NEW YORK: When oil prices rocketed toward $60 a barrel this fall, US shale producers hedged more barrels of oil during the quarter than in at least three years, which could help propel the country to record crude production by next year.
More than 144 million barrels were added to hedges, after global oil markets rallied by as much as $13 in the quarter.
Higher prices help producers lock in profits for future sales.
That should guarantee that total production exceeds 10 million bpd in 2018, which would be an all-time record for US drilling.
Traders say growth next year will likely exceed government forecasts, heralding a record year that could pressure prices in the near term.
For oil traders, hedging data from shale companies serves as a leading indicator of future supplies.
“After a slow start in the first half of 2017, US oil producers sped up hedging activities for their 2018 production in third quarter amid the rebound in crude oil prices,” Citigroup analysts said in a note last week.
According to a Reuters analysis of hedging disclosures by the 30 largest US shale firms, most rushed back into hedging in the three months to September 30.
In total, 17 companies increased outstanding oil options, swaps or other derivatives positions by 144 million barrels between the second and third quarter.
Another 10 companies decreased their hedging positions by 31 million barrels; three others did not hedge at all.
Together, the companies have nearly one-third more barrels hedged, or the equivalent of 129 million barrels, compared to the previous quarter.
Reuters compiled the data through information publicly available in quarterly regulatory filings.
Citigroup analysts said the third-quarter hedge ratio — the percentage of production where shale companies have locked in future sales — for 2018 jumped from 12 percent to 27 percent.
For the same period in 2015 and 2016, producers had locked in 15 and 18 percent of the coming year, they said.
Several firms, including Hess Corp., Newfield Exploration Co. and Marathon Oil Corp. loaded up their hedges, and more than doubled volumes last quarter.
Together, they added 74 million barrels.
Among the companies that rolled off the most include Anadarko Petroleum Corp. and EP Energy .
All 30 firms contacted by Reuters either did not respond to a request for comment or referred to questions about strategy to recent earnings calls.
Shale firms are said to have continued adding to hedges in the fourth quarter.
Swap dealer gross shorts data from the Commodity Futures Trading Commission , an indicator of producer hedging activity, touched a record in the most recent week.
Last week, a Texas-based producer was said to have hedged some 30,000 barrels per day (bpd) for 2018 in US crude futures, according to two sources familiar with money flows.
US total oil production is expected to rise by 780,000 bpd to 10.02 million bpd next year, which would be a new annual record, according to the US Energy Information Administration.
Traders estimate that growth could be as high as 1.2 million bpd, with at least 500,000 bpd to 600,000 bpd out of Texas’s prolific Permian basin alone.
That could complicate an extension by OPEC to curb global supplies through 2018 to keep prices low.
But forecasts for new output may be optimistic, said John Saucer, vice president of research and analysis at Mobius Risk Group in Houston.
“People have modeled in the absolute perfection when it comes to drilling.
I think we’ll see new growth, but there’s a lot of evidence that getting new fracking and completion crews is tough,” he said.
Surge in US shale hedging to boost drilling in 2018
Surge in US shale hedging to boost drilling in 2018
ADNOC boosts drilling capabilities with 2 new jack-up rigs
- ADNOC Drilling will expand its fleet to 142 platforms
- UAE possesses the sixth-largest crude oil reserves globally
JEDDAH: The Abu Dhabi National Oil Co. has received two new jack-up rigs, reinforcing its position as one of the largest drillship fleet owners globally.
ADNOC Drilling will launch the new rigs by the first quarter of next year, expanding its fleet to 142 platforms. This marks a strong year for the company, showcasing its performance and strategy, according to UAE state news agency WAM.
For over 50 years, ADNOC Drilling has been the exclusive provider of drilling and rig-related services to ADNOC Group under agreed contractual terms, supporting the firm’s upstream operations in exploring and developing oil and gas resources in the UAE.
With most of the Gulf country’s crude oil and gas reserves located in Abu Dhabi, ADNOC oversees the majority of nationwide exploration, appraisal, development, and production activities, which are managed by ADNOC, either independently or in partnership with third parties.
