We all need to remember, but often choose to forget, that oil is a highly cyclical sector. There have been seven significant price cycles since 1970 and also a few minor ones between times, so yet another should come as no surprise. The reasons for the fall in Brent crude prices from $115.19 in June to below $85 last week are well documented, as is the realization that OPEC is now defending market share, rather than a minimum price. That said, the nature of the oil business is very different now compared to after the 2008 crash.

It should be noted that 70% of the additional production that has come onstream since 2005 is unconventional. Much of this, of course, is from US shales - this is not cheap oil (mostly needing prices of $60-80 to be commercially viable) and decline rates are rapid - without ongoing drilling the current production capacity will be quickly eroded.

As in the past, the present downturn could be a great buying opportunity. In global E&P the NOCs rule and they will continue to invest; China has been the high spender and India's ONGC now plans a huge $180 billion foreign production acquisition spree. Likewise in oilfield services - acquisition opportunities are likely to present themselves for strategic and PE buyers, as was the case in the last downturn. Even without oil demand growth, vast numbers of new wells will need drilling worldwide each year to counter natural decline rates, probably some 80,000 in 2014 and more as demand grows again, boosting the demand for oilfield services.

Recent history suggests that oil price downturns tend to be short and measured in months, not years. There is plenty to suggest that, this time, it could be even shorter: rapid supply erosion is likely along with a healthy boost to GDP for net importers. Both high and low oil prices present opportunities for well-managed, well-financed companies that have a long-term view, as the oil & gas industry is not a short-term game. But the window of opportunity may well be very short before the next cycle begins.

www.douglas-westwood.com

NYC-based PIRA Energy Group believes that cyclical strengthening is currently underway in the global economy with the U.S. in a better position to support global growth. In the U.S., stock excess modestly widens. In Japan, crude runs ease, but crude stocks draw. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:

World Oil Market Forecast
Cyclical strengthening is currently underway in the global economy with the U.S. in a better position to support global growth. OPEC cannot rebalance oil markets because the surplus is too large. Even with PIRA's assumed substantial OPEC cuts at the upcoming November 27 meeting, supply will be over 1 MMB/D higher than demand in 2015. Oil markets will have to be rebalanced via price. The market will see greater contango but prices in the front of the market will inevitably be anchored by bullish medium term oil supply/demand balances.

U.S. Stock Excess Modestly Widens
This past week's inventory increase was slightly larger than the increase last year in the same week, widening the year-on-year inventory. Crude stocks still remain 2.1 million barrels below last year, middle distillate nearly 1 million barrels below, and gasoline 11.1 million barrels lower. Gasoline stocks are relatively low, but with resupply expected from higher runs and imports, gasoline has recently taken a drubbing. Not surprisingly, the one major product category showing a large surplus to last year's inventory is "other" products, which is mostly NGLs.

Japanese Crude Runs Ease, But Crude Stocks Draw
Crude runs eased, while crude imports declined sufficiently to draw crude stocks moderately. Finished product stocks resumed building with much of it being kerosene. Gasoline demand was modestly higher, and stocks posted a small draw. Gasoil demand was surprisingly weak, but lower yield tempered the stock build. Kerosene demand continued to run at seasonally low levels with higher yield, which boosted the stock build rate to a strong 132 MB/D. Refining margins remain soft with all the major product cracks, except for middle distillates (kero and gasoil) weakening.

The Sensitivity of Shale (and Other) Oil Production to Lower Price
We expect shale oil production to be relatively sensitive to a drop in oil prices, but the response will not occur immediately. A price lower than $80 on an LLS basis will reduce production, both due to the deterioration of the economics of the key shale plays as well as the reduction of cash flows and borrowing capability for the operators. However, the production impact during the first year will emerge slowly, as existing hedges, rig obligations and high-grading of drilling will initially temper the effect of lower prices. In the long-term, these impacts will grow substantially although lower activity levels should also eventually lead to lower costs, partially offsetting the price effect.

U.S. NGL Complex Spirals Lower
December Mont Belvieu propane futures continued to spiral lower, falling 5.4% to $0.86/gal the lowest price since July 2014. Ever increasing stocks and challenging export economics continue to complicate matters for the fuel/feedstock. Midcontinent propane markets were slightly better, only 3.4% lower, widening the Conway premium to 6.5¢/gal – the highest this season. Next week, falling crude prices will continue to drag on NGL prices while closed spot arbitrage economics will hinder exports to Europe and Asia.

U.S. Production Margins Improved After Declining for Eight Straight Weeks
The cash margins for U.S. ethanol manufacture rebounded the week ending October 17 as the market tightened. Ethanol was $1.78 per gallon in Chicago on Friday, up 21.9% from its $1.46 bottom on October 2.

