Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Q2: Easily
Q1: 3 days at ca 250Mbopd
Iraq doesn't need any APIKUR crude to test the pipeline, they have quite enough down South from the Khurmala and Bai Hassan fields - both of which were contributing to the high Kurdish output numbers until a couple of years ago.
Now, would that be leverage or would it not...
At this time I think you would be hard put to find any takers for oil company debt associated with the KRI...
The Khabour Border Gate, through which was trucked the crude oil going to the Ceyhan terminal, is now jointly controlled by Baghdad and Erbil forces.
It would be very easy to stop crude crosing the border and/or to provoke an incident there.
Good morning Cookie, nice to hear from you, I trust you are well?
I do agree that GKP could return to being a good investment - once most (all?) of the outstanding issues have been resolved. The Heavy Crude / Sulphur issue is known, can be priced, and taken off the slate but my penultimate point below cannot be discounted. The big “political” issue IMO is the (forced) return of the KRI to being a semi-autonomous region of Iraq – and the end of its “we’re a separate country” mindset; a lot of water has still to flow under that particular bridge before the dust settles.
Leaving aside the unresolved issue of the export pipeline(s), some other BIG IFs remain, including:
- the proposed commonization of O&G extraction contracts throughout Iraq (TSC vs PSc vs RSC). Issues here are potential $/bbl revenue per stb produced (what we see as Profit Oil) AND rate of return of invested capital (i.e. Cost Oil).
- the agreement with a new managing partner (NOCo) on how the KRI O&G fields are to be developed. The long-outstanding SH FDP is toast by now, and the masterplan for the KRI is still not yet fully developed, so that implies greater uncertainty for longer.
- depending on just what sort of FDPs are eventually agreed with the 4 larger local operators (DNO, HKN, GKP, SNM) the financial mountain to be climbed is still to be quantified. Lots of cash may be required and that cash cannot be generated by local sales; if crude $/bbl remains high you can breath easily, but if crude prices were to have a hissy fit you would be rather short of breath. How would capital markets view the risk profile bearing the mind the non-payment issues of the last 12 months?
- the pressure on OilCos to deal with their gas issues, greatly reduce flaring and utilize that valuable commodity (capital intensive).
There are a LOT of variables being discussed, especially around point #3, one of which involves removing the SH heavy crude from the mix and developing a separate strategy for that. Early days yet, but drawn-out uncertainty too.
You asked about Tony – he’s well but has had his fill of the abuse these bb’s bring so he has more or less withdrawn from the bbs, as have Ren and some of the others who were able to bring valuable insights. Schade. The network, however, still functions well.
Best regards.
...and these words will come back to haunt you: "...Have not been supported by Board comments. With 80m in cash there is virtually no risk."
You need to open your eyes
It has already been clearly stated that SOMO will be responsible for the future sale and marketing of Kurdish crude, and NOCo will be responsible for the further technical development of the Kurdish fields – knitting them in with the future development of all Iraq O&G fields. NOCo will, of course, take local advice and knowledge into account in any KRI field development planning.
The point being, there is currently NO leaked overview of what such NOCo:KRI field development plans might include.
Until we have such knowldge It is foolish in the extreme to assume that any of the smaller independents have enough cash (or will have enough generated by local sales at silly prices) to deal with such unknown capital committments / Capex demands.
The fact that the possibility of a further capital raising was even mentioned is an indication that this is of major concern to the companies.
It should be of concern that the possibility of 3 or 4 operators going to the capital markets, yet again and all within a similar timeframe (and following such a value-destroying period) would be seen in a very negative light by the debt market.
4 might become 2…
The $6/bbl assertion is just out there - it has not, to the best of my knowledge, been confirmed in any way by any responsible party.
Furthermore, again to the best of my knowwledge, what exactly the $6/bbl refers to has not been stated: does it refer to the Total Revenue(s) per bbl to be returned by the revised contract? Or does it refer only to the Production Revenue/bbl excluding any return of Development- or Capex?
$6/bbl for what we would call Profit Oil is an excellent rate of return when considering Brent at ca $100. I believe Total managed, after a very long battle and threats to exit Iraq, almost $5/bbl at the end of the day? That, however, is with an enormous project involving many Billions and spread over many years. We have no projects like that at present in KRI.
In addition to a lower $/bbl production revenue (PO), the other real challenge facing the KRI OilCos is the (proposed) change to the rate of payment of incurred Development- and Capex sums. The KRI terms are seen as being too generous and return far too much of the Windfall effect (high crude prices) to the contractors, far too quickly - that will change. That rate of return will almost certainly be tied (indexed in some dynamic manner) to a new crude reference rate.
Good luck relying on a UK court ruling that Iraq contract revisions will be illegal.
