ITP MEDIA GROUP / BUSINESS MAY 2020 • VOL. 16, ISSUE 05 OPEC+ finally struck a deal... but oil prices are still floundering. Analysts explore what it will take to survive the latest oil and gas crisis. WHAT’S NEXT?MAY 2020 / Volume 16 Issue 05 20 Diversity & incusion Shelly Trench of Boston Consulting Group comments on the state of diversity and inclusion in the oil and gas industry, and how it impacts innovation. 22 Oman focus Completions expert Tendeka comments on its work in Oman with a major operator, autono- mously reducing water production and improving oil recovery. 12 Cover: Where do we go now? This month’s cover features a lineup of analysts who explore the current market crisis and how oil and gas companies should adapt to survive. 08 Interview: SAEV CEO Majid Mufti, CEO of Saudi Aramco Energy Ventures, talks about the company’s role as a strategic investor, and its second $500 million fund. Highlights in this issue: ONE MINUTE WITH: Abdullah Al-Shaksy, co-founder and CEO of Oman-based Phaze ventures, on the nation’s startup ecosystem. 12 COVER STORY 3 IN THIS ISSUE oilandgasmiddleeast.com MAY 20204 IN THIS ISSUE oilandgasmiddleeast.com MAY 2020 05 ITP MEDIA GROUP / BUSINESS APRIL 2020 • VOL. 16, ISSUE 04 As Bahrain tries to ramp up offshore exploration, oil minister Sheikh Mohamed Al Khalifa comments on the nation’s ambitious plans with oil at $30 per barrel RISING TIDE Editor’s choice: • Bahrain’s oil minister on the nation’s upstream plans for 2020 • Oil & Gas Middle East Top 30 EPC Contractors • Video playlist: Interviews with industry leaders • Video: Middle East Energy Awards DOWNLOAD IT TODAY ON YOUR iOS, ANDROID OR KINDLE Also inside: App 26 34 05 / Editor’s letter Carla Sertin with her thoughts on the industry 08 / Face to face Majid Mufti, CEO of Saudi Aramco Energy Ventures, on his investment strategy 22 / Oman focus Tendeka writes about improving oil recovery in Oman 12 / What’s next? Analysts explore the oil market, areas of opportunity, and the future for oil and gas 34 / One minute with Abdullah Al-Shaksy, co-founder and CEO of Phaze Ventures, on Oman’s startup ecosystem 26 / Project focus Everything you need to know about Bahrain’s offshore exploration and production 28 / Project listing The latest projects in the region 06 / In numbers Rystad Energy sees little fat to cut in the oil and gas sector www.oilandgasmiddleeast.com 12 08 20 06 KEEP UP-TO-DATE For all the latest news, check out www. oilandgasmiddleeast .com 20 / Diversity & inclusion Shelly Trench, managing director and partner at BCG, comments on inclusion 22 Online5 oilandgasmiddleeast.com MAY 2020 EDITOR’S LETTER As an industry, we have gotten used to fluctuations in the oil market, but no one could have predicted the series of events that led to the current crash in oil prices, at one point to -$37 per barrel of WTI crude. I use the word “unprecedented” a lot these days. After the last oil price crash, the industry has had several phases of trends designed to build resilience, streamline business, and improve their bottom line. We have heard of operational excellence drives, digitalisation, localisation, and youth training, among others. While all of these factors are useful and incredibly important to any business, none of them can cure the lack of demand in the market, or provide more storage globally. This is a waiting game. Industries will not pick up again until the coro- navirus threat has faded and restrictions are lifted, allowing travel and the regular hustle and bustle of daily life to resume. Oil and gas companies have to use all of the tools they have acquired since 2014 to survive this period (which will certainly pass) and make it through to the other side. This is the emergency that you have (hopefully) been preparing for, and now is the time to leverage those lessons learned. I encourage you to flip to page 12 for comments from analysts about building resilience, leveraging storage opportunities, and what to expect in the months ahead. To all of my readers, stay safe and keep well. Carla Sertin Editor Oil & Gas Middle East There is not much we can do to remedy the ongoing crisis, but we should be prepared to wait it out. Waiting game SUBSCRIBETo subscribe to Oil & Gas Middle East, or other ITP Business titles, go to: www.itp.com/subscriptions. PO Box 500024, Dubai, UAE Tel: 00 971 4 444 3000 Web: www.itp.com Offices in Abu Dhabi, Dubai, London & Mumbai ITP Media Group CEO: Ali Akawi Managing Director: Sue Holt Deputy Managing Director: Anil Bhoyrul Editorial Editor: Carla Sertin Tel: +971 4444 3265 email: carla.sertin@itp.com Advertising Senior Sales Manager: Pankaj Sharma Tel: +971 4444 3510 email: pankaj.sharma@itp.com Photography Senior Photographers: Efraim Evidor, Adel Rashid Staff Photographers: Aasiya Jagadeesh, Yuliya Petrovich, Jessica Samson, Fritz John Asuro, Ajith Narendra Production & Distribution Group Production & Distribution Director: Kyle Smith Production Manager: Basel Al Kassem Senior Image Editor: Emmalyn Robles Circulation Distribution & Warehouse Manager: Praveen Nair