Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
If I can add my pennyworth, I would caution against expecting too early a return to full output.
Firstly, there is a wide spread of crude qualities now in the KBT blend - from 38API - plus some condesate being utilzed too. There are stories too of Heavy Ends being put into the export pipeline adown at the refinery run by Barzani's pal. Some of these crudes are blended in the station just W of SH-2, others are blended down at the Khurmala CPU and others are blended at the final Export Pumping and Metering Station at Faysh Khabur. ALL of these stations will have to ensure their mixing units, temperature control- and degas (and water removal) facilities are functioning spot-on before letting their product into the pipe. Faysh Khabur is the main control point here but same goes for the Tank Farm at Ceyhan.
The targeted KBT qualities will mean some fields will have their outputs throttled - in some fields (e.g. SH) some producing formations will have to have their outputs adjusted /throttled for the same reason. Some producing formations will, due to the extended shutdown, may even be incapable of producing at anywhere near normal for quite some time and may require further stimulation and clean-up. The operators will have to determine their own startup schedule based on criteria that, to some extent, may be out of their hands.
The densities of the Kurdish crudes are so very different that great care will have to be taken, as Belgrano has mentioned, to ensure that proper ****genisation takes place.
The last thing you want is cargoes being rejected or punitive discounts being applied due to extreme deviation from sales parameters.
Your offhand remark that "Italy counts for nothing" is both ill-informed and demeaning.
ENI /Snamprogetti / Saipem , to take just one example from many, is a world-class oilfield services company with some excellent people and a first-class reputation.
The IT politicians may not please you, but their engineering skills in O&G are first class.
It seems to me that the following 5 main elements (there are more) have still to be confirmed:
1. Confirmation of resumption of pipeline exports.
2. Confirmation of new, stable KBT $/bbl price achieved.
3. Confirmation of SH discount $/bbl applied to new KBT price.
4. Confirmation of all amendments to current PSC.
5. Confirmation of payment of outstanding monies.
The pain is not over.
In conjunction with the expected (lower) KBT contributions and, and with the reduced "profit oil" element to be forced upon the Kurdish operators (to say nothing of a modified Cost Oil formula), and with NOCo calling most of the shots on field development plans and SOMO driving the export sales bus, do you really expect GKP to be a solid, self-financing business model?
Or should you expect another major Capex funding excercise in the near future?
It's deliberately misleading, IMO, to state as the RNS does, that only $102M is due for payment.
You may want to pull the wool over most people's eyes by hiking that remark to the "previousl payment arrangement" but it won't wash - the company is owed probably about $170M or so for delivered and sold oil.
The fall is not yet over.
In the greater scheme of things, the monies owed to GKP (and to most others) have been inflated to an abnormal extent by the heady price of benchmark crude this last year or so. These unpaid & overdue sums present the KRG with both PR- and financial challenges.
These issues are now firmly on Ammar al-Anbagi’s desk (new SOMO chief) who now has to rebalance any negative perceptions - of an untrustworthy Iraq.
It appears to me there are 2 main hammers:
1. Agreement (forced) on PSC contracts to make thesm palatable to all other Iraq operators and -interested parties. You may not like the Shi’a powerplay down South but it has to be recognized, accepted and pacified in some way. The main plays around Basrah (main oil-producing region by far) pay half as much as the KRG contracts (PO).
2. As SOMO will say “nothing to do with us”, dealing with the outstanding payments to producing companies in a manner that does not tie a millstone around the neck of either the KRG/MNR or SOMO becomes predominant.
In my opinion, both of these issues (separately or in conjunction) could be addressed by contract amendments. Dealing with the Turkish pipeline issue is quite separate from these 2.
Re #1
I see no way the central gov can accept the Kurdish PSCs as they are – the Profit Oil component is just far too generous to the OilCos. That means either a new TSC forced upon the operators OR a Hybrid form to be agreed. This will be the hardest nut to crack, and other agreements or compromises could flow more easily from this.
I see no way that agreement on major PSC amendments could be done or sold to investors without some form of company shareholder meeting - whether Annual General - or Extraordinary is up for debate.
Re #2
It would be financially bearable for all Kurdish operators (who appear to have built up healthy cash reserves), to agree a Scheme of Arrangement for the outstanding payments. It would be easier for Baghdad to see these payments taken off the public visibility table and hidden / buried in the detailed (amended) PSCs. From a shareholder relations point of view, and with a little PR skill, this could even be sold to investors as an improvement and, see closing remark to #1 above, would probably be possible using only RNS.
