High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email [email protected] to buy additional rights. [link] August 16, 2015 7:34 pm Saudi Arabia’s hard choices on oil and regional influence Nick Butler Share Author alerts Print Clip Gift Article Comments The country’s interests lie in price stability for the next five years, writes Nick Butler Saudi Arabia's monarch, King Salman©AP King Salman bin Abdulaziz Al Saud of Saudi Arabia T he year 2015 is not going well for Saudi Arabia. The attempts of King Salman bin Abdulaziz al-Saud and his son Prince Mohammed bin Salman — who, not quite 30, is not just deputy crown prince and chief of the Royal Court but also defence minister and chairman of the supreme council of state oil company Aramco — to assert their authority in the region and in the oil market are failing. Barack Obama, US president, pointedly overrode Saudi concerns to reach a deal with Iran that is already transforming the regional balance of power. Concerns about Iranian influence led Saudi Arabia to intervene in Yemen, but the ill-conceived air campaign has achieved little beyond demonstrating the limitations of the Saudi military. The result is a humanitarian disaster with Houthi forces still in control of much of the north of Yemen. More ON THIS TOPIC Audio Saudi Arabia feels impact of low oil prices Saudi Arabia plans $27bn in bond issues EM Squared Saudi finances slip as FX reserves slide Saudi crude output hits record in June NICK BUTLER Russia is in trouble as energy prices fall Nick Butler Obama’s canny climate plan The reports are false – coal burns on The energy implications of China’s downturn Sign up now firstFT FirstFT is our new essential daily email briefing of the best stories from across the web Worst of all, perhaps, the US shale industry has not followed the script by obediently cutting back production as prices have fallen. On the contrary, costs have been cut and production this year will be higher than in 2014. Elsewhere, other producers have increased oil output to raise revenue. The price is back to $50 a barrel and falling. So, what next? The kingdom could move in one of two ways. It could seek to form a coalition of forces to counter Iran’s network of alliances in Lebanon, Syria, Yemen and Iraq. That may be why representatives of Hamas and of the Muslim Brotherhood have visited Riyadh in recent weeks. The result could be a decisive intervention against the Assad regime in Syria as well as an intensification of the conflict in Yemen. In the oil market, the kingdom could decide that, if $50 is not low enough to hurt the shale industry, it could aim for $40 and maintain the pain for longer. That could explain the heavy borrowing the Saudis have announced in the past two weeks. This intransigent approach, however, is not immutable. The alternative is a more realistic assessment of whether Saudi’s real interests are being well served by the current policies. The risk of even more strife is obvious. The bomb attack this month on a mosque near the border with Yemen shows that the enemy is within the gates. The threat of conflict spreading south from the Islamic State of Iraq and the Levant-controlled area of Iraq and north from Yemen is real. So is the possibility of low prices leading to more instability in the region and beyond. It is hard to see how those outcomes match the interests of those in power in Riyadh. To ensure their own survival in power the Saudi rulers need a period of calm. Internally, Saudi needs reforms such as the removal of hugely inefficient subsidies. Gasoline costs 16 cents a litre, which means an estimated $80bn a year in forgone export revenue. At the same time the oil price must be increased and stabilised. The king is 79; oil minister Ali al-Naimi is 80. Both perhaps have thought that the world oil market still operated as it did in the 1980s. It does not, and a pragmatic regime in Riyadh would accept that Saudi’s interests lie in a stable price, perhaps at $70 to $80 a barrel, for the next five years. That requires a serious cut in production of perhaps 2m barrels per day. Pragmatism is needed elsewhere too. The rivalry with Iran is real but there is still scope for co-operation — not least on the common objective of defeating Isis. Internationally, Saudi Arabia needs friends. Its record on humÂan rights — with 102 people beheaded this year, according to Amnesty International — is giving the country a pariah status. Only reform and modernisation can change attitudes. These are not easy choices and nothing is certain. On balance, a change of policy before the end of this year seems more likely than not, even if it means a transfer of power and the departure of the deputy crown prince. Over the years caution rather than assertion has served the Kingdom pretty well. At the moment, however, rational outcomes cannot be taken for granted in the Middle East.
