

Abu Dhabis approach has been different and more innovative. It has left its old structures in place, with Abu Dhabi National Oil
Company (ADNOC) and its affiliates working with foreign equity partners in the local markets. But the country has used three
government-owned entities, International Petroleum Investment Co (IPIC), Mubadala Group and TAQA (Abu Dhabi National

25

OilandGasintheMENARegion

Energy), which are involved in buying assets in both regional and global markets, in the upstream segment and in related areas
including power generation.

GrowthinRegionalCompanies
The governments of the MENA region have been investing billions of dollars in upstream ventures. They have historically preferred
to work directly with service firms rather than with the oil majors because they could develop projects without ceding equity stakes in
the new ventures. Firms like Schlumberger, Halliburton and Baker Hughes, retained by the leading national oil companies (NOCs)
on long-term contracts, have bulging order books across the region. Schlumberger and Halliburton were awarded drilling contracts
worth USD 1 bn in early 2008 by Saudi Aramco for the development of the 0.9 mn bpd Manifa heavy-oil field.
Such enticing ventures have not gone unnoticed by the Gulf's cash-rich investors. Eager for new avenues to deploy their capital,
leading regional investors are focusing on oilfield services. Two large services companies were launched during the second half of
2008. One is Menadrill, started as the drilling services arm of the Bahrain-based First Energy Group, which plans to spend up to
USD 1 bn on new rig orders to build up a drilling fleet targeted at the Gulf offshore. The other is a joint venture between UK's
Petrofac and a subsidiary of the state-backed Abu Dhabi investment vehicle Mubadala Development, which will provide a full range
of engineering, design, procurement and construction services for onshore oil and gas schemes.
(Note:PleasereferAppendixforthelistofproposedUpstream/DownstreamexpansionprojectsintheMENAregion)

4.3.4 DownstreamProjects
The refining segment of the industry in the MENA region is mostly dominated by government-owned companies. However, many
countries are now opening the sector up to private oil companies. The region has abundant indigenous crude oil reserves but very
little by way of refining capacity, so there is an effort underway to rapidly expand refining capacity with export as target market.
Capacity additions are mandatory now, as a result of high demand for petroleum products, especially from developing economies.
Furthermore, the marketability for heavy crude which is produced in the MENA region has diminished given the growing demand for
lighter products. This has contributed to refinery expansions as well in the Middle East.

GrowthRateinRefiningCapacity(%)

The largest refineries in the region include Ras Tanura Refinery, Mina Al-Ahmadi Refinery, Abadan Refinery, Rabigh Refinery and
SAMREF Refinery. The major players in the region are National Iranian Oil Refining and Distribution Company (NIOC), Saudi
Aramco, Kuwait National Petroleum Company (KNPC), North Refineries Company and Egyptian General Petroleum Corporation
(EGPC). Together these companies operate 43.8% of total refining capacity in the MENA region.

GrowthinRefiningCapacity intheMENARegion

(20022007)
30

Sizeofthebubble indicatesRefiningCapacity
25
Qatar,200

(in'000bpd)in2007

20

15

10
SaudiArabia,2100

Kuwait,905
5

Egypt,726

Oman,85 Bahrain,249
0

Jordan,90
2
3
8
13
18

UAE,620

10

Source:BPStatisticalReview2008,Blominvest

Between 2010 and 2012, a new refinery of 400,000 barrels per day capacity will be built at Yanbu followed by another facility at
Jubail. Both refineries will be used for exporting refined products. Kuwait is also planning a new refinery at Al-Zour with a capacity of
615,000 barrels per day. Iran and Qatar have also announced plans for setting up new refineries and expanding the existing ones.
The UAE is set to upgrade two oil refineries by end-2011 in order to meet rising domestic demand for refined products. According to
the IEA timetable for scheduled increase in global refining capacity, the two refineries to be upgraded are the Ruwais refinery in Abu
Dhabi, which is operated by Abu Dhabi National Oil Company (ADNOC) and the Jebel Ali refinery in Dubai, which is operated by
Emirates National Oil Company (ENOC).

26

April2009

Downstream investments in Saudi Arabia will enable Saudi

Aramco to refine its low gravity and high sulfur crude oil
domestically and to export high value products to end-users,
rather than relying on less certain international demand for low
quality crude oil. Its foreign downstream investments,
especially in the US, Korea, and China, will enable it to secure
substantial market share by devoting crude oil streams to its
own refining and distribution partnerships worldwide. Saudi
Aramco plans to increase the Kingdom's refining output by as
much as 60% over the next five years, with a refining capacity
target of around 3.4 mn bpd by 2011-12. Refining margins
however are expected to fall over the medium-term as
capacity increases and demand reduces with a number of
consuming countries facing economic slowdown. Aramco's
investment requirements will be substantial, given the scale of
expansion plans.

Source:APICORP,Blominvest

(OthersincludesBahrain,Jordan&Lebanon)
Although concerns over slowing global oil demand growth,
particularly in Asia, mean that export-oriented refinery projects in the Middle East are being postponed or shelved, refinery upgrades
and expansion projects designed to supply the domestic market are proceeding as local consumption of refined products continues
to rise.

4.4

NaturalGas:RobustDemand,butSupplyinQuestion

The demand for natural gas has been growing at a healthy rate, driven by factors such as a) recent high oil prices b) ecological
consciousness as gas is more environment-friendly and c) the growing electricity demand, electricity being a key end-user segment
for natural gas. The Middle East regions largest reserves do not translate into an equivalent production share in global supply.
Historically, natural gas in the region has been largely aimed at meeting domestic demand, and only two countries in the region,
Qatar and Algeria, were meaningful next gas exporters. With this trend likely to continue (given the current project plans) amid
growing global demand, worldwide supply may lag demand growth, thereby driving oil prices up in the near term.

4.4.1 DemandforGasBenefitsWhereOilPains
Global natural gas consumption recorded a CAGR of 2.9%
during 2002-2007. The Middle East recorded the highest
CAGR of 6.8% for the same period. During 2002-2007,
21.7% of the incremental demand for natural gas was
accounted for by the Middle East. Within this, Iran and
Saudi Arabia were the highest contributors to growth.
According to MEED, natural gas consumption in the region
is estimated to grow at 6.6% annually over the 2007-2012
period.
The basic demand for natural gas is driven by electricity
consumption, which has been increasing at a rapid pace.
According to MEED, around 59,000 MW of additional
electric power capacity is required in the region by 2015.
Over the last year, many consumers moved to the cheaper
gas alternative in a high oil price scenario. Environmentally,
natural gas is cleaner than oil and many countries offer
incentives for increasing gas usage.

GrowthinNaturalGasConsumption (CAGR20022007)

8.0%

6.8%
5.9%

6.0%

6.6%

6.4%

Africa

AsiaPacific

4.0%
2.0%
2.0%
0.5%
0.0%

North
America

S.&Cent. Europe& MiddleEast

America
Eurasia

Source:BPStatisticeview2008,Blominvest

4.4.2 MENAApproach:ConsumeGasandExportOil
The use of natural gas to satiate domestic demand and free up oil for export purposes has become a common trend in most
countries, especially those in the Middle East. The region as a whole consumes 84% of natural gas production internally. In
countries like Saudi Arabia, Kuwait and Iran, the entire gas production is consumed internally for energy needs. The trend is similar

27

OilandGasintheMENARegion

in Africa, albeit to a lesser extent. This could be due to the lower domestic energy requirements of Africa compared to the Middle
Eastern region (only Qatar and Algeria are significant net exporters of natural gas).

4.4.3 Iran&QatarHoldtheValve
Iran and Qatar account for 15.7% and 14.4%, respectively, of global natural gas reserves, and are next only to the Russian
federation in the global share of proven reserves. While Qatar is already a large net exporter of gas in the region, Iran has significant
growth potential and could go on to become one of the leading net exporters in the region.

Most of Qatars natural gas is located in the massive offshore North Field, which holds more than 900 tcf of proven
natural gas reserves and is the worlds largest non-associated natural gas field.

The most significant energy development project in Iran is the offshore South Pars field (called the North Field in
Qatar), which is estimated to have 450 tcf of natural gas reserves, or around 47% of Irans total natural gas
reserves.

Qatar began exporting LNG in 1997, and accounted for 14.5% of all LNG traded globally in 2007. Qatar is also part of the Dolphin
Project, which aims to connect its gas networks with the natural gas networks of Oman, the UAE, and create the first cross-border
natural gas pipeline in the Gulf Arab region. Qatari officials have targeted a production of 8.7 tcf by 2012 to support a) growing
domestic requirements, b) LNG export commitments c) exports through the Dolphin pipeline and several large scale GTL projects.

80%
60%
40%
20%
0%

Source:BPStatisticalReview2008,Blominvest

ProductionvsConsumptionofNaturalGasinMENA
12

billioncubicfeetperday

100%

DomesticOil&Gasconsumption as%ofproduction

84.1%

43.9%

28.6%
24.6%

MiddleEast
Africa

Oil
Gas

10
8
6
4
2
0

Source:BPStatisticalReview2008,Blominvest

TheproposedUSD7.4bnIranPakistanIndiapipeline

Source:EIA

However, the pace of investment in that sector Iran has been slower than in Qatar. Major LNG projects, such as the Pars LNG &
Persian LNG projects, which were originally slated for startup in 2011 and 2012, respectively, have been delayed beyond 2015.
Lately, CNOOC (The China National Offshore Oil Corp) and Malaysias SKS have held talks with the country but with no firm
commitments. The highly publicized USD 7.4 bn Iran-Pakistan-India (IPI) pipeline has been delayed from an original startup in 2011
due to disputes over the cost of the shipments. Oman has also discussed the possibility of importing natural gas from Iran, though
there are no firm plans on building a pipeline. Iran has contracted with the Swiss company EGL to export initial volumes of

28

April2009

approximately 40 mcf/day to Europe starting in 2009 and to be expanded to 400 mcf/day by 2012. Iran has construction plans that
will start in 2010 for a USD 12.2 bn pipeline connecting the country to the European Union through Turkey.

PlannedLNGProjects

Project
Country StartDate
Capacity KeyDestinations

(mmtpa)

YemenLNG
Yemen
2009
6.7 Europe,S.Korea

Qatargas2
Qatar
2009
15.6 China,Japan,UK

RL3
Qatar
2009
15.6 China,Europe,S.Korea,US

Qatargas3
Qatar
2010
7.8 US

Qatargas4
Qatar
2010
7.8 China,US

Source:MorganStanley

4.4.4 Investments:NaturalGasLagsOil
Although the Middle Eastern region boasts 41.3% of total gas reserves, Russia grabs the top production slot, accounting for 20.6%
of worldwide gas production. Qatar and Iran, by way of example, account for 30.1% of worldwide reserves, but only contribute to 6%
of world gas production. Clearly the gas segment of the Middle East region is operating well below its potential. There have been
limited investments in the gas industry as compared to the money that has gone into oil. The economic incentive for investments in
gas has been minimal because of the highly subsidized end-consumer prices in many countries. For this reason, even partnerships
between NOCs and IOCs have been minimal. Further, the transportation of gas through dedicated pipelines poses an operational
challenge, which is not the case for oil where transportation is mainly via tankers.
The gas sector is in need of critical investment because of the higher complexity involved in extracting gas in the region. Middle East
gas is deeper and harder to extract than gas in North America in addition to other country specific issues that have dampened
investments in the industry:

In Qatar, substantially fewer commitments have been made to the large number of projects that were signed
earlier in the decade. A five-year moratorium on projects using North Field Gas was announced in 2005 and is set
to be extended, potentially to 2013.

Despite significant opportunities in Iran, most of the gas export projects have been delayed or no firm
commitments have been made to projects signed. The Pars and Persian LNG projects initially stated for launch in
2011 and 2012, respectively, are now delayed post 2015.

In Kuwait, the low gas reserves imply that production may not be enough even to satiate growing domestic
demand. According to the Chairman of KOC, Kuwait is in negotiations with Qatar to import about 500 mmcf/d of
gas on a daily basis during summer months, which see increased power outages.

In Saudi Arabia, EIA estimates that approximately 13% of total production costs are lost due to venting, flaring,
reinjection and natural processes. Further, all the new gas investments have been scaled down to meet only the
domestic requirements.

UAEs gas reserves require additional capital expenditure and time to develop in any significant manner, since
current production is barely enough to meet domestic requirements. In early 2008, Shell signed a 15-year sale and
purchase agreement to supply LNG into Dubai from the Qatargas IV project via the Jebel Ali port area of Dubai.

4.4.5 SupplyYettoCatchUpWithDemand
The gas industry faces a unique challenge. While investments in the sector were relatively unattractive during times of low oil prices,
high oil prices last year led to a shift in consumer demand to gas as a cheaper alternative. This in turn pushed up gas prices through
the year, increasing the attractiveness of investing in the sector. But, the current low oil prices once again imply that gas investments
are relatively less attractive. Clearly, the current investment levels in the sector in most MENA countries indicate a focus on securing
domestic supply rather than considering international export projects. Hence, it is likely that in the near-term, global supply of gas
may lag the growing worldwide demand, driving up natural gas prices.

29

OilandGasintheMENARegion

NaturalGasPrices(NYMEX Henryhub)

NaturalGasvsCrudeOilprices

USDperbarrel

USD/mmbtu

12
8
4
0

Source:EIA,Blominvest

30

20

125

16

100
75
50

USDpermmbtu

16

150

12
8

25

Source:EIA,Blominvest

April2009

4.5

NOCs:TorchbearersoftheIndustryintheMENARegion

4.5.1 ResourceNationalismandProtectiveRegulations
In most of the MENA countries, exploratory and upstream development rights are largely restricted to the state owned entities. Saudi
Aramco, for example, holds the monopoly over E&P activities in Saudi Arabia. Furthermore, it is mostly the consortiums led by state
owned NOCs that receive rights for explorations. Host governments seem to want to maintain their sovereignty and control over
what is a depleting resource, and as part of that, they have made access to foreign investment more stringent as well. While Aramco
may have the financial muscle to invest billions of dollars in new production projects over the next 10 years, NOCs in other countries
do not have the same means. Reforms to allow greater access to private foreign capital are therefore on the agenda of a few
countries such as Nigeria, which is planning to restructure its national oil companys joint ventures with Western oil companies.
However, most oil-rich nations do not seem to be considering similar reform plans.

4.5.2 IOCs:CatalystsforGrowth
Tie-ups and alliances have been a major driving force
behind the industrys development for a long time.
Players in this industry can broadly be classified into four
groups: resource-holding National Oil Companies
(NOCs); resource-seeking NOCs; International Oil
Companies (IOCs); and Service Companies. In the
MENA region, resource-holding NOCs are the most
significant and have historically driven partnerships with
IOCs, which typically provide them with technology,
equipment and know-how with respect to oil exploration.
These kinds of deals allowed the NOCs to maximize
returns from their oil fields, and the IOCs to secure longterm prospects, which helped them strengthen their
competitive position as a result of higher reserves under
management.

IOCproductionintheMiddleEast
(as%ofTotalProduction)
60%

40%

42%
36%
27%

20%

16%

33% 31%

24%
16%

18%
11%

20%

16%

0%

2007

14%
11%
4%
5%
3%
0% 1% 1%

2012E

Source:MorganStanley,Blominvest

The market trends however are changing. With increased awareness about the importance of oil, NOCs are moving away from
sharing resources and are changing the nature of their alliances. The role of their partners has been gradually shifting from being
development-based to a more service-oriented one, thereby triggering competition between IOCs and service companies. With
NOCs now being able to strike contracts on more favorable terms, there is a chance that existing contracts may be renegotiated.
According to a November 2008 report on oil and gas by Morgan Stanley, the renegotiation of the ADCO and ADMA concessions
between BP and Abu Dhabi is a case in point.

Natureofpartnerships
NOCs
Experienceindevelopingtheir
countriesreservoirs
Establishedexportrelationships

MajorNOCIOCPartnerships
IOCs
Complextechnology
Projectmanagementskills
Accesstonewmarkets
Humancapital

Source:RANDCorporation

The most important IOCs in the region are Exxon and Total,
with around 16% of total production located here. Other
players include RD Shell, BP and Maersk.

