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Here is the data for the KRI oil export revenues for the Q1 of 2023. It was USD 2.2 billion in the period, while hardly receiving anything from Bagdad. With monthly 1 billion USD from Bagdad, they should be at least mathematically be able to pay the PSC-s... If they wont pay the costs, then they will have sooner or later trouble with the production (assuming that the pipeline ever reopens)
https://gov.krd/english/information-and-services/open-data/deloitte-reports/deloitte-report-2023/
It's difficult to know exactly what has or hasn't happened in the past - both what the agreements really were and to what extent they were followed - but I think they could deduct PSC costs before.
"Under the 2021 budget law, the Kurdistan Region will be committed to produce 460,000 barrels of oil per day (bpd).
After deducting expenses for production operations in the Region, transport of oil and the domestic consumption of crude oil, the KRG must hand over to Baghdad revenues generated from regional oil exports of 250,000 bpd, according to Iraq’s SOMO pricing, as well as 50 percent of non-oil revenue.
The Kurdistan Region, in return, will receive its share of the budget, which is set at 12.67%"
They claim to need $700M per month just to pay salaries.
I think the most important point is that before, they NEEDED to offer juicy PSCs because they were in a legal grey zone and it was obviously very risky. Once everything is above board with Iraq and Turkey, they won't need to do that. Why give away billions a year when you don't have to?
But with the budget deal, the KRG would get much more than made with the independent oil sales, no? I read something like they made in net terms just around 4-5 billions with oil sales annually, while hardly receiving anything from Bagdad. They could pay the cost oil from their pocket, if they get their full share from the federal budget (monthly approx 1 billion). Or I am wrong with the numbers?
Pretty simple: Kurdistan gives the oil to SOMO. Kurdistan gets cash from the Iraqi Federal Government. Kurdistan would need to pay from their own pockets the PSC amounts due to IOCs which are over and above the average cost of production across Iraq. They won't do this, because it would be financially ruinous. PSCs get changed/scrapped.
Oil output then collapses?
.
In my understanding the GPI can not take over the IOC's assets in Kurdistan without a national oil&gas law. What do you think about it? Or could they use the budget as an effective tool? Also another bullet point from the HKN report:
"Government of Iraq (GOI) officials currently believe that the recently passed Iraqi budget law
prohibits cost reimbursement to the Kurdistan Regional Government (KRG) in excess of the
average cost of production per barrel in federal Iraq (excluding the Kurdistan Region of Iraq
(KRI)). Such a level of reimbursement would be materially insufficient to pay the actual costs of
International Oil Companies (IOCs) operating in the KRI. KRI IOCs are contractually entitled to
full cost reimbursement in accordance with the existing Production Sharing Contracts (PSCs)."
"yesterday’s HKN update"
This part is a shocker:
"It appears that some factions in the GOI seek to gain control of the oil sector in the KRI and are attempting to do so through the Iraqi budget law and through current negotiations on the draft oil and gas law.
o The GOI either does not understand our contractual terms or refuses to acknowledge our rights, including fiscal stability protections, and has not expressed any intent to take on the existing contractual obligations of the KRG.
o As a result, we don’t currently see a clear path for HKN to sell oil at world market prices in the near term."
Luckily there was no serious reaction for this news in the prices. We knew before that some shia party wish to take control over the kurd fields, but how influential they are or how easy it is for them to do that... is another question (This is in my opinion the number one tail risk that I have no idea about.. and how related it is to the pipeline.. well if it is related then IOCs are in trouble). The report seem to explicitly state that "wont be able to sell oil at world market" which means - at least to me- that they do not expect the pipeline to reopen so... But because of the reason above?
"yesterday’s HKN update"
This part is a shocker:
"It appears that some factions in the GOI seek to gain control of the oil sector in the KRI and are attempting to do so through the Iraqi budget law and through current negotiations on the draft oil and gas law.
o The GOI either does not understand our contractual terms or refuses to acknowledge our rights, including fiscal stability protections, and has not expressed any intent to take on the existing contractual obligations of the KRG.
o As a result, we don’t currently see a clear path for HKN to sell oil at world market prices in the near term."
Agreed hoepfully more details in the next couple of hours
No one seems overly impressed yet but SP should tick up on info as it becomes available
Waiting for the detail :) Pipeline will be opened:-
A on a given date
B only when all repairs and testing have been completed AND all parties have agreed on how to split the costs.
Then we can move onto the next fundamental disagreement, what constitutes reasonable “cost of production” and how to reconcile the difference between what is an essential component of the PSC but the CGI think is too high. ( Negotiated narrowing of the gap, KRG topping up the difference or stand off that goes to International Court?)
Then there’s the missing payments from before the pipeline closure. How will the repayments be scheduled? Within the time limit of the current budget agreement or longer? (Read one article that implied KRG was allowed five years from origin of debt but budget definitely only runs for three.)
Judging by the market’s lack of negative response to yesterday’s HKN update and the positive one this morning so far, the present hope counts for more than the future fears.
Latest report Erdogan to visit next week
Could this be done and dusted awaiting the final words of those that demand the glory.
Sky News Arabia reporting an agreement has been reached: https://twitter.com/john78846295/status/1694275316946973032?s=20
Could a deal be struck today? Very possibly, all these negotiations and talks especially the main issue on water levels it could be possible with Erdogans problem solver coming to Iraq that each party succeeds..time will tell
Everywhere else but there politicians are of such an altruistic nature.
If I’ve learnt anything Re. Middle Eastern politics during the near 5 months that I’ve been a GKP shareholder it’s that the local politicians have agendas that serve their own interests both financial and political, with the addition of religious dogma, plus they are confusing to say the least. Therefore as a confused ordinary person take anything that I have to add with a pinch of salt.
