Message from the Chairman

In 2017 the Oil glut finally started clearing. The remarkable compliance of Opec for the production cut well supported by Russia, ensured finally the demand supply balance is restored and the glut is removed as the inventory levels came closer to 5 year averages. Especially, the second half of 2017 was interesting with a clear shift in oil price support at above $50 levels and actually exiting at $65 levels. As I had mentioned in my last message, that oil price will find support at atleast $70 levels in the mid to long run, as the supply spare capacity is limited and the demand growth is continuing. Also, what is important is that whilst the US Shale growth story continues to break new records and is in a frenzy to increase the rig counts with every dollar increase in oil price, the outlook is becoming more challenging in keeping up with the growth momentum. In my humble opinion the Shale investors on one hand wants a bit of breather and make some cashflow at the higher oil price, coupled with pipeline infrastructure constraints, means the growth rate of shale oil production will decline although there will still be growth in shale oil production. Also, the service industry has already started to heat up. The service providers to the industry has suffered enough being reduced to marginal costing for too long, and will now start to increase their margins, as the demand for oil and gas services grow. Hence, as I had mentioned in my last message, incremental Shale oil will be much more costlier than what was initially anticipated.

Overall, I see the all too familiar cycle again, even though the supply disruption was significantly more pronounced through non conventionals this time, which is different from the past. The outlook for oil & gas remains strong, as even with all renewable alternatives, the world will continue to rely for a lion’s share from the fossil fuel. With Geo-political tensions continuing in the Middle East, Iran sanctions and overall very slim spare capacity on supply side, oil will have enough price support at current levels and oil price may actually grow in the short term.

As mentioned in many of my previous messages, Petrogas has historically managed well such down turns, through cost discipline and prudent operations and have actually come out leaner and stronger in the process, strategically positioning itself to ride the upswing. This time it was no different, and as we now can safely say we have come out of the downturn, it gives me great pleasure to reflect how well Petrogas coped with the challenges and have completely adapted itself, to ensure sustainable business at the low oil price environment. The challenge I throw to Petrogas management now, is to be wary of the fact that with increased oil price and relaxed financial situation, one must not become complacent and give away the cost discipline and efficiency we have managed to achieve, in the last three years.

2017 has been a fantastic year for Petrogas in terms of operations and production. Recently we reached the magical figure of 100,000 boepd gross production from all the assets where Petrogas operates or participate as a non-operator. This is a significant achievement for a company which is relatively young and is only in existence for less than two decades. Block 5 continue to outperform plan and is currently producing close to 52000 bopd, Rima continues to beat expectations on production. Unit cost of a barrel has seen further improvement in Daleel and Rima as increasing production levels was possible while cost is efficiently controlled. Successes in recent exploration and appraisal activities in Daleel and in Rima delivered much needed bookable volumes in fulfilment of our growth aspiration.

2017 was another excellent year with regards to HSE performance for Petrogas with no major incidents reported in any of the operations performed by Petrogas E&P, its subsidiaries and their contractors. Petrogas’ continual focus on HSE improvements has resulted in such achievement.

Petrogas continued its Corporate Social Responsibility by supporting local communities and NGO’s in and around the areas of its operations. In addition, Petrogas continued its investment in the In-Country-Value (ICV) of the services, equipment and materials sourced for Omani oil?eld operations under the initiative and guidance of Ministry of Oil and Gas. Petrogas is committed for the improvement of Omani content by grooming and developing young Omani employees for its future growth.

In Netherlands, Petrogas continues to successfully enhance production and add reserves and resources on assets taken over from Chevron. In 2017, it drilled three new offshore development wells to ensure, it continues to extend the maximum plateau production reached (facility capacity limit) and is developing a hopper of subsequent value adding project to maintain the production for many years to come. In this regard, it also acquired 3D seismic in 2017, around it’s A& B block areas, to further identify and mature resources. In 2018 the plan is to drill another 4 offshore wells and tap in the low cost environment, which is disappearing fast.

Overall, Petrogas is all set to stretch itself further in 2018, setting up targets of record production from all its assets, with significant capital deployment to continue the operational momentum. The program includes drilling over 90 wells at various parts of the business; including important growth-focussed wells.

Finally, I thank the Government of Oman, the Netherlands, Egypt, Mozambique, Denmark, Germany and the UK, our partners and stakeholders for their support.

I also thank our management and staff for successfully negotiating the downturn, where we tightened our belt to weather the storm. I am con?dent that Petrogas is now well positioned to grow the business in 2018, through maturing resources from its existing portfolio and through value adding acquisitions.

 

Dr. Mohamed Al Barwani
Chairman, MB Holding Company LLC