Project

Country Field

MajorIOCPartners

PDO
Suneinah
DolphinGas
PearlGTL
AlKha
AlShaheen

Oman
Oman
Qatar
Qatar
Qatar
Qatar

Production
('000bpd)
Oil/Gas 600
Oil/Gas 50
Gas
345
GTL
320
Oil
75
Oil
50

ADCO
Upper
Zakum

UAE

Oil

RDS34%,TOT4%
OXY65%
TOT25%,OXY25%
RDS100%
Maersk100%
Maersk100%
BP/XOM/RDS/TOT
all10%
XOM28%,INPEX
12%
BP15%,TOT13%,
INPEX12%

1400

UAE
Oil
500
Countries that have been active recently in inking deals with
foreign oil companies include Qatar and Saudi Arabia. Qatars
ADMA
UAE
Oil
500
Pearl Gas to Liquids project, developed under a Production
Sharing Agreement between Qatar Petroleum and Royal
Source:Blominvest
Dutch Shell, is its largest energy project ever and also the
worlds largest integrated GTL project; Saudi Aramco, less enthusiastic to allow foreign companies into its upstream oil market,
concluded four joint ventures with Shell, Sinopec, Lukoil, and the ENI-Repsol consortium to develop a mega gas project.

31

OilandGasintheMENARegion

4.6

InherentStrengthsoftheMENARegion

The MENA region possesses certain inherent strengths, which to an extent make it partly resilient to the current macro economic
downturn and the slump in petroleum products demand worldwide. Foremost, amongst these are the underlying oil & gas resource
base in the region that translate into low exploration costs. Secondly, the strong domestic structural factors, such as a growing
younger population and rising energy consumption are another major strength to the region. The aforementioned combined, are
likely to result in a continued growth in domestic oil demand and a higher-than-world-average overall economic growth . The regions
banking system is also more resilient to the US subprime mess, partly because of regulatory restrictions on foreign investments, so
the financial health and balance sheet strength of regional banks continues to be strong.

4.6.1 NaturalResourceAdvantage
The MENA region is a highly concentrated location for oil and gas resources, with the hydrocarbon sector forming an important
constituent of the regions economy since the 1930s when oil extraction first started in Bahrain. The region is still far from achieving
its full potential. While it holds 66% of the worlds proven reserves of crude oil and condensate, it accounts for only 37% of global oil
output. Similarly, it holds 46% of proven natural gas reserves but contributes to only 17% of total gas output.
Falling oil prices are likely to trigger changes in the global oil industry, and in this environment of increased uncertainty, access to
reserves is becoming even more important. Some analysts therefore consider it crucial for service companies to cater mainly to the
needs of NOCs - which control the majority of resources and which are concentrated in MENA - in order to survive the market
downturn (Schlumberger is an example of a company that decided to follow this strategy). As a result, the MENA region is likely to
see an increase in interest from the global industry, something it has not experienced before.

ShareofWorldReserves

60%
40%

R/Pratio
(inNo.ofyears)

206

80%
82

61.0%

77

41.3%

46

33.5%

20%

9.5% 8.2%

0%
MiddleEast

Africa
Oil

9.0%
5.6% 4.5%
4.4%
North
America

55

51

31

11.6%
3.3%

31
14

8.2%
MiddleEast

South& Europe& AsiaPacific

Central
Eurasia
America
Gas

Africa

22
10

North
America
Oil

37

South&
Central
America

Europe& AsiaPacific
Eurasia
Gas

Source:BPStatisticalReview2008,Blominvest

Source:BPStatisticalReview2008,Blominvest

The Middle East benefits from the lowest oil exploration costs in the world. This allows regional producers to get much higher profits
in times of high oil prices. In the face of low oil prices, this advantage is even more crucial, as it enables production and investments
to continue at a moment when in some other parts of the world, these activities have had to stop because the economics of projects

32

April2009

no longer made sense. It is however interesting to note that lower oil prices do not translate into reduced investments despite lower
costs, because the primary focus is not on short-term project feasibility, but on longer-term economic objectives. The exploration
cost per barrel in the region is estimated in the range of USD 5-10 per barrel, which is far below the other parts of the world.

Estimatedoilexplorationcostsinselectregions

Exploration(costperbarrel,USD)

MiddleEast
5.010.0

Australia
11.512.4

WesternUS/Canadaretortingshale
7095(3040afterreaching1bnbarrels)
Source:RANDCorporation

The increase in crude oil prices in 2008 accelerated exploration activities in countries like Canada, US, UK and Australia, where the
cost of exploring oil is high. While investment activity around the world has slowed down because of falling prices, the situation in the
MENA region is considerably better than in other parts of the globe, where planned projects are being postponed and others are
either being stopped mid-way or scrapped altogether. Heavy oil projects in Canada are the worst hit as they include some of the
worlds highest-cost production that turns profitable only at price levels of about USD 90 per barrel. Norwegian StatoilHydro recently
pulled out of a USD 12 bn project, and Shell, Nexen and Petro-Canada have cancelled or postponed new ventures in Canadas
Alberta province. Wells are being shut down across the United States too. In North Dakota, rigs are being dropped with the scaling
back of the exploration of Bakken Shale, otherwise seen as promising. Callon Petroleum suspended a major deepwater project in
the Gulf of Mexico weeks before completion. According to analysts at the brokerage firm Raymond James, overall drilling activity in
the United States may come down by 41% in 2009.
Compared with the rest of the world, the situation in the MENA region is much more positive. Saudi Arabia reportedly has a
threshold price of USD 30 per barrel when it comes to sustainability of new investments. While the other oil producing countries in
the region have a much higher cutoff level vis--vis Saudi, the cutoff levels are still lower than most other nations across the world.
This places MENA countries at an overall advantage by making it relatively more feasible to sustain projects if the current oil market
turmoil continues.

4.6.2 HealthyGrowthbutOilHoldsTheKey

WorldGDPGrowth
8.0

percentage

Over the past three years, the GDP growth in the MENA region
has been above the world average. In 2008, Middle Eastern and
African GDP grew by 6.1% and 5.2%, respectively. Earlier there
were theories that the MENA region may be largely isolated
from the global crisis, but recent developments such as the
swap facility introduced by the UAE Central Bank have shown
this to be untrue, and so several agencies have slashed the
growth forecasts they had for the region in 2009. The IMF, in its
most recent revision in January, cut its Middle East GDP
estimate by 1.5 percentage point in 2009 and 0.5 percentage
points in 2010. The estimate revisions for Africa are also less
enthusiastic. However, even after this downward revision, the
expected GDP growth of the MENA region is well above the
world average, and in 2009, the region is expected to grow at
3.9% as compared to the world average of 0.5%.

6.0
4.0
2.0
0.0
2006

2007

2008

2009E

2010E

2011E

2012E

2.0

Some comfort can be derived from the large amounts of foreign

World
Advancedeconomies
Africa
MiddleEast
exchange reserves the region has, which have allowed it to fund
Source:IMF,Blominvest
part of its investments through Sovereign Wealth Funds. Thanks
to these, GCC countries may be able to afford liquidity
enhancing policies that would otherwise be unavailable. The higher-than-average forecast GDP growth is also a function of the
continuing energy demand from emerging economies, which have not been hit by the crisis as hard as the developed ones.
However, even though the average oil price for 2008 was USD
100.4 per barrel, above the USD 72.3 recorded in 2007, it was
much below its peak in summer 2008. And in 2009, many are
expecting a further decline. EIA, for example, projects the price at
USD 44 and the Centre for Global Energy Studies at USD 49. By
2010, oil price is expected to increase, evidenced by the EIA
estimate of USD 54.5, and this will prop up regional economies. But
it is based on the assumption that OPEC will manipulate the
production in order to reach a desired oil price, which according to a
recent speech given by a Saudi Arabian official, is believed to be
over USD 70.

EIAOilPriceForecast
150

USDperbarrel

120
90
60
30
0
Jan05

Jan06

Jan07

WestTexasIntermediate(WTI)
33

Jan08

Jan09

Jan10

AverageRefinerAcquisitionCost(RAC)

Source:EIA,Blominvest

OilandGasintheMENARegion

The main risk to this outcome, though, is how Western economies will react to the price increase that is coming as they continue to
experience recession. It may well lead to a second wave of downward pressures and an even larger slump in both oil demand and
imports (a similar situation occurred in 1986, when the oil price fell to under USD 10).

34

April2009

4.6.3 ProducersConsumingMore:APositivefortheIndustry
The oil producing nations are increasingly becoming oil consumers. The Middle East has been next only to Asia in driving the global
oil demand growth over the past three years, accounting for 22% of the incremental demand for oil over this period. In the region,
Saudi Arabia, the UAE and Iran accounted for 50%, 13.6% and 9%, respectively, of the regional demand growth.

Source:BPStatisticalReview2008,Blominvest

Source:BPStatisticalReview2008,Blominvest

This rise in demand from the region has been driven by structural factors such as a growing number of young people, a growth in
energy consumption and an increase in vehicle sales. We note that in most of the Middle Eastern countries, fuel prices are highly
subsidized and this further propels the demand and usage of motor vehicles. EIA forecasts indicate that the domestic demand
growth will continue to be strong in the next two years. It is also likely that after this downturn the consumption growth could
potentially be much higher. In fact as per the IEA estimates data, the Middle East is likely to beat China to become the highest
positive contributor to the global oil demand growth in 2009.

35

OilandGasintheMENARegion

MEcontributiontoglobal oilconsumptiongrowth
30%
24%
19%

20% 20%

0.0

19%
15%

4%

5%

1997

1999

1Q09E 2Q09E 3Q09E 4Q09E 1Q10E 2Q10E 3Q10E 4Q10E

0.5

10%
10%

0.5

26%

millionbpd

20%
20%

EstimatedWorldPetroleumConsumptionGrowth

1.0

0%

1.5
2001

2003

2005

2007

ShareofOilConsumption
3per.Mov.Avg.(ShareofOilConsumption)

Source: BP Statistical Review 2008, Blominvest

2.0
MiddleEast

Africa

OECD

Source: EIA,Blominvest

4.6.4 LimitedExposuretotheSubprimeCrisis
The US subprime crisis has had a limited impact on the Middle East financial sector. While the regional banks have not been totally
immune, the extent of the impact on their overall balance sheets has been minimal, and certainly nothing compared to the multibillion dollar write-downs and losses reported by most western banks. An S&P study on 20 Gulf banks done in early 2008 found that
less than 1% of total assets were exposed to subprime mortgage backed securities. As a percentage of equity that exposure was
under 10%.

The governments in the region have both the will and the means to support their banking systems. Recent examples of such support
include the recapitalizations of Bahrains Arab Banking Corporation (ABC) and Gulf International Bank (GIB), support to Kuwaits
Gulf Bank and the UAE government facilitated takeover of Amlak and Tamweel by a government owned bank. We note that Fitch
Ratings in its latest ratings review in December 2008 has assigned stable ratings to 46 banks and financial institutions in the Middle
East region. The weaknesses that Fitch expects to see in these banks going forward will come from exposure to the Dubai property
market and to other banks that have relied largely on the corporate funding channel to drive growth. The impact, if any, from the US
subprime debacle will be more related to the weakened global economy rather than to any direct investment exposure to the
subprime market.

36

April2009

LatestReviewedBankRatings

Country
Bahrain
Kuwait
UAE
Tunisia
Morocco

Bank
TaibBank
GlobalInvestmentHouse
DubaiBank
ArabTunisianBank
AttijariwafaBank

Currentratings
LTIDR
LTIDROutlook
BBB
Stable
C

A
Stable
BBB+
Stable
BB+
Stable

Previousratings
LTIDR LTIDROutlook
BBB+
Stable
BBB
Stable
A
Stable
NA
NA
NA
NA

Note:LongTermIssuerDefaultRating(LTIDR)

Source:Fitch

In North Africa, the tight regulatory regime has prevented banks from taking on any significant exposure to foreign counterparties. As
such, their exposure to foreign investments itself, let alone subprime investments, has been very limited. Again, the only impact, if
any, on their performance will be a result of the broader global macro economic weakness.

A Fitch report states that Moroccos banks have only 3-4% of foreign assets/liabilities invested in foreign
currencies.

In Tunisia, regulatory controls such as caps on foreign borrowings from financial institutions and corporate, the
prohibition of investing in foreign capital markets and restrictions on FX and derivatives transactions resulted in a
limited exposure of onshore banks to the international financial markets.

In Algeria, resident banks are not allowed to invest in foreign assets nor grant loans to non-resident entities.

The MENA regional banks continue to occupy an enviable position in the world financial markets today. Some of these institutions
are now cash rich in a world were liquidity is tight and equity capital is scarce. In fact western banks that continue to suffer from the
credit crunch and capital adequacy concerns are now looking to the Gulf region for access to foreign capital, and regional firms are
filling up this shortfall. Backed by the governments willingness to intervene in the event of any major crisis, Middle Eastern banks
are now sufficiently funded and have the risk appetite needed to support developmental activities and provide funds for project
investments in the Oil & Gas industry.
Interestingly, in December 2008 Moodys noted that Lebanon has benefited from the global financial turmoil as the local banks
attracted funds from the large Lebanese diaspora who viewed the local banks as relatively safe havens. More importantly, the rating
agency changed the sovereign rating outlook for Lebanon to positive from stable citing resilience of the public finances to any
external shocks.

SelectBankRatingsMiddleEast
Country
Bahrain
Kuwait
Oman
Qatar
Saudi
Arabia
UAE

Bank
ArabBankingCorporation
GulfInvestmentCorporation
BankMuscat
DohaBank

LTIDR
BBB+
A
A
A

Bank
NationalBankofBahrain
NationalBankofKuwait
BankDhofar
QatarNationalBank

LTIDR
A
AA
BBB+
A

BankAljazira
CommercialBankofDubai

A
A

SambaFinancialGroup
MashreqBank

A+
A+
Source:Fitch

37

OilandGasintheMENARegion

OpportunitiesandChallenges

5.1

Opportunities

5.1.1 TheRiseofEmergingEconomies
For the last few years, emerging economies, not their OECD counterparts, have been the main drivers of oil demand and demand
for commodities in general. This trend will continue in the future, as oil demand in developed countries is estimated to have fallen by
around 2% in 2008, and is forecast to decline at a similar pace in 2009. At the same time, the demand in emerging economies
(mainly Asia and the Middle East) has continued to rise by twice as much, which is in line with a GDP growth that is stronger than
the developed worlds. According to the forecasts for next two years, developing economies will further outpace high-income
economies by growing at 4.5% in 2009 and 6.1% in 2010 (as compared to -0.1% and 2%, respectively, for developed nations).

WorldEnergyDemandGrowth

World
Highincomecountries
Developingcountries

19902005
1.4%
0.7%
2.2%

20052015E
1.1%
0.4%
3.4%

20152030E
0.6%
0.3%
2.0%

Source:WorldBank,Blominvest

In the longer-term, their per capita income particularly relevant to their energy need is expected to rise significantly, tripling
between 2004 and 2030 from USD 1,550 to USD 4,650.

5.1.2 ProductSubstitution:OilandGasvs.Coal
Besides oil and gas, coal is one of the fossil fuels that are used to meet global energy requirements. As such, it is a substitute
product to oil and gas, and competes with them in the energy market. About 70% of coal is used in power generators to produce
electricity, and this trend is expected to continue, especially in China and the United States. In the event of restrictions on the use of
coal for electricity generation, other fossil fuels namely, oil and gas, could be used in the generators instead. Fossil fuels provide
around 66% of the worlds electrical power, and 95% of the worlds total energy demands. Coal is the most widely used fossil, as it is
the cheapest one (prices in the United States in USD per mn Btu for coal, natural gas, residual fuel oil and distillate fuel oil for 2008
were 2.03, 9.27, 13.74 and 20.48, respectively). In 2006, 41% of global electricity production came from coal, 20.1% from gas, and
5.8% from oil, putting coal as the leader within fossil fuels. At the same time, the average efficiency of electricity production from coal
is the lowest among fossil fuels and was 37% in 2005 as opposed to 40% for gas and 37% for oil.
But even if coal is popular, the world is increasingly adopting standards to check emissions arising from the usage of fossil fuels,
especially coal. The first significant step toward this was the Kyoto Protocol, which laid down measures on greenhouse gases
emissions. Today, a number of restrictions are already in place in most major world economies. As CO2 is still considered to be a
big concern, more stringent regulations are definitely forthcoming. Although the coal industry strives to adjust to those regulations by
reducing emissions (mainly by developing carbon capture and storage, improving combustion technologies and eliminating
emissions of some pollutants), there is an opportunity for the oil and gas industry to replace coal as the fossil fuel of choice. Indeed,
natural gas has the lowest greenhouse gas emissions of all fossil fuels. Increasing electricity consumption is already one of the
factors driving demand for gas in the recent past and this is expected to continue.