U.S. Ethanol Stocks Fall to Seven-Week Low
U.S. ethanol inventories declined for three consecutive weeks, dropping to a seven-week low 17.9 million barrels. Ethanol production rebounded to 896 MB/D the week ending October 17, up from 885 MB/D during the preceding week.

The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA's current analysis of energy markets around the world as well as the key economic and political factors driving those markets.

The Khurais and Manifa projects in Saudi Arabia have the most recoverable reserves among the world's top 100 upstream developments, with approximately 19.4 billion barrels of oil equivalent (boe) and 13.7 billion boe, respectively, according to research and consulting firm GlobalData.

The company's latest report* states that these assets boast substantial recoverable crude oil reserves, with Khurais having 18.2 billion barrels (bbl) and Manifa holding 13.5 billion bbl. The projects also have recoverable natural gas reserves of 6.8 trillion cubic feet (tcf) and 1.4 tcf, respectively.

Robert Stevens, GlobalData's Lead Upstream Analyst covering the Middle East and North Africa, says that despite these impressive reserves, Saudi Aramco, which owns both fields, has encountered a number of difficulties during their development.

Stevens explains: "The Khurais project has the distinction of being one of the largest oil development projects in the world. The most recent activity saw 12 drilling rigs running simultaneously between 2006 and 2009, creating about 300 wells, with production beginning in June 2009.

"A major challenge for operations in the Khurais field is to increase the recovery rate of crude, but given the field's vast size, even a 1% increase in recovery rate would result in millions of additional barrels. Security is also a problem for Khurais, despite the sustained efforts of the Saudi Arabian government and Saudi Aramco."

A different set of issues faced the Manifa field, where most drilling activities and the construction of the central processing facility for crude oil production were undertaken on the coast.

Stevens comments: "Saudi Aramco and the contractors of the Manifa field confronted numerous environmental and economic obstacles during the development of the field.

"Environmental issues in the Arabian Gulf include earthquakes, which the contractors had to ensure the structures could withstand during construction."

Top 100 Global Upstream Developments Overview – Major Project Developments and Key Challenges

Since the first successful oil well was drilled by Shell-BP in 1956 at Oloibiri, Nigeria has acclaimed the status of Africa's largest oil producer and the sixth largest in the world. However, the Nigerian oil and gas industry has been engulfed in challenges with few success stories. The statistics are damning: the country loses approximately 215,000bpd to oil theft, at an estimated value of $8 billion a year.

It is pertinent to state that the troubles in the Nigerian oil and gas industry cannot only be blamed on regional instability, oil theft and religious extremism. With the upcoming general elections, the long-awaited Petroleum Industry Bill (PIB) which could help overhaul the beleaguered oil industry appears to be on the back burner, whilst the oil minister's claims of efforts made to secure pipeline infrastructure have not served as a deterrent to oil theft.

However, with the continuous investment of foreign players and the renewed involvement of local players, DW predicts that in 2015 Nigeria could drill 110 development wells both onshore and offshore. By the end of 2019 Nigeria's crude output could be 3.39 million barrels per day from its current output of 2.95 million. However, this is likely to be limited by lack of sufficient infrastructure and potential delays to final investment decisions pending the passing of PIB into law. With the right reforms and stability within the oil rich Niger Delta region, oil output would be sustainable over a longer period which could finally see the Giant of Africa roaring to hit its peak.

www.douglas-westwood.com

Oceaneering International, Inc. (NYSE: OII) reports record earnings for the third quarter ended September 30, 2014. On revenue of $973.1 million, Oceaneering generated net income of $124.3 million, or $1.16 per share.

For the third quarter of 2013, Oceaneering reported revenue of $853.3 million and net income of $104.4 million, or $0.96 per share. For the second quarter of 2014, Oceaneering reported revenue of $927.4 million and net income of $110.3 million, or $1.02 per share.

Sequentially, quarterly EPS was 14% higher on operating income improvements from all business segments, led by Remotely Operated Vehicles (ROV). Year over year, quarterly EPS increased by 21% on the strength of operating income improvements from Subsea Products and ROV. EPS for the first nine months of 2014 was up 18% over the comparable period in 2013.

M. Kevin McEvoy, President and Chief Executive Officer, stated, "We achieved record EPS for the quarter, demonstrating the high level of demand we experienced for our subsea services and products. Our results were highlighted by all-time high operating income from our ROV and Subsea Products businesses.

"We remain on track to achieve record EPS for 2014. For the fourth quarter, we are projecting EPS of $0.94 to $0.99. Given this outlook and our year-to-date performance, we are narrowing our 2014 EPS guidance range to $3.95 to $4.00 from $3.95 to $4.05.

