Subscriber note: Platts to launch Oseberg, Ekofisk Quality Premiums for June

Following an extensive review of feedback submitted during a formal review process announced on February 18, 2013, Platts confirms that it will introduce Quality Premiums for Oseberg and Ekofisk crude oil in its North Sea Dated Brent, cash Brent (BFOE) and related assessment processes for cargoes loading from June 2013 onwards. Under its updated methodology, Quality Premiums are to be paid by buyer to seller for the nomination and delivery of Oseberg or Ekofisk into a physical BFOE transaction concluded during the Platts Market on Close assessment process. These escalators will also be considered in the Platts assessment process for Dated Brent, and related instruments as well. The introduction of Quality Premiums, also referred to by Platts as "escalators" during a broad consultation process with the marketplace that extends back more than 18 months, follows a thorough review of all feedback submitted to Platts. Platts confirms the following elements of how Quality Premiums will be established and applied in its assessment process:

TERMINOLOGY: Following broad support for use of the "Quality Premium" as a preferred nomenclature for these values, Platts confirms that it will adopt this terminology in its assessment processes.

IMPLEMENTATION DATE: Platts confirms that QPs will be implemented for Oseberg and Ekofisk crude oils in its North Sea Dated Brent, cash Brent (BFOE) and related assessment processes for cargoes loading from June 2013 onwards.

FORTIES AND BRENT: Platts confirms that it will not reflect any QP for Brent or Forties crude oils in its assessment processes. Platts Dated Brent assessment has been designed to reflect the value of light, sweet North Sea crude oil, as embodied by Brent itself. Platts believes it would be counterintuitive for Brent to carry a QP for delivery against physical Brent trading. Moreover, Brent is already competitive within the Dated Brent assessment process, and in recent years has been used to set the value of Dated Brent without further adjustment. Quality Premiums are intended to increase the relevance of higher quality crudes to Brent, the basis crude, while instruments like de-escalators are similarly intended to heighten the relevance of lower quality crudes to Brent.

ANNOUNCEMENT OF QPS: As proposed in February, Platts will announce QPs on the first publishing day of each month, a month prior to the escalators coming into effect. As an example, Platts will announce Oseberg and Ekofisk escalators on the first business day of May, for cargoes loading in June. This calendar aligns with typical trading practices, where June cargoes are primarily traded in the month of May.

TIME SPAN REFLECTED IN CALCULATIONS: Platts has studied a variety of proposals submitted for how QPs could be calculated, and notes a spectrum of support for different approaches, particularly regarding the time spans that could be used to generate QP values. Platts has observed support for a single month of data to be used, as proposed by Platts in February. Platts has also observed support for the use of longer time periods, including up to three months of data. Following analysis of the approaches proposed, Platts has determined that it will reflect two months of data in its published QPs.

CALCULATION METHODOLOGY: QPs for Oseberg and Ekofisk escalators will be published at 50% of the net price differences between these grades and the most competitive grade of crude among Brent, Forties, Oseberg and Ekofisk during the two full months prior to announcement. Platts considers crude oils impartially when considering them as part of the Brent assessment process, and when designing potential QPs or de-escalator structures. The QP values will be weighted, with two thirds the value established in the most recent month; and one third the value established in the month before that. Platts believes this structure will provide a balanced value for Oseberg and Ekofisk QPs, minimizing any impact of maintenance programs, while preserving Platts core aim of ensuring that QPs appropriately represent a prevailing value of crude for prompt physical delivery. A QP of zero would be announced if the absolute observed price difference between the grades is less than 50 cents/barrel.

REVIEWS OF METHODOLOGY: Platts will continue to hold regular public forums for the review of its North Sea crude oil methodology in order to publicly analyze, review and address any application issues. Platts plans to hold its next forum within six months, and will announce a date in due course.

Platts appreciates all feedback that has been provided on the implementation of QPs in its assessment processes. Feedback was provided on both a confidential and a public basis, and three companies indicated in written submissions that feedback was intended for public review. Platts has made this feedback available, along with a Question & Answer document that further elaborates on commonly raised issues from all respondents, on its website at http://platts.com/price-assessments/oil/dated-brent . Please send all further comments and queries to europe_crude@platts.com and pricegroup@platts.com.