5.1.3 LowerCostofServices
With the US registering the largest decline in petroleum deliveries since 1980, the drop in demand for oil has been very severe. Yet
the Oil & Gas services industry has begun aggressively responding to the fall in demand.
According to the API, the number of oil exploratory wells fell by 27% in 4Q08. The demand for drilling rigs has also fallen as the rush
to lease new lands for natural gas drilling has come to a halt. Schlumberger, a leading oilfield services company, is laying off about
1,000 workers in North America. All of these factors have in turn reduced the cost of services for the primary oil producing industry.
Hence, in the near term despite the output constraint of low prices, Oil & Gas producers have an input advantage.

38

April2009

5.1.4 DomesticEquipmentandServicesMarket
The equipment and service market mainly consists of companies that are involved in drilling and equipment manufacturing (including
drilling rigs), as well as those providing services to the latter. The market has been driven by two primary factors. First, the direction
of oil prices and how this impacts production volumes, and secondly, the independent investments made by oil producers in
increasingly advanced products and services to create new oil wells and enhance the capacity of existing ones. New, more
sophisticated and higher priced technologies are needed to extract additional volumes from existing sources, or to explore new
sources in less easily accessible areas (e.g. offshore). In the face of depleting resources, increasing investments in such techniques
are necessary in spite of falling oil prices.

Despite recent consolidation, the oil and gas equipment and services industry is still fragmented. There are a large number of small,
specialty companies, and over 50% of these entities have fewer than five employees. Small- and medium-sized companies focus on
equipment manufacturing, the larger ones on field services. Five major players in this market, include Schlumberger Ltd, Halliburton
Co, Baker Hughes Ltd, National Oilwell Varco Inc and Weatherford Intl Ltd, all of which are from the United States. US companies
are leaders in the field of equipment manufacturing. However, they face competition from other countries like Canada, Japan, Korea,
Russia, China, Brazil, Argentina, Australia and some Western European nations.
The MENA region is under-represented in the equipment and services area, but there is a chance for local companies to carve a
niche for themselves in this field, since major service providers today are facing challenges world over on account of the demand
slump. Local companies could make a foray into the business, especially if they partner with the major service providers for
operating advanced technology equipment and associated services in the Gulf region.

5.2

Challenges

5.2.1 GovernmentPolicies
Across the globe, the development of the oil and gas industry is subject to the competition for resources between NOCs and IOCs.
In addition, NOCs also suffer from the slower pace of technological progress as compared to the IOCs, which have been much more
innovative and ready to adapt, thereby benefiting more from state support. In the Middle East, this stands out since most countries
restrict entry of foreign players into the oil and gas market, which are considered strategically critical. The oil and gas sector in most
cases is closed to foreign direct investments (FDI), either officially or unofficially. Despite favorable regulations in place, the practice
has been highly discretionary and discriminatory against foreign investors.
Some governments have more stringent regulation than others. Saudi Arabia has put oil on its negative list, which means that no
foreign investment is allowed in industries like oil exploration, drilling and production (in practice, Saudi Aramco is the only player in
Saudi Arabia). Egypt allows some investment, although each case requires individual law and is subject to special procedures.
However, across the region, foreign companies have a hard time entering the market, and most often they can only do so by tying
up with local companies, or state-owned NOCs. It is either through these companies or directly that the different energy ministries
exercise strict control over the regions oil and gas sectors. It is interesting to note that while non-OPEC countries allow more private
and foreign activity in the sector, OPEC members allow the whole sector to be mostly controlled by NOC monopolies.

5.2.2 MaintainingSupplyDiscipline
The OPEC controls about 43% of global oil production, and although speculative trading was blamed for the surge in oil prices and
increased volatility in 2008, the organizations policies and associated production levels significantly influence global oil prices. In the
last one year, the world has seen how unchecked oil prices damaged entire economies and decimated the fiscal budgets of many oil
consuming economies. If the high oil prices witnessed in mid-2008 had stayed that way, the economic prospects of many developing
countries would have been severely damaged, thereby curtailing demand and hurting the industry in the long-term. But if oil prices
fall further from current levels or even stay at these levels for too long, oil producing nations can face difficult times ahead.
Governments will be forced to cut back on infrastructure and diversification spending plans and the investments in the sector will
continue to be shelved as it makes little economic sense to invest at such low levels. A stable, range-bound oil price level is the need
and it is therefore essential to maintain supply discipline to promote long-term demand and to make investments economically
viable.

5.2.3 ChokePointsinExistingTradeRoutes

In 2006, 93% of the regions oil was exported through tankers, which are the primary mode of transportation for Gulf oil. Today,
about 40% of the worldwide movement of internationally traded oil passes through the Strait of Hormuz a narrow waterway
between Iran and Oman connecting the Persian Gulf and the Gulf of Oman. But there are risks associated with this route, not least
the high cost of maritime oil transport and the danger of Iran blocking the Strait of Hormuz for political reasons. The increased

39

OilandGasintheMENARegion

activity of sea pirates and terrorist groups hijacking tankers remains a threat, and raises the possibility for an increase in insurance
prices, further adding to overall overhead costs.
However, the most efficient way of transporting oil is through onshore pipelines. There are several pipelines that can carry the Gulf
oil to the ports on the Red Sea or the Mediterranean Sea. However, their capacity is limited and many are in need for repairs or
upgrades. Some are closed for political or economic reasons as well. Further, the capacity increase requires a lot of time and
resources.

CurrentPipelinesintheGulfregion
Pipeline
EastWestPipeline(Petroline)
AbqaiqYanbuNaturalGasLiquidsPipeline
TransArabianPipeline(Tapline)
IraqiPipelinethroughSaudiArabia(IPSA)
StrategicPipeline
IraqTurkeyPipeline
IraqSyriaLebanonPipeline(ISLP)

Capacity(000bpd)
5,000
290
50
1,650
1,400
300
700

Status
Used50%
Used
Closed
Closedandconvertedtocarrynaturalgas
Needsrehabilitationtobecomeoperational
Significantrepairsandupgradesrequired
Closed
Source:EIA,Blominvest

TheStraitofHormuzchokepointandAlternativeTraderoutes

40

Source: EIA

April2009

5.2.4 AlternateFuels

GasolineSulphurlevels(ppm)intheMENAregionCurrentandTargeted

While oil is believed to be depleting fast, the greatest

Country
2008
2010
2012 2013 2020
long-term challenge for the oil industry is the
Yemen
2,000

continued development of alternative energy

Bahrain
1,500

sources. Their importance has been increasing over

the
last
two
decades
as
environmental
Iran,Lebanon,Oman,Syria
1,000

consciousness has grown. Since the 1990s, around

SaudiArabia
1,000

10

75 environmental policies have been introduced

across 59 countries.
Iraq
500

Kuwait
500
150

50
10
Although oil and gas are not as polluting as coal (the
third fossil fuel), they hardly fall in the category of
Qatar
300
10

green energy. Oil, which is composed of more

Jordan
260

150

complex molecules, emits a number of harmful

substances like carbon and sulfur when combusted.
UAE
100
10

On the other hand, gas emits methane, and is less

Source:HartEnergyConsulting,Blominvest
damaging than oil, but nevertheless contributes
directly to global warming.

Oil producers are now subject to the limits that have

beendetermined for sulfur in gasoline anddiesel. These
are also being introduced in the Middle East, where the
regulations so far are less stringent than in the United
States, Europe and some other parts of the world. The
region aims to produce clean fuels conforming to Euro
IV/V specifications by 2015. However, at the moment,
policies vary between countries, adding to the
uncertainty. At the same time, sulfur limitations create
opportunities for more integrated producers that have
thecapacitiestorefineoilinordertoobtaindesulfurized
dieselandmuchmorepopulargasoline.

Apart from the regulatory changes, environmental

Source:EIA,Blominvest
awareness also has an impact upon customer
choices, and this could lead to possible shifts in
demand. Demand will be even more under pressure if non-zero price policies for carbon and other greenhouse energy emissions,
still in their nascent stages, gain ground in the future, as many believe they will. This uncertainty is also impacting the industry.
Electricity generation, which accounts for 7% of oil demand, could also start using less of the commodity because of the remarkable
progress in introducing renewable energy sources like nuclear energy in this field. But, oil use in marine bunkers is expected to grow
owing to an increase in trade activity. As a result of such developments, the share of oil in total energy demand is projected to
decline from 35% in 2005 to 31.5% in 2030. Though the decline itself is not huge, technological changes and environmental
consciousness could lead to a more rapid and unexpected fall in the demand for oil in favor of more environment-friendly options.
In order to compete more effectively with these environmental policies, the oil industry has introduced measures aimed at making oil
more environmentally friendly. The most important initiative has been the Carbon Capture and Storage process, which reduces the
amount of CO2 emitted into the air through combustion. Three industry-size demonstrations of this process are underway, and
efforts are on to further develop the technology and make it compliant with the Kyoto Protocol.

5.2.5 TalentPool
Experts say that the shortage of qualified oil and gas industry professionals is one of the major challenges going forward. The
current workforce is aging and not enough young graduates are joining the industry. The demand for professionals is also growing in
emerging economies, making it more difficult for Middle Eastern companies to attract foreign employees. The increasing complexity
of exploration and extraction activities calls for qualified professionals, many of who will be retiring within the next couple of years.
Some believe this situation could lead to problems and result in delays to mega oil and gas projects. Already, some companies have
been forced to accelerate their employees career paths to fill in gaps on higher positions - a move that could result in skill shortages

41

OilandGasintheMENARegion

for the more demanding tasks. And these are likely to come, since depleting resources call for innovative projects with the use of
new and advanced technology. There is risk that young, less experienced professionals, even in traditional operations, may find it
difficult to succeed in running such projects. Experience is what the industry needs most but it is hard to come by, and this dynamic
is pushing up salaries, leading to increased project costs.
With the recent fall in oil prices and production cuts, the labor market in the oil and gas industry is likely to become somewhat less
tight. However, the aging workforce trend cannot be reversed and can only be eased if education systems in different countries
make efforts to fill the labor gap in this industry. The need is to provide the right kind of training programs needed to keep pace with
technological innovations in order to produce qualified managers for the future.

42

April2009

FutureOutlook

Yes, oil is a finite resource, but fortunately the world is not going to run dry in the foreseeable future. The resources, as OPEC puts
it, are plentiful. The estimates of recoverable resources for conventional oil have doubled since the early 1980s. However,
cumulative production has increased only by about 40% during this period. A look at the global R/P ratios indicates that we are in the
same boat today that we were in two decades ago (R/P ratio of 41.6 in 2007 as compared to 41.0 in 1987). New discoveries in
conventional oil, better extraction techniques in existing reserves and the exploration and development of non-conventional oil such
as the Canadian sands are contributing to this positive trend, which is likely to continue.
But, even if there seems to be no shortage of oil in the near-term and for that matter no fall in energy demand, where is oil and gas
consumption headed in the longer-term? The world has adequate energy sources and there is adequate demand for them. Clearly,
the shift toward alternate and renewable sources of energy is set to continue, even if these currently address only a small part of
total energy needs and will take time to become significant. Meanwhile, the existing sources of energy will become cleaner and more
efficient, with the support of governmental policies such as the Kyoto Protocol and other similar initiatives.
The challenge however lies in achieving the delicate balance between demand and supply on a timely basis by trying to avoid shortterm mismatches that may disrupt equilibrium and distort prices. Various efforts in the form of strategic reserves and trade channel
reserves have been initiated to take care of the speculative element. However, fluctuations in these reserves have become a matter
of speculative activity. This, coupled with the conflicting demands and needs of producers and consumers, has resulted in a world
where oil supply is being matched with prices rather than with consumption needs.
While it is impossible to predict where oil prices are headed, one thing that is certain is the significance of OPEC and the role it will
play in the coming months and years. The significance translates into measures to support the national interests of OPEC members
and takes into account existing national development programs. However, it is a double-edged sword as well - one that weakens the
organization as a whole when individual national priorities and needs are in conflict to what OPEC desires. Non-OPEC nations and
their own national agendas, coupled with what major consumer nations want, also impact OPECs goals and abilities.
But perhaps one of the greatest determinants of the direction of oil prices is the strength of the US Dollar. Oil is increasingly
becoming an investment tool, much like the dollar itself being used as a global reserve currency. For each physical barrel delivered,
18 paper barrels were traded on the NYMEX in 2008. Oil is used as a hedge against inflation by investors who wish to hold dollardenominated assets. According to economists, the dollar may be inherently overvalued, and oil prices are likely to boom again if it
depreciates. The question is how this will impact the various market participants. For the Middle Eastern producers, a falling dollar
means lower export value in local currency terms, but rising oil prices mean more dollars per barrel. Consumers outside the US will
face a similar situation of having to pay more dollars, but less local currency per barrel. The greatest pinch will be felt by US
consumers. The US accounts for 25% of global oil imports, and declining demand from their side will place a damper on oil prices.
So what is the solution and where are oil prices headed? Will the price of oil be benign and productive or turbulent and negative?
The answers to these questions lie in reality, which comprises a globalized world so closely knit that there is no space for individual
interests and priorities. What is needed is concerted action by all, not individual moves that serve the goals of a few alone. The
entire world needs to come together to ensure price stability for the greater good of all, no matter how challenging this may be.

43

OilandGasintheMENARegion

Appendix

7.1

UpstreamandDownstreamProjectsintheMENARegion

UpstreamProjects
Project
AramcoJackupBarge
AramcoKhuraisDevelopment
AramcoKhursaniyahFieldDevelopmentCondensate
AramcoManifaOilfieldRedevelopmentOil
AramcoNuayyimOilFieldDevelopment
AramcoOffshoreFacilities(MaintainPotentialFacilities
Programme)
AramcoSafaniya,Marjan,ZulufOilFieldsOffshore
Production
AramcoShaybahOilFieldDevelopment
ADCOBabOilFieldGasCompressorStations
ADCOPhase1DevelopmentProgramme
ADCOSASFieldDevelopment
ADMAOPCOAbuDhabiOffshorePipelineReplacement
ADMAOPCONasrfieldDevelopment
ADNOCSourGasFieldsDevelopmentShahField
ZADCOUmmAlDalkhFullFieldDevelopment
DanaGasWesternOffshoreExploration
ZADCOUpperZakumMajorProjects
KOCEarlyProductionFacilities(EPFPhase1)
KOCEarlyProductionFacilities(EPFPhase2)
KOCLowerFarsPilotProject(LFPP)
KOCWaterInjectionPlant
KPCProjectKuwait
OccidentalMukhaiznaEOR
PDOAlBurjWaterReinjectionFacilities
PDOFahudEOR
PDOHarweelClusterDevelopment(Phase2A/B)
PDOMabroukOilFieldDevelopmentOil
PDONimrKarimOilFieldsProject
PDOQarnAlamEnhancedOilRecovery(EOR)
PearlGTLOffshore
QPAlShaheenOffshoreDevelopment
DanaGasEgyptExplorationandDevelopmentProgram
NALPETCOAbuSir&ElKingFieldsOil
Total

Country
SaudiArabia
SaudiArabia
SaudiArabia
SaudiArabia
SaudiArabia

Expansion
(Barrels)

432.0
28.8
342.0
36.0

SaudiArabia
SaudiArabia
SaudiArabia
UAE
UAE
UAE
UAE
UAE
UAE
UAE
UAE
UAE
Kuwait
Kuwait
Kuwait
Kuwait
Kuwait
Kuwait
Oman
Oman
Oman
Oman
Oman
Oman
Qatar
Qatar
Egypt
Egypt

DueDate
1Q2010
Jun09
4Q2008
mid2010
4Q2008

Cost
(bnUSD)
0.18
12.0

11.0
1.0

CurrentStatus

2014

0.25

OnTrack

54.0
90.0
36.0
144.0
21.6

36.0

2.5

72.0
4.0
43.2
0.18
10.8
108.0
50.4

25.2
360.0
7.2
6.5
10.8

102.6

1.4

3Q2008
4Q2008
2010
2010
2010
2010
2012
2012
2012
2033
2015
3Q2010
2012
2010
2012
2030
2011
May10
2010
2010
4Q2009
2012
2010
2011
2009
N/A
4Q2011

0.4
1.5
0.3
1.5
1.4
0.9
2.0
10.0
0.65
0.065
1.5
0.24
0.4
0.1

9.0
2.35
0.05

0.96

1.0
1.2
5.0
0.17

65.12

Ontrack
DelayedCompletion
OnTrack
OnTrack
OnTrack
OnTrack
OnTrack
DelayedCompletion
OnTrack
OnTrack
OnTrack
OnTrack
OnTrack
OnTrack
OnTrack
OnTrack
OnTrack
OnTrack
OnTrack
OnTrack
OnTrack
OnTrack
OnTrack
OnTrack
OnTrack