That said, I for one didn’t expect positive news yesterday, nor did the market. Just oil ministers discussing what if’s and technical issues. It now seems that Turkey have succeed in putting the resolution of the water dispute off of today’s agenda by yesterday’s agreement to establish a committee to resolve that issue. This will improve Turkey’s hand regarding today’s negotiations regarding oil which must be settled first, (before the water flows) nevertheless the market, another small early A.M. increase, is not predicting a grand announcement, more likely today’s meeting is setting the scene for the much anticipated Erdogan visit. However, for those of us that play chess this does have the appearance of being the ‘End Game’ where the major pieces make the decisive moves.
We shall see. (in the hope of not being one of the pawns that are sacrificed along the way. )
I can't see the KRG tolerating the continued lack of progress. Could lead to a defacto breakdown of agreements as sales are pushed underground. "Domestic" only sales seems a bit wishful. All kinds of things could be happening unofficially which keeps the courts and monitoring off the tribal leaders backs. The longer this goes on the more farcical it all seems. Turkey/Iran/Syria probably more inclined to want to see a divided Iraq than a unified. A d internally, probably the same.
It seems were in a news rich period, lots going on, and Politicians all bartering for positions, Turkey are holding out for the best finance deals to benefit themselves , Iraq (Baghdad) are quietly content to let this play out and are playing hard ball with Turkey as they (SOMO) wont want any special deals on KRG oil exports to Turkey, KRG are stuck in the middle,
they may have to look to exports to the South , but that will take time!!, (may be worth it in the long term, but it gives even more power back to Baghdad?, so they are in a bit of a pickle ATM , Local trucking sales will no doubt keep the IOC,s operating for now, but it has put on hold all the growth plans in the IRAQI Budget , for now,
im sure it will be resolved , but the KRG should be looking at all the options open to them , imo
Press conference took place at 8pm Local time .
"FM Hussein indicated that a high-level delegation headed by the Iraqi Oil Minister is conducting serious talks in Turkey at this time, and the start of dialogue on cooperation at the regional and international levels at the negotiating table there."
Above we have identified source,the other article has someone speaking anonymously,as they did when they were announcing Erdogan's visit "next week".
I am not too optimistic,but if Bloomberg couldn't be trusted,how is Reuters seen as a reliable source of information?
Https://www.al-monitor.com/originals/2023/08/kurds-suffer-iraq-turkey-fail-restart-oil-flow-ahead-turkish-fms-baghdad-visit
" August 22, 2023
Iraq and Turkey failed to agree on the resumption of oil exports via the southern Mediterranean port of Ceyhan as Turkish Foreign Minister Hakan Fidan makes his first trip to Baghdad since assuming the post.
"Unnamed Iraqi officials cited by Reuters said Turkey had justified the continued closure of the pipeline on the grounds that it was not in physical order yet to accommodate the renewed flow and that storage tanks in the port of Ceyhan needed inspection for any damages resulting from the twin earthquakes that shook southern Turkey in February.
"It is widely acknowledged that the real reason for Turkey’s reluctance to reopen the line is Baghdad’s refusal to waive the $1.5 billion fine from the ICC and to drop a second arbitration case covering KRG sales between 2018 and 2022.
"Sources familiar with the negotiations who spoke on condition they not be identified said that Iraq's top ask was more water from the Euphrates and Tigris rivers, which originate in Turkey.
"To make matters worse, Baghdad won't disburse the $1 billion allocated to the KRG under its new budget, giving it only $400 million instead. Baghdad is demanding that Erbil hand over all tax, utilities and customs revenues before releasing its full share of the budget.
"Regional officials familiar with the deliberations say Iran, which exerts strong influence over the Sudani government, is among the reasons that Baghdad is not agreeing to Turkey’s terms for resuming oil exports. Iran is seeking to squeeze the KRG, which hosts Iranian Kurdish guerilla groups
"Indeed, should Turkey persist in its stance, Iran’s game plan may actually work. A growing number of Iraqi Kurds are beginning to question Ankara’s motives, with some advocating exporting their oil via different routes, including through the Iraqi port of Basra, to reduce dependency on Turkey.
"Alongside water, Turkey holds several other important cards. Around 70% of Iraqi custom revenues comes from imports via the Ibrahim Khalil border gate with Turkey. Moreover, the agreement to export Kirkuk oil will expire in July 2026, allowing Turkey to seek more favorable terms.
Those who are a little excited thinking all will be good soon and predicting a hefty jump in the share price, may need a rethink.
Did i really read someone thinks a T/O is on the cards once oil resumption starts, jez it's going to need years of calm and trust before any takeover will be entertained.
Some chunky numbers after the bell again 🤔
Agree with what your saying Paul,
Think its the Turkish Minister "Delay Card" he is playing, i think we all know here is nothing wrong with the pipelines,
They are all ready to go!!!!,
Not long after the earthquake , it was announced that the pipeline had been inspected and was undamaged ......
After a meeting with the energy ministers from Iraq and Turkey, they have announced that after the pipelines are repaired and inspected , the resumption of KRG oil would occur, no time when this would happen was given,
So it looks like they are getting even closer, could happen anytime, imo
another short window to gather a few more shares, and traders to pick up a few more cheap barrels from IOC,s
Dont forget the "Agreed"????, gas supply to the power station in Turkey which is crucial towards Turkeys Energy plans going forward,
Iraq has a number of Key Incentives for a Deal to be progressed on all its energy plans going forward.