In its analysis of the company’s performance, JPMorgan, a global financial services firm and one of the largest and most influential investment banks in the world, said: “Since its initial public offering, ADNOC Drilling has proven to be a high-quality, defensive business, consistently meeting and surpassing guidance and expectations. The exceptional performance also reflects positive progress with ADNOC Drilling’s two joint ventures.”
The UAE possesses the sixth-largest crude oil reserves globally, with approximately 107 billion stock tank barrels of proven oil reserves. Since its inception in 1972, ADNOC Drilling has played a crucial role in enabling ADNOC to unlock the country’s oil and gas resources efficiently and reliably, contributing to the nation’s energy sector.
This year, Enersol, a joint venture between Alpha Dhabi Holding and ADNOC Drilling, acquired four oilfield services technology companies, while Turnwell, another business partnership between ADNOC, SLB, and Patterson-UTI, set a record for initial well delivery time, accelerating the development of the UAE’s unconventional energy reserves.
Following its second upward guidance revision this year alongside its third-quarter results, ADNOC Drilling is on track to deliver its best-ever performance in Q4. ADNOC Drilling anticipates at least mid-single-digit expansion as it scales operations, according to WAM.
ADNOC forecasts a rise in drilling activity in the coming years, driven by its commitment to increasing crude oil production capacity by 25 percent, reaching five million barrels per day by 2027.
As the company looks to expand beyond the UAE and explore opportunities in the region, it foresees a growing need to expand its rig fleet to support its strategic growth plans.
The energy giant believes that expanding its rig fleet will enhance its current capabilities in rig hire, drilling, completion services, and associated operations and enable the company to offer unconventional drilling and biogenic well services. This expansion is expected to contribute to increased revenue and profitability.
Terminal 4 at Cairo International Airport to boost Egypt’s aviation and tourism sectors
RIYADH: Egypt is advancing its aviation sector with the ongoing development of Terminal 4 at Cairo International Airport, set to accommodate 30 million passengers annually.
According to a statement from the Cabinet, the “New Republic Air Gateway” project is expected to bolster the country’s tourism goals, improve traveler experiences, and position Egypt as an international aviation hub.
This year, the government announced plans to involve the private sector in airport management, including a global tender for Cairo International.
Egypt’s aviation sector also improved 36 spots to 27th in the 2024 edition of the Air Transport Infrastructure Index, aligning with Vision 2030’s focus on sustainable development, innovation, and global competitiveness.
Prime Minister Mostafa Madbouly, during a meeting at the New Administrative Capital, reviewed progress on the project alongside Minister of Civil Aviation Sameh El-Hefny. The session focused on the terminal’s specifications, implementation strategy, and potential to reshape the African nation’s aviation and tourism landscapes.
“Airport development works come within the framework of presidential directives to upgrade the Egyptian airport system, raise its capacity and improve the level of services provided to passengers,” he said.
At the meeting, Madbouly emphasized the importance of creating world-class facilities to accommodate rising traveler numbers.
El-Hefny outlined the project’s phased execution, with completion expected within four to five years. He also revealed that negotiations are underway with international firms specializing in airport construction and management to ensure world-class execution.
The minister emphasized the cutting-edge features of the new terminal, including its ability to initially handle 30 million passengers annually, with expansion potential to 40 million.
In September 2023, Cairo Airport Co. partnered with Pangiam, a trade and travel technology company, and signed two agreements to develop the new terminal. These deals, focused on enhancing the airport’s operations with advanced technology, include a feasibility study to incorporate emerging technologies and deliver a seamless travel experience.
The terminal will feature a state-of-the-art runway equipped with advanced navigation and lighting technologies that meet international standards.
Once operational, Terminal 4 is expected to elevate Cairo International Airport’s global status, making it a hub for regional and international travel.
Saudi banks report 24% profit growth amid strong non-interest income
RIYADH: Saudi banks’ aggregate profit reached SR7.7 billion ($2.05 billion) in October, marking a 23.67 percent year-on-year increase, newly released data has revealed.
According to the Saudi Central Bank, also known as SAMA, these figures represent profits before zakat and taxes.
Cumulatively, from the beginning of the year to the end of October, banks recorded a total profit of SR73.28 billion, compared to SR64.47 billion during the same period last year.
The increase in banks’ profits is primarily attributed to a combination of favorable factors that highlight the sector’s strength and ability to adapt.