OnTrack

OnTrack
OnTrack
DelayedCompletion
DelayedCompletion
DelayedCompletion

Source:VariousNewsAgencies,GlobalResearch,Blominvest

44

April2009

DownstreamProjects
Project

Country

DueDate

PetroRabighRabighRefining&PetrochemicalComplex
(Phase1)
YanbuExportRefinery
JubailExportRefinery

SaudiArabia

Expansion
(Barrels)
400,000

SaudiArabia
SaudiArabia

400,000
400,000

2010
2011

5
6

JezanRefinery
RasTanuraRefinery/PetroComplex

SaudiArabia
SaudiArabia

400,000
50,000

2011
2012

12to15
N/A

EastCoastRefinery
YanbuIntegratedRefinery

SaudiArabia
SaudiArabia

400,000
130,000

2012
2012

8
N/A

N/A
DelayedCompletion

AramcoYanbuRefineryExpansion
FujairahRefinery

SaudiArabia
UAE

2014
2010

0.5
5

Cancelled
OnTrack

RuwaisRefineryExpansion
AlZourRefinery

UAE
Kuwait

125,000
300,000
500,000
400,000
615,000

2011
2012

3.5
14

OnTrack
OnTrack

AlShaheenRefinery
RasLaffanCondensateRefinery

Qatar
Qatar

250,000
146,000

2011
2008

5
0.67

DelayedCompletion
DelayedCompletion

RasLaffanCondensateRefineryExpansion
DuqmRefinery&PetrochemicalComplex

Qatar
Oman

2011
2012

1
7

DelayedCompletion
DelayedCompletion

EgyptIsraelGasPipeline
ArabGaspipelineextensiontoTurkishborder

Egypt
Egypt

146,000
200,000
300,000
27*
10*

N/A
N/A

N/A
N/A

Total

2008

Cost
(bnUSD)
10.1

DelayedCompletion
DelayedCompletion
DelayedCompletion

77.780.7

CurrentStatus

N/A
OnTrack

N/A
N/A

Source:VariousNewsAgencies,GlobalResearch,Blominvest

45

OilandGasintheMENARegion

7.2

SecondaryMarketsTradingActivity

In the United States, before the 1980s, domestic oil and natural gas prices were under government control. With reforms,
deregulation was identified as a vehicle to bring efficiency to the oil and gas market. The deregulation spurred growth, and today
there are many US and European domestic spot markets for oil. Location arbitrage, which helps link prices closely across
exchanges, is not as lucrative for natural gas as for oil, since gas is transported through pipelines and the determined prices are
generally quite accurate.
Derivatives are popular hedging instruments, especially in volatile sectors like oil and gas. With derivatives, an oil cargo can change
ownership several times on paper during its journey from the production site to the processing units or refineries. The process can
sometimes last a few months as traders capitalize on the actual and anticipated price movements during the transit. Major oil
companies have trading subsidiaries aimed at ensuring regularity in the sale and the subsequent availability at the refineries.
According to the NYMEX, crude oil is the most actively traded commodity in the world. The light sweet crude oil futures contract has
become the worlds most liquid platform for crude oil trading since its introduction in 1983. At end 2008, the NYMEX recorded a daily
average of 1,339,214 energy contracts and 532,309 light sweet crude oil contracts. In the Middle East, the Dubai Mercantile
Exchange (DME) is the first energy futures exchange in the region. In January 2009, the DME hit a record daily volume of 6,484 sour
crude contracts and has traded 561,013 contracts since its launch in mid-2007.
CombinedEnergyFuturesContracts
350
300

millions

250

AnnouncesLaunchof
NorthwestEuropeGasoil
FuturesContractinDublin

200

CombinedEnergyOptions Contracts

90

Tolaunch17NewPetroleumProduct
TolaunchSingapore380cstFuelOil
SwapFuturesContractsand18New
FuturesContractonCMEGlobex.
NaturalGasSwapFuturesContracts
TolaunchNewYorkHarbor
ToOfferSideBySideOpenOutcry
EthanolFuturesContract
TolaunchBrentCalendar andElectronicTradingenergy
Tolaunchnewalternative
futurescontracts
SwapandLight,Sweet
equityindexfuturescontract
CrudeOil/BrentCalendar
SwapFuturesContracts

ToexpandListingof
CrudeOilandNatural
GasCalendarSpread
Options

70
60

CMEGrouptoLaunchNew
GasoilOptionsContracts

ToIntroduceRBOBGasoline
&Heatingoilsoptionson
CMEGlobex

TolaunchnewRBOB
GasolineOptions

50

TolaunchNaturalGas
"LookAlike"Options

40

150

TolaunchnewBrentCrude
OilCalenderSpreadOptions
contract
IntroduceEnergyoption
tradingonCMEGlobex

80

millions

400

30
ToLaunchNYMEXiPortTM
321PlusEnergyIndex
FuturesContract
Tolaunchswapfutures

100
50

TolaunchnewBrentCrude
OilLastDayFuturesContract
onCMEGlobex

0
2003

20
10

ToOffersCrudeOil,Heating
Oil,andGasolineAveragePrice
OptionsonNYMEXClearPort

2004

2005

2006

2007

2003

2008

2004

2005

2006

2007

2008

Source:NYMEX,Blominvest
Source:NYMEX,Blominvest

While deregulation was expected to bring about efficiency in price determination, the proliferation of speculative activity has played a

NYMEXEnergyTrading Activity

400

192

200
150

112

97
88

54
21

190

millions

millions

500

250

50

22

27

2004

2005

85

71

2003

400

100

EnergyFuturesContracts

2006

2007

301

2008

EnergyOptionsContracts

Source:ICE,NYMEX

339

300
200

46

626

600

300

100

ICEEnergyTrading Activity

700

339

350

88

112

97
83

74

118

192
138

190

0
2003
2004
2005
2006
2007
2008
ICEFuturesEuropeVolumes(mn) ICEOptionsEuropeVolumes('000)

Source: ICE,NYMEX

April2009

definite role in destabilizing prices. The prices of key energy commodities like crude oil, heating oil, unleaded gasoline, and natural
gas, have risen substantially since 2002 in tandem with strong growth in trading volumes. The increased participation by investment
banks and hedge funds is apparently responsible for some of the erstwhile price build-up.

In July 2008, the US House of Representatives passed the Energy Markets Emergency Act, which allows the Commodity Futures
Trading Commission (CFTC) to use emergency powers and exercise authority to curtail excessive speculation. While steps like
these are useful in increasing discipline, the exact results of such measures remain unseen. What also remains unseen is the future
need for such regulatory intervention and control.

47

OilandGasintheMENARegion

7.3

Countrybriefs

7.3.1 Bahrain
Oil contributed about 26% to Bahrains GDP in 2007 and
about 81% of total exports for the first nine months of 2008,
as per a recent Central Bank release. Compared to other
countries in the region, Bahrain is a net exporter of oil,
albeit the smallest by volume in the Middle East region.
The balance of the industry is toward downstream as
opposed to the neighboring countries with stronger
upstream segments. The countrys refining capacity of 249,000 bpd is significantly higher than its production capacity of 48,600 bpd.
This capacity surplus is managed by importing about 225,000 bpd of Arab Light crude oil from Saudi Arabia via a subsea pipeline.

Bahrains export basket mainly consists of refined

products. Excess refining capacity, stagnant oil
production, and Bulk of the domestic energy
requirement is met through natural gas.

IndustryStructure

TheNationalOilandGasAuthority(NOGA)istheregulatoryandpolicymakingbody,whichoversees
Bahrains oil sector in Bahrain. In August 2007, the NOGA holding company was established to
administerthegovernments100%stakeinBapco,75%inBanagas,60%inBafco,and33%shareinthe
Gulf Petrochemical Industries Company. The Oil and Gas Holding Company is entrusted with
establishingnewcompanies,investingintheoilandgasindustry,bothinthecountryandabroad.

ForeignCompanyInvolvement
MajorOilFields
MajorRefineries

ChevronTexaco,Petronas,EnCanaCorporation
Awali(35,000bpd)
Sitra(248,900bpd)
Source:IEA,Blominvest

Stagnantoilproductiondespiterisingdomesticconsumption

In March 2007, NOGA announced the opening of four

offshore exploration and production (E&P) project licenses
to encourage foreign investments in the upstream segment.
In February 2008, offshore E&P licenses were awarded to
Thailands PTTEP and U.S. Occidental, both of which
committed to perform seismic surveying during the six-year
exploration period followed by a 24 year production window
in case of a discovery.

Bahrain TotalOilProduction
60
Thousandbarrelsperday

Oil production in Bahrain has been stagnant over the last

six years, averaging about 49,000-50,000 bpd, while
consumption has increased by almost 46% since 2002. The
2007 crude oil production level of 35,000 bpd from the
Awali field was well below its peak of 75,000 bpd reached
in the 1970s. The Bahrain Petroleum Company (Bapco)
has announced a development program for drilling 700
additional wells between 2007 and 2015, which is expected
to boost Awalis production by about 12,000 bpd.

50

50

24

26

51

48

49

49

31

33

35

40
30
20

29

10
0
2002

2003

2004

TotalOilProduction(kbpd)

2005

2006

2007

TotalOilConsumption(kbpd)

Source: IEA, Blominvest

Productioninsufficienttoutilizerefiningcapacity

Bahrain:Productionvisvis Refinerycapacity

Thousandbarrelsdaily

About 49,000 bpd or one-sixth of the crude required by the

Sitra refinery originates from Bahrain, while the rest is
pumped from Saudi Arabia. The 33 mile subsea pipeline is
faced with ageing issues and is likely to be
decommissioned after the construction of the New Arabia
pipeline. This new pipeline, being developed by Bapco and
Saudi Aramco, is a 71 mile, 350,000-450,000 bpd capacity
feed running between Saudi Arabias Abqaiq oil processing
center and the Sitra refinery.

49

300

249

249

249

255

249

249

200
100

49

50

51

2003

2004

48

49

49

2005

2006

2007

0
2002

RefineryCapacity

TotalOilProduction

Source: IEA, Blominvest

48

April2009

RunningoutofGas

Bahrain is adopting a multi-pronged approach to counter

this situation, which includes increasing production,
encouraging international companies, and finalizing import
contracts. The Qatar North Field is expected to commence
supply of 5 bcm per annum in 2009. Until now, Bahrain
had allowed international oil companies (IOCs) to drill wells
up to a maximum 4,877 meters, but the new tenders allow
drilling to 6,096 meters. From an import standpoint,
Bahrain has signed a framework deal to import 10.3 bcm of
gas from Iran's South Pars field, with 2015 as a possible
start date.

Bahrain TotalGas Production&Consumption

Billioncubicmetres

Bulk of the countrys domestic energy requirements from

power plants, enhanced oil recovery (EOR) projects, and
heavy industry are being met through natural gas. At the
current rate of consumption, Bahrains proven natural gas
reserves are likely to run out in a decade. On the other
hand, gas consumption is expected to double by then,
leaving no alternative but to address the shortfall through
imports.

12

12%

11

10%

11

8%

10

6%

10

4%

2%

0%
2002

2003

2004

2005

Consumption(bcm)

2006

Production(bcm)

Consumptiongrowth(%)

Source: IEA,Blominvest

7.3.2 Egypt
Egypt is a rapidly growing natural gas producer in
North Africa. The Suez Canal and Sumed pipeline are
strategic for Persian Gulf oil shipments, making Egypt
a critical transit corridor.

Egypt is the largest FDI recipient in the MENA region

and these continue to fuel the countrys economic
growth. The FDI investments in 2008 stood at USD
13 bn (8.4% of GDP), up from the USD 11 bn in
fiscal 2007.

However, the overall slowdown in growth across oil-exporting countries is likely to subdue Egypts revenue growth as well. The
recent World Bank forecast for domestic GDP growth stands at 4.5% for 2009 as opposed to 7.2% for 2008. A high interest rate
environment in Egypt is likely to be another dampener for new project activity and in turn for investment growth.
IndustryStructure

ForeignCompanyInvolvement
MajorOilFields
MajorRefineries(capacitybpd)

The energy sector is structured into three main holding companies viz. Egyptian Natural Gas Holding
Company (EGAS), Egyptian Petrochemicals Holding Company (ECHEM), and Ganoub El Wadi Petroleum
HoldingCompany(GANOPE).TheregulatoryframeworkforthesectorislaidoutbytheEgyptianGeneral
PetroleumCorporation(EGPC)andtheEgyptianMineralResourceAuthority(EMRA).
Apache,Eni,BP,UnionFenosaBG,Eni,Shell
Gupco,Belayim,BeniSuefIX,andSaqqara
ElNasr(146,300bpd)

IncreasedprominenceofIOCsamidstdecliningoilproduction

Egypt TotalOilProductionandConsumption

Thousandbarrelsperday

Egypts proven oil reserves stood at 4.1 bn barrels

according to the BP Statistical Review of World Energy
2008. The 2003 discovery of the Saqqara field with
estimated reserves of 80 mn barrels is the last major find
since 1989. Production has been declining despite
discoveries and enhanced oil recovery techniques are being
employed at mature fields like the Gulf of Suez basin.
Petrobel, the second largest producer, is undertaking a
similar EOR program at the Belayim fields. Despite the
efforts, the 1995 peak of 950,000 bpd remains elusive.
Even though Egypt continues to be a net exporter,
consumption growth is likely to outpace production in the
next few years.

Source:IEA,Blominvest

800
751

749

721

700

696
629

600
534

710

697

651
610

567

550

500
2002

2003

2004

TotalOilProduction(kbpd)

2005

2006

2007

TotalOilConsumption(kbpd)

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest
49

OilandGasintheMENARegion

International Oil Companies (IOCs) play a significant role in Egypts upstream sector, where they operate on a production-sharing
basis with EGPC and EGAS. Typically, exploration tenders in Egypt find favor with super majors like ENI and BP, NOCs like
Petronas and KUFPEC, and small IOCs such as Dana Gas and Burren Energy. The role of IOCs will increase in significance as the
export surplus declines in a stagnating production scenario.

StrategictransitcorridorforPersianGulfoilshipments

Egypt holds strategic importance owing to its operation of the

Suez Canal and Sumed (Suez-Mediterranean) Pipeline,
which are two critical routes for transportation of oil from the
Persian Gulf. Sumed, which was established in 1976 as a
joint venture between Egypt (50%), Saudi Arabia, Kuwait and
the UAE (15% each) and Qatar (5%), handles about three
quarters of the oil exports from Saudi Arabia, Kuwait, Egypt
and Iran to Europe. There has been a change in the direction
(from northbound to southbound) of oil through these
pipelines after 2006, implying a decline in demand from
Europe and the continued growth in Asia.
Egypt is the largest refining center in Africa with a combined
processing capacity of 726,000 bpd across nine refineries.
The government plans to increase production of lighter
products, petrochemicals, and higher octane gasoline by
expanding and upgrading existing facilities. In addition, the
government is promoting two new projects a 500,000 bpd
unit near the Suez Canal and another at Ain Sukhna with a
capacity of 130,000 bpd.

Source:Blominvest

Naturalgastobeakeygrowthdriver

Egypt has an estimated 14.8 bcm of LNG, of which 3.6 bcm is

exported to the USA. The liquefaction facility at Damietta,
which produces 6.7 bcm per year, is slated for a significant
expansion beginning 2010-11 if the proposal goes through
against political hurdles. Another LNG export project called
Egyptian LNG at Idku, currently installed with two 4.8 bcm
trains, expects to see a third train installed by 2011. Gas-toLiquids projects provide another opportunity for growth. Shell,
for example, has proposed a 75,000 bpd GTL plant co-located
with its planned LNG export terminal using natural gas from its
offshore NEMED field.

50

Egypt TotalGas ProductionandConsumption

50
Billioncubicmetres

Egypt's natural gas sector is witnessing strong growth with

production increasing over 30% between 1999 and 2007. In
October 2008, Dana announced the discovery of gas and
condensate in the Qawasim formation, raising the companys
recoverable Egyptian reserves by almost 20%.

44.7

43
36

34.6

22

26.9

25

29
22.7

24.6

26.2

25.8

29.2

46.5

32.0

15
2002

2003

2004

2005

2006

2007

TotalGasProduction(bcm)

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

April2009

7.3.3 Oman
While oil exports have slowed down,
natural gas presents a unique
opportunity.

Omans economy depends strongly on oil revenues, which accounted for

73.9% of the countrys export earnings and 49.5% of GDP according to the
Q208 release by the Ministry of National Economy. However, economic
growth has slowed due to declining oil production. To address this, the
government is mobilizing considerable resources to augment exploration
and production capabilities, while also making efforts to diversify the
economy.