...nice Bon mot!
What about "...divide or concur"?
The 2010 amendment to the Aug-1973 Crude Oil Pipeline Agreement expires Sept-25.
In retrospect, the agreed tariffs set out in that amendment were too low; not only have crude prices greatly increased since then (Oct-73 ca $25/bbl, Oct-2022 ca $88/bbl, and with huge peaks of $147/bbl and $195/bbl between those years), but attacks of the pipeline system within TR together with Iraq's inability to maintain the agreed contractual pipeline volumes put paid to any chance of Botas being able to make money from its investment (the cheap Friendship $/bbl deals is a side issue to the pipeline profitability one and should be considered separately IMO).
I see little chance of the existing agreement & tariff structure holding for another 2 years – not only would Botas lose a LOT of money repairing and then operating the pipeline, the unfairness of the (historical) tariff in a time of almost $100/bbl crude is now clear.
I see no reason why a revised Ceyhan Pipeline Agreement could not be on the cards (2 years early), and one which seeks to index- or link the tariff in some way to a crude oil price benchmark and volumes. Call it Revenue Sharing or whatever you like, but a big tariff hike appears to be on the cards. Other pipeline operators in other countries are already looking at such ideas.
Unless both sides win, there will be no winner.
Now on Reuters dot com
BAGHDAD, Aug 22 (Reuters) - Iraq's oil minister and his Turkish counterpart did not reach an agreement to immediately resume Iraq's northern oil exports but agreed to hold more talks in the future, said two energy sources with knowledge of the ministers' meeting in Ankara on Tuesday.
...
..
"It's not an easy job to reach an agreement soon and we have a lot of thorny issues. Turkey has demands and conditions that require further talks to allow oil flow restart," said an oil ministry official with knowledge of Tuesday's meeting.
The group still has a Contingent Liability of $27.3M (2022) for test production sales prior to approval of the initial SH FDP in 2013.
@putup,
it's also unclear how many PFs are being utilised - is the whole production coming from one PF or are 2 being used? Same Q re wells - how many wells are presently contributing?
The operating costs for running a PF are, to a great extent, non-linear relative to the throughput - and even more so if 2 x PFs are being operated. I expect the "cost / bbl" therefore to increase quite substantially - perhaps now well over $7/bbl? Too that we must also add some essential well- and PF maintenance work that MUST be done in order to avoid permanent damage to facilities. Your point about the R-factor is timely made.
Why on earth do some people think that negative remarks about GKP on bulletin boards such as this are only done for payment?
Circumstances, both within and around the company & region, manage the negative interpretation quite well without payment.
Be aware that Tawke crude is of higher quality than SH crude; SH oil is much heavier and more sour, and has higher Sulfur levels.
SH crude will be purchased at a greater discount than the 50% applied to Tawke crude.
Quality differentials continue to be applied - even in a disfunctional- and corrupt local marketplace like KRI.
@putup,
The Sarsang Block PSC, which HKN entered into in Nov-2007, includes the following provisions:
10% Royalty to KRG
Cost Oil Recovery of max 43%
Profit Oil component of max 35% (R-factor)
Each Contractor is required to pay 20% of their Profit Oil entitlement to the KRG as a Capacity Building Fund Payment.
(This data was taken from Dec-2020 financial statement)
You will of course recognize immediately the important differences between the SH and the HKN numbers.
@rog,
yes it all sounds very positive re gas, but the SH "wet" gas (and that from others such as Atrush) cannot just be piped anywhere "as is". It has to be cleaned / processed and contaminants and other undesirable hydrocarbon elements removed. That will cost quite a bit.
We are still quite a way from utilizing Associated Gas from any of the KRI fields.
HKN crude is a Brent analogue - high quality stuff, SH crude is not. I therefore expect the SH local sales $/bbl to be closer to $20/bbl net to GKP - at the PF loading bay (buyer pays trucking). Worse case $17/bbl (seller pays trucking).
It is not clear if the PSC terms are still being applied at the moment (40% CO, 30% PO) or whether the whole sales revenue is being paid to GKP.
If the PSC terms do still apply, I expect that revenues generated by ca 12Mbopd to be closer to $2.5M - $2.75M per month.
If the PSC has been temporarily set aside, the monthly revenue might be closer to $6M - $7M per month.
Bearing in mind how many other local producers are trying to sell their crude, it's bound to be a buyer's market.
At the end of the ops update, was the following:
In mid-August, HKN will provide its 6-month management update and publish interim financial statements as of
June 30, 2023.
More pain, more detail, or what?
This important news, issued by HKN, changes the whole dynamics of the forthcoming H1 Presentation.
Some serious PR work got to be done now by GKP to save the day.