The third quarter of 2024 marked a significant turning point, with non-interest income playing a pivotal role.
According to a Fitch Ratings report published in November, strong gains on securities and trading contributed SR1.4 billion to non-interest income, offsetting higher financing impairment charges and helping push combined quarterly profits to SR20 billion.
This growth followed SAMA’s decision to implement a 50-basis-point interest rate cut in September, which mirrored the US Federal Reserve’s shift toward a more accommodative monetary policy.
The rising interest rate environment that characterized much of the Gulf region in recent years had previously bolstered bank returns on loans, as higher borrowing costs translated into greater income from financing activities.
However, this dynamic also increased funding costs, particularly for savings accounts and external liabilities.
Many Saudi banks navigated these challenges by diversifying their funding sources, tapping into external markets, and issuing a record $13 billion in debt in the first eight months of 2024 to meet growing foreign-currency financing demands, particularly for giga-projects.
Despite these efforts, deposit growth in the third quarter of 2024 lagged behind earlier quarters, according to Fitch, reflecting the sector’s strategic pivot toward external funding to sustain its expansion.
The recent shift in monetary policy by the US Federal Reserve, which influences rates in Saudi Arabia due to the riyal’s peg to the dollar, has injected new dynamics into the financial landscape.
After a period of aggressive rate hikes to combat inflation, the Fed lowered interest rates by 50 basis points in September, followed by successive 25-basis-point cuts in November and December, signaling a focus on boosting economic growth as inflation eased to acceptable levels.
This policy change benefited Saudi banks by improving the valuation of certain securities, as noted by Fitch, and created a more favorable environment for non-interest income growth.
Another critical factor underpinning Saudi banks’ profitability has been their robust asset quality and prudent risk management.
The average impaired financing ratio, according to Fitch Ratings, remained low at 1.5 percent by the end of the third quarter, with provision coverage at a healthy 116 percent.
This stability reflects the resilience of Saudi banks in managing risks associated with their expanding financing books, which grew by 3.6 percent during the quarter, led by strong performances from banks like Aljazira, Saudi Awwal Bank, and Saudi Investment Bank.
The sector’s healthy operating environment is supported by the Kingdom’s broader economic stability and strategic investments under Vision 2030, which continue to drive demand for corporate financing.
While external liabilities and a negative net foreign asset position present challenges, Saudi banks remain well-capitalized, with average Common Equity Tier 1 ratios of 15.6 percent, and are positioned to maintain strong asset quality metrics as they navigate a shifting global monetary landscape.
The combination of rising non-interest income, strategic funding diversification, and favorable monetary policy shifts underscores the resilience of Saudi Arabia’s banking sector, making it a key player in the region’s economic transformation.
As SAMA continues to align with global trends, Saudi banks are poised to further strengthen their profitability while maintaining a balanced approach to growth and risk management.
Saudi Arabia strengthens food security with trout farming breakthrough
RIYADH: Saudi Arabia’s food security strategy has received a boost with a trout farming project developed through a partnership between King Abdulaziz City for Science and Technology and King Abdulaziz University.
The initiative, carried out at KACST’s research station in Al-Muzahmiyya Governorate, was supported by the Ministry of Environment, Water, and Agriculture’s National Livestock and Fisheries Development Program.
The project introduces trout as a species suited for diverse environmental conditions, expanding the availability of fish with high nutritional value. This move aims to address the growing domestic demand for seafood while mitigating potential supply chain disruptions.
This aligns with Saudi Vision 2030, which set a target of increasing domestic fish production to 600,000 tonnes annually to ensure sustainable food supplies.
The initiative also supports the National Fisheries Development Program’s goals of optimizing resource use, boosting the sector’s contribution to gross domestic product, achieving seafood self-sufficiency, and diversifying income sources.
The new project employs a recirculating aquaculture system, which uses less water than traditional methods and reduces the risk of parasites and viral infections that could harm fish.
These advanced systems also regulate key environmental factors in fish farming, such as temperature, oxygen levels, and nutrition, thereby enhancing aquatic animals health and quality.
This initiative aligns with the National Laboratory’s ongoing efforts to localize RAS technology using fresh water.
