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@theoryman
If you look back at the past, Bagdad never really cared for the quotas.
Also the increased production should allow Kurdistan to receive a larger share from the federal budget, in my opinion they should be around 300k bpd.
Also Bagdad does not really make money with local sales and even the 120k bpd for the refineris won't make difference. They need to pay monthly 4-700 million dollars for Kurds while having almost no revenue from the Region while they also loose export around 80k bpd from Kirkuk. Also the USD 150 billion federal budget is financed by USD 50 billion deficit... I think Bagdad has every financial (!) reason to reopen the pipeline.
According to PSC 36% is the GKPs share and they said exactly that and if I remember correctly, it is even stated in the documents and shown in the slides. Anyway as we previously discussed they try to keep the KRG's share... we will see whether it is possible (it WOULD be a huge boost in my opinion.
Latest thing I "heard" is that it is subject of negotiations. But as others said the KRG needs money very much and their situation is getting harder and harder. To me it seems like that Bagdad wants to squeeze the KRG to make further concessions on the autonomy but how much... and what are they demanding is a question.
I see no difference in what we are saying.
I just said they effectively keep the share of KRG, I have not wrote that it is FREE cash flow. I said this is "cash flow" but of course the KRG's share that they keep is a liability for the company. (Per barrel the gkps share is 36%, the MOL's is a lot smaller so yes most of it goes to KRG.) I do not understand what you try to say with it, maybe I get sonething wrong?...
I am not aware of any agreement to net it out, but I hope(!) -assuming I am not misinformed that the GKP keeps the KRG's sare from the local sales - they will have it because that way GKP could realise at least a part of its recievables (without the reopening the ITP and KRG getting its full budget share).
Btw if demand persist they might be can reach 35k bpd within 4 weeks. 40-45k bpd is the logistical maximum, to reach that a further 4-6-8 week might be necassary. (Again these are not my estinations, noone is obligated to belive me.)
@theoryman
Indeed, a "small" fraction of oil is directly going to the KRG, they have an agreement which details can not be disclosed. In my opinion it won't influence the whole picture.
Value S
No need to believe me anything, contact the company yourself. But calling me innumerate after I literally wrote you down how the PSC exactly works is quite impressive.
@PUTUP
Yes, there is indeed no such an agreement to net out payables. You can continue to calculate with the cash flow that they get according to the PSC but maybe it would worth a try to contact the company about whether the KRG's share is kept or not... If nothing else, lets prove meg wrong (anyone).
@PUTUP
Trust me, they are receiving the gross payment and are paying only for the MOL. The KRG is flexible yet and this is subject of negotiations, hope they will sow patience (it would make sense especially, that the GKP owes them $ 151m). Regardless there is $ 48 million (trade payable and accrued expenditures to local suppliers), that they have to settle within the next 12 months, and $ 8 million is in cash.
They can easily reach 35k bpd production, and I expect them to continue to get $ 30/ barrel. So their monthly cash flow were: 35k*30*30=31.5m (technically a bit less because of certain reasons that I wont mention). So GKP can generate a net 20-25m cash flow if they increase the production up to 35-40k, assuming that local sales will be possible in the future. There is no or only marginal value creation here, but at least we can say that ceteris paribus the GKP can REALIZE some of its net payable (which is imao 151m minus 48m=103m currently.). I mean if the pipeline can not reopen and they can continue local sales like happening now, then they could realize the net payable within 7-8 months which would indicate a $ 100 million increase in its cash balance (or in fact more because all the supplier could be paid out). Regardless the price might further decrease due to the lack of progress in talks.
"When the greed and politics are sorted its back over £2 ......."
I really hope so, I am long and maybe I will even increase my positions. But for me it is getting harder and harder to imagine that the IOC's will be fully paid. I really doubt that - even if the pipeline reopens - Bagdad will fully cover the expenses, so this means that that it is about the Kurd's ability and willingness to honor the contracts. (In my understanding, without Kurdish support, there will be no national oil&gas law so they can hardly attack the legality of the PSC's... but on the other hand they can keep back the cost recoveries)
Exactly, here are my numbers:
Production (bpd) 23,100
Price $ 30
Production value in a month (m USD) 20,790,000 [production times price]
Production excl royality 18,711,000 [gross times 0.9 because 10% royality]
Cost oil 5,987,520 [production post royality*Paying Interest (80%)* 40% (because the CRP is a lot more than that)]
Profit oil 1,870,831 [production post royality*WI*R factor multiple on linear scale*(1-0.4)]
CBP (20%) -374,166 [Profit oil's 20%]
Monthly GKP sales revenue (mUSD) $7.5
With 6 million monthly expenditure it implies $ 1.5m USD run rate (in August there is a $ 0.6m for other items)
Kheldar, I have seen it but the truth is that the math does not add exactly up here. We can calculate exactly how much they are earning if the gross production and average price is given. I gave you the formula earlier, either the average price was higher than $ 30 per barrel (which anyway would make sense to hide) or they reduced the expenses further in August.
Short answer: It is 36% of the gross sales (which includes all oil produced).