"Compared to the second quarter of 2014, ROV operating income increased on higher global demand to support drilling and vessel-based projects and an improvement in operating margin. Our ROV days on hire for the quarter increased to a record high of over 25,200 and our operating margin improved to 31% from 28% due largely to a change in geographic operations mix, resulting in a higher average revenue per day-on-hire. During the quarter we put 14 new vehicles into service and retired five. At the end of September, we had 332 vehicles in our fleet, compared to 302 one year ago.

"Subsea Products operating income was higher due to increased demand for tooling and subsea work systems. Products backlog at quarter-end was $768 million, compared to our June 30 backlog of $850 million and $857 million one year ago.

"Subsea Projects operating income increased due to a seasonal uptick in U.S. Gulf of Mexico demand for diving services. Asset Integrity operating income improved due to activity increases in the United Kingdom and Australia, and a $2.5 million gain on the sale of a non-core operation that was part of our AGR FO acquisition in 2011. Advanced Technologies income increased due to higher profitability on vessel maintenance and engineering services for the U.S. Navy.

"During the third quarter, we repurchased 3.0 million shares of our common stock at a cost of $201 million. Year to date, we have repurchased 3.5 million shares at a cost of $237 million. The decision to repurchase our shares reflects our belief that Oceaneering's stock has been undervalued. It also underscores our willingness to return cash to our shareholders and confidence in Oceaneering's financial strength and future business prospects. We have 5.4 million shares remaining under our current Board of Directors share repurchase authorization. Year to date, we have spent $318 million on share repurchases and cash dividends.

"As previously announced, we reached agreement for $800 million of committed bank facilities, consisting of a $500 million five-year revolver and a $300 million three-year delayed-draw term loan, to provide us with increased financial flexibility.

"We are initiating 2015 EPS guidance with a range of $4.10 to $4.50, based on an average of 105.7 million diluted shares. While we are facing widely publicized concerns regarding the future of deepwater activity, our 2015 guidance is based on assumptions that service and product demand to perform life-of-field activities and develop new fields will be higher than in 2014 and global floating rig demand will be about the same.

"Our liquidity and projected cash flow provide us with resources to invest in Oceaneering's growth and return cash to our shareholders, and we intend to continue doing so. We generated EBITDA of $241 million during the quarter and $645 million year to date. For 2014 and 2015, we anticipate generating EBITDA of at least $845 million and $880 million, respectively.

"Compared to 2014, we anticipate all of our business segments will have higher operating income in 2015, notably: ROV on greater service demand to support drilling and vessel-based projects; Subsea Products on the strength of higher demand for tooling and installation and workover control system services; and Subsea Projects on growth in deepwater intervention service activity in the GOM and diving in the GOM and offshore Angola.

"For 2015 and beyond, we believe that the oil and gas industry will continue its investment in deepwater projects. Deepwater remains one of the best frontiers for adding large hydrocarbon reserves with high production flow rates at relatively low finding and development costs. With our existing assets and opportunities to add new assets, we are well positioned to supply a wide range of the services and products required to safely support the deepwater efforts of our customers."

Express Energy Services ("Express" or the "Company"), a North American oilfield services company, has announced that funds managed by affiliates of Apollo Global Management, LLC (NYSE: APO) (together with its consolidated subsidiaries, "Apollo") and participating management have agreed to acquire the Company from its existing shareholders. Terms of the transaction were not disclosed.

Express, founded in 2000, is a premier provider of products and services to the petroleum and energy industries. Offering oilfield services in every major hydrocarbon basin in the United States, Express assists its customers with six service lines, including casing and tubular running and completion and production services, and a workforce of approximately 1,700 employees in more than 30 locations.

"Apollo is one of the largest and most successful private equity firms in the world and possesses the type of deep energy expertise that we believe will enhance the value of Express Energy Services," said Darron Anderson, chief executive officer, Express Energy Services. "We are proud Apollo has chosen Express as a platform for oilfield services and are thrilled to partner with them to further develop and grow our business. We expect this transaction will provide considerable strategic benefits to our underlying business along with our customers and employees."

"We look forward to our new partnership with Express Energy Services and its outstanding management team and employees. We have been extremely impressed with the Company's culture of excellence, track record of operational success and strong commitment to training, safety and service quality," said Michael Jupiter, partner, Apollo Global Management. "We believe we are well positioned to help Express achieve its long-term growth strategies for its existing and future service line offerings."

Express will continue to be headquartered in Houston, Texas.