IndustryStructure

MajorOil/GasPorts
ForeignCompanyInvolvement
MajorOilFields
MajorRefineries(capacitybpd)

Petroleum Development Oman (PDO) is a partnership between the Omani government (60%),
Royal Dutch/Shell (34%), Total (4%), and Partex (2%); and controls most oil and gas reserves in
Oman.TheOmanOilCompany(OOC)isacommercialcompanywhollyownedbytheGovernment
oftheSultanateofOman.
MinaalFahal
BG,BP,CNPC,IndagoPetroleum,OccidentalPetroleum,Partex,PTTEP,Shell,Total
Yibal, Qarn Alam, AthelMarmul, BahjaRimaJalmud, Nimr, Karim Cluster, Harweel Cluster,
Mukhaizna,Safah
MinaalFahal(85,000bpd)

Source:IEA,Blominvest

Doublewhammyhighproductioncostsanddecliningreserves

Oman's oil fields are relatively smaller, widely scattered and less productive, as a result of which production costs are higher
compared to its neighbors. An average well in Oman produces only around 400 bpd, which is about one-tenth the average volume
per oil well in neighboring GCC countries. The use of enhanced oil recovery (EOR) techniques helps increase productivity, but adds
to the costs. According to BP, oil reserves in Oman are at risk of a steady decline, particularly if production levels are raised beyond
the current levels. The country plans to invest USD 10 bn in upstream oil and natural gas projects during the 2006-2011 period,
some of which could possibly result in significant increases in recovery. Occidental plans to invest USD 3 bn at the onshore
Mukhaizna field to increase output from 10,000 bpd to 50,000 bpd by 2008-09, and then to 150,000 bpd by 2012. PDOs EOR
initiative at the Harweel field is expected to increase output from 18,000 bpd to 70,000 bpd by the end of 2009.

Oman TotalProvedOilReserves
5.71

5.57

5.57

5.57

5.57

Oman TotalOilProductionandConsumption

5.60
Thousandbarrelsperday

billionbarrels

2002

2003

2004

2005

2006

2007

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

51

899

57
2002

900
800
700
600
500
400
300
200
100
0

823

58
2003

754

780

743

714

64

66

69

72

2004

TotalOilProduction(kbpd)

2005

2006

2007

TotalOilconsumption(kbpd)

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

OilandGasintheMENARegion

LNGexporttobecritical,whiledomesticnaturalgasrequirementrises

The rising gas production over the last few years has helped the expansion of natural gas based industries, such as petrochemicals
and power generation. A significant part of Omans initiatives toward strengthening the overall oil and gas sector is focused on
increasing natural gas production. However, additional reserves have not been discovered at the expected pace.

Oman TotalProvedGas Reserves

0.99

0.95

1.00

1.00

0.98

0.98

0.80
0.40

24.9
Billioncubicmetres

Trillioncubicmetres

1.20

Oman TotalGasProductionandConsumption

22.0
19.6

18.0
14.0

14.8

12.1

10.0
6.0

9.1
6.5
2002

0.00
2002

2003

2004

2005

2006

2007

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

15.6

17.0

6.3
2003

TotalGasProduction(bcm)

6.6
2004

2005

2006

Gasconsumption(bcm)

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

Industry experts opine that natural gas production will reach 33 bcm by 2012, depending on progress made in exploration and
downstream capabilities. With domestic demand projected to rise from 12 bcm in 2006 to 16 bcm by 2012, exports are likely to hover
at around 17 bcm by 2012.

7.3.4 Kuwait

Kuwait accounts for 8% of the world's total oil

reserves. While NOCs are likely to drive growth in
upstream, major investments are being planned in
the refining sector.

Kuwait's economy is heavily dependent on oil export

revenues, which contribute to around 95% of total exports
and 52% of the GDP. The recent high oil prices brought a
surge in revenues and in turn strong growth for even the
non-oil sectors, particularly services. Riding on a strong
fiscal and trade surplus position, Kuwait is pursuing a
strategy of diversification to de-risk from near-complete dependence on oil. Toward this end, Kuwait channels around 10% of oil
revenues into the Future Generations Fund to guard against any future shortfalls. The bulk of this reserve is invested across
equities, bonds and real estate in the United States, Germany, the United Kingdom, France, Japan, and Southeast Asia.
IndustryStructure

MajorOilTerminals
ForeignCompanyInvolvement
MajorOilFields(reservesbnbarrels)
MajorPipelines
MajorRefineries(capacityinbpd)

52

The Supreme Petroleum Council, run by the Kuwait Petroleum Corporation (KPC), governs the
nationalized oil industry. The various subsidiaries that coordinate the overall operations are as
follows:

KuwaitOilCompany(KOC)forexplorationandproductionofoilandgas

KuwaitNationalPetroleumCompany(KNPC)forrefiningandshipping

KuwaitPetroleumInternational(KPI)forrefiningandproductmarketing

Petrochemical Industries Company (PIC) for production and marketing of

chemicalproducts

KuwaitForeignPetroleumExplorationCompany(KUFPEC)forforeignexploration

KuwaitOilTankerCorporation(KOTC)fortankeroperations
MinaAlAhmadi,MinaAbdullah,Shuaiba,MinaSaud
BP,Chevron,Total,ExxonMobil,Shell,ArabianOilCompany,ParsonsCorp.,FluorCorp
GreaterBurganBurgan,Magwa,andAhmadi(55);Raudhatain(5.1);Sabriya(4.3);Minagish(3.3);
NeutralZone:AlHoutandKhafji(6.3);Wafra(2);SouthFawaris;UmmGudair
RaudhatainAhmadi; MinagishAhmadi; Umm GudairShuaiba; WafraMina Abdullah; Burgan
Ahmadi
MinaAlAhmadi(442,700bpd),MinaAbdullah(256,500bpd),Shuaiba(190,000bpd)
Source:IEA,Blominvest

April2009

OPECsthirdlargestoilproducerholds8%oftheworldsproven,conventionaloilreserves

Kuwait has an estimated 101.5 bn barrels of proven oil

reserves with 1,600 active oil wells. The Saudi-Kuwaiti
Neutral Zone area holds an additional 5 bn barrels, half of
which belong to Kuwait. Most of Kuwait's reserves are
located in the 70 bn barrel Greater Burgan area, with a
production capacity of around 1.6 mn bpd. Greater Burgan
is widely considered the world's second largest oil field after
Saudi Arabia's Ghawar.

Kuwait TotalProvedOilReserves
120

96.50

99.00

2002

2003

101.50 101.50 101.50 101.50

billionbarrels

100

With most of Kuwaits major producing wells over 60 years

old, field maturity is becoming a problem. In 2005, Kuwait
Oil Company (KOC) lowered its production plateau
estimates for the Greater Burgan area from 2 mn bpd to 1.7
mn bpd over a 20-30 year period. This increases the
importance of the new large discoveries made since 2003.

80
60
40
20
0
2004

2005

2006

2007

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

NOCslikelytodrivefurtherupstreamcapacityadditions

Majorinvestmentsplannedinthedownstream

Kuwait TotalOilProductionandConsumption
2700
Thousandbarrelsperday

In Kuwait, direct foreign participation in upstream projects is

off limits. In December 2008, longer-term plans to boost
capacity at Kuwait's northern fields to 900,000 bpd with
foreign company involvement faced strong political
opposition. In the same month, state-controlled Kuwait Gulf
Oil Company (KGOC) announced plans to invest USD 3.6
bn over five years between 2008 and 2012 to increase
production from the Neutral Zone.

2475

2329
1800

2618

2682

2626

65

79

95

1995

900
0

59
2002

55

53
2003

2004

TotalOilProduction(kbpd)

2005

2006

2007

TotalOilConsumption(kbpd)

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

Kuwait's three domestic refineries have a combined capacity of roughly 905,000 bpd. Kuwait is reportedly planning to spend over
USD 8 bn through 2010 to upgrade the refining segment and boost processing capacity for ultra-low-sulfur transportation fuels and
heavy/sour crude oil.

Kuwait Petroleum International (KPI) owns refineries in

Rotterdam and Italy, enabling it to supply a large share of
its European retail outlets directly. KPC owns service
stations in Belgium, Spain, Sweden, Luxembourg,
Thailand, and Italy. Today, KPI markets approximately
300,000 bpd in Western Europe and Thailand through
5,000 retail stations. With the growth of downstream
markets in Asia, there are possibilities of acquiring
downstream assets in large emerging markets, such as
China and India. The companys efforts are showing signs
of success in China, where it will operate in collaboration
with BP, Royal Dutch Shell and Sinopec, the local refining
firm.

53

Kuwait Refinerycapacity
1000
Thousandbarrelsdaily

Kuwait signed a USD 400 mn contract with Hyundai in May

2005 for an upgrade of the Mina al-Ahmadi refinery. Kuwait
is also considering the construction of a new refinery at AlZour with a capacity of 615,000 bpd at a cost of USD 6.0
bn.

905

905

905

905

905

2003

2004

2005

2006

2007

770

750
500
250
0
2002

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

OilandGasintheMENARegion

Consumegas,Exportoil

Kuwait produces a relatively modest volume of dry natural

gas, the vast majority of which is associated gas (that found
and produced in conjunction with oil). Despite reserves of
only 1.78 tcm, Kuwait hopes to significantly increase its use
of natural gas in electricity generation, water desalination,
and petrochemicals to free up as much as 100,000 bpd of oil
for export. Kuwait also hopes to reduce flaring of associated
gas by improved logistics through integrated gathering
centers.
A number of initiatives are planned to boost natural gas
exploration and production, some of which are bearing
results. The 2006 find of 1.0 tcm in northern Kuwait at
Sabriya and Umm Niqa was Kuwait's first natural gas find that
is not part of an oil field. Another effort is the renewed
negotiation between Kuwait and Iran on the issue of the long
disputed Dorra offshore field, which may contain up to 0.3
tcm of recoverable natural gas reserves.

Billioncubicmetres

KuwaitTotalGas Production&Consumption
25%

14
12
10
8
6
4
2
0

20%
15%
10%
5%
0%
5%
2002

2003

2004

2005

Consumption(bcm)
Consumptiongrowth(%)

2006

2007

Production(bcm)

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

7.3.5 Qatar
Qatar accounts for the third largest
natural gas reserves world-wide and
is the largest supplier of liquefied
natural gas.

Qatars government has dedicated more resources to the development of

natural gas in recent years. Qatar surpassed Indonesia in 2006 to become the
largest exporter of LNG in the world. The oil and natural gas sectors together
made up 57% of the countrys GDP and 81% of total exports in 2007.

IndustryStructure

QatarPetroleumexploration,production,refininganddistribution;
Qatar Liquefied Gas Company (Qatargas) and Ras Laffan LNG Company (Rasgas) production and
marketingofliquefiednaturalgas(LNG)
MajorOil/GasPorts
UmmSaid,RasLaffan
Foreign
Company Anadarko,BP,Chevron,ExxonMobil,MaerskOil,Marubeni,Mitsui,OccidentalPetroleum,Shell,Total
Involvement
MajorOilFields
Dukhan,IdalShargiNorthDome,BulHanine,MaydanMahzam,alShaheen,alRayyan,andalKhalij
MajorNaturalGasFields
NorthField
MajorRefineries(capacity)
UmmSaid(200,000bpd)

SmallestoilproducerinOPEC,butimportantnevertheless

Source:IEA,Blominvest

According to BP, Qatars proven oil reserves stood at 27.4 bn barrels as of 2007. The onshore Dukhan field, located along the west
coast of the peninsula, is the countrys largest producing oil field. Despite significant production and reserves, oil accounts for less
than 15% of domestic energy consumption and most of the oil produced is targeted toward export. In 2007, Qatars oil production
was 1.2 mn bpd and its crude production and reserves were the lowest among OPEC member countries.
Qatar TotalOilProductionandConsumption

Qatar TotalProvedOilReserves
15.21

15.21

15.21

15.21

15.21

15.21

1200
Thousandbarrelsperday

billionbarrels

16
12
8
4

900
764

2003

2004

2005

2006

2007

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

54

55

65

1110

1197

300
59
2002

2002

1028

600

879

992

53
2003

2004

TotalOilProduction(kbpd)

2005

95

79
2006

2007

TotalOilConsumption(kbpd)

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

April2009

SpotlightonEORwithnonewdiscoveries

Qatar Petroleum (QP) is focused on EOR projects to extend the life of oil fields. For instance, QP expected to boost capacity at its
largest onshore field (Dukhan) from 335,000 bpd in 2006 to 350,000 bpd in 2008.

Refinerycapacityadded,moretofollow

According to EIA, the countrys lone refinery (Umm Said)

has a capacity of 200,000 bpd. QP operates Qatars oil
pipeline network, which is primarily focused on delivering
supplies from the fields to Umm Said and export terminals.
QP is building another refinery with a capacity of 146,000
bpd, and is considering a possible third unit with 200,000
bpd capacity.

Qatar Refinerycapacity

Thousandbarrelsdaily

Most new exploration and production (E&P) work is being

carried out by IOCs (including ExxonMobil, Chevron, and
Total) in offshore areas through Production Sharing
Contracts (PSC). While substantial E&P work is underway,
the last decade saw no new major oil discoveries. New oil
production capacity is anticipated to come from Maersk Oil
& Gas of Denmark, which operates the offshore Al
Shaheen field.

200
180
160
140
120
100
80
60
40
20
0

200

200

200

200

200

2003

2004

2005

2006

2007

58

2002

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

Caseofplentywiththelargestnonassociatednaturalgasfieldintheworld

According to BP, Qatar holds about 15% of total world natural gas reserves, the third-largest after Russia and Iran. Most of Qatars
natural gas is located in the massive offshore North Field, which holds more than 25 tcm of proven natural gas reserves and is the
worlds largest non-associated natural gas field. Qatars natural gas production recorded a CAGR of 12.5% during 2002-2007, led by
a surge in global demand. The government continues to focus on developing gas production further as evidenced by the November
2008 award of another exploration license to Wintershall.

Qatar TotalProvedGas Reserves

25.8

25.8

25.8

25.4

25.4

25.6

25
20
15
10

Billioncubicmetres

Trillioncubicmetres

30

Qatar TotalGasProduction andConsumption

70
60
50
40
30
20
10
0

59.8
39.2
29.5

31.4

11.1

12.2

2002

2002

2003

2004

2005

2006

2007

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

2003

15.0

2004

TotalGasProduction(bcm)

45.8

18.7

2005

50.7

19.6

2006

20.5

2007

TotalGasConsumption(bcm)

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

Condensate and natural gas liquids (NGLs) do not fall under Qatars OPEC quota obligations, and are significant beneficiaries of the
ongoing thrust to natural gas. Qatargas currently has a processing capacity of 13.8 bcm and has kicked off ventures to target LNG
exports of 57.9 bcm by 2010. If development plans at both Qatargas and RasGas's facilities proceed on schedule, Qatar's capacity
could increase to 108 bcm by the end of the decade.

55

OilandGasintheMENARegion

7.3.6 SaudiArabia
Saudi Arabia is the worlds largest producer and net exporter of total
petroleum liquids. It is second only behind Russia in terms of crude oil
production. The economy remains heavily dependent on oil and related
industries, like refining and petrochemicals. Oil export revenues accounted
for around 88% of total Saudi export and 54% of the country's GDP in 2007.
The state-owned oil company Saudi Aramco, which is the worlds largest
company in terms of proven reserves, dominates the operation of the countrys hydrocarbon sector.