To break the PSC down to you, because why not:
Gross sales (barrel): 100
Royality: 10
Sales post royality: 90
Cost oil (40% of post royality [which is possible 'cuz the CRP is at gross $ 220m] oil times paying interest which is 80%): 90*0.8*0.4=28.8
Profit oil (sales post royality *61.5% working interest * 1-cost oil, which is 40% till the CRP wont dry out* multiple with an R factor of 1.18 [it is 30%-(15%*(1.18-1))]: 90*0.615*(1-0.4)*0.27[which is R factor implied value on a linear scale]=8.99 (you have should use exact R factor)
Less 20% CBP for profit oil (note that 30% is invoiced but only 20% has cash impact): 9.9*0.2=1.79
So the GKP's revenue according to PSC is: 28.8+8.99-2=36(%) of all barrels produced, as they state it in the presentation.
According to my calvulations, if they can cut costs down to 5 million per month and produce 40k bpd then they should have an FCF with $ 30/barrel of $ 8 million and approx $ 6 million with a price of $ 25. But once again if we wanna see something big, we need 3 things (as PUTUP have said before):
1. Pipeline to reopen (even if increased tariffs offset the decrease in discount...)
2. Receivables to be paid fully
3. PSC to be respected by Bagdad or at least by Erbil. I might be wrong but it seems to me that if Erbil has full access to the federal budget then they might be way better off than before + the 6 USD/barrel cost... they should compensate the rest from out of pocket... but the more likely scenario is that Iraq wont have an oil&gas law anytime soon and IOC's have to work with local sales only.
I am long and I want this to resolve.. But it is not looking good. For the Kurds the $ 1.5B is brutal, especially that they already suffered significant loss of revenues and there are suspicion of fund mismanagement anyway..
This is a setback, because before we read that the Turks are willing to pay in installments.
And there are other two issues to be resolved:
The second lawsuit - if not dropped, Turks will get another at least $ 1.5B fine
The oil agreement that expires in 2026 - Ankara may want more favorable terms
And yes the pipeline is fully operational and can be restarted any time. I don't know if these demands are just power projection or bluff from the Turks, but the deal for me does not seem to be closer... Hope I am wrong.
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/
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?
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?
From the twitter account of the Kurdistan Watch:
"Shakhawan Abdullah, the deputy speaker of the Iraqi parliament and a KDP members, has shared that Iraqi PM Sudani proposed leniency towards Turkey regarding the $1.5 billion fine imposed by the Paris Arbitration Court on Turkey related to KRG oil exports. And that the ruling coalition has green-lighted Sudani to be flexible on this matter.
Turkish Foreign Minister, Hakan Fidan, is set to visit Baghdad this week to address the resumption of oil exports. His visit to Erbil is primarily focused on intelligence matters.
Shakhawan Abdullah remarked, "The losses we've incurred due to halted oil exports far exceed the compensation we're demanding from Turkey. Thus, a softer approach is warranted."
Official sources in both Baghdad and Erbil are preparing for Fidan's visit, which aims to discuss various mutual concerns. Topmost on the agenda is the resumption of KRG oil exports, the mandated compensation from Turkey as determined by the International Court of Arbitration, and combating the PKK's activities on Iraqi soil.
Fidan's current visit also lays the groundwork for an impending visit from Turkish President Erdogan.
A report from Al-Arab newspaper suggests that Fidan's trip to Erbil holds significant intelligence implications. The strong intelligence bond between Erbil and Ankara is likely the primary driver behind Fidan's interest in Erbil. The intelligence-focused nature of Fidan's visit will be a focal point of discussions, encompassing border security and the fight against the PKK, in addition to trade and water-related issues between Iraq and Turkey."
So as we know there are 3 main Turkish deamans:
1) Payments in installments for the $ 1.5 billion fine - seems to be easy
2) Dropping the second lawsuit - the fine might/should be even bigger than the first part, so it might be harder
3) Renegotiation of the oil trade agreement or something like this, I don't know anything about it.. Might be just something technical?...
Thank you @PUTUP,
"However, given invoices have been confirmed by the company it indeed makes sense to look at the company with this broken out; that is, as the sum of its cash, invoices/receivables due, remaining CRP (ex receivables), and the present value of the future profit oil stream."
I understand and agree with it, except that I do not add the remaining value of the Cost Recovery Pool but simply build into the model (so I discount it with the revenues). My question is simpler than this. I try to calculate the NET value of receivables, which is the 151m receivables less the relevant current liabilities (or other payable in the BS). For this I am trying to estimate this value and understand the nature of the company's current liabilities, which includes 35m for CBP differential - which in my opinion should be excluded and most of the rest is to be against future revenues.
Thank you for the correction!
The cost recovery pool is something that I just simply built in into the model. As I understand that GKP's GROSS balance (with 80% paying interest) is 75m USD. But their "current" receivables for cost oil is 120m USD? (I likely misunderstood you because it seems to be impassible to bill more cost oil than they had in the recovery pool).
For me it would be easier to correct my model with the NET receivables added to the cash. My question wold be that what might be the value of the net receivable (excluding the cost recovery pool).
They had apprx 151m USD in receivables and regarding current liabilities (that will be subtracted against future revenues, so maybe should be discounted) was around 128m USD at the end of 2022. Out of it was 35m USD for the difference in the CBP... which should not be subtracted, because they reduced their WI from 80% to 65% for the 10% decrease in Capacity Building Payment. For the rest, I am not sure. If you know the answers, I am very interested.