NYC-based PIRA Energy Group reports that PIRA's restructured U.S. gasoline balances provide greater clarity and insight. In the U.S., large crude stock build, small product stock draw, and widening commercial stock excess. In Japan, crude stocks build despite higher runs. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:

PIRA's Restructured U.S. Gasoline Balances Provide Greater Clarity and Insight
PIRA's restructured gasoline balances are in response to the steep decline in volume and the relevance of finished gasoline stocks and imports. The changes to the EIA's finished balance came about as a result of the decline in MTBE and the rise in ethanol, as the oxygenate of choice. We have compiled a total gasoline balance, but one that also separates the major sources of gasoline supply, namely refinery output, ethanol input, and total gasoline imports. In contrast, the EIA's refinery and blender production of gasoline is a combination of refinery production, imported blending components, and ethanol.

Large U.S. Crude Stock Build, Small Product Stock Draw, Widening Commercial Stock Excess
U.S. crude stocks built, but less than the build for the same week last year, so the crude stock deficit increased. The four major refined products built as opposed to a draw last year, so the deficit for this group narrowed. In combination, crude and the four major refined products are in deficit -17.8 million barrels. All other product inventories drew less than last year's draw, widening out the year-on-year excess.

Japanese Crude Stocks Build Despite Higher Runs
Crude runs rose and imports were sufficiently high to build crude stocks. Finished product stocks also rose slightly. Gasoline demand was fractionally lower and stocks built slightly. Gasoil demand was strong and stocks drew. Kerosene demand was surprisingly strong and yield declined, such that stocks built only fractionally and less than would have been expected. Refining margins remain soft with all the major product cracks weakening modestly.

World LPG Prices Plummet
Prices of LPG fell by 10% or more in most key markets last week amid broader energy and financial market weakness. U.S. LPG stocks continue to build to ever higher record levels. Strong price competition by naphtha in Asia has led to subdued petrochemical purchasing, while an unplanned cracker upset in the Netherlands has left the NWE butane market looking long. Perhaps the only bright spot is increased propane demand in Europe in a tighter prompt market, as U.S. arrivals of the product have remained low.

Ethanol Prices and Margins Decline
The descent in U.S. ethanol prices continued though Thursday October 2, driven by building inventories and falling consumption. Cash margins for ethanol manufacture declined for the seventh consecutive week to the poorest level since the beginning of February.

Ethanol Output Increases
U.S. ethanol production rebounded to 901 MB/D the week ending October 3 from a six-month low 881 MB/D during the preceding week as some plants completed their maintenance turnarounds. Stocks were down 177 thousand barrels to 18.7 million barrels.
The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA's current analysis of energy markets around the world as well as the key economic and political factors driving those markets.

Peterson Offshore Group BV, one of the leading energy services groups operating in the North Sea announces its consolidated results for the 12 months ending 31st December 2013.

North Sea revenues increased to £288m and operating profit increased by 9%, to £8.3m. The group's UK based companies, including Peterson UK Ltd and 80:20 Procurement Services Ltd contributed 52% of the group's operating profit, an increase from 33% on the previous year.

Significant growth was seen at Peterson's offshore supply bases in Shetland where it successfully delivered a logistics project in support of capital investment schemes occurring West of Shetland.

The group's operating companies invested a further £3.8m in buildings, plant and equipment in 2013 including a warehouse and office in the port of Aberdeen whilst simultaneously reducing the group's Long Term Liabilities from £9.6m to £5.8m.

In total, 120 new jobs were created within the UK operating companies during 2013. The majority of these roles were in Aberdeen and Lerwick to accommodate growth in demand for Peterson's core services.

Erwin Kooy, CEO of Peterson said: "We have experienced positive growth in all areas of our business, and in particular for our North Sea operations. As an organisation we think in generations, with our continued success testament to the commitment of our team and their focus on our vision and plans for future growth.
We have established international freight forwarding, recruitment, marine operations and procurement in our service offering. Most recently we established our offshore wind capability and will continue to develop our global operations and our range of integrated services."

In 2013, 7600 square metres of warehousing and two additional berths were added in Aberdeen to support growth in its supply base management services and new teams were created to support its logistics consultancy activities following contract wins in the Middle East and India.

Substantial investment was also made in the development of bespoke logistics software in response to a growing demand for smart solutions and innovation from its customers.

"The offshore logistics sector is a competitive environment and as such we constantly strive to improve and innovate our offering for clients," continued Erwin Kooy "With the development of our e-Logistics packages we can meet that challenge and also offer a number of additional benefits including time and cost reduction."

Platts – U.S. oil prices would have to fall another 20% or so before one of the leading American shale oil producers, Continental Resources, would cut back significantly on its operations, the company's CEO said Sunday on Platts Energy Week.