Circulation Executive: Loreta Regencia Marketing Director of Awards & Marketing: Daniel Fewtrell Events Manager, Business Events: Teri Dunstan ITP Group CEO: Ali Akawi CFO: Toby Jay Spencer-Davies The publishers regret that they cannot accept liability for error or omissions contained in this publication, however caused. The opinions and views contained in this publication are not necessarily those of the publishers. Readers are advised to seek specialist advice before acting on information contained in this publication which is provided for general use and may not be appropriate for the reader’s particular circumstances. The ownership of trademarks is acknowledged. No part of this publication or any part of the contents thereof may be reproduced, stored in a retrieval system or transmitted in any form without the permission of the publishers in writing. An exemption is hereby granted for extracts used for the purpose of fair review. Published by and © 2020 ITP MEDIA Group FZ-LLC. THIS ISSUE: A line up of analysts consider the ramifications of the coronavirus and the path forward (p12).E&P operators to reduce supply chain costs by up to 12% in 2020 In the downturn of 2020, global E&P operators will only be able to cut supply chain costs by up to 12%, Rystad Energy analysis shows. The current crisis will not be able to unlock many additional efficiency and productivity improvements because much of the potential has been exhausted since the 2014 oil-price drop and not many inefficiencies have arisen since then. Overall, from the total expected cost compression in 2020, about 9% relates to service prices and 3% to efficiency improvements. We expect very simi- lar improvements within shale (-16%), offshore (-12%) and other onshore (-10%), leaving the cost competitiveness between these segments little changed. “Operators cannot rely on the supply chain to help them make uneconomic production and projects economic again in the very depressed oil market. This time around, the global oversupply and the demand destruction from Covid-19 will have to be resolved to get project economics back on track,“ says Rystad En- ergy’s Head of Energy Service Research Audun Martinsen. By contrast, the last oil-industry down- turn in 2015 and 2016 triggered massive programs to trim unit costs and improve efficiency, resulting in a total cost com- pression of around 37%. Within shale the cost compression was as much as 45% and for offshore 40%. In addition to this there have also been cost savings due to changes to design, downsizing and currency gains. Cost levels have been quite stable after the last round of improvements. More use of digital solutions has brought further gains in efficiency and productivity, but most of that has been balanced out by a modest price inflation across drilling contractors and well services as well as within labor rates. In fact, for pressure pumping there was a 40% increase in fracking prices from the trough in 2016 to the peak in 2018, but with a weaker fourth quarter in 2018 and a con- tinued weakening in 2019, frac prices are still the same as in the first quarter of 2017. Although fracking margins are still at 10% and overall margins for the top 50 companies have rebounded to 15%, we don’t expect to see much price deflation in 2020. In the offshore drilling segment there is some room for prices to come down as certain asset classes have seen rig rates improve 30%, but also here the supply-demand balance is significantly different than before the last downturn, making it harder to expect lower rates. NO FAT TO CUT Source: Rystad Energy Cost Service Analytics 6 IN NUMBERS oilandgasmiddleeast.com MAY 2020The previous downturn in 2015 and 2016 forced E&P companies to initiate major cost savings programs, and as they scaled back activity levels within offshore, shale and other onshore activities they were able to achieve much more competi- tive bidding and forced service companies to lower their prices. Shale service prices bottomed out in 2016 with a 23% drop, led by softer pric- ing within pressure pumping, proppant, land rigs and other well services. Offshore costs fell even more, with a 27% drop in service prices in 2017 as a heavily inflated segment such as floating drillings rigs was forced back down to $110,000 per day. The combined effect on the supply chain was a drop of 24% in service prices from 2014 to 2016. Service companies were quick to react to lower pricing by kicking off their own cost-cutting programs to send the reduced prices further down through the value chain. Thanks to efficiency and productivity measures, as well as existing long-term contracts with relatively good margins, the top 50 suppliers were still able to generate positive EBITDA margins of 14% in 2017, down from 21% in 2014. With a heavy debt burden they had to generate these levels of margins to cover their interest payments, depreciation and amortization. However, some sectors saw their mar- gins develop quite differently. Pressure pumpers saw margins in 2016 shrink to -5% on average from 20% in 2014, while US land drillers saw margins contract to 25% in 2017 from 40% in 2014 and subsea play- ers saw margins halve to 10% from 20%. The previous downturn’s total impact on costs is greater than what the reduc- tion in service prices and margins suggest. From 2014 and up to today there has been a great improvement in efficiency and productivity within the supply chain. Offshore drilling has reduced the time it takes to drill a well from 104 days in 2014 to only 70 days now. Within shale drilling efficiency has climbed from 17.5 wells per rig per year to 22 in 2017. 