Member Info for BroadfordBay

Invstrat,

re wishful dreams...or, when push comes to shove.

Imagine, if IT/2A has not only been rebuilt but has been reconfigured as Iraq's new export pumping and metering station. It's only ca 50km from the existing FK station and from there its only another 5km from the river border crossing at Ovakoy. The old IR (buried) pipeline is still there on the W side of the Tigris river and could be repaired.

If IR told the KRG they are going to lay another pipeline on the E side of the Tigris, bypassing FK and running straight to the river border crossing to link up with the ITP pipe on the TR side, would the KRG side dare to say "no you cannot do that, that's on our land"? It is after all the KRI - a part of Iraq, not a foreign country.

IR would then be in a position to re-activate the ITP pipeline agreement and completely cut out the KRG exports - but allowing the KRG to negotiate an agreement with IR on some volume sharing.

Interesting times...

@blumagnet,

depends what you mean by "our pipeline".

The article refers to the final pumping station tests conducted at the IT/2A Station which is located just East of Ain Zailah, and is about 13km West of Mosul Lake. This is the final Iraq pump station on the ITP before the pipeline reaches the export station at Faysh Khabur - which is still nominally under the control of the KRG.

If Brent hits say $60/bbl, then SH Heavy local price may well hit less than $20/bbl.

belgrano, this was reported a week ago in mees:

"iraq’s cabinet on 17 september approved the termination of ****stan petroleum’s development contract at block 8 following a mutual agreement between the firm and the ministry of oil. the 6,000km2 block 8 straddles the northeastern diyala and wasit provinces. the ****stani state firm was awarded an exploration, development and production service contract (edpsc) in 2012 as part of iraq’s gas-focused fourth licensing round (mees, 4 june 2012).

that round saw little ioc interest, with only three of the twelve blocks on offer awarded. ****stan petroleum outbid a consortium of japanese firms japex and itochu, undercutting them with a remuneration fee of $5.38/boe. however, the firm has since made little effort to develop the block amid security concerns following islamic state’s 2014 offensive. "

block 8 lies within the east central part of iraq, about 40 km east of baquba and about 110 km east of baghdad and covers an area of around 6,000 km2.

Belgrano,

do you realy believe that the ruling families and cliques in Erbil and Suli are any different?

The Q is purely rhetorical...

Caggins has no power in Baghdad and is not respected there - the fact that the KRG put him forward as the contractor's association representative in an attempt to bolster their case does not inbue him with any special powers, rather the opposite.

Iraq's experience of Western Cartels cracking the whip (back in the early days of developing their natural resources) makes Baghdad very sensitive to any such perceived attempts. The KRG did themselves no favours, nor did the contractor entities, in putting APIKUR out front.

The oil companies operating in the KRI do not appear to have complied with Baghdad's request to submit FULL details of their contracts - including all associated MoUs and side protocols.

Company shareholders too have not been fully supplied with all such agreements and "understandings".

We can only speculate as to why not...

It's no wonder that Baghdad are digging their heels in.

Straycat,

what about a plan C, D or E?

Few here are willing to contemplate the possibilities facing the company and the resulting consequences.

Surely the most pertinent point made by Mr Pyatt in the article was the following:

“It is not our place to put pressure on the federal Iraqi government..."?

No-one mentioning yields, as in expected dividends?

Forget Brent - the new benchmark will have a new name, perhaps Kirkuk Blend?

It's debatable what discount the new (Kirkuk) blend will have to other benchmarks such as Brent, and how the SH product will be discounted to that new blend, but the days of wonderful dividends are long, long gone.

Yield competitor now to Tesco?

5%

Starsalign,

the recently awarded RSCs are NOTHING like the PSCs as we know them in KRI.

Reflecting the way they were awarded (bid process), the detail each bidder had to submit (initial field development concept) covered a range of cost exposures (to the IR gov). NB: that the bidder had to identify what return (revenue share percentage) he was prepared to accept.

The successful bids exhibit a wide range of returns - from what I have seen and read between 6% and 29% for discovered but not commercially developed fields, and between 7.6% and 32% for the completely new exploration blocks.

Before getting too excited about the high numbers, it must be borne in mind that the revenue percentage is applied to Net Revenues after deducting CAPEX, OPEX, Royalty, State-partner Participating interest and other non-refundable items specified in the contract. You should do your own digging to reveal the Royalty and state-partnership numbers.

Note too that the IOC revenues so generated are subject to deduction of Iraq Corporate Income Tax at 35% (the current KRG PSCs place no tax burden on the IOCs).

It's not quite so transparent or cut-and-dried as in the KRG PSC but it gives us a very good pointer to work on.

My information comes from a very trusted source in Iraq, not in the KRI.

It's looking like the jigsaw pieces are slowly starting to fall into place.

The KRG appear to recognize that the KRI oil trade, the so-called smuggling, will have to end to allow Iraq to be friends again with OPEC (human greed being what it is we know it will never truly end). Good relations with the Turkish side should also ensure that the export numbers can be presented in a suitably advantageous manner.

The reward for that will be the inclusion of KRI crudes in the finalised new pipeline agreement. The amount & proportions of KRI crudes included in SOMO's export blend still have to be announced, but expect the heavy, sour crudes to be limited. As compensation for that, continued local sales will cover some of the shortfall (but under SOMO management, so no ultra-low-ball pricing from local wheelers and dealers).

Discussions with Turkey are essentially complete, with broad agreement on the proposed BOTAS Tariff Rates/Volumes in place. I expect the initial baseline volume / throughput number to 550,000bopd and that currently looks like 300Mbop to KRI, 250Mbopd to SOMO-Kirkuk.