"We're hurt, but we're not to the point we're shutting down," Harold Hamm said. "And we're not getting close to that, yet, within a pretty good measurable amount, you know, $15 or $20. And certainly that's the case in the Bakken."

West Texas Intermediate (WTI) crude oil for December delivery fell 90 cents last week, to close at $81.01 per barrel (/b) Friday.

Hamm, whose company is the second-largest producer in the Bakken, said he was optimistic that the oil price decline would reverse soon.

"I've thought that we ought to be in the $90 range for sure," he said. "And I think the price will quickly come back to that."

Rising demand in China, primarily for transportation, would remain a key driver of world oil prices, he added.

Hamm said he preferred not to talk about the point at which oil prices would cause sharp declines in U.S. drilling activity.

"I don't like to go there, talking about where would you stop," he said. "That gets to be putting more fear into the market, if you will, and panic. And that's certainly not anything we should be talking about."

Nevertheless, such speculation has been prevalent among analysts following the oil price decline. For example, Standard & Poor's Rating Services last week said a reduction in U.S. shale drilling is likely if WTI prices fall below $80/b. S&P, like Platts, is part of McGraw Hill Financial.

Still, Hamm acknowledged that Continental Resources and other companies have begun to scale back some activities in response to the price decline.

"Certainly, we've had a serious reduction in price, losing some $20/b over these last few weeks," he said. "So, that's a pretty good pull-back. And certainly, people will probably start adjusting right there on projects that they can push back or don't have to do for a while. And our company has done the same thing, and others have."

But Hamm said the impacts vary depending on the locations of the wells, the financial needs of individual companies and other factors. The Bakken shale, he added, "probably lends itself to lower prices" more than other shale reserves.

Other Program Highlights

Also Sunday, Brigham McCown, a former head of the U.S. Pipeline and Hazardous Materials Safety Administration, shared some of the infrastructure challenges facing the U.S. oil and natural gas sector.

During another segment, Murray Energy CEO Robert Murray discussed his efforts to help Republicans re-take the U.S. Senate this November amid sentiment that the Obama administration and Democrats in Congress are contributing to the decline of coal.

In "Market Spotlight," Andrew Moore, managing editor of Platts Coal Trader, gave an overview of the myriad factors shaping the U.S. coal market.

Platts Energy Week airs at 8 a.m. U.S. Eastern time Sunday mornings on WU.S.A9 in greater Washington, D.C., and in Houston on KUHT, a PBS affiliate, as well as on other PBS stations in cities throughout the U.S., including Anchorage, Billings, Houston, Juneau, Las Vegas, Minneapolis, San Francisco, Raleigh and Wichita. For online viewing, the program is accessible at www.plattstv.com.

NYC-based PIRA Energy Group believes that falling crude prices and the resulting pressure on margins seen by producers may directionally provide less headroom for regulators to add additional costs to production via new or intrusive regulations. In the U.S., large stock changes: crude build and product draw. In Japan, typhoons throttle back crude runs, imports, and tempers demand. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:

Fracking Policy Monitor
Falling crude prices and the resulting pressure on margins seen by producers may directionally provide less headroom for regulators to add additional costs to production via new or intrusive regulations. Federal regulations with potential impacts on fracking production are still expected from President Obama's Methane Strategy, though EPA has shown an inclination towards expanding voluntary efforts as well. A decision on whether and how to regulate is expected soon, with any regulations to follow by end-2016. On the state level, the ability of localities to ban fracking via zoning authority continues to be a hot issue.

Large U.S. Stock Changes: Crude Build, Product Draw
Oil prices have no near-term anchor. This past week saw the second largest weekly crude inventory build of the year which was 1.0 million barrels greater than the rather large product stock decline. Week-on-week product stocks fell as reported demand increased, product imports declined and crude runs dropped to the lowest level since Spring maintenance. The crude inventory deficit narrowed while gasoline's stock deficit increased. Distillate, kero-jet and residual fuel oil inventories are virtually identical to last year.

Japanese Typhoons Throttles Back Crude Runs, Imports, and Tempers Demand
Crude runs eased back due to turnarounds and typhoon related impacts. Crude imports eased and stocks drew slightly. Finished product stocks posted a modest build. Gasoline demand was lower despite the "Sports Day" holiday, which normally should lift demand, but the typhoon impact appears to have dominated. Gasoil demand was predictably lower, with higher yield, and stocks built modestly. Refining margins remain very soft with all the major product cracks weakening.

World LPG Export Volumes Soaring
Global seaborne trade of LPG soared to record levels in September with volumes approaching 7 million metric tons of LPG. Total Middle East exports in September were roughly 3.0 million metric tons in the high end of the range this year but not near July 2013 highs of some 3.5 million. US Exports for September were approximately 1.4 MM metric tons, nearly 50% of the total Middle East volumes. Increasing US exports are the main driver pushing global waterborne trade to record levels.