One-fifth of the world's proven oil

reserves, lowest production costs
Saudi Arabia has all the bearings to
stay at the top

IndustryStructure

MajorOil/GasTerminals

MajorOilFields
MajorPipelines(capacitymnbpd)

MajorRefineries(capacityJanuary1,2007E)

MajorGasProcessingFacilities(capacity,2006E)

TheSupremeCouncil(formedbyroyalfamilymembers,industryleaders,ministersetc.)
governs the nationalized oil industry. The Saudi Arabian Oil Co. (Saudi Aramco) takes
careofcrudeandnaturalgasproduction,refining/processingandmarketing.TheSaudi
BasicIndustriesCorp.(SABIC)controlsthecorrespondingframeworkforpetrochemicals.
RasTanuraFacility(over6mnbpd)
RasTanuraPort(2.5mnbpd)
RasalJu'aymah(33.6mnbpd)
Yanbu(over6mnbpdcapacity,ofwhich4.5mnbpdcrude,remainderproducts/LPG),
Jubail,Jiddah,JizanRasalKhafji,Rabigh,Zuluf
Abqaiq,AbuSaafa,Berri,Ghawar,Khursaniya,Najd,Qatif,Safaniya,Shaybah,Zuluf
Domestic:AbqaiqYanbuPetroline(5.0),AbqaiqYanbuNGLline(0.3);
International:SaudiArabiaBahrain(estimated0.7),SaudiArabiaIraqorIPS(1.6closed
sinceAugust1990),TransArabiaTapline(0.5closedsince1984)
Aramco Rabigh 400,000 bpd, Ras Tanura 550,000 bpd, Yanbu 235,000 bpd, Riyadh,
120,000bpd,Jeddah85,000bpd;
SaudiAramco/MobilYanbu400,000bpd;
Petromin/ShellalJubail305,000bpd;
Haradh (0.04 bcm/d), Hawiya ( 0.04 bcm/d.), Uthmaniya (0.07 bcm/d), Shedgum (0.07
bcm/d),Berri,Juaymah,Yanbu(allcondensates,NGLs)
Source: IEA, Blominvest

Largestreservesbasealready,couldgrowevenfurther

According to the Oil and Gas Journal, Saudi Arabia has approximately 267 bn barrels of proven oil reserves, which equates to
roughly one-fifth of proven, conventional world oil reserves. The kingdom has around 100 major oil and gas fields and more than
1,500 wells. Over half of the oil reserves are concentrated in eight fields, including the giant 1260 square mile Ghawar field. A recent
announcement in January 2009 declared the discovery of five new oil fields by Saudi Aramco.
SaudiArabia TotalProvedOilReserves

SaudiArabia TotalOilProductionandConsumption

262.79 262.73 264.31 264.21 264.25 264.20

Thousandbarrelsperday

billionbarrels

270
240
210
180

10000
7500

8928

10638

10164

11114 10853
10413

5000
2500

1572

1684

1805

1891

2005

2154

150

2002
2002

2003

2004

2005

2006

2007

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

2003

2004

TotalOilProduction(kbpd)

2005

2006

2007

TotalOilConsumption(kbpd)

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

Deeppocketsandgrandplans,aretheyenough?

While the oil prices were touching record highs in mid 2008, Saudi Aramco announced an ambitious five year plan to pump in USD
129 bn into new energy projects during the 2009-2014 period. In the first and second quarters of 2008, Saudi Arabias production
rose to an estimated 9.2 mn bpd of crude oil, representing approximately 13% of total world crude production. However, on October
24, 2008 in an unscheduled meeting, OPEC decided to cut oil production by 1.5 mn bpd to stem the collapse in oil prices. In
response, Saudi Arabia reduced oil production by 466,000 bpd, which formed a whopping 31% of the total OPEC cut. With the

56

April2009

southward price trend showing no signs of correcting in the short term, the projects financial viability and actual investment levels
remain to be seen.

Steppingupgrowththroughpublicprivateparticipation
SaudiArabia Refinerycapacity
Thousandbarrelsdaily

Saudi Arabia has seven domestic refineries, with a combined

crude throughput capacity of around 2.1 mn bpd, of which
Aramcos share is approximately 1.7 mn bpd. Aramco also
has overseas interests in another 2 mn bpd of refining
capacity. The Saudi Aramco development plan calls for a
USD 70 bn investment in the sector, increasing its total
refining capacity to about 6 mn bpd by 2011, particularly
stirred by demand from the fast-growing Asian markets. In
order to support increased export capacity, Saudi Aramco
has announced the construction of more than 830 miles of
new oil, natural gas and NGL pipelines of varying sizes and
lengths by 2009.

2075

2200
2000

1810

2100

2100

2100

1890

1800
1600
1400
1200

1000
One of Saudi Aramcos strategies includes increasing private
investment through joint ventures in refining activities, for
2002 2003 2004 2005 2006 2007
which MoUs offering 30% share to the public, were signed on
two projects in 2006 (Jubail and Yanbu).
Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

The Saudi domestic natural gas market, traditionally the domain of Saudi Aramco, is slowly and cautiously being opened to private
investment both in exploration and distribution. The backbone of the non-associated gas exploration strategy rests on foreign
consortiums exploring onshore gas and condensate (natural gas liquids). Although there have been limited gas discoveries, the
subsidized gas prices for domestic sales may render exploration uneconomical.

Gaswillalwaysplaysecondfiddle

SaudiArabia TotalProvedGas Reserves

8.00
Trillioncubicmetres

According to BP, Saudi Arabia has the fourth largest proven

natural gas reserves in the world, estimated at 7.17 tcm and
expected to reach 7.80 tcm by end 2013. Almost one-third of
the reserves, are in the Ghawar oil field in the form of
associated gas, and in other large fields like Safiniya and
Zuluf.

6.65

6.75

6.83

6.82

7.07

7.17

6.00

Billioncubicmetres

4.00
During 2002-07, Saudi Arabia experienced an increase in gas
production at a CAGR of 5% as compared to the world
production CAGR of 2.9%. The government is promoting
2.00
initiatives to reduce oil dependence and investing into non-oil
based developmental activities. Gas is used as a major
0.00
feedstock in the petrochemical sector and this has been a key
factor behind the CAGR for gas mentioned earlier, have
2002 2003 2004 2005 2006 2007
contributed to this growth. According to Saudi Aramco
forecasts, natural gas demand in the kingdom is expected to
Source:BPStatisticalReviewofWorldEnergy2008,Blominvest
nearly double to 0.41 bcm/d by 2030. Traditionally, the power
and desalination sectors, followed by petrochemicals and steel manufacturing, make up the majority of the demand for natural gas in
Saudi Arabia. Rising demand for power, particularly in summer months, will catalyze the focus on natural gas based production as
well.

Despite sizable reserves and increasing demand, dry marketed natural gas production and consumption in Saudi Arabia remains
limited (0.08 tcm in 2007). According to OPEC and other
SaudiArabia TotalGas Productionand
sources, an estimated 13-14% of total production is lost to
Consumption
venting, flaring, reinjection, and natural processes. The
situation is exacerbated by the fact that the majority of gas
80
10%
fields in Saudi Arabia are associated with petroleum
8%
60
deposits, and plans to increase production remain linked to
6%
an increase in oil production. For this reason, Saudi Arabia
40
has concentrated efforts to locate non-associated gas
4%
pockets both onshore and in offshore formations. In order to
20
2%
free up petroleum for export, all current and future gas
0%
0
supplies (except natural gas liquids) reportedly remain
earmarked for use in domestic industrial consumption and
2002
2003
2004
2005
2006
2007
desalination.
Production(bcm)
Consumption(bcm)

Consumptiongrowth(%)

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

57

OilandGasintheMENARegion

7.3.7 TheUnitedArabEmirates(UAE)
The UAE is a high-income, stable federation of seven emirates with the
second largest economy in the Middle East. Abu Dhabi is the countrys
foremost hydrocarbon and industrial power center, while Dubai is the
trading, financial, and tourism hub. Abu Dhabi and Dubai account for
80% of the UAEs income. The emirate of Abu Dhabi is the center of the
oil and gas industry, followed by Dubai, Sharjah, and Ras al Khaimah.
Almost two-third of the countrys energy needs is met through natural gas, and the remaining through oil. The country remains
dependent on oil revenues, which amount to 39% of the GDP.

The UAE holds the fifth largest proven oil

reserves in the Middle East and the fifth
largest proven natural gas reserves in
the world

IndustryStructure
Ports

MajorOilFields

MajorNaturalGasFields(production,bcm/d)
MajorRefineries

Abu Dhabi National Oil Company (ADNOC) operates 17 subsidiary companies in the
upstream,midstream,anddownstreamoilandgassectors
Abu Dhabi: Das Island, Delma Island, Jebel as Dhanna, Ruwais, Abu al Bukhush, Al
Mubarraz,ZirkuIsland,PortZayed,UmmalNar
Dubai:JebelAli,Fateh,PortRashid
Sharjah:Mubarak
AbuDhabi:Asab,Bab,BuHasa,AlZakum
Dubai:Fallah,Fateh,SouthwestFateh,Margham,Rashid
Sharjah:Mubarak(nearAbuMusaIsland)
AbuDhabi:AbualBukhush,Bab,BuHasa,UmmShaif,Zakum
Ruwais(350,000bpd),UmmalNar(150,000bpd),JebalAliDubai(120,000bpd)

Source: IEA,Blominvest

Planstoincreasecapacityfurther

The refining capacity stood at about 620,000 bpd across five

facilities as of 2007. The largest two are ADNOCs Ruwais
with a 350,000 bpd capacity and Umm Al-Nar with a 150,000
bpd capacity. A number of plans to add new refining units or
upgrade existing ones are underway.

UAE Total OilProductionandConsumption

3000
Thousandbarrelsperday

The UAE announced an increase in oil production capacity

from the current 3 mn bpd to 5 mn bpd by 2014. The
government is committed to infrastructure development and
deployment of enhanced oil recovery technology in mature
fields.

2500

2324

2611

2656

2753

333

355

376

2971

2915

2000
1500
1000
500

320

450

419

2002
2003
2004
2005
2006
2007
The Emirates have a network of domestic pipelines linking
fields with processing plants and exit ports for trade. There
TotalOilProduction(kbpd)
TotalOilConsumption(kbpd)
are also inter-emirate pipelines used primarily for natural gas
injection to increase oil recovery levels in existing Dubai oil
Source:BPStatisticalReviewofWorldEnergy2008,Blominvest
fields. Concerns over slowing global oil demand growth,
particularly in Asia, imply that export-oriented refinery projects in the Middle East are being postponed or shelved. However, refinery
upgrades and expansion projects designed to supply the domestic market are proceeding normally as local refined products
consumption continues to rise.

Increased demand for gas, can production keep

pace?

800
Thousandbarrelsdaily

Over the last decade, natural gas consumption in Abu Dhabi

doubled, and currently stands at around 43.2 bcm. On the
other hand, natural gas consumption in Dubai grew almost
10% annually. According to BP, oil and gas accounted for
61% of the UAEs primary energy demand in 2007. The
linking of domestic and international processing facilities will
promote the use of natural gas for power generation,
desalination and injection for oil fields. The Dolphin project a partnership to import natural gas from Qatar, is the most
prominent development in the UAE natural gas sector in the
past year.

UAE Refinerycapacity
711

645

620

620

620

620

2003

2004

2005

2006

2007

600
400
200
0
2002

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

58

April2009

UAE Total ProvenGasReserves

50

6.06

6.06

6.06

6.07

6.06

6.09

6.00
4.00

Billioncubicmetres

Trillioncubicmetres

8.00

UAE Total GasProductionandConsumption

49.2

45
43.4

44.8

40
35

36.4

37.9

46.3

47

40.2

41.3

47.4
41.7

43.2

2.00
30
2002

0.00
2002

2003

2004

2005

2006

2007

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

2003

2004

TotalGasProduction(bcm)

2005

2006

2007

TotalGasConsumption(bcm)

Source:BPStatisticalReviewofWorldEnergy2008,Blominvest

The UAE holds the fourth largest proven natural gas reserves in the Middle East after Iran, Qatar, and Saudi Arabia. The recent
slump in oil prices and rising energy prices have put a new focus on the large natural gas reserves even though high extraction costs
and sulfur content pose difficulties in extraction.
Despite ample gas production, the country is facing shortage mainly because of slow growth in gas infrastructure compared to the
increase in demand of gas. Minister of energy, Dhaen Al Hamli, has stated that the UAE will increase production of natural gas by
33% by the end of 2008. The Thamama formation in Abu Dhabi is the third phase of the Onshore Gas Development (OGD) and
aims to bring 0.03 bcm/d of natural gas from the Thamama reservoir at the Bab field by 2008. Shell and ExxonMobil are also
involved in technical studies for natural gas development at Shah and Bu Hasa, respectively. The government is working with many
countries and companies on pipeline development for the natural gas sector.

59

OilandGasintheMENARegion

7.3.8 Jordan

Jordans GDP growth in 2007 was over 6%, but forecasted to fall to 5.5% in 2008 and a further slowdown anticipated in 2009. FDI
inflow from neighboring oil-rich nations serves as a key driver of economic growth. The economy is well-diversified, with finance,
insurance, real estate and business services together contributing 17.5% to the GDP, public services accounting for 16.4% and
manufacturing for 15.7%.

OilandGasIndustryinJordan

IndustryStructure
Jordan's state Natural Resources Authority (NRA) promote oil

explorationwithinthecountry

MajorOilFields
AzraqBlock

MajorNaturalGasFields
Risha

MajorRefineries
Zarqa

Source:EIA,Blominvest

The elimination of oil subsidies in early 2008 increased prices of goods and services in Jordans domestic market. This coupled with
the devaluation of the dinar against major currencies, led to an increase in production costs, and has consequently reduced the
competitiveness of Jordanian exports.
Jordan is yet to discover any significant petroleum resources, and relies on imported crude oil and refined products to meet domestic
demand (around 112,000 bpd in 2007). The loss of highly subsided crude and refined oil following the March 2003 invasion of Iraq
was a serious blow to the countrys oil equation. As a result, the Jordanian Parliament adopted an IMF-supported reform strategy
that entails gradual adjustment and liberalization of tariffs on select petroleum products. Beginning July 2005, prices were adjusted
bi-annually and the goal was to fully eliminate subsidies by March 2007. In August 2006, the Iraqi Oil Ministry announced plans to
resume oil exports (approximately 30-35,000 bpd) to Jordan as part of a series of bilateral economic agreements. Like most oilimporting countries, Jordan also felt increasing fiscal pressure from the high prices till mid-2008.
The Natural Resources Authority (NRA) promotes oil exploration in the country, which is divided into nine exploration blocks, of
which six are open for private concession. Jordan is looking to attract investment in the upstream segment and its oil shale reserves
that could boost production and reduce growing energy import costs. In September 2008, French major Total and Brazil's statecontrolled Petrobras signed an MoU with Jordan's NRA to look into the possibility of commercial production from the country's oil
shale reserves. The country hopes to become self-sufficient and potentially even be able to export oil in the future through
exploitation of its shale reserves.
Moving downstream, Jordans total refining capacity was 90,000 bpd as of 2007. The countrys only refinery is the Zarqa Refinery,
wholly owned and operated by Jordan Petroleum Refinery Company. The refinery needs major upgrades as it can no longer meet
the fuel requirements of the domestic market. Zarqa was designed to produce a product mix skewed toward heavy fuel oil (and
particularly processing Iraqi crudes), which was originally needed to run electric power plants. However, the local market now
demands unleaded gasoline, kerosene and diesel, as electric power generation is switching over to natural gas. The government is
likely to open the downstream segment to competition as JPRCs monopoly is brought to an end.

7.3.9 Lebanon

According to the World Bank, Lebanons GDP grew 2% during 2007, and is expected to grow at 5.5% during 2008. The growth is on
account of a relatively stable political environment, and the increasing prominence of construction and exports. Private sector
consumption is rising, as a result of increased visits by Gulf citizens and Lebanese expatriate workers. Declining oil prices are likely
to shrink the countrys trade balance and enhance the competitiveness of Lebanons exports, which include machinery and
mechanical appliances, processed foods, and base metal articles.
Lebanon currently addresses its oil demand of about 106,000 bpd through imports primarily from the Kuwait Petroleum Corporation.
Supported by its geographic location, Lebanon was once a refining center for crude oil exported from Iraq and Saudi Arabia to two
Lebanese coastal refineries, Zahrani in the south, and Tripoli in the north. Due to years of internal and regional political unrest, the
refineries have not been operational for several decades. In April 2006, Lebanon and Qatar Petroleum International signed an MoU
to study the feasibility of building a refinery with a capacity of 150,000-200,000 bpd.
Lebanon is in the process of converting its power generating plants from oil to natural gas. To help meet this demand, a 26 mile
natural gas pipeline, called GASYLE 1, which links the Baniyas plant in Syria to the Deir al-Ammar-Beddawi power plant in northern
Lebanon was completed in March 2005. Lebanon announced plans to construct a second pipeline from Syria to the Zahrani power
station in the south of Lebanon, which would double the pipeline capacity. Lebanon has limited natural resources and virtually no oil
compared to its oil-rich GCC neighbors.

60

April2009

7.4

ListedOil&GasPlayersMultiplesComparison

In this section, we profile the largest (based on respective market capitalizations) oil and gas companies in the MENA region. Note
that we have only profiled the listed companies in the region to compare the financial performance and metrics of the various
players.