Combine the Saudi angle with the Futures contracts that US Shalers have been enjoying (due to end soon) this will put a serious dent on the Shalers ability to service debt and stay in business....US shale oil production could fall very quickly as these guys run out of cash
From the SBP...Fastnet has already identified a number of healthcare companies as possible takeover targets if the company’s shareholders approve its plans to exit the oil and gas exploration industry. If the switch is voted through, Fastnet will look to become a similar vehicle to Malin, the biotech investment fund that joined the Irish stock exchange in March and is now worth more than €450 million. It is also considering proposals that would allow a potential target to do a reverse takeover into Fastnet if the deal was right. Fastnet has almost $16 million (€14.3 million) in cash to invest in potential deals and it is thought that several companies have already approached it. Fastnet, which has assets off the Irish coast and in Morocco, called time on its role in the energy industry last week, just over three years after launching on the stock exchange. “The board has decided it doesn’t see a future in what we are doing in the Celtic Sea. Rather than keep on that track we have been pretty proactive and given the shareholders the right to vote and say, look folks, we’d like to get out of the oil and gas industry and do we have your permission,†Fastnet chairman Cathal Friel said. The company began a review of its options last year as the prospect of capitalising on its exploration licences diminished. It will hand back its licences to authorities in Ireland and Morocco once the shareholder vote takes place. Apart from the cash pile Fastnet is sitting on, the company has dramatically scaled back its overheads to just $600,000 and that figure may fall even further. The company said it hit on the healthcare and biopharmaceutical sectors as areas that are fast growing and offer potentially large returns. If shareholders back the proposals at a special meeting at the end of August, the company will change its name to Fastnet Equity. If it fails to pull off the new strategy in the space of 18 months it will wind up the company and hand back any surplus cash to investors. As part of the change of strategy, Fastnet chief executive Carol Law, an American with extensive experience in the oil business, is stepping down but will work out a three month notice period. Exploration firms have fallen out of favour with investors this year as the price of oil continues to slump. It fell to a six-year low last week as analysts slashed their price forecasts for this year and next. Oil prices have been hit by a fall in demand in the US, which is increasingly relying on different forms of energy sources and a glut of supply coming from the Middle East. On top of that, investing in Ireland’s oil and gas exploration sector has always been a risky bet. The chances of striking a major find are very slim. The last major discovery, at Corrib, is still not delivering onshore gas, decades after it was discovered. There was a further blow to offshore drilling last week with Lansdowne Oil & Gas abandoning a gas field it has been testing since July. Meanwhile, Providence Resources, which says it has discovered vast quantities of gas near to Fastnet’s Irish licence area, is still attempting to finalise an agreement with a major energy company to develop the field. The Department of Communications, Energy & Natural Resources is currently offering a number of licences to drill for oil and gas off the Atlantic coast. The deadline to submit applications is mid September. Shares in Fastnet rose initially on foot of the announcement. The stock has traded consistently below its net asset value per share of 2.9 pence this year and the move was welcomed by the markets. “The announcement is a stark statement of the conditions currently facing the industry, particularly for those trying to monetise offshore frontier areas,†analysts at British brokerage Panmure said in a note to clients.
What next for the Ocean Guardian? Currently 5 supply boats along side her, getting ready to move but where?
The man behind this latest move has a proven track record of making money. I don't care if its in Oil, Pharma or Pixie Dust...He gets results...
We can always trust the brokers to get it right...
Makes a lot of sense Sobeit, only time will tell...any day now
I emailed PVR yesterday and they confirmed that they are still talking to parties in relation to the Barryroe and Spanish Point assets. It aint over till its over
Greenline I would question your statement there, I have communicated with Mr Graham on several occasions and he has been consistently neutral and careful not to give away any information that is not already in the public domain...
Bound to be some nervousness prior to drill results...