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Think about it.

The IEA has just said that the world faces a staggering oversupply of oil by the end of the decade.

iea.org/news/slowing-demand

@TM,

the current Iraq government has for some time been aiming at reducing the conseqential effects of implementing the 2005 Constitution, which was to a great extent forced upon them by the Allies following Saddam's demise

In other words, they plan to redraft certain elements of the constitution and negate what they believe to be the unfair advantage given to the KRI.

No matter what you may think, as the Sovereign Authority that aim is quite legitimate and, assuming no future White House incumbent thinks otherwise (difficult to see the US going head-to-head with Iraq again) they will, eventually, realise their aim. IMO.

Rudaw arabic is reporting this:

"...The official who participated in the meeting and did not want to reveal his name told the Rudaw media network: “I told Miles that his description of the meeting was not accurate.”

He considered that officials in the Iraqi Oil Ministry "were very evasive during the meeting. They were not ready to negotiate anything. They only wanted the companies to export oil (at a cost) of $6 per barrel."

All is not well in the APIKU camp; who to believe?

www.rudawarabia.net/arabic/kurdistan/110620246

I see the KRI is planning to construct several dams to for better water resource management, support agrictulture etc, and the IR central gov. is planning to do the same down South.

This is exactly what TR has been doing for some years now and generally it justs moves the problem somewhere else - the law of unintended consequences kicks in.

I believe Revenue Participation is a better translation than Profit Participation...

The main attraction of the PSCs offered by the KRG/MNR was the rate of return of Capex spent - it is (was?) a very high (fast) rate, making your revenue stream / business model look terrific.

Comparing the rate of costs returned to the contractor in much of the world (excluding the "developing nations"), it can safely be said that the rate offered by the KRG PSCs is TOO high - and can be reduced quite considerably without decimating the business.

Finding that sweet spot is proving as difficult as weening children off sugary sweets.

All contracts were published by the KRG/MNR some years ago.

Any unwillingness by the oil companies to share details of any changes made, indicates that the contracts, which were shared with company investors, no longer reflect what was said to investors.

The devil is in the detail.

How can you blame Baghdad for everything when such antics are laid bare?

...and therein lies the nub of the matter.

The belief that, in all material terms, things will return to "normal".

I don't believe that, nor should they.

@putup,

exactly.

"...doing well without it" is only a relative term.

Financial performance can only be properly understood in terms of what field development (Capex) measure are or will be necessary to prevent further formation deterioration (bopd per well) AND develop the field in accordance with the client state's wishes. Note that I do not even mention stopping flaring and dealing with sour gas output.

The buyback scheme is NOT a sign of strength IMO, rather a sign of weakness and lack of vision in respect of the company's business model.

There is an interesting piece in today's D.Tel by Jonathan Leake, illustrating how such unwillingness or inability to understand the consequences of messing around with Capex Recovery is not limited to Iraqi politicians.

Jersey O&G Co. has announce they will place investment on hold (development of the major North Sea Buchan Field) until Labour's fiscal plans are made clearer.

Sillyman Ed Milliband, Labour Party shadow energy sec., has said he would strip the offshore industry of its tax breaks. This would mean offshore operators would be banned from offsetting the costs of investing in new fields against their profits.

I won't be voting for his crowd...

@tm,

nothing wrong with your maths.

Take away the "Transportation of the region's oil" and you get nearer $14/bbl.

Down in Baghdad the concept of "costs" includes the CO as well as the PO element. Remove the PO element and you end up with closer to $6 - $7/bbl.

Still not clear how close the side are to agreeing to recognize the Capex situation.

Itsaponzi,

Michael Rubin's latest article, published 31st May in the American Enterprise Institute and entitled "Are the Iraqi Kurds Still a Wise Military Investment?" gives further details of the BarZed clan's extensive offshore shell corporations, and highlights the increasing pressure the Pedawi Papers are now having on US perception of their financial dealings.

Read it here: www.aei.org/op-eds/are-the-iraqi-kurds-still-a-wise-military-investment/

My posting of a few days ago in which I postuletd the existence of side agreements / MoU and the like and of which we, the small investor sector, were not informed was removed PDQ.