IMO only 2 PSC parameters seem suitable for amendment: Contract Duration and dealing with Gas.
There is quite a difference between "Takeover" and swooping down, like a vulture, to pick over the carcass...
Armas,
cutting off your nose to spite your face springs to mind... I reckon they would rather keep a couple of cards up their sleeve "just in case", don't you think?
Hi TM,
I would not disagree with your Worst Case - that`s your view and you`re entitled to it.
I know for a fact there are senior Iraqi politicians, including ex-ministers, that just want the whole thing settled and some sort of stability to return to the financial affairs in the N of their country. Rather than a head-butting session, I think some moderation will be brought into the whole affair. Whichever way it pans out, the end result will be painful for the smaller operating companies.
I was out on my estimate of how long the oil companies would require to tart up and issue the "consensus RNS" - I question if a straightforward RNS will be enough if the (proposed) changes are extensive.
Good morning TM,
sorry I couldn't get back quickly to you but I'm much further E of the UK at the moment and I need my sleep!
The potential PSC changes are so wide-ranging that I honestly don’t feel able to adhere 100% to your proposed numbering, but I’ll give it a go anyway.
Your “…you have allowed for” remark I have freely interpreted as including “...you have considered”.
1. Leaving aside the $/bb export price achievable under the new SOMO regime, the absolute best is of course “No Change” to PSC terms but I believe that is completely unrealistic.
2. The next best below that I would suggest is a PSC change that defines the achievable Profit Oil $/bbl to somewhere around $3/bbl - $3.5/bbl.
2.1 In conjunction with a possible change to the PO element, I suspect there might be a change (downwards) to the Max 40% element currently allocated to Cost Oil for Capex recovery.
3. The worst outcome could be coupling the PO (the $3/bbl or whatever) to achievement of a given output plateau (agreed with the operators?), in association with a given timescale (agreed with operators?) and in conjunction with other targets such as Gas Treatment / re-injection, development of the deeper Triassic horizons, etc.
4. Not quite the worst would be (3) above but with less nailing to the cross on the gas treatment / re-injection issues and the Triassic development.
5. The “most likely” outcome is the hardest to predict so I’ll pass on that but, if you read between the above lines, I think you can determine where my thoughts lead. SOMO has had a somewhat chequered history on payments under the recent TSC allocations and IMO there is no reason to believe that will change – in the short term, yes, they will try to keep everyone happy but can a Leopard change its spots? The Basrah lobby is vey strong and very vocal and the new SOMO chief will have to bend the knee to that. The achievable $/bbl price stability should help of course, but the days of extremely high PO contributions are over for GKP and the other KStan operators – plug in $125/bbl crude into your spreadsheet and ask yourself if the Iraq people down South could ever stomach the resulting $/bbl “profit”.
Sorry I couldn’t give you a punchier answer!
In the event of a (negative) change to the PSC terms being announced within the next few days, there could be a very severe downwards price correction on the cards (flash crash).
Depending upon the terms being altered, such a correction could be short and sharp, or sharp and drawn out.
I trust you are all well prepared.
Back in 2013 it was reported by several Turkish websites that Turkey was considering offering to build a 3rd pipeline linking the Suthern Iraq oilfields to the Ceyhan export point. Minister Yildiz confirmed this after his Ankara meeting with Barzani and Iraq Oil Minister Luaibi held talks at end-March 2012 where the same subject was put on the table.
At that time the Kurdish pipeline had not yet been fully completed.
Today, with the Northernmost of the Kirkuk domes (Khurmala, controlled by KRG and managed/operated by KAR) having already been connected to Ceyhan terminal, it would be a relatively straightforward task to link the Kurdish pipeline (going North) with a new pipeline going South to Basrah via Baiji. Distance Baiji to Basrah is approx 750km, with no great natural obstacles to overcome.
There would be advantages to all (3) sides; I wonder if that idea could be considered as a sweetener at this moment in time.
I would have thought, depending upon just how good or bad the "news" is, the oil companies would be very careful to fully involve their PR people - not to mention to float the whole thing past their financial chappies.
In view of the potential- and far-reaching effects of any negative news, I would also expect there to be significant degree of news feed coordination between the various companies.
So, one full day for PR adjustments / improvements - and RNS on Thursday?
The Sept-2010 Amendment was valid for 15 years.
The $1.09/bbl tariff I mentioned earlier was subject to 5-yearly reviews - 1st review was due Jan-2016, 2nd was due Jan-21.
The contract states that changes to the reviewed items/charges/quantities etc will be agreed between BOTAS and SOMO.
