Message from the Chairman

2018 saw no reduction in oil price volatility. The year started with Brent at US$67/bbl, and prices rose steadily to reach a four-year high of US$81/bbl in September. This was mainly due to the belief that US sanctions against Iran and outages in Venezuela would lead to supply shortages. However, with the trade war between the US and China starting to bite into China’s growth, combined with increasing US oil exports, prices then fell steeply to finish the year at US$51/bbl. In December OPEC decided to cut 1.2 million barrels from October levels in a bid to encourage oil prices to climb back to their target US$70/bbl, so we won’t see the impact of this until well into 2019.

Ongoing political and trade uncertainties will continue to support oil prices, but other mid- and long-term trends seem to me to generate more downward pressure. For example, the previous oil production record in the US of 9.6 million barrels per day was achieved in 1970, but in 2018 that record was surpassed with an average production of 10.9 million barrels per day, and it looks like it will continue to climb strongly. The majority of that increase is fuelled by growing unconventional production, but also huge new fields in the Gulf of Mexico are coming onstream. With the lifting of the restriction on exporting crude oil from the US in December 2015, US oil exports continue to increase to well over 2 million barrels per day at year end. And this bites strongly into OPEC market share. If indeed another forecast comes true: that the US will become a net oil exporter as early as next year, OPEC will further lose influence to stabilise prices. We also hear that global demand for oil is growing more slowly than anticipated, as a combination of China’s growth rate reduction, increasing impact of natural gas on power utilities along with renewables and electrification, and more aligned global responses to climate change. Some authorities even predict oil demand could peak in 2025, with forecast 30% reduction by 2050.

So, as much as we’d all like higher, stable oil prices, my feeling is that we would be prudent to keep our costs low and to be mindful of adding new assets that help to maintain or even reduce our unit costs – as I challenged us in my prior report. This will put us in an even stronger position if indeed oil prices rise, and it will also ensure our sustainability in this highly competitive industry for many decades to come if prices do soften.

Whilst 2017 was a good year for Petrogas for operations and production, I’m delighted that 2018 was even better. Our production increased and combined with an average oil price of US$69/bbl in comparison to US$51/bbl in 2017 we saw our net profit after tax in positive territory, reflecting strong recovery after the headwinds of the downturn. Just as importantly, this turn-around performance was also achieved with continued focus and commitment on our care for people and the environment with no major incidents.

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 important Corporate Social Responsibility efforts by giving back to local communities and NGO’s in and around the areas of its operations. In addition, Petrogas continued its investment in the In-Country-Value of the services, equipment and materials sourced for Omani oilfield operations under the initiative and guidance of Ministry of Oil and Gas. Petrogas continues to be committed to the improvement of Omani content by grooming and developing young Omani employees for its future growth.

With these results and performance, I feel that Petrogas can stretch itself even more in 2019 and is well-positioned to grow the asset base further – both within the current countries and those that align to its growing skill-set.

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, as well as our partners and stakeholders for their continued support.

I also thank our management and sta? for their 2018 achievements and successfully positioning Petrogas for stronger growth in 2019.

 

Dr. Mohamed Al Barwani
Chairman, MB Holding Company LLC