U.S. Ethanol and Biodiesel Prices Rise
After falling for six straight weeks, U.S. ethanol prices found support at the $1.46-$1.50 per gallon level and increased the week ending October 10.U.S. biodiesel assessments rose back above $3 per gallon last week, but most producers failed to cover cash manufacturing costs.

Ethanol Output and Inventories Decrease
U.S. ethanol production dropped to 885 MB/D the week ending October 10, erasing most of the gains from the preceding week and edging close to the six-month low 881 MB/D set two weeks earlier. Stocks were down 295 thousand barrels to a five-week low 18.4 million barrels.

The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA's current analysis of energy markets around the world as well as the key economic and political factors driving those markets.

Deals decrease as operators wait for clarity over the future of the UKCS

Oil and gas operators may be sitting on new investment decisions until the future of the North Sea becomes clearer, according to the latest report from business advisory firm Deloitte.

The report, which details drilling, licensing and deal activity across North West Europe over the third quarter of 2014 and was compiled by Deloitte's Petroleum Services Group (PSG), found that four deals were announced offshore UK. This is slightly down on the five transactions reported in Q2 2014 and substantially lower than the 14 registered during Q3 2013.

Derek Henderson, senior partner in Deloitte's Aberdeen office, said the drop in deals may be down to North Sea operators continuing to wait for further clarity about the future of the UK Continental Shelf (UKCS).

In particular, firms are waiting for more detail about the implementation of the Wood Review, including formation of the Oil & Gas Authority, and changes to the North Sea's fiscal regime. These measures are due to be detailed in Chancellor George Osborne's Autumn Statement on 3 December.

Henderson said: "The industry continues to wait and see how the future of the North Sea will take shape. This is a particularly interesting year for the UKCS as it goes through a period of transition. There remains much change on the horizon and, as a result, many companies will be biding their time.

"All eyes will be on the Chancellor's Autumn Statement, where industry will be looking for measures which support the challenges of operating in this mature basin. Having spoken to a range of investors in the North Sea*, we know that a fiscal regime which is more predictable, with a lower tax burden is key for improving investor confidence. Incentives which will encourage exploration and appraisal activity, as well as new entrants to the region, are also a vital part of the equation.

"Ultimately, the UKCS needs to be internationally competitive if it is to attract the investment it requires to boost its future prospects. We've made all of these views clear in our submission to the fiscal consultation. This is the most important Autumn Statement for some time now, as it could be the last chance to get the fiscal regime right."

Meanwhile, the report also found 11 exploration and appraisal wells were drilled during Q3, up on the seven reported in the previous three months. This is consistent with the 11 announced during the same period last year.

However, price pressure and access to finance have remained issues on the UKCS. A large number of North Sea assets are on the market from some of the larger operators. Smaller companies, in some cases with limited budgets, tend to be the most likely buyers, creating a price differential in the market and potentially stalling deal activity.

Graham Sadler, managing director of Deloitte's PSG, said that although the number of new wells drilled was higher this quarter compared with the previous three months, the figures have been at a steady low for some time.

He said: "While it's encouraging to see an increase in the number of new wells drilled this quarter, we are starting from a low base. Until we see the incentives required to encourage further exploration and appraisal activity, drilling could remain muted in the short to medium term.

"During this period of transition, costs have remained high for North Sea firms, access to finance has remained difficult and the price of oil has dropped to as low as US$95 this quarter. This combination of factors continues to make the economics of extraction more difficult for operators."

The report also found that one field had been approved on the UKCS in Q3 2014, down on the five reported the previous quarter. However, this was consistent with the same period last year when just one field received development approval.

Deloitte will release its report "Making the most of the UKCS: The oil and gas fiscal framework: Is it fit for purpose?" later this month. The report draws insight from interviews conducted with companies from across the oil & gas industry about their views on the North Sea's current fiscal regime.

NYC-based PIRA Energy Group reports that PIRA is cautiously optimistic the global economy will withstand the Fed's policy shift. In the U.S., stock build slows. In Japan, crude runs perk up, crude stocks draw. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:

World Oil Market Forecast, September 2014
PIRA is cautiously optimistic the global economy will withstand the Fed's policy shift and lift into next year with growth above trend. Despite this, and a rebound in oil demand growth, oil market balances are forecast to deteriorate in 2015. Low first half 2014 stocks hid blemishes but now that inventories have rebuilt.