7 IN NUMBERS oilandgasmiddleeast.com MAY 20208 FACE TO FACE oilandgasmiddleeast.com MAY 2020 Tell me about Saudi Aramco Energy Ventures and the corporate venture capital programme. What was the motivation behind it? I lead the Aramco’s corporate venture capital (CVC) programme. The program has been running since 2012, we started making our investments in 2013, and over the past seven years we have managed to deploy a fair bit of capital into investments across 40 different opportunities. Traditionally, Aramco has been a It expands the capacity of development by cherry-picking the technologies that you are interested in and helping to accelerate that development and deployment into your own operations. Aramco is looking for tech transfer, a strategic objective alongside contributing to technology development. From the venture perspective, being business savvy and looking for a return on those investments is also great, so it is a win- win for all. The strategic investor Majid Mufti, CEO of Saudi Aramco Energy Ventures, comments on its investment strategy, its new $500 million fund, and some of its success stories INTERVIEW buyer of technology. Over the past 10 years, however, there has been a clear shift moving from buying technology to producing and contributing to technology development. Aramco has research and development centers, including the EXPEC ARC in Dhahran, as well as 12 global research centers focused on different mandates. Because technology development is important to the company, one additional avenue to pursue that goal is through the venture capital approach. 9 FACE TO FACE oilandgasmiddleeast.com MAY 2020 Why do you focus on Europe and the US? It is by design. When we first launched, we wanted to be in the ecosystems that are speaking to our areas of key interest. When you think about upstream oil and gas, our teams are situated in the northern shelf between Aberdeen and Norway. We also have a team in Houston. Being close to the oil and gas ecosystem as well as the startup community gives us access. Let’s talk about your portfolio. What success stories that stand out? In the upstream sector, we have made 16 deals. A company called Sekal, for example, that we sold recently with a great return, helps with real-time drilling decision support. As you are drilling, you are able to identify potential issues that might come up thanks to the machine learning in the software. We have a company called Inflow Control. This company has an incredible device, allowing you to stop the ingress of unwanted fluids, of gas and water during production. You are only producing the oil or the gas that you need, and that means real savings because there are fields with locked potential which can be produced again. We have deployed these technologies in the company and we are seeing amazing returns on them. How would you describe your investment strategy? We love to be a value adding investor. When we look to invest into a company, we start by looking at the technology, evaluating that technology and the value of that technology being adopted into Aramco’s operations, and we very quickly start putting a deployment plan in place. That is really important to some startups, because they are looking for more than capital from a strategic investor. We are a strategic investor because we bring a lot more to the table, above and beyond the money. We bring opportunities for these companies to pilot their technologies. And when they do, it is great for them to be hitting milestones with a company the size of Aramco, to say that we have tried this technology and it works. There is also the deployment opportunity—basically the demand on that technology or service. They are already very quickly working on proving the technology, collaborating with our engineers, and having the opportunity for us to purchase and provide revenue. For the most part, we sit on the board of our portfolio companies and we try to help the company grow and think about how they can commercialize and scale. Your investments range across the energy industry, including renewables. What is your main focus area, and has that changed since you launched? The verticals that we started off with were: Upstream oil and gas, downstream operations in petrochemicals, and ‘renew’, which is renewables, energy efficiency, and the water sector. These “WE ARE STARTING TO SEE THE STARTUPS THAT WE INVESTED IN BACK IN 2013 BECOMING READY AND RIPE FOR AN EXIT.” Majid Mufti, CEO, Saudi Aramco Energy VenturesNext >