Shale oil producers to face 4 risks next year, says Saudi bank

Updated 13 September 2017
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Shale oil producers to face 4 risks next year, says Saudi bank

JEDDAH: Shale oil production is seeing a recovery this year due to higher oil prices, and many in the industry forecast that producers will do well next year.
Saudi investment bank Jadwa Investment has however identified four risks that shale oil producers will confront next year that may affect the level of their output developments.
The first is the higher cost that shale producers face.
Despite a downturn in shale oil output in 2016, productivity gains and cost reductions helped producers maintain output at levels higher than some expected. Falling oil prices resulted in increased rig productivity, heavy cost-cutting measures and technological improvements, which drove down break-even prices of shale oil production.
One area in which costs are likely to rise is related to oilfield services, which includes the cost of rigs, equipment and personnel. Therefore, despite shale oil operators cutting costs in the last two years, not all of these reductions will be able to be carried forward.
“As a result, break-even prices of shale oil are projected to rise for first time in five years in 2017, to an average of $36.5 per barrel, although they are still 50 percent lower than their peak in 2012,” Jadwa said.
The second risk is that of higher debt costs.
Shale oil companies engaged in borrowing from high-yield debt markets face an even higher exposure to rising debt-servicing costs. In most cases, small-to-medium sized operators have turned to high-yield debt markets, and, “as we have highlighted above, this segment of finance has rebounded recently, with outstanding debt rising by $128 billion in last three-and-a-half years.”
Consequently, the ability of such smaller companies to service principal and interest payments, as interest rates rise, will become increasingly difficult. “Such a situation could, in the very least, reduce the amount of cash available for investing in drilling oil, and, at worst, result in another round of defaults and bankruptcy filings. The situation would, of course, be compounded if oil prices fell further below current levels,” Jadwa said.
The third risk involves oil prices falling further.
Jadwa said that there is a risk of low oil prices next year if the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC countries engaged in cuts decided not to extend their agreement and revert to their October 2016 production levels after the deal expires in March. The result of this would be a global oil balance surplus of 1.3 million barrels per day (bpd) and that would be expected for the whole of 2018. Such a situation would put pressure on prices and the situation would be even more worse than before, Jadwa said.
The fourth factor identified by Jadwa is that of hedge risks.
The latest available data shows that only 466,000 bpd of shale output has been hedged in 2018, with a declining number of hedges through to 2020, Jadwa said. If prices were to decline, “then we would expect to see a slow down in hedging activity through to 2020,” Jadwa said.
“Conversely, a rise in oil prices would encourage additional hedges at higher price levels, to be taken out.”


UAE to loosen visa rules for investors and innovators

Updated 21 May 2018
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UAE to loosen visa rules for investors and innovators

  • UAE cabinet announces the launch of an integrated visa system to attract talent and talent in all vital sectors of the national economy
  • The Council also announced changes in the system of foreign ownership of companies in the country, which allows the acquisition of 100% of the global investors by the end of the year

DUBAI: The United Arab Emirates, home to financial hubs Abu Dhabi and Dubai, is loosening its residency laws and will grant long-term visas for up to 10 years to investors and highly-skilled professionals.
The 10-year residency visas will be granted to specialists in science, medicine and research, and to “exceptional students.” The state-run WAM news agency says the plan aims to attract global investment and innovators.
The UAE Cabinet approved the new rules on Sunday, saying plans are also on track to allow foreign investors 100 percent ownership of their UAE-based companies this year.
His Highness Sheikh Mohammed bin Rashid Al Maktoum affirmed that the UAE will remain a global incubator for exceptional talents and a permanent destination for international investors. “The UAE has been open, governed by tolerance and contributed to by all who live on its land.
“Our open environment, tolerant values, infrastructure and flexible legislation offer the best opportunities to attract international investment and exceptional talent in the UAE,” he said. “Our country is the land of opportunity, the best environment for realizing human dreams and unleashing their extraordinary potentials.”
The new regulations include raising the percentage of global investors’ ownership in companies to 100% by the end of the current year. He directed the Ministry of Economy in coordination with the concerned parties to implement the decision and follow up on its developments and submit a detailed study in the third quarter of this year.
The new regulations approved by the Council of Ministers and the authorities concerned have also set the procedures for implementing them to grant investors residence visas of up to ten years for them and all members of their families, as well as granting residency visas of up to ten years for specialized competencies in the medical, scientific, research and technical fields.
The new regulations also include visas for students studying in the country for five years and a 10-year residency for exceptional students.
Under current laws, foreign companies must have an Emirati owning 51 percent of the shares, unless the company operates in a free zone. Major brands Apple and Tesla are believed to be exceptions to the rule.