Company

Mkt.Cap.
(BnLocal
Currency)

P/E

EV/
EBITDA

P/B

P/R

PCF

EGYPT
AlexandriaMineralOilsCo.
3,271.80
3.17
2.55
1.80
0.47
3.04
MaridiveandOilService
588.80
4.10
4.09
1.44
1.48
2.84
NaturalGasandMiningProject
660.00
5.32
N.A.
N.A.
N.A.
N.A.
JORDAN
JordanPetroleumRefinery
195.52
8.46
7.15
2.54
0.08
N.A.
KUWAIT
BurganCo.forWellDrilling
110.51
13.65
11.69
2.83
3.65
12.81
IndependentPetroleumGroup
52.53
8.51
9.54
0.93
0.03
1.00
MENAHoldingGroup
119.99
6.28
N.A.
3.69
71.43
N.A.
Contracting&MarineServicesCo.
75.00
27.60
12.75
1.94
2.69
N.A.
NationalPetroleumServices
17.83
14.61
10.18
1.72
2.76
9.02
OMAN
AesBarka
6.37
7.28
6.95
2.31
1.54
3.07
NationalGasCompany
9.00
11.92
11.65
1.02
0.76
N.A.
RenaissanceServices
111.00
3.98
8.30
0.91
0.49
3.96
ShellOmanMarketingCompany
190.00
17.34
12.73
9.15
0.70
19.35
OmanOilMarketingCompany
7.10
14.59
0.08
N.A.
0.59
N.A.
QATAR
GulfInternationalServices
228.54
6.03
8.16
1.50
2.88
N.A.
QatarFuelco
413.00
4.44
3.43
2.08
0.55
N.A.
SAUDIARABIA
AlDreesPetro&TransportSvcs
65.00
11.58
8.21
2.11
0.58
7.27
RabighRefining&Petrochemicals
1,910.00
N.A.
N.A.
1.90
N.A.
N.A.
DUBAI
DanaGas
342.00
30.18
11.24
0.48
2.85
51.30
Note:PricesasonFeb16,2009.AllvaluationratiosareTTMbased,OperatingMetricsfor2008

61

DY

OM

10.90
3.98
8.94

17.76
37.89
N.A.

35.58
20.63
N.A.

1.62

1.73

2.38

30.00

1.54
7.62
N.A.
1.43
3.07

29.08
0.85
62.84
14.09
14.51

10.96
2.83
20.33
2.43
7.72

20.76
9.80
58.70
7.04
11.80

8.22
5.32
1.09
5.00
2.99

43.07
6.31
14.63
4.38
4.35

5.78
6.75
7.59
21.41
15.52

31.86
8.52
22.79
46.62
32.95

N.A.
4.12

44.29
13.02

11.85
24.34

24.90
46.94

4.85
N.A.

5.75
N.A.

8.44
1.33

18.21
4.64

N.A.

ROA

ROE

56.87
35.18
N.A.

15.32
1.04
1.58
Source:Bloomberg,Blominvest

OilandGasintheMENARegion

7.5

Oil&GasCompanyProfiles

7.5.1 AlexandriaMineralOilsCo
CompanyOverview

AMOCOilsCoataGlance
NoofEmployees
Corporate
Headquarters

1,250
Alexandria,Egypt

Revenue(EGP'000)

Segments

6,261,818

Production,Distribution,and
Marketing

Ownership

Public

Datefounded

1997

BloombergCode

AMOCEY

ReutersCode

AMOC.CA

ZawyaCode

AMOC

Director

The company specializes in the production of essential mineral oils,

paraffin wax and its derivatives, naphtha and butane. It distributes and
markets the products both in Egypt and abroad.
Its manufacturing facilities are spread over 500,000 square meters in
the Salina area in Alexandria. The company also operates four
laboratories involved in performing advanced chemical analysis. The
firm's lube oil complex opened in July 2002 with a capacity of 239,000
tons per year and its gas oil complex opened in April 2004 with a
capacity of 601,000 tons.

SeniorManagement
Chairman

Alexandria Mineral Oils Company (AMOC) was founded in 1997 by

Egypt's ministry of petroleum with the primary objective of catering to
the local market's petroleum products demand and export of excess
production.

AbdulrazekAbdulsalamAlKelbshawi
MoussaAlKelbshawi

MajorShareholders

Holding(%)

FY06

FY07

FY08

RevenuesGrowth(%)

KeyRatios

52

2.6

51.4

EarningsGrowth(%)

53.7

9.0

5.8

TotalAssetsGrowth(%)

16.7

5.9

8.1

18.81%

NetMargin(%)

19.7

21

14.7

SocialInsuranceFundforBusinessSector

5.10%

ReturnonAssets(%)

29.7

29.2

28.9

Government

47.63%

ReturnonEquity(%)

48.2

42.3

40.2

Public

24.89%

Alexandria
MineralOilsCo

Independent
Petroleum
Group

Jordan
Petroleum
Refinery

Price/Earning

4.6

7.6

52.2

Price/Book

1.8

0.9

3.7

Price/Revenues

0.7

0.1

0.1

EV/EBITDA

4.8

80.9

13.6

AssetTurnoverRatio

3.4

3.5

Revenue(USDinmn)

1150.9

2542.9

2568

AlAhliCapitalHolding

PeerGroupAnalysis

MarketCap.(USDinmn)
766.3
185.9
318.3
Source:Bloomberg

KeyFinancials
(EGPinmn)

FY06

FY07

TotalRevenue

4030.8

4134.7

6261.8

OperatingProfit

857.1

939.3

1151.9

NetProfit

795.6

867.4

917.9

Earnings/Share

FY08

9.2

10.1

10.7

TotalAssets

2883.8

3055.1

3303.7

TotalLiabilities

970.7

867.1

929.8

Shareholders'Equity
1913.2
2188
2373.8
Source:Bloomberg

62

April2009

7.5.2 DanaGas

DANAataGlance
NoofEmployees
Corporate
Headquarters
Revenue(SAR'000)

CompanyOverview

150
Sharjah,UnitedArabEmirates

Ownership

605,000
Exploration&Production
(Gas),Processing,
Transportation,Distribution
andSales
Public

Datefounded

2005

Segments

BloombergCode

DANAUH

ReutersCode

DANA.AD

ZawyaCode

DANA.ADSM

SeniorManagement
Chairman

HamidDhiyaJafar

ViceChairman

AdelKhaledAlSabih

GeneralManager

RashidSaifAlJarwan

MajorShareholders

Holding(%)

The UAE-based Dana Gas specializes in the exploration, production,

processing, transport, distribution, and sales of natural and liquefied
natural gas. The company also provides onshore and offshore
services, including delivery of gas, dry gas and associated petroleum
products.
The company is listed on the Abu Dhabi Stock Exchange. It has four
subsidiaries - The Sajaa Gas Company, the United Gas
Transmissions Company, Dana Gas LNG Ventures and Centurion
Energy International. The acquisition of Centurion Energy in 2007
allowed Dana Gas to enhance its upstream activities in natural gas
exploration and production throughout the Middle East.
The company has joined forces with the Arab Petroleum Investments
Corporation (APICORP) to build the Gulf of Suez Gas Liquids Plant,
which will process 150 million cubic feet of natural gas per day, when
completed. Dana Gass UGTC has implemented a joint venture
project with Emarat (on a 50:50 basis) to
develop the largest
gas pipeline in the UAE. The company ended the year 2007 with
32,000 barrels of oil equivalent per day upstream production.
DanaGas

NationalGas&
Industrialization

BurganCofor
WellDrilling

Price/Earning

30.0

8.7

10.5

Price/Book

0.5

1.3

2.5

PeerGroupAnalysis

CrescentPetroleumCompany

20.43%

Price/Revenues

4.4

0.9

3.6

Public

79.50%

EV/EBITDA

20.5

12.6

14.4

AssetTurnoverRatio
Revenue(USDinmn)

0.1
228.1

1.0
388.8

0.4
107.5

MarketCap.(USDinmn)

1029.2

352.7

389.9

Source:Bloomberg
Note:Sincethecompanystartedin2005,Keyratioshavenotbeencalculated

KeyFinancials
(SARinmn)
TotalRevenue

FY06

FY07

3.0

605.0

OperatingProfit

(6.0)

189.0

NetProfit

814.0

111.0

0.1

0.0

Earnings/Share
TotalAssets

6843.0

10851.0

TotalLiabilities

29.0

3744.0

Shareholders'
Equity

6814.0

7107.0

Source:Bloomberg

63

OilandGasintheMENARegion

7.5.3 BurganCompanyforWellDrillingTradingandMaintenance
ABARataGlance
NoofEmployees

1,600

CorporateHeadquarters

Kuwait

CompanyOverview
Established in Kuwait in 1970, Burgan Co. for Well Drilling, Trading &
Maintenance is engaged in the provision of exploration, development,
drilling services and maintenance of wells for oil and gas companies.

Revenue(KWD'000)

26,846

Segments

ExplorationandOil&Gas
services

Ownership

Public

Datefounded

1970

BloombergCode

ABARKK

ReutersCode

ABAR.KW

ZawyaCode

ABAR.KSE

The companys activities are supported by specialized departments,

such as transport and mechanical, and fabrication facility, which
manufactures port-cabins, used at the rig site for living facilities of
drilling and rig crew.
Burgan Co.'s two main clients are Kuwait Oil Company (KOC) and the
joint operations of Chevron-Texaco and KOC.
KeyRatios

SeniorManagement
Chairman/
ManagingDirector
ViceChairman

AhmadHamadAhmedAlHamad
FaisalAbdullatifYousefAlHamad

GeneralManager

MustafaIsmail

FY06

MajorShareholders

NA

53.1

15.5

NA

73.9

13.3

TotalAssetsGrowth(%)

NA

48.7

9.4

NetMargin(%)

31.8

36.1

35.4

ReturnonAssets(%)

NA

16.8

15.2

PeerGroupAnalysis

Holding(%)
20.71%

NA

33.8

27.2

BurganCo
ForWell
Drilling

AldreesPetroleum
andTransport
Services

DanaGas

10.5

12.5

30.0

Price/Earning

20.00%

Price/Book

2.5

2.1

0.5

30.67%

Price/Revenues

3.6

0.6

4.4

EV/EBITDA

14.4

8.5

20.5

AssetTurnoverRatio

0.4
107.5

1.83
282.5

0.1
228.1

231.0

1029.2

Revenue(USDinmn)
MarketCap.(USDinmn)

KeyFinancials
(KWDinmn)

FY06

FY07

FY08

TotalRevenue

15.2

23.2

26.8

OperatingProfit

4.8

9.0

9.2

NetProfit

4.8

8.4

9.5

Earnings/Share

0.0

0.0

0.1

TotalAssets

40.3

59.9

65.5

TotalLiabilities

22.1

28.3

27.1

Shareholders'
Equity

64

18.1

FY08

EarningsGrowth(%)

ReturnonEquity(%)

HamadAhmadAbdullatifAlHamadand
PartnersCompany
AhmadHamadAhmadAlHamadfor
GeneralTradingandContracting
Public

FY07

RevenuesGrowth(%)

31.5
38.4
Source:Bloomberg

389.9

Source:Bloomberg

April2009

7.5.4 ContractingandMarineServicesCompany

MARINOilsCoataGlance

NoofEmployees

20

CorporateHeadquarters

Kuwait

Revenue(KWD'000)

26,072

Segments

OilandGasServices

Ownership

Public

Datefounded

1973

BloombergCode

MARINKK

ReutersCode

MARI.KW

ZawyaCode

MARIN.KSE

Incorporated in 1973, Contracting & Marine Services Company is a

Kuwait-based company engaged in marine and oil contracting, as well
as services and maintenance work.
The company invests surplus funds in managed financial portfolios and
participates in the equities of other firms conducting similar activities.
Its subsidiaries are International Marine Construction Company (100%)
and Kuwait Drilling Company (51%). It also has stakes in Kuwaiti
Rocks Company (30%) and Easter United Petroleum Services Co.
(40%).
KeyRatios

SeniorManagement
Chairman/Managing
Director
ViceChairman
GeneralManager

FY06

FY07

16.1

(1.5)

13.6

EarningsGrowth(%)

246.2

59.4

(48.8)

TotalAssetsGrowth(%)

10.8

25.6

27.4

FaisalAbdulazizAlJasim
AhmadMahmoudEssaAl
Asfour

NetMargin(%)

21.4

34.6

15.6

ReturnonAssets(%)

10.9

14.6

5.9

ReturnonEquity(%)

PeerGroupAnalysis

Holding(%)

BayanInvestmentsCompany
KuwaithCementCompany
NationalManufacturingGroup

30.6

36.7

16.0

Contractingand
MarineServices

BurganCoFor
WellDrilling

DanaGas
30.0

20.1%

Price/Earning

14.1

10.5

33.3%

Price/Book

2.2

2.5

0.5

Price/Revenues

2.2

3.6

4.4

EV/EBITDA

11.3

14.4

20.5

AssetTurnoverRatio
Revenue(USDinmn)

0.4
97.7

0.4
107.5

0.1
228.1

MarketCap.(USDinmn)

329.7

389.9

1029.2

17.3%

FY05

FY06

FY07

TotalRevenue

23.3

22.9

26.1

OperatingProfit

3.1

2.8

4.1

NetProfit

5.0

7.9

4.1

Earnings/Share

0.0

0.1

0.0

TotalAssets

48.2

60.5

77.1

TotalLiabilities

18.4

20.0

33.8

Shareholders'Equity

29.8

40.5

43.2

Source:Bloomberg

65

FY05

RevenuesGrowth(%)
HishamSulaimanAlOtaibi

MajorShareholders

KeyFinancials
(KWDinmn)

CompanyOverview

Source:Bloomberg

OilandGasintheMENARegion

7.5.5 JordanPetroleumRefinery
CompanyOverview

JOPTataGlance
NoofEmployees

3,258

CorporateHeadquarters

Jordan

Revenue(JOD'000)

Ownership

1,819,110
OilRefining,Storage,,
Transportationand
Distribution
Public

Datefounded

1956

Segments

BloombergCode

JOPTJR

ReutersCode

JOPT.AM

ZawyaCode

JOPT.ASE

Jordan Petroleum Refinery is a Jordan-based public shareholding

company, engaged in oil refining, storage, transportation and
distribution of petroleum products.
The companys activities include oil refining, loading, transportation
and distribution of refined products, blending and marketing of lube
oil, manufacturing of drums and cans for lube oil products,
manufacturing of LPG cylinders, asphalt drums, and underground
tank storage.
In 2007, the company increased its bulk storage capacity to 1.58 mn
tons. As of 2007, Jordanian Petroleum Company had an annual
production capacity of 3.6 million tons per year and operated three
bottling plants and two oil refineries.
KeyRatios

SeniorManagement
Chairman

AdelAhmadAlQuda

ViceChairman

WaleedMethkalAsfor

ChiefExecutiveOfficer

AhmedHusseinAlRefai

MajorShareholders

Holding(%)

SocialSecurityCorporation

20.63%

IslamicDevelopmentBank

6.25%

Public

65.01%

KeyFinancials
(JODinmn)

FY05
30.4

43.0

13.2

EarningsGrowth(%)

52.3

31.8

4.4

TotalAssetsGrowth(%)

63.5

24.4

2.5

NetMargin(%)

0.6

0.3

0.2

ReturnonAssets(%)

2.0

1.0

0.9

ReturnonEquity(%)

11.2

7.5

7.2

Jordan
Petroleum
Refinery

QatarFuel
Company

Independent
Petroleum
Group

Price/Earning

52.2

4.4

7.6

Price/Book

3.7

2.0

0.9

Price/Revenues

0.1

0.6

0.1

EV/EBITDA

13.6

NA

80.9

1.9
1910.8

3.4
2542.9

1070.1

185.9

PeerGroupAnalysis

FY06

FY07

1124.0

1606.8

1819.1

AssetTurnoverRatio

OperatingProfit

15.3

18.6

21.2

Revenue(USDinmn)

3.5
2567.9

NetProfit

6.7

4.6

4.4

MarketCap.(USDinmn)

318.3

Earnings/Share

0.2

0.1

0.1

TotalAssets

409.1

508.8

521.6

TotalLiabilities

345.4

449.3

459.8

Shareholders'Equity

63.7

59.5

61.9

Source:Bloomberg

66

FY07

RevenuesGrowth(%)

FY05

TotalRevenue

FY06

Source:Bloomberg

April2009

7.5.6 ShellOmanMarketing
CompanyOverview

SOMSataGlance
NoofEmployees

230

CorporateHeadquarters

Oman

Revenue(OMR'000)

247,854

Segments

Storage,Distributionand
Marketing

Ownership

Public

Datefounded

1997

BloombergCode

SOMSOM

ReutersCode

SHEL.OM

ZawyaCode

SOMS.MSM

Shell Oman Marketing Company is an Oman-based joint stock company

engaged in supply and marketing of petroleum products and blending of
lubricants.

The company has a network of 115 Shell service stations and operates
a network of convenience stores under the brand name of Select
throughout the Sultanate of Oman. The average throughput per site
increased to 9.3 million liters in 2007, as compared to 8.6 mn liters in
2006, thereby delivering significant benefits in terms of cost to
operational efficiency to retailers. The company is also a member of the
Royal Dutch/Shell Group of Companies.