No matter what you may think of our Turkish freinds, the Iraq side signed a legal contract (amendment 2010) to utilize the Ceyhan Pipeline by exporting 35 Million tons pa. - at an agreed (and indexed) $/bbl tariff.
You know the density of SH crude and you can estimate the density of KBT +/- so you can see very clearly how much money the Turkish side is losing thru non-adherence to contract terms.
The tariff agreed for 35MTA (now historical of course) was $1.09/bbl Indexed).
A LOT of money involved here...
Middle East Eye reporting so:
Published date: 17 April 2023 14:05 BST
Turkey is considering petitioning a federal US court to enforce a $527m arbitration award it won against Baghdad over disputes regarding crude oil exports from Iraq's autonomous Kurdistan region, two sources familiar with the matter told Middle East Eye.
The move is seen as a retaliation against Iraq, which last Monday filed a petition to the same court in Washington DC to enforce an arbitration award worth $1.4bn it won against Turkey.
Officials in Ankara have been dismayed by Baghdad's non-engagement over the issue, the sources said.
Baghdad's petition, filed with the US District Court of the District of Columbia, has requested that the court move ahead with "Recognizing, Confirming, and Enforcing the Final Award issued by the Arbitral Tribunal".
putup,
it's no consolation, but the Basrah (heavier) crudes all seem to go East - where a great deal of Refinery Investment has taken place in recent years - to squeeze the last drop of valuable constituents from the heavy stuff.
In contrast, the heavy Kurdish crude seems mostly to head to European refineries - where large-scale investment has been frowned upon for years now (one or two exceptions prove the rule), so they are not able to squeeze out as much value per barrel - which then translates to "not offer as much per barrel".
SOMO will aim to have an Official Selling Price (OSP) for the KBT kurdish blend - as it has for the other 3 Iraq blends.
The OSP, however, is not "Gods word unto man" but rather the RRP of the oil world - it will form the basis of the larger- and more long-term contracts, but for any deals other than those it's purely a demand-led deal between buyer and seller. You will see SOMO's (and other) OSPs regularly "adjusted" to reflect this.
In the same vein, but even more so in the Kurdish context, variations in crude quality will be regularly checked by buyers and the "agreed" price adjusted according to simple yield parameters confirmed by lab checks (either prior to load or retrospectively, major players have agents worldwide who can locally inspect and verify). ALL major crude exporting terminals, such as Ceyhan, have independent local labs able to carry out simple distillation yield analysis. Depending on the outcome of that analysis, buyers always have the right to demand compensating adjustment. The KBT parameters, in times of fluctuating or rapidly rising output, will require close monitoring and will fluctuate accordingly. KBT will not be a stable blend like Brent - there are far too many formations contributing and, thanks to the relatively long shut-in, grade stability at re-start and for some time thereafter will be all over the place. As I said, refinery demand at any one time will drive the discount. My own estimate of SH crude value is currently Brent - $28/bbl. but the new transportation fees/tariffs will need watching and could seriously affect this estimate.
TM, good morning.
For my sins I have to admit to being an engineer, R&D early in my career; as such I generally prefer Kristina Guo's DECIDE approach but I do understand the attractions of the OCCAM razor.
No matter, thank you for posting up the esmap article which I already have but thanks to you I had an excuse to re-read and brush up.
Years ago (2014) I discovered Platts Technical Papers relating to differentials to be applied for API, Sulfur, TAN, etc. and we did a lot of work trying to "make it all fit". Needless to say, it never did fit all of the time (still doesn't) but we did get it quite close most of the time.
What often throws a spanner in the works is the need (urgent need) that refineries might have for a particular blend, even a very heavy blend. The distillation fractions of a particular crude, or blend, can be so appealing that refineries can bid it very high if their plant (slate) requires it at that particular time.
Re the $16/bbl issue, I guess traders generally bid on behalf of refiners - although the larger, more successful and more gutsy trading houses have their own book (supported by storage as required) so the need to fully utilize your (complex) refinery drives the bid. I haven't been able to correlate the Nelson Index Refinery List with KBT buyers but that would be an interesting excercise - if possible.
Hi again TM,
I guess by now you must have done the simple method and reached 27?
That's what I reach after using the "official" parameters - very neat, but I'm rather wary of anything that turns out too neat and have run many iterations with other variables , reaching quite different conclusions. The biggest variable is of course the Khurmala feed.
Re yr final point - it's not just density (API), the Sulfur% effect is not to be taken lightly.