Discussions on SOMO utilising the Khurmala-Faysh Khabur pipeline link (for the Kirkuk Dome fields in their control) are not yet finalised, as the pipeline operator is currently demanding too much $/bbl/km. I expect that to change quite shortly as the alternative pipeline is nearing completion and Baghdad can afford to wait; at the end of the day, SOMO's proposal makes far more economic sense for the embattled KRG. If agreement cannot be found with the K-FK pipeline operator, SOMO can still pipe their output into the FK station and, after blending with the KRI crudes, from there into the Ceyhan pipeline. Price level and -stability for the (still to be agreed) agreed export blend) will also strengthen the argument for both KRG and KRI contractors.

All of this leaves the re-jigging of the current KRG PSCs as the last major stumbling block - but here is where I see the greatest room for manoeuvre. The “either or” numbers will be very plainly laid out, with no room for obfuscation. It’s quite clear now in Baghdad that a Hybrid- or Revenue Sharing Contract (RSC) is the way to go, but it takes time for the less educated, public and MPs to understand the reasoning behind this – that education process in now in full swing and even those with an axe to grind will have to recognise the numbers have a certain validity. The main stumbling block in agreeing the RSC is the time frame for recovery of invested Capital; while Baghdad recognizes that invested capital must be recovered/paid back, the current KRI PSCs are considered too generous with an overly fast payback period and that will have to change.

I do not see that as an insurmountable problem for the business model – if your business can survive X years of $25/bbl crude sales then there’s a lot of contract rejigging you can survive with $75/bbl crude sales.

The above is my opinion and interpretation of

Hi Belgrano,

I too believe that the pipeline will reopen - but with a completely new agreement and set of parameters agreed with Baghdad (flow rates & guaranteed volumes, plus a new $/bbl tariff). As I have previously said, this new agreement will suit SOMO far more than the KRI contractors - blend parameters / grade will be determined by SOMO's marketing people and not all of the heavy sour crude currently produced in KRI will be accepted into the new blend. I believe the Kirkuk fields will be more favoured that the KRI fields.

Where we really differ is in your view that they would prefer to a deal only with the KRG. I am of the opposite opinion and do not believe that KRG oil trade (incl backhanders) is of more value to Ankara than the general trade with Baghdad; in view of the sheer volume & value of Ankara-Baghdad trade, I cannot see how that can be.

There are serious issues being worked thru in Baghdad at the moment - far more serious in their view than KRI oil exports and budget payments. It's not fair, I agree, but it is what it is and I don't see it changing any time soon.

Pilgrim,

The ammended pipeline agreement states:

"This Amendment shall be valid for 15 years as from entering into force. The Sides start negotiating the contract conditions upon request of any of the Sides two years before its termination date. In the case where there is no need for new amendment/agreement this Amendment shall be considered as extended for an additional 5 years period of time, unless a termination note is sent in writing by one of the two Sides to the other 1 (one) year before the expiration date of this agreement."

BOTAS, as pipeline operator, has already said that the previous rates are far too low to allow economic operation of the system and must be significantly increased - so there will be no automatic extension or renewal. Likewise, the previously indicated & agreed volumes require ammending.

Re TK

I don't fully understand the US sentencing situation.

TK was ordered to pay ca $29.46M but has so far only paid $700.

Does this underpayment / non-payment affect his release after his full term has expired? If so, does the outstanding sum get written off, or does he then have the unpaid fine hanging over him for the rest of his life ? Is he then no longer "employable" until the outstanding sums are paid?

Hi Belgrano,

it's nice to exchange views - even of a contrary nature.

I think (therefore I am) that the pertinent phrase is "working together". It's a nice concept and is open to a wide range of interpretations, but some (many?) in Baghdad do not see the Kurds working togtether with the centre - as evidenced by the Kurdish Referendum issue; that particular bad taste has never gone away.

I agree that corruption rules the roost - so was it always and so shall it ever be; this is Mesopotamia after all, the land of the Two Rivers, of ancient Ur, the cradle of civilization and the Garden of Eden. Autocrats, despots and strong men have ruled this part of the planet for many thousands of years and despite our Western values having recently gained a little foothold I do not see it changing for a very long time. Perhaps that's a bit a bit too fatalistic but that's my view.

Re OPEC - everyone is fiddling their quotas IMO, some more blatantly than others. Iraq is not the worst.

Re Dividends -I also don't see the pipeline issue being settled this year and, barring anything untoward arising, there could certainly be another small dividend. You know my position re buybacks.

Cheers!

Belgrano,

it's too easy to play the "hate" card and say that the Shi'a supporters down in Baghdad hate the Kurds and are to blame. For sure there are some Iran-allied Iraqis, Shi'a Islam believers, who greatly dislike anyone not of their kind but, in my experience of dealing with Iraqis, the overwhelming belief is in the sovereignty of the Iraq state.

The current quasi-Federal constitution was forced down their throats by the Western Allies following the deposing of Saddam Hussein, and the giving of extra special treatment to the Kurds / Kurdish Region does not sit well with many (outwith the KRI).

In my opinion, changes will be made peu-a-peu and what we are witnessing is that change process - the slow grind of Iraq sovereignty being reclaimed; oil resource development contracts are just one small part of that.

Nothing more, nothing less.

@Invstrat,

well chosen word there - "wasted".

Actually they appear to have been discussing / arguing about the rate at which costs (Capex) has been returned.

Baghdad believes the costs are being paid back too quickly (in the KRG PSC) and want the rate reduced - i.e. paid back in full but over a longer period. There is almost no argument over the rate of "Profit" / Revenue earned per barrel produced - only the rate at which costs have to be returned / paid.

This is an old report, from May.

Meeting was held, no outcome.

Stalemate.