Trout were farmed and raised from the egg incubation stage to the point where they reached a commercial size of over 1,200 grams.
This success has encouraged the private sector to adopt the technology across various regions in Saudi Arabia, including Riyadh, Makkah, Al-Baha, and the northern regions.
Trout and other cold-water river fish were specifically chosen for local farming to meet the growing demand for high-protein, omega-3-rich, and vitamin-packed fish, which are essential for human health.
In October, the Ministry of Environment, Water, and Agriculture announced that Saudi Arabia’s fisheries and aquaculture production increased by 55.56 percent in 2023, surpassing 140,000 tonnes. This highlights the Kingdom’s commitment to achieving food self-sufficiency and promoting sustainable development.
The ministry noted that the country has achieved record-breaking production levels in saltwater and inland aquaculture projects, surpassing the 90,000 tonnes recorded in 2021.
Aquaculture in the Kingdom, which began in 1982, has grown substantially, establishing the nation as a leading exporter of white shrimp.
‘Paradigm shift’ as GCC urban population to surge 30% by 2030: Arthur D. Little
RIYADH: Urban populations across the Gulf Cooperation Council region are projected to grow 30 percent from 2020 to 2030, increasing demand for housing, infrastructure, and inclusive development, analysts say.
In its latest report, international management consulting firm Arthur D. Little said that 90 percent of GCC residents will live in cities by 2050, providing a $150 billion economic regional opportunity.
The study revealed that Saudi Arabia is leading this transition, with the Kingdom eyeing to build 500,000 new housing units to meet the rising demand.
Saudi Arabia is undertaking a dozen giga-projects to address the needs of its growing urban population. These developments are key to the government’s economic diversification goals, forming a core component of Vision 2030.
“We’re witnessing a paradigm shift. This isn’t about building cities — it’s about creating living, breathing economic ecosystems that grow from within local communities,” said Rajesh Duneja, lead researcher at Arthur D. Little.
Driven by Vision 2030 objectives and its Quality of Life Program, Saudi Arabia is striving for three of its cities to be recognized among the top 100 in the world for livability.
The consulting firm added that the Kingdom’s ongoing efforts are not just a construction initiative but a catalyst for opportunity, education, and long-term economic contribution, with Saudi Arabia embedding workforce development, small and medium enterprises, and local engagement in this journey.
Earlier this month, a report released by real estate and investment management firm JLL said that the ongoing urban infrastructure development in Saudi Arabia is creating new hotspots for growth, driven by a surge in tourism and economic diversification efforts.
In July, an analysis by British property consultancy Savills said that the Kingdom’s capital city, Riyadh, is poised to be one of the fastest-growing metropolizes in the world over the next decade, driven by the growth of the country’s mega projects.
In July, a report released by Statista also outlined urbanization progress in Arab world nations, with Kuwait already having a 100 percent urban population in 2023.
Statista added that 99.35 percent of people in Qatar live in urban areas, followed by Bahrain, the UAE, and Saudi Arabia, with 89.87 percent, 87.78 percent, and 84.95 percent, respectively.
The Arthur D. Little report said the surging demand for housing and infrastructure in the region also calls for community-driven strategies to adopt a more inclusive approach, as traditional infrastructure models alone cannot meet the scale of this demand.
“The pace of urbanization across the Middle East, especially Saudi Arabia, is unprecedented. To ensure that ambitious goals, such as those embodied in Vision 2030, are reached, it is vitally important that communities participate in, and feel part of, the changes,” said Arthur D. Little.
The analysis added that these community-focused strategies are not only enhancing social impact but also driving economic growth.
The management consulting firm projected that community-focused initiatives could support the region’s 4 percent gross domestic product growth trajectory, reinforcing its economic resilience amid global challenges.
“This is not just urban development. It’s the emergence of a new economic blueprint that places human potential at its core,” said Maurice Salem, principal at Arthur D. Little Middle East.
According to the study, the region’s demographic profile also strengthens the necessity for a community-driven approach.
“With only 3 percent of the population in Saudi Arabia over the age of 65, the Middle East has an unparalleled opportunity to leverage its young, dynamic workforce,” said the report.
It added: “When integrated with local talent, cultural heritage, and SME development, infrastructure projects become engines of socio-economic transformation.”