U.S. Stock Build Slows
Overall inventories increased this past week with crude stocks declining, while product stocks increased. The product inventory increase was 4 million barrels greater than the week earlier as reported demand fell, product imports increased and runs were trimmed. Runs were higher than PIRA forecast as the industry ran just about every bit of capacity it could to take advantage of attractive margins before capacity goes down for maintenance.

Japanese Crude Runs Perk Up, Crude Stocks Draw

Crude runs rose and crude imports declined such that crude stocks drew. Finished product stocks continued rising. A good part of the rise has been in kerosene, which is strictly seasonal. But gasoline and gasoil have also posted modest stock builds. Refining margins remain soft.

Latin America Oil Market Forecast
Latin American refining capacity is constrained in 2014 by refinery maintenance leading to increased product import growth and higher crude exports, particularly in the 4th quarter. Latin American economic growth prospects have been ratcheted down in the last few months. With slower demand growth and returning/expanded refinery capacity next year, product import growth will not be as strong. Nearly all other Latin American countries are also seeing substantial product imports from the United States which supplies about 80% of regional import needs for diesel.

Asia Leads World LPG Markets Lower
November propane FEI futures fell 5.1% to $821/MT, the lowest price in six weeks. The markets are posturing for tomorrow's announcement of October contract prices by Aramco. The latest CP futures markets are betting that propane CPs are lowered by $10/MT, while the weighted average of September trading indicates that prices could remain unchanged from September at $745/MT. Butane's premium to propane was stable in September, falling $3 to $34/MT.

Ethanol Prices Plummet
The downward spiral in U.S. ethanol prices accelerated, with values pressured by soaring inventories, weak consumption, and higher production. Cash margins for ethanol manufacture declined for the fifth straight week to the poorest value since February.

The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA's current analysis of energy markets around the world as well as the key economic and political factors driving those markets.

States and International Oil Companies (IOCs) are banking on the Arctic as a major source of future oil and gas production, but the high costs and risks involved with operations in the area mean that an attractive fiscal regime is essential if developments are to be commercially viable, says an analyst with research and consulting firm GlobalData.

Will Scargill, GlobalData's Upstream Fiscal Analyst, states that Norway's high tax burden poses a challenge to commerciality when compared with Russian, Canadian and US Arctic fiscal regimes, although the country has already made significant progress in Arctic oil and gas development.

Scargill says: "In contrast to Russia, which introduced tax incentives for offshore Arctic developments earlier this year, Norway does not provide special incentives for its oil and gas industry. Norwegian fiscal terms were made even less appealing in May 2013, when the Labour-led government reduced the capital expenditure uplift, allowed over four years, from 30% to 22%.

"This change had a particularly detrimental impact on the potential economics of projects requiring high capital outlay, and the effects are especially visible in the marginal commerciality of Statoil's proposed Johan Castberg project in the Barents Sea. Although the right-wing coalition, which came into power in September 2013, indicated that it may introduce measures to mitigate the effect of the change, no incentives were announced in the recent budget."

According to Scargill, Johan Castberg's economics suggest that without such measures, new developments are unlikely to be commercially viable further north in the Barents Sea, where costs are expected to be higher.

On the other hand, the Canadian and US Arctic regimes would likely enable a project with Johan Castberg's cost profile to generate a fair return on investment.

However, as Scargill continues: "IOCs considering Arctic operations must balance the attractiveness of fiscal regimes with other obstacles.
"Despite the potential for promising economics in Alaska and Canada's offshore regions, these areas are subject to stringent environmental regulations, which could frustrate operators' plans."

Singapore has traditionally been regarded as the clear leader in the construction of jack-up rigs, accounting for 55% of global deliveries between 2000 & 2010. However, in the past five years this position has faced increasing challenge from Chinese yards willing to offer highly attractive financing in order to secure market share – China currently accounts for 47% of the orderbook compared to Singapore's 33%. With this trend expected to continue, Singaporean yards have been aggressively pursuing higher value EPC markets signalled by Keppel's "CAN DO" drillship project, which when completed will be arguably the most technically advanced asset of its kind. Both Keppel and Sembcorp have also made major investment in their FLNG capability.

We do not expect Singapore to completely retreat from the Jack-up market. However, this focus on frontier EPC segments is both a clear reaction to the inevitable rise of China (in what was considered "their" business) and a warning shot to South Korean dominance in both drillships and FLNG. The South Korean big three of Samsung, Hyundai & DSME have all struggled in recent years with balancing their traditional efficiency in light of a tighter price environment (see the earlier DW Monday on Capex Compression) and a shift away from heavy construction seems likely as suggested by SHI's recently announced merger with Samsung Engineering.