Were one so minded, one could assume that Gen Caggins, as the trade association's social media controlleur, was on the ball that day.

Sensitive issue...

Perhaps we should be asking why the company did not invest in another businesss opportunity - not necessarily in O&G and not necessarily in the ME?

Norwegian shelf, US Permian Basin, offshore Namibia...

Was it in some way prevented from doing so, are there agreements in place with the KRG/MNR or even major investors who remain in the shadows that limit the board's freedom of action?

It smells of something, like a decomposing corpse.

What I don't like about the buybacks is the potential reduction in operational flexibility resulting from reduced capital buffer.

All the "self-financing" scenarios rely on a good PoO, whether on international markets or locally, and until the future SH development plans are clear and agreed, and until the revised contract revenue streams are unambiguously defined, it would be prudent to stop such schemes and hoard the cash.

A period of $60/bbl crude (international price, local might then even sink to ca $20/bbl?), concurrent with starting a intensive Capex program, would cut the legs off the company.

Hi Belgrano,

I don't think our viewpoints are all that far apart - it's just that I start from a different assumption; that being SOMO will want a defined grade, fullstop.

If you look at how they have now come to market Basrah Crudes as 3 distinct grades, the historical reasons for that being wildly fluctuating quality and the associated quality de-escalators (aka discounts). I do not believe they are interested in just selling high quantities of crude. The pumping implications are what they are and grade stability is important there too. My main point is that the Feed from the near-Kirkuk fields will have a certain API and adding KRI volumes to that will change its API. The previously-marketed KRI blend is NOT the same as the near-Kirkuk feed (the expected 350Mbopd feed mentioned by SOMO sources) and nor will it remain, IMO, at the previous level.

Central point being that SOMO will market a grade - to which KRG crudes will be welcome, but only insofar as their volumes do not change the export grade parameters too much.

I think Basrah grades are currently: Light=31.5API &S=2.75%, Medium=28API &S=3%, Heavy=24API &S=4%.

Acc to my calcs, letting the complete KRI field production into the pipeline blend would not only exceed the planned short-term pipeline flow targets (e.g. 450Mbopd) but would decrease the export blend API / density to nearer 24API &S=4.5%. That would then be a head-on competitor with Basrah Heavy.

SOMO seem to have the bit between their teeth in respect of the 350,000bopd planned Ceyhan pipeline output from the Avana, Bai Hassan, Jambour and Khabbaz fields and I don't see how they can keep that quallity if all the KRI crudes are then added.

Belgrano,

it would not please anyone to have my detailed calculations re the various inputs, especially re the low numbers indicated for SH Heavy volumes.

What I will say, however, is that it is a reasonably straightforward calculation to make - if you invest the time. Start with the near-Kirkuk fields that will be contributing and use 350,000bopd as the volume "coming up the pipe". Assume for the moment that the Ceyhan export pipeline will not be stressed above ca 450Mbopd - max 500Mbop. Adding ca 100Mbopd of the known local crudes that hope to be included in the final blend (ST, T&P, AT & SH) and trying to achieve close to Kirkuk API grade for the total 450Mbopd - 500Mbopd is then the challenge.

I subscribe to the premise that SOMO will attempt to have a stable and defined export grade - you may not accept that.

Belgrano,

I expresed the view that only a proportion of SH crude would be accepted into the pipeline - and I also gave you my reasons for believing that.

Namely that SOMO now wishes to market an export grade very close to the old Kirkuk grade, that the inputs SOMO has in mind from the Kirkuk fields mean that not all of the heavy crude produced can be put into the pipe as the target API quality would be pulled down.

As for trying to cause negativity, a bit more objectivity here would be welcome...

It would be foolish to think that expiry of the Ceyhan Pipeline Agreement next year would somehow give the KRG an advantage.

The Import/Export trade leverage that Baghdad has with Turkey greatly exceeds anything that Barzani & Co. can offer and will be excercised to the full.

Why do you feel the need to show everyone how stupid you are?