SeniorManagement
Chairman
ManagingDirector

KeyRatios

AndrewWood
FaisalKhamisAlHashar

MajorShareholders

Holding(%)

ShellOverseasInvestmentBV

20.00%

BVLichtenKrachtMaatschappij

20.00%

Public

36.20%

KeyFinancials
(OMRinmn)
TotalRevenue

FY05
183.5

FY06
226.5

FY07
247.9

OperatingProfit

8.3

10.1

12.6

NetProfit

1.8

8.9

11.1

0.1

0.1

0.1

Earnings/Share
TotalAssets

43.5

53.3

59.0

TotalLiabilities

21.7

30.1

33.7

Shareholders'Equity

21.8

23.3

25.3

Source:Bloomberg

67

The company operates a large petroleum fuel storage facility at Mina al

Fahal in Muscat, which is equipped to receive and load sea tankers. It
also provides fuel storage, handling, distribution and associated
services.

FY05

FY06

RevenuesGrowth(%)

FY07

31.3

23.4

9.4

EarningsGrowth(%)

40.3

19.6

24.0

TotalAssetsGrowth(%)

44.8

22.6

10.6

NetMargin(%)

4.1

3.9

4.5

ReturnonAssets(%)

20.3

18.4

19.7

ReturnonEquity(%)

35.9

39.6

45.6

ShellOman
Marketing

Aldrees
Petroleumand
Transport
Services

OmanOil
Marketing
Company

Price/Earning

14.7

12.5

12.8

Price/Book

8.7

2.1

4.1

Price/Revenues

0.6

0.6

0.5

EV/EBITDA

13.8

8.5

6.9

AssetTurnoverRatio

4.4
145.9

1.8

Revenue(USDinmn)

4.4
76.7

MarketCap.(USDinmn)

232.0

PeerGroupAnalysis

282.5
94.7
168.5
Source:Bloomberg

OilandGasintheMENARegion

7.5.7 NationalGasandIndustrializationCompany
CompanyOverview

NGICaGlance
NoofEmployees

1,913

CorporateHeadquarters

Riyadh,SaudiArabia

Revenue(SAR000)

1,391,520

Segments

Transportation,Fillingand
Distribution

Ownership

Public

Datefounded

1963

BloombergCode

NGICAB

ReutersCode

2080.SE

ZawyaCode

GASCO

Established in 1963 after a merger between National Gas Company

and Saudi Gas and Industrialization Company.

The company provides gas cylinders with 26.5 liters and 52.5 liters
capacity, supported by maintenance and delivery services and a fleet
of 350 gas carriers with a 40,000 liter capacity, and a further 42
carriers with a capacity ranging between 11,000 liters and 23,000
liters.

SeniorManagement
Chainman
ManagingDirector
GeneralManager

AbdullahAlAliAlNuaim
AbdullahAAliNaeem
AbdulazizSulimanAlHudaithi

MajorShareholders

The company provides transportation, filling and distribution of

liquefied petroleum gas. It also designs and manages the gas
networks for residential complexes, factories and farms. The company
sells and installs all sizes of gas tanks and accessories. The products
include cylinders, carriers and tanks. The company mainly operates in
Saudi Arabia.

Holding(%)

SaeedAliGhodranAlGhamdi

11.10%

PublicInvestmentFund

10.90%

Public

71.09%

FY05

FY06

FY07

RevenuesGrowth(%)

KeyRatios

1.9

4.6

3.9

EarningsGrowth(%)

44.8

(36.1)

23.9

TotalAssetsGrowth(%)

1.3

(20.6)

17.6

NetMargin(%)

13.6

8.3

10.0

ReturnonAssets(%)

11.0

7.8

10.1

ReturnonEquity(%)

15.3

10.5

13.6

NationalGas&
Industrialization

DanaGas

Aldrees
Petroleum
andTransport
Services

Price/Earning

8.7

30.0

12.5

Price/Book

1.3

0.5

2.1

Price/Revenues

0.9

4.4

0.6

EV/EBITDA

12.6

20.5

8.5

AssetTurnoverRatio

0.1
228.1

1.8

Revenue(USDinmn)

1.0
388.8

282.5

MarketCap.(USDinmn)

352.7

1029.2

168.5

PeerGroupAnalysis

Source:Bloomberg

KeyFinancials
(SARinmn)
TotalRevenue

FY05

FY06

FY07

1280.8

1339.8

1391.5

OperatingProfit

88.8

93.9

116.3

NetProfit

174.5

111.4

139.4

Earnings/Share

2.3

1.5

1.9

TotalAssets

1599.9

1270.0

1493.7

TotalLiabilities

432.1

317.0

392.7

Shareholders'Equity

1167.8

953.0

1101.0

Source:Bloomberg

68

April2009

7.5.8 AldreesPetroleumandTransportServicesCompany
CompanyOverview

ALDREESataGlance
NoofEmployees

3,000

CorporateHeadquarters

Riyadh,SaudiArabia

Revenue(SAR'000)
Segments

866,451
Transportationand
Distribution

Ownership

Public

Datefounded

1962

BloombergCode

ALDREESAB

ReutersCode

4200.SE

ZawyaCode

APTSCO

Aldrees Petroleum & Transport Services Company is a Saudi-Arabia

based company that operates through three main divisions, namely
Aldrees petroleum, Aldrees transportation services and super 2.
The petroleum division has a network of over 120 petroleum gas
stations, under the brand name Petrol. It is also entering into
agreements with government agencies and institutional clients for
the supply of fuel. The transportation services division provides
hauling services for institutional clients within the Kingdom of Saudi
Arabia and to neighboring countries.
The company's subsidiary (98%) is Aldrees Petroleum Transport
Services Company, Sudan, and it is engaged in marine, land and air
transportation sectors.

SeniorManagement

KeyRatios

HamadMohammad
Aldrees
AbdulilahSaadAldrees

Chairman
ChiefExecutiveOfficer

MajorShareholders

Holding(%)

AbdulmohsenMohammedSaadAldrees

8.50%

HamadMohammedSaadAldrees

6.70%

MajedHamadMohammedAldrees

6.00%

Public

78.80%

KeyFinancials
(SARinmn)

FY05

FY06

FY07

TotalRevenue

783.9

784.4

866.5

OperatingProfit

39.7

37.1

51.4

NetProfit
Earnings/Share

39.6

41.4

50.4

1.6

1.7

2.0

289.6

416.0

531.5

TotalLiabilities

85.6

170.7

235.7

Shareholders'Equity

204.0

245.4

295.7

TotalAssets

Source:Bloomberg

69

RevenuesGrowth(%)

FY05

FY06

FY07

25.9

0.1

10.5

EarningsGrowth(%)

4.1

5.3

21.7

TotalAssetsGrowth(%)

9.6

43.7

27.8

NetMargin(%)

5.0

5.3

5.8

ReturnonAssets(%)

12.9

11.7

10.6

ReturnonEquity(%)

19.5

18.4

18.6

Aldrees
Petroleumand
Transport
Services

Jordan
Petroleum
Refinery

QatarFuel
Company

Price/Earning

12.5

52.2

4.4

Price/Book

2.1

3.7

1.9

Price/Revenues

0.6

0.1

0.6

PeerGroupAnalysis

EV/EBITDA

8.5

13.6

NA

3.5
2567.9

1.9

Revenue(USDinmn)

1.83
282.5

1910.8

MarketCap.(USDinmn)

231.0

318.3

1070.1

AssetTurnoverRatio

Source:Bloomberg

OilandGasintheMENARegion

7.5.9 QatarFuelCompany

NoofEmployees

QFLSataGlance
880

CorporateHeadquarters

Doha,Qatar

Revenue('000)

4,715,546

Segments

DistributionandMarketing

Ownership

Public

Datefounded

2002

BloombergCode

QFLSQD

ReutersCode

QFLS.QA

ZawyaCode

QFLS.DSM

SeniorManagement

AbdullahBinHamadAlAttiya
Chairman

MohammedKhalifaTurkiAlSobai
ViceChairman

MajorShareholders
Holding(%)

QatarPetroleum
40.00%

Public
60.00%

KeyFinancials
FY05
FY06
FY07
(AEDinmn)
TotalRevenue

2,375.0
3,492.5
4,715.5
OperatingProfit
228.3
418.0
577.8

NetProfit
223.5
430.7
616.3

Earnings/Share
7.5
14.4
20.5

TotalAssets
1,651.5
2,229.7
2,698.6

TotalLiabilities
715.4
1,205.2
1,148.5

Shareholders'Equity
843.4
981.4
1,499.8

Source:Bloomberg

70

CompanyOverview
Qatar Fuel Company is a Qatar-based shareholding company
engaged primarily in the sales and distribution of refined petroleum
products manufactured by Qatar Petroleum.
Its services include offering fuel products through service stations
located throughout Qatar, jet fuel distribution, ship to ship bunkering,
bitumen and associated products distribution and lubricants
distribution. Its commercial fuel products include Premium Gasoline
90 Octane, Super Gasoline 97 Octane and Diesel. The company
also offers other support services, such as bitumen importing and
storing, operating service stations and offering car wash and repair
services.
The company holds capital shares of Qatar Jet Fuel W.L.L. (60%).
Qatar Fuel (WOQOD) Q.S.C. is headquartered in Doha.

KeyRatios

FY05

FY06

FY07

RevenuesGrowth(%)

57.1

47.0

35.0

EarningsGrowth(%)

147.2

92.7

43.1

TotalAssetsGrowth(%)

94.3

35.0

21.0

NetMargin(%)

9.4

12.3

13.1

ReturnonAssets(%)

17.9

22.2

25.0

ReturnonEquity(%)

34.7

47.2

49.7

QatarFuel
Company

Independent
Petroleum
Group

Jordan
Petroleum
Refinery

Price/Earning

4.4

7.6

52.2

Price/Book

2.0

0.9

3.7

Price/Revenues

0.6

0.1

0.1

PeerGroupAnalysis

EV/EBITDA

NA

80.94

13.6

Revenue(USDinmn)

1.9
1910.8

3.4
2542.9

3.5
2567.9

MarketCap.(USDinmn)

1070.1

185.9

318.3

AssetTurnoverRatio

Source:Bloomberg

April2009

7.5.10 IndependentPetroleumGroup

IPGataGlance

CompanyOverview

NoofEmployees

90

CorporateHeadquarters

Kuwait

Revenue(KWD'000)

678,881

Segments

DistributionandMarketing

Ownership

Public

Datefounded

1976

The Independent Petroleum Group (IPG) is a Kuwait-based company

engaged in the distribution and marketing of crude oil, petroleum
products, Liquefied Petroleum Gas, petrochemicals and fertilizers.
The firm also invests in companies in the oil and gas sector.
IPG has operations in the Red Sea, the Arabian Gulf, the Eastern
Mediterranean region and East Africa. It also has branches, in
London, Singapore and South Africa.

BloombergCode

IPGKK

ReutersCode

IPGK.KW

ZawyaCode

IPG.KSE

IPG's joint ventures are D&K Holding L.L.C.-Dubai, United Arab

Emirates, and Uniterminals S.A.L., Lebanon (50% of shares in each).
It also has investment stakes in associates, such as Inpetro SARL
(40%), Horizon Djibouti Holdings Ltd. (22.22%), Arab Tank Terminals
Ltd., Saudi Arabia, (36.5%), ENOC Bunkering (Fujairah) L.L.C. (25%),
United Arab Emirates, and Horizon Tangiers Terminals SA. (32.5%).

SeniorManagement
Chairman

KhalafAhmadAlKhalaf

ChiefFinancialOfficer

AbdullaAlKandari

ExecManagingDirector

WaleedJaberHadeed

MajorShareholders

KeyRatios

Holding(%)

CentralEnergyFund

10.16%

AlAhleiaInsuranceCompany

6.42%

UnitedFamilyCompany

5.08%

Public

78.34%

RevenuesGrowth(%)
EarningsGrowth(%)

TotalRevenue

FY05

FY06

FY07

479.8

471.9

678.9

OperatingProfit

4.0

1.8

1.3

NetProfit

7.3

6.1

6.7

Earnings/Share

0.1

0.0

0.0

TotalAssets

155.4

156.2

242.1

TotalLiabilities

97.0

97.5

184.9

Shareholders'Equity

58.4
58.7
57.3
Source:Bloomberg

71

20.5

(1.6)

43.9

(16.1)

(16.4)

10.4

39.9

0.5

55.0

1.5

1.3

1.0

ReturnonAssets(%)

5.5

3.9

3.4

14.8

10.4

11.6

Independent
Petroleum
Group

Jordan
Petroleum
Refinery

Alexandria
MineralOils
Co

Price/Earning

7.6

52.2

4.6

Price/Book

0.9

3.7

1.8

Price/Revenues

0.1

0.1

0.7

EV/EBITDA

80.9

13.6

4.8

Revenue(USDinmn)

3.4
2542.9

3.5
2567.9

2.0
1150.9

MarketCap.(USDinmn)

185.9

318.3

766.3

AssetTurnoverRatio

KeyFinancials
(KWDinmn)

FY07

NetMargin(%)
ReturnonEquity(%)

FY06

TotalAssetsGrowth(%)

PeerGroupAnalysis

FY05

Source:Bloomberg

OilandGasintheMENARegion

7.6

Acronyms

ADNOC

AbuDhabiNationalOilCompany

AMOC
API
APICORP
Banagas
Bapco
bcm
Bn
Boe
BP
bpd
Btu
CCS
CFTC
DPR
ECHEM
EGAS
EGPC
EIA
EIU
EMRA
ENOC
EOR
EPC
FDI
GANOPE
GCC
IEA
IMF
IOCs
IPG
IPIC
KGOC
KNPC
KOC
KOTC
KPC

AlexandriaMineralOilsCompany
AmericanPetroleumInstitute
ArabPetroleumInvestmentCorporation
BahrainNaturalGasCompany
BahrainPetroleumCompany
BillionCubicMeters
Billion
Barrelsofoilequivalents
BritishPetroleum
Barrelsperday
BritishThermalUnit
Carboncaptureandstorage
CommodityFuturesTradingCommission
Dividendpayoutratio
EgyptianPetrochemicalsHoldingCompany
EgyptianNaturalGasHoldingCompany
EgyptianGeneralPetroleumCorporation
EnergyInformationAdministration
EconomistIntelligenceUnit
EgyptianMineralResourceAuthority
EmiratesNationalOilCompany
Enhancedoilrecovery
Engineering,ProcurementandConstruction
Foreigndirectinvestment
GanoubElWadiPetroleumHoldingCompany
GulfCooperationCouncil
InternationalEnergyAgency
InternationalMonetaryFund
InternationalOilCompanies
IndependentPetroleumGroup
InternationalPetroleumInvestmentCompany
KuwaitGulfOilCompany
KuwaitNationalPetroleumCompany
KuwaitOilCompany
KuwaitOilTankerCorporation
KuwaitPetroleumCorporation

72

KPI
KUFPEC
LNG
LNG
LPG
LSDP
MEED
MEES
MMcm/d
mn
MOU
mtoe
NBP
NGL
NOCs
NOGA
NRA
OECD
OGD
OGJ
OMV
OOC
OPEC
ORC
PDO
PIC
PSA
R/Pratio
SABIC
SAMA
SaudiAramco
SCA
SRAK
SRC
tcm
TDM
TTF

KuwaitPetroleumInternational
KuwaitForeignPetroleumExplorationCompany
liquefiednaturalgas
Liquefiednaturalgas
liquefiedpetroleumgas
LowSulfurDieselProduction
MiddleEastEconomicDigest
MiddleEastEconomicSurvey
MillionCubicMetersperDay
Million
Memorandumofunderstanding
Milliontonesoilequivalent
NationalBalancingPoint
NaturalGasliquids
Nationaloilcompanies
TheNationalOilandGasAuthority
Jordan'sstateNaturalResourcesAuthority
OrganizationforEconomicCooperationandDevelopment
OnshoreGasDevelopment
OilandGasJournal
OsterreichischeMineralolVerwaltung
OmanOilCompany
OrganizationofPetroleumExportingCountries
OmanRefineryCompany
PetroleumDevelopmentOman
PetrochemicalIndustriesCompany
ProductionSharingAgreement
Reservestoproduction
SaudiBasicIndustriesCorp
SaudiArabianMonetaryAgency
SaudiArabianOilCompany
SuezCanalAuthority
SouthRubalKhaliCompany`
SoharRefineryCompany
Trillioncubicmeters
TravelDemandManagement
TitleTransferFacility