The offshore EPC landscape is undoubtedly going through some regional realignment.

www.douglas-westwood.com

NYC-based PIRA Energy Group reports that midcontinent differentials strengthen. In the U.S., first large stock decline since early August. In Japan, crude runs decline with higher turnaround activity. Specifically, PIRA's analysis of the oil market fundamentals has revealed the following:

Midcontinent Differentials Strengthen
In September, the WTI discount to Brent and LLS narrowed, while differentials to WTI improved for Canadian, Rockies and Midland grades, as crude stocks fell in each of those regions. Forecasts of growth in U.S. shale production next year have been reduced. Higher crude runs, lower imports, more exports, pipeline line fill, and more rail east and west are absorbing this year's production growth.

First Large Stock Decline Since Early August
This past week a dramatic swing in product stocks from a week earlier build to a draw contributed to pulling overall commercial inventories lower. The sharpest week to week decline in runs this year, lower product imports and stronger product demand all contributed to the substantial product inventory decline. The crude stock decline added to the overall decline despite runs falling and despite a recovery in imports.

Japanese Crude Runs Decline with Higher Turnaround Activity
Crude runs dropped as turnarounds gear up. Crude imports rose which built crude stocks. Finished product stocks finally declined after having risen steadily since mid-June. Gasoline and gasoil demands were slightly higher, with small stock draws for each. Kerosene demand perked up due to consumer restocking and the stock build rate came in at 135 MB/D. Refining margins remain soft. Light product cracks were slightly weaker, while fuel oil cracks firmed.

Aramco Announces Another Round of Price Reductions for Differentials in November
Saudi Arabia's formula prices for November were just released. Another round of reductions in differentials was enacted for all the key markets with the most aggressive reductions again being to Asia. U.S. pricing was lowered $0.40/Bbl, for all but the lightest grades, but Saudi crude is still disadvantaged versus domestic grades by $1.50-2.50/Bbl. In Europe, against Urals crude in both NWE and the MED, Saudi crude was competitive based on current pricing in August, but that advantage eroded sharply in September, so the reductions were warranted to restore competitiveness. In Asia, the reduction will be welcome news to refiners as refining margins have only recovered to statistical means after extreme weakness seen during the summer, and have again begun to erode.

U.S. LPG Prices Rebound
U.S. propane prices shrugged off crude oil and gasoline price weakness and rebounded strongly last week from the prior week's selloff. Stronger demand and a smaller stock build propelled prices higher. Butane prices were unchanged, despite RBOB gasoline's 4.2% rout. Next week, U.S. prices should find support in higher seasonal and agricultural demand and the nearing end of inventory increases.

Ethanol Stocks Soar
U.S. ethanol production fell to a six-month low 881 MB/D last week as some plants underwent routine maintenance turnarounds. Stocks were up 236 thousand barrels to 18.8 million barrels, the highest level since March 2013.

The information above is part of PIRA Energy Group's weekly Energy Market Recap - which alerts readers to PIRA's current analysis of energy markets around the world as well as the key economic and political factors driving those markets.

In many of the key deepwater markets, estimated to be worth $72bn by 2018, E&P and OFS companies alike are exposed to challenging local content requirements. Local content agreements are typically motivated by a desire to stimulate industrial development, and promote technology transfer. A typical local content agreement stipulates that E&P companies must procure a minimum percentage of equipment and services from local contractors. Recent examples can be seen in countries such as Brazil (Petrobras new-build FPSO units to use domestically-built hulls), Angola (BP partnering with Sonangol) and Nigeria (Total utilising a 90% local work force for the AKPO FPSO).

Governments in developing countries are now trying to look beyond basic economic multiplier effects, with the aim to improve local yard infrastructures, encourage sustainable and ongoing investment, community support and training, and improve on in-country fabrication and supervision. The typical risks associated with local content include lack of in-country cutting edge technology and a shortage of engineering skills, competitiveness compared to developed economies, government instabilities, all of which can combine to result in delays, re-work and cost overruns.

Local content requirements can cover everything from basic services and manpower to manufacture of more complex capital equipment. While the most critical items in a deepwater development, such as subsea trees, are typically manufactured in the US, Europe and APAC countries, the major vendors have built assembly facilities in order to service key markets such as Angola and Brazil.

The reality of international markets is that local content will remain a key selection criteria for oil and gas projects. For example, in the first round of bidding for Brazilian Pre-Salt, minimum local content of 37% was expected of bidders, increasing to more than 55% in the development phase, and there is little sign of a slowdown in political ambitions with many countries targeting 70%. However, given that deepwater spending in Latin America is expected to reach $24.8bn by 2018, local content needs to be viewed as an opportunity area rather than a threat.

www.douglas-westwood.com